Model cuts costs, boosts generic drug availability

Guarding healthcare supply chains: Civica Rx's vaccination.

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A recent study at the University of Cambridge delves into a novel model that effectively increases the supply of generic drugs while reducing prices. The model’s innovative approach offers a promising solution to a long-standing issue in the pharmaceutical industry.

Civica Rx, a nonprofit pharmaceutical manufacturer established by seven American healthcare systems and supported by three philanthropic organizations, has demonstrated its ability to enhance the reliability of drug supplies and reduce overall costs for 20 medications. These findings, published in the journal NEJM Catalyst, provide the initial empirical proof of Civica’s positive impact on the pharmaceutical industry.

The article in NEJM Catalyst, a New England Journal of Medicine family publication, said, “Results show that Civica was able to improve generic drug access above the wholesaler model. Chronic drug shortages have been an extremely challenging problem and elusive to sustainable improvement in the past. This makes these early results highly promising.”

The NEJM Catalyst article, titled “Vaccinating Health Care Supply Chains Against Market Failure: The Case of Civica Rx,” is co-authored by the co-founders of the Healthcare Utility Initiative at Cambridge Judge Business School: Carter Dredge, Senior Vice President at SSM Health in St. Louis, and Stefan Scholtes, Dennis Gillings Professor of Health Management at Cambridge Judge.

The main breakthrough discussed in the article is not about technology but the structure of healthcare supply chains.

Carter Dredge said, “The results of this study are very encouraging for patients and health systems. The innovation of Civica is not technological but rather structural: a new business model that injects a new type of supplier into a decades-old market for generic drugs to address a market failure.”

Civica operates on a different business model called a healthcare utility (HCU), which prioritizes access to medications rather than making a profit. It was founded in 2018 to tackle issues like generic drug shortages and high prices in the US and elsewhere. It supplies more than 75 critical medications at risk of running out to healthcare systems in the US.

The study points out that traditional methods, both from the private sector and the government, have yet to effectively solve complex problems in healthcare, especially in specialized supply chains. In healthcare, competition, which typically improves quality and lowers costs in many industries, works differently. 

For instance, the study highlights that in 2022, the average price of a box of five insulin pen cartridges for uninsured individuals was over $500. Due to affordability issues, this high cost forced 25% of Americans who need insulin to ration their medication.

The study compared Civica to 62 drug wholesalers and found some favorable results. They looked at 14 essential hospital drugs between 2020 and 2022.

Civica fulfilled its promised volume at 96%, while wholesalers only achieved 86%, a statistically significant difference. Civica also provided an extra 43% product access beyond their minimum commitment.

Although the initial prices from wholesalers were 46% higher on average than Civica’s, health systems managed to close this cost gap by purchasing more from other manufacturers when prices were low. Ultimately, Civica remained the more cost-effective choice, with only a 2.7% cost difference compared to wholesalers.

The 14 medicines studied include drugs for blood clot prevention, antibiotics, pain relief, and various other medical needs.

A new model is changing the way drugs are sold to healthcare systems. This model, known as the healthcare utility model, is managed by stewards rather than being owned, and it offers medications at the same clear price to all health systems. The goal is to prioritize access over profits. 

The pricing is designed to cover the necessary costs of providing drugs sustainably over five years. Civica operates under this model and was founded by seven major US health systems, including Catholic Health Initiatives, HCA Healthcare, Intermountain Healthcare, Mayo Clinic, Providence St. Joseph Health, SSM Health, and Trinity Health. 

Three philanthropic organizations, the Gary and Mary West Foundation, the Laura and John Arnold Foundation, and the Peterson Center on Healthcare, also played a role in its founding.

Civica has expanded its services and now serves over 50 US health systems, encompassing more than 1,500 hospitals and about 225,000 hospital beds. As of July 2023, they have administered more than 56 million doses of Civica medicines.

In conclusion, the study’s authors believe that the healthcare industry’s challenges can be overcome with the right approach, and they see Civica’s model as a promising solution. The study provides empirical evidence that this approach is practical.

Journal Reference:

  1. Carter Dredge, MHA, and Stefan Scholtes, PhD., Vaccinating Health Care Supply Chains Against Market Failure: The Case of Civica Rx. NEMJ Catalyst. DOI: 10.1056/CAT.23.0167.

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