Pricing

Tired of being gouged for old, cheap therapies, a consortium of hospitals is going into the drug business — NYT

Over the past few years we’ve seen plenty of public outrage over repeated cases where the price of a closely controlled generic has shot up suddenly, gouging payers with nowhere to turn.

But even as lawmakers and regulators seem powerless to do anything to stop the practice, which is perfectly legal under existing laws, a big group of hospitals has come up with a plan to fight back.

In a story this morning in The New York Times, Reed Abelson and Katie Thomas report that a consortium of major hospital systems in the US — including the giant nonprofit Ascension — are creating a nonprofit drug company that can provide a steady and economical flow of key drugs that are either in short supply or overpriced, or both.

Kevin Schulman

“If they all agree to buy enough to sustain this effort, you will have a huge threat to people that are trying to manipulate the generic drug market,” Kevin Schulman at the Duke University School of Medicine tells The Times. “They will want to think twice.”

Martin Shkreli, currently in a federal prison awaiting sentencing on felony fraud charges, helped build a bonfire of public outrage on this issue when he jacked the price of the old generic daraprim overnight by more than 5,000%. And others like Marathon have been taking old generics and studying them for rare indications, bagging approvals that can pave the way to sky high prices for old, cheap drugs.

Under existing law, there’s nothing to stop someone from pursuing the same business model, even after numerous hearings in Congress where lawmakers weighed in with scathing condemnations.

Public humiliation, though, can only go so far. So the hospitals are taking a more direct approach.

Abelson and Thomas’ story notes that the hospitals aren’t saying exactly which drugs they plan to focus on first. But they’ll either contract out the manufacturing or arrange to do it themselves.

I’ll add here that while the hospitals appear to be concentrating entirely on the generics squeeze, the same kind of alliance could step in and do the same thing on the branded side. PD-1/L1 drugs, for example, have been multiplying quickly, leaving them vulnerable to a nonprofit development program that could genericize expensive drug categories. Drug developers won’t be threatened by the current plan in place, but any tweaking of the nonprofit model will be carefully scrutinized.


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