Hospital groups creating company to make cheap generic drugs

Several major not-for-profit hospital groups, including the parent of St. Vincent Health in Indianapolis, are trying their own solution to drug shortages and high prices: creating a company to make cheaper generic drugs.

The plan, announced Thursday, follows years of shortages of generic injected medicines that are the workhorses of hospitals, along with some huge price increases for once-cheap generic drugs. Those problems drive up costs for hospitals, require staff time to find scarce drugs or devise alternatives, and sometimes mean patients don't get the best choice.

The not-for-profit drug company initially will be backed by four hospital groups—Ascension, Intermountain Health, Trinity Health and SSM Health—plus the VA health system.

Ascension is the parent company of St. Vincent Health, the second largest hospital operator in Indianapolis, behind Indiana University Health.

Together, the five groups include more than 450 hospitals, nearly one-tenth of U.S. hospitals. They also run numerous clinics, nursing homes, doctors' offices and other medical facilities, along with hospice and home care programs and an insurance plan. More health systems are expected to join soon.

The goal is to counter the consolidation of generic drugmakers that's caused shortages for more than a decade and allowed some companies to raise prices many times over. Those include antibiotics, morphine, heart drugs and others.

"It's an ambitious plan," Intermountain Healthcare CEO Dr. Marc Harrison said in a written statement. He said health care systems "are in the best position to fix the problems in the generic drug market. We witness, on a daily basis, how shortages of essential generic medication or egregious cost increases for those same drugs affect our patients."

Generic drugs can be manufactured very inexpensively, offering the hospital groups the chance to save hundreds of millions of dollars annually. The new company will either contract manufacturing to an existing company or get Food and Drug Administration approval to make medicines itself.

The new company isn't likely to have a huge financial impact on existing generic drugmakers, and it faces some big challenges, Mizuho healthcare analyst Irina Koffler wrote in a report. Those include high startup costs and the difficulty in predicting shortages of particular generic drugs and getting new versions approved in time to ease shortages.

The new company will be guided by an advisory board of high-profile experts from government, the pharmaceutical industry and Harvard Business School. Members include former Centers for Medicare and Medicaid Services administrator Dr. Don Berwick and Bob Kerrey, a pharmacist and former governor and senator from Nebraska.

Ascension, based in St. Louis, is the biggest U.S. not-for-profit health system, with 141 hospitals in 22 states. North-Dakota-based Trinity Health operates 93 hospitals in 22 states. St. Louis-based SSM Health runs 24 hospitals in four Midwestern states. Salt Lake City-based Intermountain has 22 hospitals in Utah and Idaho. The Veterans Administration runs the country's largest integrated health system, with hospitals across the U.S. and its territories.