Fed up with high costs and supply shortfalls, several health care systems are banding together to form a nonprofit generic drug company.

The health systems — Intermountain Healthcare, Ascension, SSM Health and Trinity Health, in consultation with the U.S. Department of Veterans Affairs — said the new company will make key generic medications more available and affordable and boost competition in the U.S. generic drug market. The five organizations, represent more than 450 hospitals nationwide, also said they expect other health systems to join the initiative.

“It’s an ambitious plan, but health care systems are in the best position to fix the problems in the generic drug market,” according to Marc Harrison, president and CEO of Intermountain Healthcare. “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.”

The new generics company would be a Food and Drug Administration-approved manufacturer and either directly make the drugs or subcontract their production to contract manufacturing organizations.

The organizations said the company will seek to stabilize the supply of essential generics administered in hospitals — many of which have experienced chronic shortages — and provide lower-cost generics in more predictable supply.

“All Americans deserve access to high-quality, affordable care. The best way to control the rising cost of health care in the U.S. is for payers, providers and pharmaceutical companies to work together and share responsibility in making care affordable,” explained Laura Kaiser, president and CEO of SSM Health. “Until that time, initiatives such as this will foster our ability to protect patients from drug shortages and price increases that limit their ability to access the care they need.”

Referring to news reports, the organizations said some generic drug manufacturers have been criticized for unwarranted, arbitrary price hikes and for creating “artificial shortages” of vital medications — the result being the price of certain generics soaring over 1,000% in only a few months for no apparent reason. However, the health systems say, research into the actual costs of manufacturing and distribution of such generics indicates that their prices often can be reduced to a fraction of their current costs.

“As an organization which must have an affordable and stable supply of generic pharmaceuticals to fulfill its health care mission, the Department of Veterans Affairs looks forward to the value this new company will bring to health care in the United States and applauds Intermountain Healthcare, Trinity Health, SSM Health and Ascension for this initiative,” stated Carolyn Clancy, executive in charge at the VA. “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.”

Many of the well-publicized problems in the U.S. generic drug market can be attributed to a decrease in the number of suppliers, consolidation of production volumes and a concentration of market pricing power, the health systems noted. These factors are especially a problem with older generics that hospitals rely on to take care of desperately ill patients, they said.

“For people in the United States, there is a dangerous gap today between the demand and supply of affordable prescription drugs,” observed Richard Gilfillan, CEO of Trinity Health. “If the only way to provide our communities with affordable drugs is to produce them ourselves, then that is what we will do. We look forward to more health care systems around the country joining this people-centered effort.”

Plans call for the creation of the not-for-profit generic drug company to be steered by an advisory committee that includes well-known experts from the pharmaceutical industry, business and government. They include: Madhu Balachandran, retired executive vice president of global operations, Amgen; former Centers for Medicare & Medicaid Services (CMS) administrator Don Berwick, president emeritus and senior fellow, Institute for Healthcare Improvement; Clayton Christensen, professor at the Harvard Business School and founder of Innosight; Bob Kerrey, managing director, Allen & Company, and former Nebraska governor, U.S. senator and pharmacist; and Martin Van Trieste, retired senior vice president and chief quality officer, Amgen.

“This initiative has the potential to greatly expand the availability and affordability of critically needed medications for millions of Americans, especially for people living in poverty and those most vulnerable,” commented Anthony Tersigni, president and CEO of Ascension. “Rather than waiting and hoping for generic drug companies to address this need, we are taking this bold step on behalf of those we are privileged to serve.”