Some of the most understated yet important news came out of Intermountain Health Care on Thursday. Intermountain Healthcare, with other hospital systems, is launching a new venture to start its own nonprofit drug company.
Why is this good news? Because this new venture’s goal is to create a societally owned, not-for-profit company to produce and/or sell generic drugs to ensure they are affordable, and available, to everyone.
Why is it understated? Because it will likely change the way drugs are priced and distributed. If the venture works, a distributor will no longer be able to monopolize the market for a certain drug by restraining supply and extracting the maximum price people are willing to pay.
And that’s good for the little guy.
Dan Liljenquist, vice president of Intermountain’s Enterprise Initiative Office and a former Utah state senator, imagined the idea two years ago, and has spent the time since then recruiting support and working to formulate a plan.
At first, officials reacted to the idea with trepidation, noting that making drugs wasn’t Intermountain’s business. Liljenquist reminded them, “Our business is caring for patients.” Once others saw the vision, the project took off. Neither Liljenquist, nor any of the other partner systems, anticipated the outpouring of support and interest in the idea. They are scrambling to keep up.
Generic drugs have been available for decades. But the system is vulnerable to supply drops, which cause a drag on hospital systems and a risk to patients.
Liljenquist doesn’t want to push out innovators. His theory is that once innovators have recouped their costs and profits, generic drugs enter the public domain, and should stay accessible.
Current drug markets, though, illustrate a weakness in the system. Distributors are able to corner a market and capitalize on the nature of drugs, which function according to inelastic demand. For such drugs, no matter how much the price increases, demand stays relatively steady. That is a classic market failure, one which Liljenquist and Intermountain want to fix.
The key to this venture, Liljenquist said, is the entity’s nonprofit status. They aren’t asking for special favors from the Legislature, like legislation or rules. And they aren’t beholden to a hedge fund with market and profit expectations.
The sole purpose of the new venture is to guarantee a stable supply of generic drugs. Liljenquist told Tribune reporter Luke Ramseth, “The best ideas are only obvious in retrospect.”
We anticipate this idea to be one of Intermountain’s best.