Why Health Systems Are Making Their Own Generics

Four large health systems have announced plans to start a not-for-profit company to make their own generic drugs. They are creating this company as a means of coping with drug shortages and the hiked-up prices seen with some generics.

The nonprofit hospital systems are: Intermountain Healthcare, Ascension, SSM Health, and Trinity Health. Added up, they own more than 10% of hospitals in the United States, with Ascension being the country’s largest nonprofit hospital group. Other hospital groups are expected to join in the nonprofit company that will be formed. The Department of Veterans Affairs has been in consultation on the venture. With VA hospitals counted in, there are more than 450 hospitals represented.

The idea of creating a not-for-profit company to make generic drugs came about because of frustration with shortages of some essential medications and skyrocketing prices, said Dan Liljenquist, Vice President of the Enterprise Initiative Office at Intermountain.

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Certain pharmaceutical companies have bought up monopolies of old drugs that are off-patent and then jacked up prices. Drugs that have only one or two manufacturers, such as injectable morphine and sodium bicarbonate, have experienced serious shortages. However, most generic manufacturers have been great, Liljenquist noted.

The four systems have been working on this idea for a year and a half, said Liljenquist, in an interview with Drug Topics. The problems of drug shortages and price hikes had been getting worse rather than better, he said. “We focused on fixing a life-or-death situation,” he said. The objective is to keep essential generic drugs available and affordable, he added.

“We felt that this was an opportunity for us to work with partners in stabilizing some of the market failures,” Liljenquist said. The not-for-profit company will be competitive, he added. Other hospital groups will be welcome to join in. “We want every hospital in this.”

“Many of the well-publicized problems in the U.S. generic drug market can be attributed to a reduction in the number of suppliers, consolidation of production volumes, and a concentration of market pricing power,” according to a group statement about the initiative. “These market factors are particularly problematic with older generic medications that hospitals rely on every day to take care of desperately ill patients.” 

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The company is expected to start with products-including injectables, patches, and oral medications-that are usually administered in hospitals, Liljenquist said. However, he said the company may eventually cross over into the retail space with its products. It will contract out the actual manufacturing for most products, but may develop its own manufacturing capacity for some.

During the year and a half since the project started, the four hospital systems were vetting the idea and created an advisory committee to help guide it, he said. Two members of the committee are former Senator and Nebraska Governor Bob Kerrey and Don Berwick, MD, former administrator of CMS.