Introductory note: The origins of Civica Rx were discussed in a previous Health Affairs Blog post, which also addressed whether the then-unnamed company should manufacture or purchase generic drugs. This post focuses on the unique governing role that three philanthropic organizations have as investors and founding board members in this first-of-its-kind venture, which is focused on improving hospitals’ access to low-cost generic pharmaceuticals.

Thirty-five years ago this September (2019), Congress passed the historic Drug Price Competition and Patent Term Restoration Act of 1984, more commonly known as the Hatch-Waxman Act, which established an approval pathway for generic drug products. The premise of the Hatch-Waxman Act was simple: allowing more than one manufacturer to produce the same exact medication would create competition, thus lowering prices for patients and expanding access to life-saving pharmaceuticals.

And for a while, the Hatch-Waxman Act delivered on its promise of lower prices. Generic drugs provided a cost-effective way for patients to get the medicines they needed. But as prices fell, the profit margins on these drugs also declined, leading some manufacturers to stop producing a generic version of a given medication. In some cases, this market consolidation of suppliers producing certain generics caused drug shortages, which increased prices and reduced access, to an unacceptable point where it was feared that even basic pharmaceuticals might not be available, at any price, to the patients who needed them.

In the early 2000s, these market factors prevented many hospitals from stocking adequate supplies of certain generics. Between 2005 and 2010, the number of reported drug shortages tripled, and, in 2011, the Food and Drug Administration (FDA) took steps to shore up the nation’s supply of generic drugs. But those measures proved only partially effective, and drug shortages have become a major impediment to patient care at hospitals across the country, with predatory pricing an unfortunate result. The FDA’s current list of drugs in short supply has grown to 115—including hospital staples like saline, Benadryl, epinephrine, and sterile water for injections—and the effect of drug shortages on patients’ lives has become dire. A needless 2011 national shortage of just one drug, norepinephrine, is estimated to have increased deaths of patients admitted to hospitals for septic shock by 3.7 percent and cost the nation $13.7 billion.

Health Care Systems And Foundations Unite

Persistent difficulties in acquiring critically needed drugs have created a public health crisis at hospitals nationwide. In January 2018, Intermountain Healthcare announced an innovative solution in collaboration with several health care systems: Launch a nonprofit generic drug company to guarantee a reliable supply of critical medications.

To ensure the startup would serve the public interest, participating health care systems sought out three mission-aligned nonprofit, philanthropic organizations as partners: the Gary and Mary West Foundation, the Peterson Center on Healthcare (established by the Peter G. Peterson Foundation) and Arnold Ventures (formerly the Laura and John Arnold Foundation). These philanthropic organizations—which share a common goal of lowering health care costs—were invited to join and guide this new venture and make sure it remained true to its public health vision and nonprofit goals.

Read the rest of Shelley Lyford’s article at Health Affairs