Three Ways to Fix the Drug Industry’s Rampant Dysfunction

Based on its testing, Valisure rejects about 10 percent of the drug batches it sees, for various reasons. The FDA requires generic drugs to be bioequivalent within 80 to 125 percent of the brand name drug (although because of the way bioequivalence is calculated, the actual variation is less).

For people with certain conditions, such as epilepsy or heart failure, variations in dose can be dangerous. Generic drugs also vary in their inactive ingredients. But compared to a loaf of bread or box of cereal, “you don’t have nearly the visibility or the transparency,” Light says. No list of ingredients, warnings about possible cross-contamination with allergens, or information about where the ingredients were sourced.

Valisure has just begun offering an analysis service that allows anyone to send in samples of their drugs to find out the dosage, inactive ingredients, dissolution rate, and any impurities. The cost ranges from $40 to about $100, depending on the drug; the company currently offers tests on more than 2,000 drugs.

Civica Rx is addressing a very different problem—one with life-or-death stakes. In the second quarter of 2018, hospitals encountered shortages of 282 drugs, including electrolytes, antibiotics, and anesthetics. The shortfalls forced hospitals to cancel procedures and delay treatments. Medication errors have been linked to shortages, the result of health providers seeking replacements.

By early October, just over a year after its founding, Civica Rx will begin shipping its first product, the antibiotic vancomycin, to its member hospitals. More than 35 health systems, encompassing about 900 hospitals, have invested in Civica Rx. Every hospital, regardless of size, will receive the products at the same price, VanTrieste says.

Civica Rx is contracting with a generic drug manufacturer to make the antibiotic, but will do some independent testing to ensure quality, he says.

Like much in the pharmaceutical industry, drug shortages are a longstanding problem with complex dimensions. A major contributor is price; for many essential drugs used in hospitals, it’s too low. Manufacturers don’t find older generic products profitable enough to sustain their business.

By joining together to invest in a nonprofit drug maker and commit to purchasing its products, Civica Rx’s member hospitals add certainty to the market. In return, they receive a reliable supply at fair and sustainable prices, without the price spikes that have plagued hospitals in the past. Civica Rx also plans to keep a six-month inventory to help balance supply and demand.

For VanTrieste, a pharmacist with a long career in the pharmaceutical industry, this is a passion project. He came out of retirement and is working as CEO without compensation. He wants to make the drug supply more reliable, but not to eliminate competitors. That’s why he says Civica Rx plans to make about half of the supply that hospitals need.

“The more competition you have, the better the product will be at the most affordable price,” he says. “We do not want to be the sole supplier and become the problem we’re trying to solve.”

Transparency is a common theme among these pharma-related startups. Civica Rx will post information online about where its products are made. Another startup, Capital Rx, is challenging the way medicine prices are set at the pharmacy.

Companies that process prescription claims, known as pharmacy benefit managers, typically make money by charging more to employers than they reimburse to pharmacies. But secrecy in pricing means employers don’t know whether their contracted price is a good deal or a bad one.

“Imagine if you went to buy sneakers and everyone is charged a different price for the same brand, but the only price you could see was what you paid last time,” says Capital Rx CEO A.J. Loiacono. Capital Rx will charge the same unit price to all customers, based on a benchmark price maintained by the Centers for Medicare and Medicaid Services. It doesn’t make more money if a drug is more expensive. And it analyzes data for employers so they understand their employees’ health needs.

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