Hospitals try to stabilize generic market

Pharmacoeconomics researcher Kevin A. Schulman, MD, FACP, explains health systems' plan to buy drugs directly from the manufacturers.


A group of health systems involving about 450 hospitals is trying to combat generic drug shortages and wild price fluctuations by manufacturing drugs themselves.

In early 2018, Salt Lake City-based Intermountain Healthcare announced that it was leading a partnership with three Catholic health systems (St. Louis-based Ascension and SSM Health and Trinity Health in Livonia, Mich.) and the U.S. Department of Veterans Affairs to create a not-for-profit generic drug company. More health systems are poised to join the initiative, which is a response to chronic shortages and price increases of generic medications. In 2015, one of the most infamous examples of such price-hiking occurred when the cost of the antiparasitic drug pyrimethamine soared from $13.50 per pill to $750 per pill practically overnight.

Photo courtesy of Dr Schulman
Photo courtesy of Dr. Schulman.

Kevin A. Schulman, MD, FACP, became an advisor on the project because its leaders had read his 2015 JAMA viewpoint describing ways to promote competitive pricing of generics. A pharmacoeconomics researcher for most of his career, he's now spent the past year trying to put his ideas into action.

Instead of buying drugs through contracts with distributors, the health systems will establish long-term contracts directly with the drug manufacturers, explained Dr. Schulman, who is a professor of medicine at the Duke University School of Medicine in Durham, N.C. He recently spoke with ACP Hospitalist.

Q: What was the impetus for hospital administrators to come up with this idea?

A: Dan Lilijenquist [vice president of the enterprise initiative office at Intermountain] was just passionate. He had been a state senator, so he was a leader, and his idea was, “You know, I can't fix all the problems in health care, but I can fix one problem.” And he literally has spent the last year becoming an expert on this problem.

Q: What are the goals of the initiative?

A: They started with focusing on the drug shortage side, so the question is, can they manufacture a couple of these drug-shortage products? And then equally as important is to try and figure out how to address the price manipulations that have been occurring in the generics market. As an advisor, I helped them to understand the market economics through a series of calls and email exchanges, and went to the inaugural ProjectRx partner meeting to help launch the concept.

Q: What will be some key requirements for success?

A: They're going to have to keep this coalition together, and they're going to have to demonstrate that they can actually manufacture one of these products. By the nature of this, exactly which products they're going to make is going to remain secret until they come to market. But they're hard at work now, picking the products that they're going to do and lining up the capacity to do the manufacturing. I would anticipate in 12 to 18 months, they'll have something on the market.

Q: What are some of the challenges with this endeavor?

A: No one's ever done this before, so they went out and validated everything that we had suggested was going on in the marketplace to learn for themselves. Engaging partners was the next big hurdle. Health systems don't seem to work well together, even when it's a pre-competitive space like this, and so that was a unique part of this collaboration. [Intermountain] did get both public and private health systems to partner. Partnering means that they're going to sign long-term contracts for drugs that Project Rx (that was the name we called it internally; I'm not sure if they've come up with a real name yet) develops. They had to understand that these contracts were an effort to balance this idea that they need to forgo their ability to purchase some drugs cheaply in the short term in return for having an assured, stable supply of medications over the long term. By partnering, they are really investing in improving the efficiency of the market.

Q: What lessons could hospitalists take from your experience?

A: I would think about this a couple ways. First, for your audience, they should realize that as they're seeing policies or problems on rounds that don't make sense, they should work to write up their discovery, and try to understand what has driven the behavior or decisions they observed. Second, if each of us picked, as a project, a pet problem that we were going to try and solve, we'd be in a much better place than we are right now.

Q: If it's successful, how could an initiative like this change the generic drug market?

A: They're going to try and address the chronic-shortage drugs, where frankly there's not a lot of financial incentive for firms to make these drugs. They are long off patent, there's a very low price for these products in the marketplace, and so we need an effort like this to assure a stable supply of these medicines. A couple weeks ago, dobutamine was on shortage. Lots of people use that drug still for heart failure, so just because they're generic drugs doesn't mean they're not still very valuable to us clinically. Most of the efforts will address these drug shortages, but they're definitely going to try and tackle at least one of the price-manipulation products. If that's successful, the hope is that this will literally become an insurance policy that if someone tries to manipulate the market, this coalition can serve as a credible threat that they will rapidly respond with a low-cost competitor. My hope is actually if they do that once or twice, there will be no need for them to do that anymore because people will stop trying to manipulate this market.