Intermountain Healthcare, Ascension, SSM Health and Trinity Health are working with the U.S. Veterans Affairs Department to pool their capital and fight back against drug companies that unexpectedly hike the prices of decades-old off-patent generic drugs. The providers also want to create a more reliable supply of generic drugs like sodium bicarbonate and saline that are vulnerable to shortages.
Health system-led drug company garners strong provider support
Providers are optimistic that a health system-led generic-drug company can lower drug costs and mitigate shortages, and the vast majority say they will buy drugs from the venture, according to a new survey.
While the health systems didn't specify what drugs their new venture will make, they want to provide both sterile injectables and oral medications either through their own facility or by contracting with existing manufacturers.
Eighty percent of nearly 750 providers, payers and pharmaceutical companies polled said they are optimistic or cautiously hopeful that the new endeavor will change the status quo, according to a Reaction Data survey. Ninety percent of 605 hospitals and clinics surveyed said they would buy drugs from the new entity.
While creating and distributing pharmaceuticals isn't their primary business, there is increasing demand to disrupt the pharmaceutical supply chain, said Graham Triggs, director of professional services at Reaction Data.
"This is going to take a lot of focus and money to get something like this off the ground," he said. "But if they can, dozens of providers are saying they will follow suit, either by teaming up or doing something on their own."
The status quo has sent providers scrambling for alternatives to critical, widely used drugs amid persistent shortages, which have delayed treatments and harmed outcomes. Few drug manufacturers have been able to survive in the low-margin business of producing generic drugs, which means one setback could throw a wrench in the entire supply chain.
Consumers have delayed or forgone treatment because they can't afford the escalating price of prescription drugs, which ultimately drags the entire healthcare system.
Retail prescription drug expenses accounted for about 12% of total U.S. healthcare spending in 2015, up from about 7% through the 1990s, according to the U.S. Government Accountability Office. Pharmaceutical companies' profit margins have followed that trend, increasing by an average of 17.1% between 2006 and 2015.
Drug spending is expected to increase by 8% in 2018, driven by ballooning brand-name drug prices, according to the GAO.
"This effort could teach others how to make a market for themselves and put pressure on the rest of the industry," Dr. James Augustine, an emergency physician who works at Mercy Health hospitals in Cincinnati, told Modern Healthcare last week. "Ideally, this re-energizes the industry to be more responsible in pricing behavior."
As national efforts to import drugs from other countries have stalled, providers have decided to take matters into their own hands. Large health systems are cutting out middlemen by contracting directly with employers and creating their own distribution facilities. They may be trying to get ahead of industry outsiders like Amazon, JPMorgan Chase and Berkshire Hathaway that aim to shake up the healthcare space.
The driving force behind the provider-backed drug company was to reduce drug prices, 81% of the survey respondents said. The second-highest perceived intention was to reduce the cost of care, followed by bolstering the drug supply, controlling the healthcare value chain and forcing pharmaceutical companies to change.
Not surprisingly, most of the 91 pharmaceutical companies in the Reaction Data survey dismissed the effort, indicating that they weren't threatened because of the complexity of the pharmaceutical supply chain and the regulatory hurdles. While many industry observers are hopeful that the new drug company will change the status quo, they were also skeptical that they could overcome the financial and logistical barriers to success. Also, generic drugs are only a fraction of annual increases in pharmaceutical spending, despite the attention to some high-profile cases, experts said.
Still, 29% of pharmaceutical companies expected the venture to be successful, while 38% of payers said the endeavor will succeed.
"The response we got from pharma was one of naiveté, that they don't know what they are getting in to," Triggs said. "Whether they truly feel threatened or not is anyone's guess, but they are saying they are confident that they aren't a huge threat."
Sixteen percent of pharmacists said the venture threatens pharmaceutical companies while only 10% of pharmaceutical companies concurred.
But it could be the start of a trend, according to 77% of providers that said the new drug company could be replicated.
"We're seeing people who can't buy groceries or forgo other essential life needs to pay for prescriptions," Triggs said. "That's why there has been such a positive response from providers who are fed up. The cost of prescription drugs is hitting a nerve."
An edited version of this story can also be found in Modern Healthcare's May 28 print edition.
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