Hospitals, Pharma

Four health systems and VA plan to create nonprofit drug company

Four health systems — Intermountain Healthcare, Ascension, SSM Health and Trinity Health — and the U.S. Department of Veterans Affairs will launch a nonprofit generic drug company, which will either directly manufacture generic drugs or sub-contract the manufacturing work.

Four health systems — Intermountain Healthcare, Ascension, SSM Health and Trinity Health — and the U.S. Department of Veterans Affairs will launch a nonprofit generic drug company.

Through these organizations’ involvement, the yet-to-be-named company will involve more than 450 hospitals. Other health systems will be joining the project in the future, according to a news release.

An advisory committee of experts from organizations like CMS, Amgen and the Harvard Business School will guide the effort.

Overall, the health systems and the VA hope their generic drug company will lower costs and help ensure patients get the prescriptions they need.

Rita Numerof, cofounder and president of Numerof & Associates, a firm that provides consulting services to the healthcare sector, said a mix of factors contributed to the creation of this new initiative.

“It reflected massive frustration on the part of these institutions as well as a broader frustration in the market,” she said in a phone interview. “I think it’s also a statement on the availability of critical supplies and the cost associated with procuring those supplies.”

Numerof added that this sense of exasperation is something that’s been building for a long time — it didn’t suddenly appear out of nowhere. And it’s irritating both organizations and consumers.

“We do need to be concerned about the escalating costs,” she said. “We do need to be concerned about having access that is assured and predictable.”

The new nonprofit drug company plans to be an FDA approved manufacturer. It will either directly manufacture generic drugs or sub-contract the manufacturing work.

This is certainly a different step for the health systems to take. As Numerof pointed out, being in the healthcare delivery business isn’t the same as being in the drug manufacturing business.

But perhaps this type of innovative thinking is a signal of a necessary shift in the market. New players coming to the space is hardly anything new. For a recent example, look to the JPM/Amazon/Berkshire Hathaway initiative.

“We need to challenge the fundamental assumption of the business model that has existed for almost 30 years in healthcare,” Numerof said. “I have a lot of confidence that nontraditional players and opportunities … will create real value that leads to a more responsive system for patients.”

Additionally, this inventive initiative could be a lesson for the well-established stakeholders in the healthcare industry.

“I also hope that the traditional players within the delivery segment of the economy see this as an opportunity to think differently about how they’re being responsible to the markets they’re serving,” Numerof noted.

Photo: Devrimb, Getty Images