Here’s the $55 million play 18 insurers are making to fight price gouging on generic drugs
Blue Shield of California and 17 other insurers announced Thursday that they would be putting $55 million behind a nonprofit that they believe can end the shortages and price gouging in the generic drug market.
Californians and consumers around the world have been subjected in recent years to price gouging on insulin, EpiPens, anti-malarial drugs and other generic medications they need. The upheaval has been so widespread that Gov. Gavin Newsom has proposed that the state get into the business of manufacturing prescription drugs.
Civica Rx has worked with a coalition of Blue Cross and Blue Shield insurers to identify drugs that are no longer on patent and that should be selling to consumers at more affordable prices, said Paul Markovich, Blue Shield of California CEO. If all goes as planned, he said, consumers could be seeing some relief on prices for some generics in two years.
“It obviously takes a long lead time to develop that pipeline, to get the bids, to negotiate the agreements,” Markovich said. “Then drug makers have to get their facilities into manufacturing the drugs. So we estimate it will probably take until 2022 for the drugs to be actually available. That’s when consumers will see a price impact.”
Former Utah state legislator Dan Liljenquist first got the idea for a nonprofit middleman like Civica Rx in 2016, he said, after reading articles about price gouging on life-saving generic drug treatments such as the EpiPen and the anti-malarial drug Daraprim.
“It made me mad,” said Liljenquist, now the chairman of Civica Rx’s board of directors. “We own these drugs as a society and yet certain groups of people have cornered the market on them and have really jacked up the price and are hurting people. That’s the kind of thing that got me thinking about it. ... The market’s not working, so how do we fix this?”
In an article in the New England Journal of Medicine, Liljenquist joined with doctors of philosophy in proposing a way to end the failures in the generic drug market. Civica Rx was the nonprofit that he and others founded to identify any gaming on generic prices and offer companies more affordable ways to get those drugs.
When it launched in September 2018, Civica Rx began by inviting health systems to contract with it to find manufacturers to produce generic drugs and negotiate reasonable rates in exchange for long-term purchasing commitments. Roughly 1,200 hospitals have signed up with Civica Rx in the last three years, Liljenquist said, and that group controls about 30 percent of the licensed hospital beds in the United States.
Because it partnered with hospitals, Civica Rx had mostly been negotiating purchases of drugs that would be given intravenously: antibiotics such as vancomycin or daptomycin or pain relievers such as morphine sulfate and naloxone.
The Blue Cross Blue Shield coalition, however, is looking to cut costs on the retail level.
“What the partnership with the payers, particularly with the Blues does, is it gives us the opportunity to start making generic drugs for people to pick up at their local pharmacies,” Liljenquist said. “Sometimes, these are drugs people will be on for their entire lives, so this partnership will dramatically extend the reach of Civica’s mission.”
To determine which drugs it wants to get manufactured, Civica Rx initially looks at medications that have been deemed essential to providing care by groups such as the World Health Organization. Then it looks at whether there are shortages of the drugs. If there are, then they will consider how they can produce more. Next, he said, they study whether the price of the drugs are reasonable. Civica Rx will only get involved if there’s a shortage or if there have been sharp price hikes.
In such cases, Markovich said, “Drugs are too expensive – for the wrong reasons. They’re not too expensive because of innovation. They’re just expensive because of intense profit-seeking in an anti-competitive environments or low-competitive environments. If we’re going to make health care affordable, a core part of our nonprofit mission, we need to figure out how to introduce competitive alternatives to ensure that we have affordable drugs available for our members.”
Markovich said that he thinks that Civica Rx’s model is exactly the sort of thing that Newsom is hoping to develop and that he is hoping to work with the governor and his team on how the BCBS agreement with Civica Rx could contribute to California’s efforts to eliminate shortages and price gouging.
“Manufacturers have the right to manufacture these drugs, but they’re not doing it,” Markovich said. “They don’t see it making business sense for them, but if a purchaser insuring tens of millions of lives showed up and were willing to guarantee over multiple years a certain supply, and in exchange, they would get a guaranteed minimum volume for a period of years. The start-up costs to manufacture that drug can be offset and turn into a pretty profitable model. They can pass along any savings to us and we in turn can pass it along to our customers.”
This story was originally published January 23, 2020 at 4:00 AM with the headline "Here’s the $55 million play 18 insurers are making to fight price gouging on generic drugs."
