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This past week, a group of hospitals lead by Intermountain Healthcare, a hospital group from Salt Lake City, Utah, have made an interesting announcement. Around 450 hospital groups in the United States are coming together to create a nonprofit drug company that will aim to sell and manufacture their own generic drugs (New York Times). While the group is currently keeping themselves very tight-lipped about what drugs they will be making (to make sure that other companies can’t just adjust their own prices to keep this new brand from taking off), the current idea is that the company will be making generic drugs that are either highly priced or prone to shortages. This has come from a long standing complaint from both hospitals and patients, as they have accused pharmaceutical companies in the past of pricing drugs too high and subsequently raising the bills of both the hospital and the patient. This new company aims to start by distributing drugs only to hospitals and then later expanding if it can. This announcement is interesting, as it has the potential to shake up the status quo of generic drugs.
This new company is currently aiming to market drugs that are currently priced too high. Along these lines, there has also been a growing sentiment with hospital patients to forgo medicine in the interest of their wallets. Hospitals and patients are buying drugs at very high prices they can’t afford to refuse, but they still cannot afford as much as they’d like, causing shortages. It is important to note that the drugs that the new company is trying to make are all off-patent, meaning that it is no longer protected by the government (when drug companies create a new drug, they have 20 years after their patent is approved to be the only seller of the drug—this is to protect their intellectual property so that they can make money off of their research, just as there are laws to keep people from copying songs after they’re made). After the patent runs out, generic companies are potentially able to take the drug and sell a non-name brand version of it. Often this version is priced lower than the name brand. For a company to sell this drug, it also has to go through an approval process by the FDA, the Food and Drug Association (FDA). The idea is that after the original company had sufficient time to sell its drug and reap the well-earned rewards of its research, generic companies have the opportunity to sell generic versions of the same drug to try to make some money as well, but not until the FDA is able to make sure that the drug is safe and will do the same thing as the original name-brand drug. However, there have been new hurdles for both generic companies and consumers.
The first problem is actually for the generic companies. Certain brand name companies have found ways to keep generic companies from getting enough of the potential drug to study it, replicate it, and have it tested by the FDA, allowing the brand-name company to still sell it as if it had a patent still on it. The brand name company uses something called “controlled distribution networks” to make sure that generic companies cannot get ahold of enough of the drug (pharmalot). If the company gets an order from some generic company, they simply don’t send anything. This allows the drug company to sell their product at a high price. The next problem is that generic companies have also been accused of colluding—and illegal action of coming together to fix prices to act like a monopoly (Reuters). The problem here is that both hospitals and patients are forced to buy these new artificially high-priced drugs instead of buying these products in a healthy competition. This new company aims to help break this monopoly by making and selling drugs to hospitals at a reasonable price. This will finally inject some healthy competition into the mix, keeping drug prices from skyrocketing.
This new company that the hospitals are making is going to be a great addition to the current generic medicine market. Because of the current high prices of medicine (but the inelasticity of the product), a new company is going to rise and challenge the current state of things. The current companies will have to adjust to this new competition, which will both benefit the consumer and the other companies. I don’t know how this new pharmaceutical company is going to go, but I am glad that it is a thing.