Health systems wade into drug manufacturing, eyeing prices and shortages
- Tired of drug shortages and the high prices of lifesaving medicines, a group of large U.S. health systems announced on Thursday plans to launch its own nonprofit generic drug company.
- The systems — Intermountain Healthcare, Ascension, SSM Health and Trinity Health in consultation with the U.S. Department of Veterans Affairs — represent more than 450 hospitals nationwide. Additional health systems are expected to join the initiative.
- The newly formed, unnamed company hasn't yet disclosed what drugs it will manufacture, but the groups said it will focus on those prone to shortages and price manipulation.
With hospitals entering pharma territory, the trend toward industry convergence continues.
The systems' aim is to create an FDA-approved pharmaceutical company that will either make generics directly or subcontract the manufacturing to a licensed contract manufacturing organization.
“The best way to control the rising cost of health care in the U.S. is for payers, providers and pharmaceutical companies to work together and share responsibility in making care affordable,” Laura Kaiser, president and CEO of SSM Health, said in a statement. “Until that time, initiatives such as this will foster our ability to protect patients from drug shortages and prices increases that limit their ability to access the care they need.”
High profile cases of price gouging, generics manufacturers taking on off-patent drugs and increasing prices by huge amounts, has fueled rising healthcare costs and problems with supply (sometimes artificially induced).
A notorious example is Martin Shkreli leading Turing Pharmaceuticals to hike up the price of toxoplasmosis drug Daraprim from $13.50 per tablet to $750.
At the same time, drug shortages have been a recurring problem for hospitals over the past decade. For example, hospitals last spring faced a shortage of medical-grade sodium bicarbonate, forcing treatment delays and transfers of patients to better-stocked facilities. The problem started when Pfizer announced its supply of the drug was low, causing an increase in demand for its sole competitor, Amphastar, depleting its stock as well.
The industry is in a perpetual blame game over drug pricing. The systems are focusing on generics while brand-name drugs account for 72% of drug spending in the U.S. (only 10% of all filled prescriptions are brand-name drugs).
Moreover, the announcement highlights how health systems — and the industry at large — are attempting to reshape themselves.
This continues the trend, every line is being redrawn— Nikhil Krishnan (@nikillinit) January 18, 2018
Hospitals - now generic manufacturers and insurance + risk bearers
Retail pharmacy and insurance
Insurers and digital therapeutics + primary care
Pharma getting into outcomes and patient engagement
The oft-referenced CVS Health-Aetna merger bid remains the looming example, but others exist. Optum has purchased practice groups while major systems are looking to expand outpatient access.
Building out a pharmaceutical company is one means to combat the inherent challenges systems are facing with softening admissions, while building out a stable revenue stream. While the company may be nonprofit, the company could create the opportunity to build brand awareness and make their facilities a one-stop shop if and when patients need a quick prescription.
It's yet to be seen how these plays and mergers could reshape the industry and how it affects patients, but it's obvious health executives are trying to get ahead of the problems they've been facing.
- Intermountain Healthcare Leading U.S. Health Systems Announce Plans to Develop a Not-for-Profit Generic Drug Company
- The New York Times Fed Up With Drug Companies, Hospitals Decide to Start Their Own