News that leading health systems have joined forces to create a new generic drug company to combat high drug prices and shortages has clearly touched a nerve.
Healthcare organizations have been “coming out of the woodwork” to become part of the new initiative, Intermountain Healthcare CEO Marc Harrison, M.D., told NEJM Catalyst in an interview this week.
Intermountain, along with nonprofits Ascension, SSM Health, Trinity Health and the U.S. Department of Veterans Affairs, announced last month that they planned to develop their own company that would put the needs of patients ahead of profits. The five health systems represent 450 hospitals. But since the announcement, Harrison said more than 100 hospitals have asked to join.
“I think we’re going to top out at over a thousand hospitals,” he told Leemore Dafney, Ph.D., a member of the NEJM Catalyst leadership board and a professor of business administration, Harvard Business School.
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The healthcare systems expect to spend the next year developing the business and begin operations during the first quarter of 2019, according to Harrison.
He describes their plans as similar to public utilities that put the public good before profits. The systems aim to make enough margin so the business is sustainable but there are no shareholders and no money will go back to the health systems. The organizations intend to be selective about which generic medications they manufacture, he said, so they focus on drugs that have high mark-ups. Their goal is to enter long-term contracts with hospital systems so the organizations save money on the drugs and the new drug company makes enough money to be viable.
The rising costs of drugs and shortages of essential medications were listed as top concerns of healthcare CEOs surveyed in 2017 by Premier Inc. The problem, Premier noted at the time, is a lack of generic drug options. The solution, Premier proposed, was more provider-led pharmacies. And nearly 70% of the executives surveyed at the time agreed, noting they felt it would become necessary for providers to operate their own pharmacies.
Alex Azar, the newly appointed secretary of the Department of Health and Human Services and President Donald Trump have said that reducing the cost of drugs is one of their top priorities this year. Azar, the former head of pharma giant Eli Lilly’s U.S. operations, said during his confirmation hearing that there needs to be more competition for generic and branded drugs to help lower costs and actions to eliminate the ability of drug manufacturers to “game the system” by putting limits on patents and exclusivity.