Ministry systems to join in launching generic drug company

February 15, 2018

Goals are to stabilize nation's drug supply, reduce prices


Three of the nation's largest Catholic health systems are joining an effort led by Intermountain Healthcare to establish a not-for-profit generic drug company. The collaborative's goal will be to stabilize the nation's supply of essential generic medications and to normalize the prices of the drugs.

Kathleen Erb, a pharmacy buyer, checks pharmacy inventory at SSM Health St. Joseph Hospital — St. Charles, Mo. SSM Health is to be among funders of a generic drug company that is intended to help stabilize the U.S. drug supply and lower drug costs.

The ministry systems partnering in the yet-to-be-launched company are St. Louis-based Ascension; St. Louis-based SSM Health and Livonia, Mich.-based Trinity Health. They and Intermountain are consulting with the U.S. Department of Veterans Affairs on the initiative. Altogether the five organizations represent more than 450 hospitals across the U.S.

The initiative is a reaction against widely publicized problems in the generic drug market in recent years including supply shortages and exorbitant price increases in some older generics. Some generic drug companies have been applying "capricious and unfair pricing" and "creating artificial shortages of vital medications," according to releases from organizations involved with the new company.

By increasing the supply of available drugs and by removing the profit incentive by virtue of its not-for-profit status, the new company would combat these market irregularities and protect consumers against perceived price gouging.


Laura Kaiser, SSM Health president and chief executive, said in an interview with Catholic Health World: "This project is born out of our desire and commitment to care for all people, particularly the most vulnerable. As not for profits, we care for everyone who comes to us. We want to ensure that people have access to the medications they need — and it really is a tragedy when they don't — that's our motivation."

Distorted market
The partners' plan is meant to counter problems in the nation's generic drug market, said Bob Ripley, vice president and chief pharmacy officer of Trinity Health, a system with 93 hospitals. "The country is facing an historic drug supply shortage, as well as seeing historic drug cost escalations."


Dan Liljenquist is vice president of enterprise initiatives at Intermountain, a Salt Lake City-based system with 22 hospitals. He leads a team of in-house and outside experts that have been researching generic drug market distortions. He first pitched Intermountain leaders on starting a nonprofit generic drug company about a year and a half ago. "We began formally organizing the effort in January 2017, and the momentum has grown since then," he said.

Liljenquist said that in general, for most drugs, the generic drug market functions as it should: As drug originators' patents expire, other manufacturers enter the market offering lower cost generic drugs that have the same active ingredients, dosing and efficacy as the previously patented brand name drugs.

But, particularly in recent years, for a limited number of essential drugs, this system has broken down. For some drugs that have been around for decades and are still widely used, there are not many incentives for new entrants to manufacture the drugs, said Liljenquist. One or two manufacturers often are capable of fulfilling the demand for a particular drug. Were a new producer to come online and increase supply, prices would decline for all makers, reducing the potential for profit. "So, we're just not seeing private capital flow into competition in some of these markets," said Liljenquist.


There are other barriers to entry too. Kaiser, who heads the 24-hospital SSM Health system, said, "It's a really large commitment to work through all of the regulatory hurdles, and to make sure the manufacturing systems are compliant and the drugs are safe.

"It takes scale, because it is expensive to make all of those investments," she said.

Hostage to pricing
With limited competition in some generic product, Kaiser said, "some companies — some bad actors in the financial industry — have essentially cornered the markets," freeing them to hyper-inflate prices.

Liljenquist said the drug companies as well as hedge funds and other investment companies that have gained control of essential generic drugs are able to command high prices because "the demand is inelastic." In life or death situations, the price of a drug cannot be a reason not to treat. Knowing this, one drug company raised the price of their product by 5,000 percent, he said. "And, we not only think that is morally wrong, but it's really dangerous."

New competitor
Initial plans call for the new company to function almost as a "societally owned not-for-profit," with a volunteer board of directors and a professional management team, said Liljenquist. "And the goal is that there will be no shareholders, and so there will be no distributions to shareholders" that would otherwise create a profit incentive.

Any health care provider — be it nonprofit, for-profit, public, community or academic — could become a member of the company. The members would provide investments in the company in the form of donations to establish the capital needed to operate the company. The company also would welcome philanthropic aid.

The plan is for members to get priority call on drugs produced, and for excess supply to be made available for purchase by any licensed provider. The company could sell to independent pharmacies in the future.

Initially, the new company would produce drugs through existing manufacturing plants, purchasing the plants' capacity. In time, it is possible that the new company would build plants. While the ingredients for the medications likely would come from around the world, the production and packaging likely would take place in the U.S., said Liljenquist.

Bryan Gishi, Intermountain Healthcare pharmacy tech supervisor, fills a prescription at Intermountain Healthcare's Home Delivery Pharmacy. Intermountain is working with several Catholic health systems and others to help address the rising costs of generic medications.

The plan is for the partners to focus on a very limited list of generics only — basing their decisions on which drugs to produce on whether the drug is in shortage, whether it is an essential medication without good substitutes and whether the price for the drug has become exorbitant. Liljenquist said the initial partners have agreed on a list of 10 drugs that are top priorities for them, but that list is proprietary. The partners expect to produce drugs for both inpatient and outpatient use, initially focusing on hospital-administered drugs.

Creating the infrastructure
Since the partners announced plans for the company Jan. 18, dozens of additional health systems and facilities have expressed interest in joining, according to Liljenquist.

Over the next year, an advisory committee will be meeting to refine the business plan, select a management team, contract with partner systems, contract with manufacturers and ingredient suppliers, build out the supply chain and seek licenses from the U.S. Food and Drug Administration to make the drugs. Liljenquist said the earliest the company could launch and then bring a drug to market would be 2019.

Tony Tersigni, president and chief executive of the 141-hospital Ascension, said in that system's announcement about the generic drug company, "This initiative has the potential to greatly expand the availability and affordability of critically needed medications for millions of Americans, especially for people living in poverty and those most vulnerable."

Dr. Richard J. Gilfillan, chief executive of Trinity Health, said in a press release, "If the only way to provide our communities with affordable drugs is to produce them ourselves, then that is what we will do. We look forward to more health care systems around the country joining this people-centered effort."



Copyright © 2018 by the Catholic Health Association of the United States
For reprint permission, contact Betty Crosby or call (314) 253-3490.

Copyright © 2018 by the Catholic Health Association of the United States

For reprint permission, contact Betty Crosby or call (314) 253-3490.