Major Health Systems Create New Company to Tackle Drug Shortages

Drug shortages are preventing hospitals from providing even the most basic care to patients.

In a recent study by the National Opinion Research Center (NORC) at the University of Chicago, approximately 80 percent of hospitals found it challenging to obtain common drugs, like opioid injectables for pain management, saline for intravenous therapy, rehydrating patients, and wound cleaning and irrigation, and sodium bicarbonate, which is used as an alkalinizing agent for oral or parenteral therapy.

The majority of hospitals even faced a shortage of sterile water, an essential ingredient for preparing many drug products for IV use, as well as epinephrine, which is used in severe acute anaphylactic reactions and shock, and dextrose, which is a parenteral source of calories and water for nutrition and hydration.

“If we're operating a hospital and we can't acquire certain critical drugs, we can't provide services to the community,” said Craig Frost, System VP of Pharmacy Operations at Catholic Health Initiatives. “It could really stop a hospital from being able to provide the basic healthcare functions that we're here to do.”

How drugs are manufactured is a major problem for the hospital pharmacy supply chain, Frost recently explained to RevCycleIntelligence.com.

“We've had a lot of problems with acquiring these medications and the way that the manufacturing marketplace works today,” he said. “Oftentimes there is a sole supplier of a particular drug and that creates shortages or monopolistic pricing of those drugs. Drugs that were relatively inexpensive in the past are all of a sudden budget-busters going forward.”

But pharmaceutical manufacturers and companies are not the only stakeholders at fault, he stressed.

“The way health systems contract with manufacturers or group purchasing organizations for drugs is another facet of the drug shortage problem,” he elaborated. “It's not just about pharma companies behaving badly. It's also about our contracting practices in which we've driven prices down so low it doesn't make sense to manufacture them.”

Stakeholders from across the industry have spent years attempting to resolve the drug shortage problem. Hospitals have recommended a myriad of legislative and regulatory solutions to combat drug shortages and rising prescription drug rates.

But the traditional path to resolution hasn’t been successful, Frost emphasized.

“We've tried just about everything,” he said. “Drug shortages for some of the drugs we identified have been around for more than a decade. And there's no lack of involvement from Washington, DC with the FDA or other regulatory agencies to address these problems.”

Now is the time for hospitals and health systems to lead the efforts to improve and sustain the hospital pharmacy supply chain, Frost and several other hospital leaders are saying.

Catholic Health Initiatives along with seven major health systems representing about 500 hospitals nationwide recently established Civica Rx, a not-for-profit generic drug company that will address drug shortages and the high prices of critical medications.

Led by Martin VanTrieste, the former Chief Quality Officer at Amgen, one of the world’s largest pharmaceutical companies, Civica Rx aims to disrupt how generic drugs are manufactured, contracted, and purchased.

“Civica Rx is a not-for-profit social welfare tax-exempt organization. Our goal is not to make profit, but rather to provide access,” Frost explained. “The model is to assess drugs that have been on shortage lists in the past or that have had substantial price increases because of the competitive marketplace dynamic. Our mission is to have a sustainable supply of these critical medications for public health.”

The drug company developed by hospitals and health systems plans to resolve drug shortages by manufacturing generic drugs under the Civica Rx label.

“This company is not going to behave like a traditional pharma company in terms of having deals with wholesalers, pharmacy benefit managers, group purchasing organizations, and so on,” he said. “All of those arrangements are rebate-driven. And those rebates are often very opaque. That can drive the price up or even in some cases create shortages.”

“Civica Rx is not going to be in that space. We have a price, and all members get the same price. It doesn't matter if you are a very small rural hospital with just a few beds or you're HCA, that's the largest hospital organization in the country. We will all get the same price for those drugs.”

The generic drug company differs from the traditional group purchasing organization because Civica will own the abbreviated new drug applications for products sold. The company will have the ability to control the quality and supply of the drugs to ensure hospital needs are met. Hospitals and health systems will also be able to determine which drugs the company prioritizes for development.

Civica also differs from the traditional pharmaceutical company because of its commitment to it’s not-of-profit mission.

The hospital pharmacy supply chain relies on for-profit pharmaceutical companies to acquire medications. But trust in these companies is plummeting and everyone from the nation’s president to patients are questioning whether for-profit drug companies are doing the right thing for hospitals and patients.

“A very important piece of this is that the health systems are not part of this to save money,” Frost highlighted. “We might save money. But it's about access and the community benefit. That is just important.”

Civica plans to make good on its promise to alleviate drug shortages by entering long-term contracts with hospitals and health systems, as well as manufacturing partners. The drug company will use contract manufacturing organizations, or CMOs, to develop a certain drug, and providers will commit to certain purchase volume.

The combination will allow Civica to charge a single market price to all members purchasing the drug.

“We are guaranteeing a certain demand for these drugs to make the economic model work,” Frost said.

Civica Rx has already identified 14 hospital-administered drugs for manufacturing. The company anticipates the first drug to market in 2019.

But the health systems also expect Civica to have a lasting effect on the hospital pharmacy supply chain.

“In the long term, there's the potential for Civica to have its own manufacturing capacity,” he stated. “Many large, traditional pharma companies that are listed on the New York Stock Exchange have extensive contract manufacturing operations. They don't necessarily own their brick and mortar manufacturing facility. So, this is not really a new approach to manufacturing. But it would help the company be self-sustaining.”

“The intent is for the company to be self-sustaining and really make an impact in the generic injectable space in the beginning. But it could certainly go beyond generic injectables to regular injectables and so on.”