Trend | Healthcare Business Trends

The Conscience of the Generic Drug Market

Trend | Healthcare Business Trends

The Conscience of the Generic Drug Market

Created to address the high costs and shortages of generic medications, the not-for-profit generic drug manufacturer Civica Rx aims to be a societal asset by providing patients across the nation with affordable access to the medications they need.

With new technologies, treatments, and models being introduced and discussed almost daily, the U.S. healthcare industry seems poised for a new era of innovation and disruption. One particularly intriguing example is a new not-for-profit generic drug manufacturer, Civica Rx, which is determined to ensure essential generic medications are accessible and affordable to patients across the country.


Formed through a collaboration of providers, Civica’s initial governing members include Catholic Health Initiatives, HCA Healthcare, Intermountain Healthcare, Mayo Clinic, Providence St. Joseph Health, SSM Health, and Trinity Health, in consultation with the U.S. Department of Veterans Affairs. So far, three national foundations—The Laura and John Arnold Foundation, the Peterson Center on Healthcare, and the Gary and Mary West Foundation—have each committed $10 million toward the effort. Martin Van Trieste, former chief quality officer for Amgen, will serve as the CEO without compensation—evidence of his strong commitment to the venture’s mission.

The company seeks to address the high costs and shortages of generic medications with the goal to be the conscience of the generic drug market. “We are trying to create a societal asset,” Van Trieste says. “Rather than giving [profits] to shareholders or financial institutions that have equity in the company, we can put that money back into the business and keep prices as low as possible for our generic drugs” a

Civica’s efforts to promote high-quality patient care and lower patient costs through a stable drug supply are certain to have a disruptive impact in health systems across the country. 

Why Form a Generic Drug Company?

Innovations seek to correct an existing problem in a new and better way. For Civica, that problem is the accessibility and affordability of essential generic medications for patients across the country. Although the existence of generic drug shortages is not a new problem, recent price increases have drawn public attention to the need for more competition in the generic drug market. Not surprisingly, some of the price increases are a direct result of industry actors who buy up veritable monopolies of generic drugs, which enables them to control, and therefore increase, price. b

Despite these price increases, however, the more frustrating challenge for hospitals is the inability to access common medicines that are essential to patient care. “Every one of our pharmacies displays a whiteboard listing the 10 to 20 drugs that are in extremely short supply that day—and the supplies on hand,” says Bob Ripley, vice president and chief pharmacy officer, Trinity Health. “They use it to determine what’s next—more prescriptions or alternative medicines and treatments.” 

How a Generic Drug Company Will Disrupt the Industry

Civica will combat generic drug shortages by becoming approved by the Food and Drug Administration (FDA) to manufacture drugs itself or to contract manufacture with partner organizations. Civica will not compete with new or innovative medicines. Rather, the company will focus on mostly sterile injectable drugs—often ones developed decades ago—that are considered “foundational” for hospital treatment. Shortages of these drugs can have severe negative consequences for both patients and hospital systems. Year-over-year price increases for these drugs force unnecessary higher hospital spend and make it impossible to accurately predict budgets. 

So far, Civica has identified more than 50 hospital-administered generic drugs for review and prioritized 14 as its initial focus, with its first products hitting the market as early as 2019. c Civica’s business model relies on hospitals agreeing to purchase guaranteed minimums to create a baseline demand that enables Civica to accurately produce and provide supply. In a radical approach to pricing, Civica will charge all health systems, regardless of size or location, the same price for the same drug, and will publish these prices. Civica’s hope is that this transparency—combined with low, stable prices for hospitals—will be passed on as lower prices for patients. In the long term, Civica’s disruptive success will be marked by its effectiveness as a “watchdog” for the pharmaceutical market. If other manufacturers know that Civica can tackle a generic drug shortage, either artificial or real, with a wholesale-priced alternative to a large share of the market, they may reconsider the often-steep price increases that currently occur across the industry.

Most important, the collaborators emphasize that the motivation behind the new generic drug company is patient-driven. Patients too often are paying too much or are unable to access the medications they need due to shortages or high prices. At times, patients may even experience care interruptions, such as a delay in surgery, if essential drugs are unavailable. Hospitals have had enough; Civica is their solution. 

Formation and Reception

Aware of the generic drug company’s ambitious goals, the project collaborators made sure to convene the right team. As members of a hospital consortium, they knew an important priority was to engage pharmaceutical and manufacturing experts in the process to help Civica navigate the many challenges of entering the generic drug market.

The high degree of interest Civica has garnered since it was first announced in January 2018 is evidence of its disruptive potential. As of September 2018, more than 120 health systems have expressed interest in joining the venture, which means Civica could soon count a third of all U.S. hospital operators as members. d The generic drug company’s leaders have said they hope to create an infrastructure in which every health system that wants to participate can do so. 

Outlook: Huge Benefits

The formation of a provider-owned and patient-focused not-for-profit generic drug company is an unprecedented innovation in the U.S. healthcare landscape, and the interest of more than 120 health systems and counting positions it well for a highly disruptive impact. If Civica can succeed in its goals of stabilizing the supply of essential generic drugs, providing a bulwark against price-gouging, and acting as a watchdog for the pharmaceutical industry, both patients and providers will benefit significantly. 


Jenna Jackson is an associate, Leavitt Partners, LLC, Salt Lake City. 

Sierra Smith, MBA, is a business development manager, Leavitt Partners LLC, Salt Lake City.

Footnotes

a. Carlson, J., “Mayo Clinic, Other Hospitals Launching Generic Drug Maker Civica Rx,” Star Tribune, Sept. 5, 2018.

b. Pollack, A., “Drug Goes from $13.50 a Tablet to $750, Overnight,” The New York Times, Sept. 20, 2015.

c. PR Newswire, “Three National Foundations Commit $30 Million to Civica Rx, a Groundbreaking Effort to Address Shortages and High Prices of Life-Saving Medications,” Sept. 9, 2018.

d. Karlin-Smith, S., “Nonprofit Generic Drug Venture Could Include Third of Hospital Market,” Politico, March 19, 2018.

About the Authors

Jenna Jackson
Sierra Smith
MBA

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