9 things to know about the hospital-owned generic drug company

Seven major health systems joined forces to form a nonprofit generic drug company, named Civica Rx, to address drug shortages and combat the rising price of medications.

Here is a breakdown of nine things to know about the hospital-owned drug company:

1. The health system players involved. In January, Salt Lake City-based Intermountain Healthcare announced its intent to partner with other health systems to establish a generic drug company. On Sept. 6, the Utah-based provider disclosed it would team up with six health systems to launch the company: Englewood, Colo.-based Catholic Health Initiatives; Nashville, Tenn.-based HCA Healthcare; Renton, Wash.-based Providence St. Joseph Health; Rochester, Minn.-based Mayo Clinic; St. Louis-based SSM Health and Livonia, Mich.-based Trinity Health. These seven health systems represent nearly 500 hospitals nationwide.

2. The other players. There are also three philanthropies involved in this venture: the Laura and John Arnold Foundation, the Peterson Center on Healthcare, Gary and Mary West Health Foundation.

3. The chief executive. Martin VanTrieste, the former chief quality officer for Amgen, will serve as Civica Rx's CEO. Prior to Amgen, Mr. VanTrieste served as vice president of worldwide quality at Bayer AG and vice president of quality assurance for Abbott Laboratories. All together, he has more than 35 years of experience in pharmaceuticals. Mr. VanTrieste agreed to lead the company without compensation.

4. The governance structure. Civica Rx will be governed by the seven health systems and the three philanthropies. In addition, the drug company's board will have representation from 25 nationwide health systems.

5. The financing. The company will be backed with a total of $100 million. Each of the seven health systems and the three philanthropies will make an upfront payment of $1 million and provide a line of credit for $9 million.  The three philanthropies provided much of the initial capitalization for the company.

6. The manufactured drugs. Civica Rx plans to market 14 hospital-administered generic drugs that have been in short supply and whose prices have risen in recent years. For competitive reasons, Civica Rx said it has not disclosed which 14 generics it will begin manufacturing. Additional products will be added to that list as shortages emerge or as requested by one of the membership hospitals.

7. Drug pricing. There will be a single price for each drug sold to every member of Civica Rx. This means the smallest critical access hospital will pay the same price as a 200+ hospital system, according to Civica's website. For some drugs there will be a significant price decrease because of the market manipulation, whereas others may see a price increase so Civica can ensure the product is available consistently.  

"For most drugs, the total hospital drug purchase price will be lower than the current cost of medications," the website reads.

8. Its headquarters. Civica Rx will be headquartered in Salt Lake City. The location was chosen for three main reasons: 1. It is a great state for start-ups due to its young emerging talent and inexpensive real estate; 2. It is currently assessing infrastructure to build an inland port; and 3. Teva Pharmaceuticals has a presence in Utah, which means there is existing generic drug infrastructure.

9. What's next? Civica Rx will begin applying to the FDA as early as 2019 to make and sell the new generics.

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