For years, Dan Liljenquist pondered a vexing question facing hospital systems around the country: How do we fix the drug market?
Current market conditions leave hospitals and their patients powerless when drug companies manipulate the system by jacking up prices or generating artificial shortages. Liljenquist, an Intermountain Healthcare executive and former Utah state senator, often saw these issues hit patients hard, and heard of similar problems in discussions on Utah’s Capitol Hill involving Medicaid.
So two years ago, he pitched a possible solution: What if Intermountain Healthcare and other hospital systems started their own drug company?
At a Thursday news conference, Intermountain executives in Salt Lake City announced Liljenquist’s idea will become a reality. The Utah-based healthcare organization will spearhead the project, joined by four other major U.S. hospital groups, including three large Catholic-owned health systems and the U.S. Department of Veterans Affairs.
Together, the five will form a nonprofit company that will supply about 20 generic drugs to their hospitals, with a goal of preventing certain price-gouging companies from dominating pharmaceutical markets, Marc Harrison, Intermountain’s chief executive, said Thursday.
“This is our weapon to combat that activity,” Harrison said of the new company, which for now is being called Project Rx.
Harrison and Liljenquist were coy about details — including which specific drugs they plan to make or buy from third-party manufacturers.
The group wants to keep the “element of surprise,” Harrison said. Otherwise, competitors might drop their prices temporarily and “make our entry impossible.” Then, after Project Rx might be forced to back out of a certain drug market, he said, those prices would shoot back up.
“We certainly expect a competitive response,” Liljenquist said of strategies that existing drug companies might take to undermine the venture.
The new company’s offices will be in Salt Lake City. Executives from the various hospital systems met here in September and solidified the plan, Harrison said. He expects the organization will be pieced together this year, with more details about how it will operate released in 2019.
Problems with skyrocketing prices of off-patent drugs have been well-documented, sometimes sparking Congressional hearings and federal probes. Perhaps the highest-profile recent example centers on Martin Shkreli, the former hedge fund manager known as Pharma Bro, who bought the rights to and then increased the price of a decades-old AIDS treatment, Daraprim, by 5,000 percent.
In its Thursday announcement, Intermountain Healthcare noted a number of other generic drug makers also frequently use their control over portions of drug markets to raise prices, sometimes by more than 1,000 percent in a matter of months. Officials attributed the trend to a shrinking number of pharmaceutical suppliers and ownership consolidation among drug makers that has made pricing less competitive.
“These people are very, very savvy about how they price their products, and how they have carved out a market for themselves, and exploit price,” said Liljenquist, who works in Intermountain’s enterprise initiative office. “And also, [they] generate shortages to create an artificially high demand.
“Our job is to say, OK, let’s just go figure out how we can make these drugs,” he added. “[We’ll] take a reasonable margin — enough to recapitalize our business. But we don’t have to worry about returns on equity to large shareholders, or hedge funds or anything like that.”
Hospital systems producing their own drugs is an idea that’s been “tossed around before,” said Erin Fox, a drug shortage expert at the University of Utah who is not involved in the project. “But I don’t think it’s ever come close to fruition. It’s a really novel concept.”
One key to the new company’s success will be finding a high-quality, third-party drug manufacturing partner, Fox said. Generic drug shortages are often the result of antiquated factories that break down and disrupt supply, she said, so the Intermountain effort will need to be careful to avoid such facilities.
Fox added that the newly appointed head of U.S. Food and Drug Administration, Scott Gottlieb, has indicated he’s receptive to innovations in the drug industry to increase suppliers and competition. So the timing is right, she said.
“It will be interesting to see if they can disrupt this market,” Fox said.
Carolyn Clancy, executive in charge of the VA’s Veterans Health Administration, said it is critical for her agency to have an “affordable and stable supply of generic pharmaceuticals,” which is why the VA plans to join the initiative.
An advisory committee for the project includes several high-profile names, such as Bob Kerrey, a former U.S. Senator, Nebraska governor and presidential candidate; and Don Berwick, a former Centers for Medicare and Medicaid Services administrator; as well as two former executives at the drug maker Amgen.
Liljenquist and Harrison said other hospital systems may get involved. And after a story on the project ran in The New York Times, hospital executives were calling Intermountain on Thursday morning to learn more.
”The best ideas are only obvious in retrospect,” Liljenquist said. “It took a realization to say: ‘If we’re not responsible for these situations in the market, who will be?’ ”