Mayo Clinic is joining a consortium of U.S. health care systems to create a not-for-profit company that would manufacture generic drugs. The group hopes to lower prices and eliminate medicine shortages as a first-of-its-kind “societal asset” organization.
The membership organization, based in Utah, is called Civica Rx. If successful, it could save patients — and their health care providers — hundreds of millions of dollars a year.
The vision, first announced in January, is a grand one that one of its architects describes as a “free-market solution to a daily life-and-death” matter.
Dan Liljenquist, senior vice president and chief strategy officer for Salt Lake City-based Intermountain Healthcare, explained that hospitals are seeing shortages of more than 200 popular generic drugs every day. That means hospitals can’t always find the medicines that patients desperately need. Plus, the prices of the drug can vary wildly.
Civica RX’s straightforward goals are to stabilize the supply of generic drugs and lower the prices of medications without the need to create a profit for stockholders or owners.
“When we say we are trying to create a unique societal asset, we mean just that. This company will be operated for the benefit of society at large,” Liljenquist said. “This is as much about social justice as anything. It’s not right what is happening in the marketplace.”
The scope of the project is extensive. The Center for Justice and Democracy at New York Law School reports that 80 percent of all drugs prescribed are generic. And when generic drugs are available, they are chosen 94 percent of the time over more expensive brand-name drugs.
Drug patents typically last about 20 years. When the patents end, the ingredients become available to generic manufacturers who then can introduce their own versions of the drugs.
Mayo Clinic recently joined the Civica Rx project, which includes seven major U.S. health organizations representing about 500 hospitals, as well as the U.S. Department of Veterans Affairs. The hope is to add many more medical providers of all sizes as members.
“This endeavor demonstrates the need for collaboration to solve the most complex health care challenges of today. I am pleased to see our collective commitment to improving the health and well-being of millions of patients come alive through this mission-driven initiative,” Mayo Clinic CEO Dr. John Noseworthy said in a press announcement.
The initial governing members are Intermountain, Mayo Clinic, Catholic Health Initiatives, Hospital Corporation of America, Providence St. Joseph Health, SSM Health, and Trinity Health.
It will cost the members an estimated $200 million to launch this new organization.
In addition to the health care organizations, three non-profit foundations have also committed $30 million to the endeavor. The Laura and John Arnold Foundation, the Peterson Center on Healthcare and the Gary and Mary West Foundation have each committed $10 million.
Each of the philanthropic members is making an initial $1 million contribution to Civica Rx and a commitment of $9 million in loans to be used by the organization in the future.
Civica Rx’s CEO, Martin VanTrieste, was previously the chief quality officer for Amgen Inc. He has agreed to serve without any compensation or pay.
“The fact that a third of the country’s hospitals have either expressed interest or committed to participate with Civica Rx shows a great need for this initiative. This will improve the situation for patients by bringing much-needed competition to the generic drug market,” VanTrieste said.
As a Food and Drug Administration-approved organization, Civica RX will either manufacture generic drugs directly or subcontract the manufacturing as most generic drug firms do.
Civica Rx already has identified 14 hospital-administered generic drugs as its initial focus. Citing proprietary concerns and potential competition for other firms, Liljenquist declined to name those drugs yet. Organizers previously said they would focus on drugs whose prices have risen sharply and/or are often in short supply.
The hope is to have the first drugs on the market by mid-2019. It’s estimated that the generics could sell for 20percent to 30 percent below current prices.
Beyond providing a steady supply of lower cost drugs to the health care group members, Liljenquist said that Civica Rx will create a fair and transparent source for the medicines.
That means a large contract to buy a million units of a drug will receive the same rate as a small clinic buying just 100 units.
“Volume won’t matter … Everybody will get their fair share of the product,” Liljenquist said. “We’re not going to play favorites.”
A key factor to the membership model is that the contracts are being finalized before any drugs are even made.
While the goals of Civica Rx are lofty, could the organization ever be hijacked by someone who wants to take advantage of the market and make a hefty profit?
“It’s virtually an impossibility to ever be able to monetize the business to turn it into a for-profit entity,” Liljenquist said emphatically.