A Proven Model to Combat U.S. Drug Shortages
By Dan Liljenquist
Senior Vice President and Chief Strategy Officer at Intermountain Health
Board Chair of Civica Rx
Drug shortages have been a chronic problem in the United States for well over a decade. A newly published report from the American Society of Health System Pharmacists (ASHP) shows drug shortages are at a record high of over 300 essential medications in short supply. Currently, on a national basis, we are seeing an acute exacerbation of shortages as several manufacturers experience quality problems, causing them to leave the market permanently or temporarily.
An existing model is proving that this problem can be overcome. Its elements include bypassing middlemen that may contribute to price and supply instability by creating a supplier whose mission is to serve health systems; having hospitals enter into long-term purchase and supply contracts with that entity; and pricing drugs on a cost-plus basis.
These are some of the elements of the model being employed by Civica Rx, a nonprofit, non-stock organization based in Utah and its member U.S. health systems. It was founded to provide older but frequently used generic drugs in short supply. Its member health systems have taken steps to mitigate the risk of shortages by changing the way they purchase essential drugs. This model offers other hospitals or health systems a guide to how they, too, could create and implement a strategy to prevent shortages.
The Impact of Persistent Drug Shortages
Cancer drugs are among the products of highest current concern, but there are shortages of all categories of generic drugs. Sterile injectable drugs are especially affected, due to the complexity of manufacturing them and their low profit margins.
Drug shortages can directly affect a patient’s health, disrupt the care a patient receives, and cause procedures to be canceled or delayed. Using alternative drugs can require changes in a patient’s treatment and can potentially increase the risk of medication error or result in suboptimal care.
Drug shortages also consume an enormous amount of time for pharmacy and hospital staff as they attempt to find new suppliers or alternatives to the drugs in short supply. One industry survey indicated shortages cost hospitals approximately $360 million annually on labor costs alone. And, while the low profit margins for generic drugs are often the driver of supply failures, once a shortage occurs, prices spike, adding to costs.
The Civica Model
Established in 2018 by health systems and philanthropies, Civica Rx is the only pharmaceutical company established specifically to address shortages of generic sterile injectable drug. After more than a decade of chronic shortages, its founding organizations recognized the market was not self-correcting and a different approach was required and created Civica, with the mission to deliver a safe, stable, and affordable supply of essential generic medicines to U.S. patients.
Civica’s hospital membership has grown to 55 health systems, which account for one-third of licensed hospital beds in the United States. Participating hospitals are large and small, urban and rural, nonprofit and for-profit. To date, Civica has supplied 175 million containers of generic sterile injectable drugs — and currently offers more than 80 different drug products such as local and general anesthetics and opioid reversal agents.
Civica delivers drugs that are in shortage or at high risk of being in shortage. They are chosen by a committee of physicians and pharmacists from participating hospitals. These drugs are typically older, low-cost, but essential medicines. They are not the products with the highest return on investment but are medications required to deliver care every day in hospitals across the country.
Because its mission is to prevent shortages, several features of the “Civica model” are different from the traditional generic drug supply chain and could inspire improvements to the larger U.S. system. In particular:
- Civica enters into long-term purchase and supply contracts that add stability to the market.
- Civica contracts directly with hospitals, rather than through middlemen that may contribute to price and supply instability.
- Civica targets a six-month buffer inventory of every drug to ensure continuity of supply.
- Civica emphasizes U.S. sourcing whenever possible, with the European Union and Canada as second choice. Finished drugs or active pharmaceutical ingredients are not sourced from China unless there is no other option.
- Civica performs an intensive quality audit of potential suppliers and ongoing reviews of key metrics to maintain adequate supply and reduce the risk of drug shortages.
- Every drug is sold on a cost-plus basis, with the same price available to all participating hospitals. Prices remain stable even when the drug is in short supply.
- Civica has built a new, state-of-the-art sterile injectable manufacturing facility in Petersburg, Virginia, and is developing its own generic drug applications to further ensure supply of essential medications.
The Civica model has already demonstrated benefits. Twenty of the top 25 drugs Civica manufactures or distributes are currently in shortage nationally, but Civica is able to provide supply without interruption. When a 2023 tornado hit a facility in North Carolina that manufactured generic drugs, the Civica portfolio included 21 products that overlapped with products produced in that plant. Civica immediately let member hospitals know they could provide double their committed volume for all 21 drugs.
A Case in Point: Insulin
Over the last 20 years, the average list price of insulin has increased by about 11% each year, with annual per capita insulin costs nearing $6,000. Many of those who can least afford insulin — the uninsured or underinsured who are forced to pay list prices — are rationing insulin as they are slowly ground into poorer health and poverty.
Some help has come from the Inflation Reduction Act, which caps insulin out-of-pocket spending at $35 per month’s supply of each insulin product covered under a Medicare Part D plan, with similar limits for out-of-pocket costs for insulin supplied under Part B, and reduces out-of-pocket drug spending in Medicare in other ways. These provisions will make insulin more affordable for people covered by Medicare, but not everyone.
Civica is also taking steps to address this problem. It is working to bring three generic biosimilar versions of insulin to market — glargine, lispro and aspart — which represent around 80% of insulin prescriptions in the United States. The company will dramatically lower the market price of insulin by introducing its insulin at a low sustainable price: no more than $30 per vial or $55 for a pack of five pre-filled pens. Not only will Civica publish its wholesale prices (a model Civica follows today with more than 80 medicines it provides to U.S. hospitals), but it will also publish a maximum retail price on its packaging and webpage so that patients will know if the price they pay at the pharmacy counter is a fair price.
Perhaps most importantly, Civica will not participate in any rebate schemes. Both fast-acting and basal insulins are among the highest rebated drugs in America. Each year, patients with diabetes are paying much more than they should for insulin. The same is true for other drugs. These systemic overpayments are collected from patients by Pharmacy Benefit Manager companies at the retail pharmacy counter and “rebated” on the back end to wholesalers, payers, and employers, with each segment of the supply chain taking its cut.
These “middlemen” in the current insulin market created the highway between drug manufacturers and patients, and then, after consolidating market power, these “middlemen” became “highway men” extracting ever-increasing tolls from desperate patients and families who are already dealing with a chronic disease that dominates their lives.
Perhaps predictably, after Civica announced its plans for insulin, several major suppliers of insulin in the United States announced drastically lower prices for their insulin, at least for a period of time.
More Changes Are Needed
It is important to recognize chronic drug shortages have now become a built-in outcome of the current system. Market trends and the resumption of quality-control inspections of drug-manufacturing facilities by the U.S. Food and Drug Administration (FDA) after the Covid-19 pandemic mean shortages are more likely to increase than to abate in the years ahead. That’s because the immediate cause of most shortages of sterile injectable drugs are quality problems in the manufacturing of the finished dosage form.
But it is also widely acknowledged that the root cause is the low cost of these products, which reduces the incentive or ability for manufacturers to invest in quality or newer manufacturing facilities and pushes production offshore to low-wage markets — where quality problems proliferate and the FDA presence is less consistent.
Policy responses to drug shortages should focus on changing the current system, which favors acquisition at the lowest possible price over resiliency of supply. While Civica member hospitals have taken direct action to reduce their risk of shortages, many others have yet to take such steps.
Putting Patients First
Innovative business models — like Civica’s — can lead to new markets and repair old and seemingly intractable market failures. Civica’s objective is to generate a societal return, improve medication reliability and affordability, and alleviate human suffering. It hopes to demonstrate that market solutions exist that put the needs of the patient first and always and that can help moderate the effects of a capitalism that is unrestrained by notions of right and wrong.
