A group of hospitals have joined together to make their own generic drugs in order to address rising prices and shortages.

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A group of hospitals have launched Civica Rx in order to produce cheaper generics. Getty Images

Generic drugs are supposed to be a win-win for the healthcare system. They work essentially the same as the corresponding brand-name medication, and are much cheaper.

But a drop in the number of generic drug makers and other problems have led to recent shortages and sometimes huge price increases. These issues do not just affect patients, but also hospitals trying to take care of them.

The shortages have left hospital purchasing agents struggling to find new sources of generic medications, and doctors scrambling to find suitable alternatives.

Fed up by these problems, a group of hospitals and other organizations have joined together to form a nonprofit, generic drug company whose mission is to “ensure that essential generic drugs… are available and affordable to everyone.”

The company, called Civica Rx, will be independent. But its board will include Salt Lake City-based Intermountain Healthcare, the Mayo Clinic, for-profit HCA Healthcare, and other healthcare and philanthropic organizations.

Intermountain and the others announced in January their intention to start the new company. Last month, the group revealed the name of the company, its structure, and leadership.

Since the initial announcement, more than 120 healthcare organizations — about a third of the nation’s hospitals — have expressed interest in participating with the company, according to a press release.

The company plans to first focus on marketing 14 essential generic medications that have suffered from shortages and huge price spikes in recent years. It has not yet revealed the names of those drugs.

Right now, the effort is aimed at generic drugs used by hospitals for their patients, rather than drugs sold at pharmacies. The New York Times, though, reports that Civica Rx may eventually sell its products more widely in outpatient and retail drug settings.

A steady supply of generic drugs should benefit all hospital patients who need them.

Patients may also see a price break on their hospital bills. But as Politico reports, this is only if hospitals pass the savings onto patients rather than just reducing their own bottom line.

The company expects to have its first products on the market as early as 2019.

Civica Rx will either directly manufacture the generic drugs or subcontract with other generic drug makers. The company will need to obtain FDA approval before making its own drugs.

Three foundations are also involved with the new company — the Laura and John Arnold Foundation, the Peterson Center on Healthcare, and the Gary and Mary West Foundation. The company’s CEO will be Martin Van Trieste, former chief quality officer for Amgen.

Drug shortages have become a huge problem in the United States, with hospitals struggling to find enough essential drugs like injectable morphine and sodium bicarbonate.

This prompted the Food and Drug Administration to set up a task force in July to address the issue.

Also, last year, 45 states and the U.S. Justice Department accused generic drug makers of price fixing, saying it has cost U.S. businesses and consumers more than $1 billion.

Daniel Tomaszewski, PharmD, PhD, an assistant professor in pharmacy administration at Chapman University in Irvine, California, said the new company won’t solve all the problems with the generic drug market.

But he said the company “has the potential to improve some of the issues that have arisen over the years that have created these shortages.”

Many factors have been blamed for the shortage of generic drugs, including manufacturing and supply chain problems, as well as companies dropping drugs that don’t make them enough money.

The generic drug market can also sometimes be a “race to the bottom,” said Tomaszewski, with companies trying to come up with the most competitive price. This can drive companies out of the market.

“At some point, you get to a price bottom where a company may just decide to leave that segment of their business because they’re not making enough money off of it,” said Tomaszewski.

When fewer companies make a drug, it increases the risk of shortages.

“If you run into a production problem, and you’re the only company making that generic, you’re looking at a potential shortage,” said Tomaszewski.

Also, once a company has a monopoly on a generic drug, it can steeply raise its price. Or lower it to drive out other companies trying to enter the market.

Civica Rx will try to limit this effect by requiring health systems to commit to long-term contracts. This will deter other generic drug companies from luring away hospitals with lower prices — and then raising the prices again later.

The company will also work with multiple manufacturers in more than one location to ensure a steady supply of generic drugs.

Tomaszewski said the new company represents a shift in the relationship between drug manufacturers and health systems. If successful, this may help reverse the trend of fewer and fewer companies making generic drugs.

“Maybe this will be a way to get some smaller manufacturers coming back and working directly with health systems, which could help alleviate some of the financial burden on companies that has created the consolidations,” said Tomaszewski.

A group of hospitals and other organizations have joined together to form a nonprofit, generic drug company called Civica Rx. While the drugs may not immediately lower prices at the pharmacy, experts say it may help improve access to generic drugs and overall costs in the long term.