In many cases our healthcare system doesn’t follow normal economic rules. For example, some free market forces in pharma which should result in lower prices result in the exact opposite.
In recent years some long-standing generic drugs have experienced shortages which were accompanied by price increases. However, generic prices in aggregate have been dropping over the last few years. Many longstanding generic drugs have multiple manufacturers, but over time many of them shift manufacturing to newer, higher margin generics. As a result, some older drugs — which should have low prices — now have only one or two manufacturers who raise prices due to reduced competition.
In attempt to combat the drug shortages and rising prices, seven large health systems have announced they are starting a new non-profit generic drug manufacturer. Civica Rx indicated that its initial efforts are focused on 14 highly utilized drugs with significant shortages from a list of essential medications that have spiked in price. (They have not yet named the 14 drugs.) In the short term, Civica Rx will contract with existing manufacturers to make the generics under the Civica Rx label.
A new player entering this space may drive competition – especially since it’s a non-profit. Existing players may drop prices for a period to retain existing customers. At the very least, this effort illustrates that market forces will cause big buyers to take action. It remains to be seen whether lower prices will be passed on to employer health plans.