VA is getting into the drug manufacturing business

Jonathan Kaupanger
April 13, 2018 - 11:24 am



To help combat shortages and the ever climbing cost of prescription drugs, Veterans Affairs is getting into the generic drug business.

“As an organization which must have an affordable and stable supply of generic pharmaceuticals to fulfill its healthcare mission, the Department of Veterans Affairs looks forward to the value this new company will bring to healthcare in the United States,” said Dr. Carolyn M. Clancy, executive in charge of the Veterans Health Administration.  “Increasing generic drug manufacturing capacity will generate a more stable generic drug supply and will reduce the negative clinical impact of chronic drug shortages, including the impact on our nation’s veterans.”

The new drug company, yet to have a name, is the result of a partnership with VA and four US health systems which represents more than 450 hospitals. Intermountain Healthcare, Ascension, SSM Health and Trinity Health are already onboard, but since the announcement was made earlier this year, an additional 70 hospital systems have expressed interest in joining. 

The new company plans to be an FDA approved manufacture and will either make the drugs directly or sub-contract with reputable manufacturing organizations. The hope is that the new company will give lower cost and a more predictable supply of generic medicines.

“It’s an ambitious plan,” said Dr. Marc Harrison, CEO of Intermountain Healthcare. Harrison believes this collaboration is a game changer for the generic drug market.  “Healthcare systems are in the best position to fix the problems in the generic drug market. We witness, on a daily basis, how shortages of essential generic medications or egregious cost increases for those same drugs affect our patients. We are confident we can improve the situation for our patients by bringing much needed competition to the generic drug market.”

Some generic drug manufactures have been criticized recently for the arbitrary price increase and for making artificial shortage of medications. Much of the current problem is due to a reduction in the number of suppliers and consolidation of production so there can be a concentration of market pricing power. To help fight this, the new company plans to directly ship its meds to hospitals, cutting out pharmacy benefits managers and wholesalers.  It will also publish product prices online to increase transparency.  

The new company plans to start operations this fall and will focus first on drugs that are currently in short supply. Last year, VA spent just about $7 billion on prescription drugs for the 4.9 million veterans using the VA pharmacy system.