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Nonprofit that aims to lower drug prices is ‘disruption’ the industry needs, CHI Health exec says

October 2, 2018

First hospitals had to hunt down or find work-arounds for certain types of IV fluids that were in short supply. More recently, some pain medications have been hard to get.

To address shortages and high prices for some older drugs, a group of seven large health systems and three philanthropic groups recently launched a new nonprofit generic drug company called Civica Rx.

Among the initial participants are two with local ties: Denver-based Catholic Health Initiatives, the parent of CHI Health in Nebraska and Iowa, and the Gary and Mary West Foundation, whose founders started the Omaha-based telecommunications technology company West Corp.

Dr. Cliff Robertson, CHI Health’s chief executive, said the new nonprofit is the kind of “disruption” that needs to happen in the health care industry to help rein in the cost of drugs. A sustainable marketplace for such medications also will make it easier for health systems to deliver care.

He said he’s excited about the move because it stands to lower costs for insurers, employers and, ultimately, patients. He said it’s difficult for the health system to deliver care at lower costs if manufacturers of drugs and equipment keep raising prices.

Civica Rx, which will have its headquarters in Utah, expects to release its first products as early as 2019.

“If Civica Rx is successful in delivering on its promise, I suspect there will be very few hospitals and health systems that won’t want to participate in some way, shape and form,” Robertson said. “There’s really no reason not to.”

Methodist Health System already is a member of another buying group but would consider the new venture once its product portfolio becomes available, officials said.

Bill Barnes, business director for pharmacy at Nebraska Medicine, said there are other options open to health systems.

Some of the sharpest increases in generic drug prices, seen several years ago, have begun to subside. For some, the health system’s team of pharmacists helped encourage therapies that are effective but less costly to counter price increases.

“If the trend had continued and the generics had continued to ratchet up, this would have been something we’d have looked into,” he said. “But until the business model is up, we’re standing by.” He noted that gearing up for and manufacturing drugs, even generics, requires a lot of capital and time.

Shortages, he said, don’t have a big cost effect, but they are a drain in terms of the resources needed to manage them. Currently, the health system is dealing with shortages of the anesthetic lidocaine, which comes in many forms and is used to relieve pain during treatment of minor wounds and in major surgery. To work around it, the hospital gathered a group of stakeholders to come up with ways to conserve the drug.

Health systems continue to work through their professional associations to address both shortages and generic prices, he said. Public outcry over drug prices — and resulting congressional hearings — also helped rein in prices.

Civica Rx will focus initially on 14 hospital-administered generic drugs. The company will either contract manufacturing or manufacture the drugs itself. For competitive reasons, the company has not disclosed which drugs it will focus on.

There are more than 90 medically essential drugs on a shortage list maintained by the U.S. Food and Drug Administration. In 2016, the General Accounting Office reported that more than 300 generic drugs underwent a price increase of 100 percent or more between 2010 and 2015.

A drug becomes available for generic production after its patent expires. Generally, generic drugs have been cheaper than branded versions.

Robertson said market dynamics have resulted in some drugs with only one or two manufacturers. That has lead to significant price increases in some cases or shortages in situations where a production plant has gone offline.

That’s essentially what happened in late 2017 when Hurricane Maria affected production of some types of IV fluid at manufacturing plants in Puerto Rico, delivering another hit to an already tight supply. While patient care locally wasn’t affected, area health systems had to move supplies around and change practices to conserve where they could.

To be sure, branded drugs, including some of the most expensive ones, such as those used to treat hepatitis C, make up the bulk of a health system’s drug costs, Robertson said. But generics still account for a significant amount.

For the fiscal year that ended in June, drug purchases for CHI Health’s hospitals totaled nearly $63 million. Generics made up nearly $14 million of that total, or a little more than 22 percent.

“This is another way that we’re demonstrating our commitment to how health care is delivered and how it works in this country,” he said. “I absolutely believe this will have cost benefits, which allows us to pass those savings through to individuals.”

The founding health systems and philanthropies will serve as initial governing members and provide seed money for the venture. Each of the 10 is making an initial $1 million contribution to Civica Rx and committing $9 million in loans for future use as necessary.

The other health systems involved are Intermountain Healthcare, HCA Healthcare, the Mayo Clinic, Providence St. Joseph Health, SSM Health and Trinity Health. With Catholic Health Initiatives, they represent about 500 hospitals across the country.

In addition to the Gary and Mary West Foundation, the other major philanthropies serving as governing members are the Laura and John Arnold Foundation and the Peterson Center on Healthcare.

Other health systems participating in the venture will be announced later this year, according to a Catholic Health Initiatives statement.

“The formation of Civica Rx is a direct challenge to generic drug companies who have sharply and unfairly raised prices on many off-patent drugs over the last several years,” Shelley Lyford, president and CEO of the Gary and Mary West Foundation, said in a statement. “We all pay a price, and lower-income patients shoulder a particularly heavy burden.”

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