HEALTH NEWS

Hospitals Create Drug Company to Fight High Drug Prices

Written by Shawn Radcliffe on January 24, 2018

After years of drug shortages and high prices, several health systems have teamed up to form a not-for-profit company to manufacture their own generic drugs.

hospitals forming drug company

You wouldn’t expect a country with one of the most sophisticated healthcare systems in the world to run out of medications.

But that’s exactly what is happening in the United States. Often enough, in fact, that doctors sometimes have to postpone surgeries or chemotherapy treatments. Or even put patients on less effective alternatives.

Drug shortages — and high generic drug prices — are such a problem that several hospital systems recently joined together to take matters into their own hands.

Four hospital groups — Intermountain Healthcare, Ascension, Trinity Health, and SSM Health — announced last week that they will form a new not-for-profit generic drug company.

The company will focus on making “essential generic medications more available and more affordable, bringing healthy competition to the market for generic drugs,” according to a joint .

These systems represent more than 450 hospitals around the country. Other health systems are expected to soon join the initiative. The systems will work in consultation with the U.S. Department of Veterans Affairs.

One goal of the project is breaking the monopoly, or near-monopoly, that generic drug companies have on some medications — a situation that has led to higher prices over the years.

Dan Liljenquist, vice president of the Enterprise Initiative Office at Intermountain Healthcare, told Healthline that “we think we can materially reduce the price of certain essential generic drugs.”

But finding a solution to the shortage of generic drugs — a problem that’s been around for more than 10 years — could have an even bigger impact on patient care.

Two years ago, the Government Accountability Office (GAO) released a that found that the United States faced a high number of drug shortages from 2010 to 2015 — with 427 drug shortages during the final year of the study.

According to the report, about 65 percent of all critical shortages between 2009 and 2013 were for sterile injectable drugs, such as antibiotics and other anti-infectives, and cardiovascular drugs.

But The New York Times that even supplies of simple drugs such as sterile saline and sodium bicarbonate — baking soda — have run low in recent years.

Stacey Lee, JD, an associate professor of law and ethics at the Johns Hopkins Carey Business School, said there was some improvement in 2016 after the U.S. Food and Drug Administration (FDA) implemented new regulatory .

But some of this progress eroded when Hurricane Maria hit Puerto Rico, which has a large pharmaceutical industry on the island. This shows how easy it is for the generic drug market to be disrupted.

“Around 80 healthcare companies that make their products in Puerto Rico — including the companies that make small IV bags that hospitals use to deliver chemo and antibiotics to patients — have experienced disruptions in their production and manufacturing operations,” Lee told Healthline.

The it’s working with manufacturers to improve the supply of shortages caused — or worsened — by Hurricane Maria.

Causes of generic drug shortages

The GAO report suggests that one of the main factors behind shortages of injectable generics is a decline in the number of suppliers making generic drugs or the components needed to produce them.

This can result from mergers between manufacturers, drug companies dropping out of the market entirely, or suppliers not meeting standards for manufacturing — such as having unsterile products.

According to the GAO, low profit margins for generic drugs have also contributed, leading to companies moving away from producing generics.

Manufacturers that make many drugs under one roof also pose a risk. If a factory like this shuts down, it can lead to of hundreds of drugs, especially if no other company is manufacturing them.

Some legal experts blame the drug companies for intentionally keeping drugs in short supply to boost the prices.

Last fall, the attorneys general of 45 states and the District of Columbia brought a against 18 drug companies, accusing them of a generic drug price-fixing conspiracy.

“The lawsuit claims that by simultaneously creating a manufactured shortage, the drug companies conspired to raise the price of the available drugs,” said Lee.

between generic drug manufacturers can also affect the cost of medications.

A last year in the Annals of Internal Medicine found that if only one company was making a generic drug, the price rose on average almost 50 percent over five years.

Recent examples include price hike controversies involving and drug companies.

High drug prices are now a hot-button issue among both politicians and consumers.

“It is interesting that despite the lack of consensus on many healthcare topics, the one area where there is bipartisan agreement is that drug prices are too high,” said Lee.

She pointed to a 2016 Kaiser Health that found that more than 80 percent of Americans are in favor of government intervention to address the situation.

Changing the generic drug market

Many attempts have been made to address high generic drug prices, often involving legislative or legal actions.

But Dr. Marc Harrison, president and chief executive officer of Intermountain Healthcare, said in the statement that “healthcare systems are in the best position to fix the problems in the generic drug market.”

The company will focus first on making drugs usually administered in hospitals — injectables, oral medications, and patches.

The company will be approved by the FDA as a manufacturer and will either make the generic drugs directly or subcontract with a reputable manufacturer.

Liljenquist said that that the drugs produced by this company would be available to all health systems, but “health systems that donate to the company will receive improved pricing.”

He added that the company will distribute the drugs that it produces “through as many distribution channels as possible, but will also distribute directly to health systems if need be.”

It will take a few years to know if the company is successful at lowering generic drug costs or reducing shortages. But there’s reason for hope.

“If successful, this will obviously be a great win for patients on several fronts,” said Lee.

She said one of these would be increased price transparency, which some think will lower drug costs.

Reducing drug shortages will also reduce the from not having the right medications or being unable to undergo surgery.

Lee thinks the new company, if successful, may also shift the entire generic drug market.

“It will put generic manufacturers on notice that even without substantive legislative or regulatory changes, the landscape in which they do business could have a powerful new entrant,” said Lee.

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