Some of the largest providers in the U.S. have officially joined forces to launch a nonprofit generic drug company.
Civica Rx was formally established Thursday after it first announced in January. The idea, which was spearheaded by Intermountain Healthcare, drew plenty of interest from hospitals and health systems; more than 120 healthcare organizations—including one-third of U.S. hospitals—have signed on.
The company’s initial governance will include seven health systems, each of which will contribute a member to the board: Intermountain, Catholic Health Initiatives, Mayo Clinic, Trinity Health, SSM Health, HCA Healthcare and Providence St. Joseph Health.
“We’re entering this space because it’s the right thing to do for our patients and, frankly, we like the model of a not-for-profit,” Dan Liljenquist, Intermountain's senior vice president and chief strategy officer who will serve as chair of Civica’s board, told FierceHealthcare in an interview. “It’s the first of its kind.”
Because Civica will not be monetized, Liljenquist said, the company instead will function more as a utility within the hospital, such as laundry services.
In addition to the several health systems involved, Civica is backed by three philanthropic organizations: the Laura and Jon Arnold Foundation, the Peterson Center on Healthcare and West Health. The input of these groups, Liljenquist said, will help ensure Civica sticks to its nonprofit approach.
West Health’s chief strategy officer Tim Lash told Forbes that each of the hospitals and charitable organizations will make an upfront $1 million payment to kickstart the company and will cover a $9 million line of credit. The 10 groups will kick in a total of $100 million to get the project going.
The company intends to focus initially on 14 drugs. For “competitive reasons,” Civica intends to release more details on which drugs it will produce at a later date, it said in an FAQ (PDF).
Liljenquist said it wasn’t hard for governing members to settle on the first drugs they’d produce. They looked closely at which medications were going on and off shortage lists and at prices.
“There is a very strong, almost perfect, correlation between shortages and price hikes,” he said.
Rita Numerof, president of healthcare consulting firm Numerof & Associates, told FierceHealthcare that it’s “entirely understandable that providers want to take matters into their own hands” amid the shortfall of generic drugs. Issues with price and scarcity are both signs of a broken market.
“There is no excuse for generic drugs to be in short supply,” Numerof said. “It reflects a failure of manufacturers to serve its consumer base well.”
But Civica will face significant challenges, she said, because manufacturing and quality assurance for pharmaceuticals represent a major diversion from what they do and know best. The company’s choice of CEO—former Amgen executive Martin VanTrieste—is a “wise move” because of that gap in knowledge, she said.
VanTrieste, who served as Amgen’s chief quality officer, was heavily involved in designing Civica’s business model, so selecting him to lead the company was a no-brainer, Liljenquist said. VanTrieste accepted the position on the condition that he did not earn a salary, which further reinforces the nonprofit's goals.
In addition to ensuring Civica was not a money-making venture, Liljenquist said the founding health system built its bylaws to ensure all of its members are treated equally. The governing providers won’t get better prices or better stock than an independent rural hospital, he said.
All members will also receive identical contract terms, he said.
“That’s important to us,” he said. “We want to bring the benefits of scale to every single hospital in the country and to those patients.”
Numerof said the launch of Civica isn’t likely to have big-name pharmaceutical companies quaking in their boots—at least not yet—but generic drugmakers are going to sit up and take notice.
Prescription drugs are over 30% of hospital costs. Today we’re taking a bold step to lower costs and increase supply with #CivicaRx. Joining forces with @CHI_Updates, @HCAhealthcare, @intermountain, @mayoclinic, @ssmhealth, @TrinityHealthMI pic.twitter.com/RP2SEcjwUv— Providence St Joseph (@psjh) September 6, 2018
As that market is ripe for new competition and disruption, Civica could have a direct impact on patient’s healthcare costs, she said.
“The lines between traditional players in healthcare have been blurring over the past five to six years in particular," Numerof said. “This move represents another significant example of vertical integration and the challenge of existing business models.”