GRAND RAPIDS — Spectrum Health joined a consortium of large health systems across the U.S. as way to reduce the cost and ensure the availability of generic medications.
Through the nonprofit Civica Rx, the Grand Rapids-based health system hopes to cut by 20 percent or more the cost of generic drugs used in surgeries and patient treatments.
In making a five-year commitment to the consortium, Spectrum Health wants to diversify its supply chain, create greater reliability, buy critical generic medications at “the lowest rates we can” and avoid future price spikes, said Roger Jansen, president of Spectrum Health Ventures LLC.
“In the complex world of health care, people forget that we have to purchase the products we use, too. So this is a great way of ensuring we’re purchasing them at the best price points and the highest reliability,” Jansen said. “We can lock in cost savings with those other systems to ensure not only availability but that we’re driving down the costs so we don’t get into the EpiPen dilemma, as we’ve all read about.
“All of our modeling indicates that should work out very well for us.”
Spectrum Health was among a dozen new founding members to join Civica Rx, which plans to begin producing generic medications later this year to address periodic drug shortages and rising prices.
The new founding members add 250 more hospitals into the Salt Lake City, Utah-based Civica Rx, which seven large health systems and three philanthropic organizations formed last year.
The consortium also includes Livonia-based Trinity Health, which owns Mercy Health Saint Mary’s in Grand Rapids and Mercy Health Muskegon. Trinity Health is one of the seven governing members of Civica Rx that hold a seat on the board of directors.
Spectrum Health has 15 hospitals across West Michigan and initially intends to use Civica Rx for half of its generic drug purchases, Jansen said. That will increase over time as Civica Rx moves beyond startup mode.
“Once we feel all the wrinkles are out or if there’s any startup issue we have to work through, then we’ll probably migrate upstream and increase upwards from there,” Jansen said.
In the 2018 fiscal year, Spectrum Health spent $14.2 million on generic drugs, which represents about 12 percent to 15 percent of total drug spending. Lakeland Health in St. Joseph, which Spectrum Health acquired last fall, spent another $5 million.
Spectrum Health has seen “a steady upward trend over the last few years” in generic prices, said Ryan Foster, senior director of pharmacy at Spectrum Health Hospital Group.
When facing a shortage, the health system has been able to shift from using one generic to another, Foster said.
“The supply side is arguably as important, if not more important, than pricing alone,” he said. “The costs associated with managing changes and sourcing alternative products are not included in the drug price trends, but escalate very quickly for any given shortage.”
Civica Rx’s website links to a database from the American Society of Health-System Pharmacists that has a constant list of drugs in short supply such as injectable Heparin, an anticoagulant.
Civica Rx could begin producing 14 of the most commonly-used hospital-administered generic drugs by this fall, either directly or through a U.S. Food and Drug Administration-approved contract manufacturer.
With the additional members, about 750 hospitals now are involved in Civica Rx, “with many more health systems expressing interest,” according to an announcement about the new founding members.
“We are thrilled to welcome these highly-regarded health systems to Civica as founding members,” Civica Rx CEO Martin VanTrieste said. “Drug shortages have become a national crisis where patient treatments and surgeries are canceled, delayed or suboptimal.”
Mike LaPenna of The LaPenna Group Inc., a health care consulting firm in Grand Rapids, considers the formation of Civica “a truly disruptive event.” Civica essentially uses a co-op model “unknown and untested in the pharmacy space” that brings needed innovation to the market to address rising prices and shortages, LaPenna said.
“Nothing new is happening in pharma pricing. If you say, ‘Let’s look at innovation in pharma pricing,’ you cannot find it,” he said. “This has a lot to offer in concept.”
Whether Civica does its own manufacturing or contracts with a producer, the operator can scale production with certainty about demand and a built-in customer base. Unlike pharma companies, Civica will operate without the pressure to generate profits for shareholders or the need to do extensive marketing, and will distribute directly to hospitals rather than go through a pharmacy benefit manager.
LaPenna likes that Civica Rx is starting with the generic drugs that are the most commonly used at hospitals, where it can have the most impact on problems.
“They’re saying, ‘Let’s take a look at the tip of the iceberg first,’” he said. “They’re not trying to solve the whole galactic problem.”