A populist legacy comes to health care

Non-profit drug manufacturer mimics municipal electric utility strategy

Two items in this morning’s news remind me how American history is replete with examples of citizens banding together to rein in abusive corporate monopolies.

Item one: Civica Rx, the non-profit manufacturing company started by a coalition of hospital systems in 2018 to combat generic drug price gouging, now includes Anthem, the nation’s second largest private health insurer with 40 million members.

Item two: Dennis Kucinich, 74, the eight-term progressive Congressman (1993 to 2013) and former presidential candidate (2004 and 2008), is running for mayor of his hometown of Cleveland, a post he held from 1977 to 1979.

Now you are probably asking yourselves: How exactly are these two news items related? The issue that propelled Kucinich into the national spotlight when he first ran for mayor was the attempted takeover of Cleveland’s municipally owned electric utility by the local private utility.  Kucinich’s election doomed that effort and preserved the lower rates provided by public ownership.

Civica Rx is creating something similar for drugs.

Civica Rx was launched in 2018 to address the periodic shortages and accompanying price spikes for generic drugs routinely used in hospitals. It is a classic case of market failure. Whenever price competition drives most generic manufacturers from a field, the last one left standing often raise prices dramatically. In a few cases, hedge fund operators like the convicted felon Martin Shkreli bought the sole manufacturer and raised prices astronomically.

Civica Rx’s initial roster of 12 health system members with 250 hospitals has grown to 50 systems and 1,400 hospitals or nearly a third of the sector. The non-profit firm initially relied on contract manufacturers to produce drugs priced on a cost-plus basis for its members. In January, the company broke ground in Virginia for a $125 million plant that will produce low-priced injectable generic drugs.

Its mission has also grown beyond production. Anthem, the Blue Cross and Blue Shield Association and 17 independent Blues companies now belong to its CivicaScript subsidiary. Its mission is to deliver cost-plus-priced generic drugs to pharmacies with the savings passed along to retail consumers.

It will initially focus on six to 10 generic drugs that have few or no competitors and where price gouging has become routine. While it hasn’t released a target list, possibilities include insulin and an epinephrine injector (a competitor for Mylan’s EpiPen), both of whose prices have soared in recent years.  

"We will only market drugs where there is a market failure and clear abuse," Dan Liljenquist, Civica board chairman and chief strategy officer at Intermountain Healthcare, told Modern Healthcare. "We want to be in a position where we are never at the mercy of a (monopoly) manufacturer again."

I’ve editorially supported CivicaRx’s mission since its formation was initially announced more than three years ago. Its leaders’ expansion of the original vision provides a roadmap for others seeking innovative approaches to dealing with the broader drug pricing problem. Top among those: a lack of biosimilar competition for specialty drugs and the opaque prices negotiated by pharmacy benefit managers like CVS Caremark and OptumRx.

If Congress fails to give Medicare drug price negotiating power, why not establish a nationwide, non-profit PBM? It could negotiate on behalf of its Medicare drug plan members and would be well-positioned to offer guaranteed purchasing contracts to biosimilar manufacturers – including CivicaRx – that rapidly enter the market after high-priced specialty drugs lose their patent protection.

The movement to create municipal utilities across the U.S. arose as part of the populist movement in the late 1890s. According to the American Public Power Association, 15% of Americans in 2,000 communities in 49 states still get their power from a municipally-owned power plants or transmission lines. They pay on average 11% less than investor-owned utility customers. Cleveland is still among them.

"It's an immoral practice to charge people the least affordable, highest price," Liljenquist said of CivicaRx’s drug price mission. "We want to pop the price bubble so we could have a market price that is fair and not opaque."