Speaker 1 (00:05):

Welcome to Hospitals in Focus from the Federation of American Hospitals. Here’s your host, Chip Kahn.

Chip Kahn (00:15):

Hello and welcome to Hospitals in Focus. We so appreciate your listening. For over a decade, drug shortages have plagued hospital patient care, growing into a persistent problem that sometimes leads to care delayed or even procedures being cancelled. Deeply concerned about the stumbling block to patient care, hospitals took the proverbial bull by the horns in 2018 creating Civica, a non-profit pharmaceutical company that today helps more than 60 million patients. Longtime listeners may remember we interviewed Martin Van Trieste, the first CEO of Civica in June of 2019 when this venture was just getting started as a concept. It is now grown into a great success, one that currently delivers vital drugs to hospitals across the country. So what is next for Civica as it takes care of patients’ needs and provides access to affordable medicines when they’re needed? Joining us today is Allan Coukell, Senior Vice President for Public Policy with Civica.

(01:34):

Thanks for being with us today Alan.

Allan Coukell (01:36):

Good to be with you.

Chip Kahn (01:37):

Allan, let’s start off with where we are today. As I said, we talked to Martin Van Trieste a number of years ago. Where’s the problem? What’s the status of drug shortages and where are we today with the problem that propelled large systems like HCA Healthcare, Mayo, Common Spirit Health, and others to form Civica in the first place?

Allan Coukell (02:04):

It’s interesting, Chip, when we first started dealing with chronic drug shortages going back 15 years now, it seemed like at the time it might’ve been a perfect storm. A couple of injectable drug facilities went down at the same time and all of a sudden we had a lot of shortages. 15 years on drug shortages are as high as they’ve ever been, partly because we’re seeing some rebound effects from COVID as inspections start up again.

(02:32):

But we now have to understand that drug shortages are not a passing storm, actually a systemic output of how we purchase and procure generic drugs. So they’re an entrenched part of the system now.

Chip Kahn (02:46):

Boy, this is really sad considering the great advancements that are taking place in our system that drugs that have been used for ages get left behind, which I assume is part of the problem. Can you describe for our audience what the Civica model is? How you assess what drugs ought to be considered for your purposes, and then what’s the relationship between how you produce or license those drugs and how you get them to the bedside?

Allan Coukell (03:19):

Absolutely, and I think my first answer was sort of downbeat. So let me give you the good news, which is I think we know a lot about the causes of drug shortages. And so the Civica model is really a creation of hospitals for hospitals to address some of those systemic weaknesses that cause shortages.

(03:39):

And so it starts with the drugs that we choose to supply are actually chosen by a committee of physicians and pharmacists from hospitals that meets quarterly and they look at what are the drugs that are in shortage or that are at high risk of going into shortage in the future and those are the ones that they select for CIVICA to supply. So we’re delivering 80 drugs now. All of them chosen because they’re shortage drugs or are at risk of shortage. And then once we’ve chosen those drugs, we do some things that are different from the market that are intended to address some of those underlying causes of instability. One is that hospitals enter long-term purchase contracts, and then we in turn enter long-term contracts with our suppliers. That brings a lot of stability of supply to the market. It also gives us tremendous price stability. And then because we have that predictable demand from hospitals, we’re able to build up a buffer inventory.

(04:37):

We target about six months for every drug. And that way if somebody drops out of the market or if one of our own suppliers has a problem, we have that buffer and we can continue to supply without any interruption. So I’ll just give you a little example. When a tornado hit a Pfizer facility in North Carolina last year, we had 21 drugs that overlapped with products that were manufactured in that facility. And of course immediately hospitals around the country said, “How am I going to meet my needs for those drugs if that facility is not producing?” We were able to go to all the Civica hospitals and there are 1500 of them now and say, “We’ve got you covered. Whatever your baseline commitment for those 21 drugs is, we can supply double that committed volume because we have this buffer inventory.” And then the other thing we do is look really carefully at our sourcing.

(05:28):

And so often the market’s going just to the cheapest approved drug, wherever that happens to come from. We choose our suppliers really carefully. We select US suppliers whenever available. Our second choice is to go to Europe or Canada, another highly regulated economy. And then we have a really intensive hands-on process of auditing them for quality. And so we’re choosing a supplier not just because they have good pricing, that’s still part of it, but because we think they’re less likely to have a failure to supply.

Chip Kahn (05:57):

I think you said there were around 1500 hospitals participating. In terms of scalability, what do you see in the future? Are you going to keep at that level? Do you see it expanding to… Obviously we have more hospitals across the country. What do you see as the future of the role of Civica in terms of the almost 5,000 hospitals we have generally?

Allan Coukell (06:22):

Yeah, we would love to have more hospitals and I think this is actually a really good time to join the organization. We have really figured out the distribution channel. We have our own manufacturing facility that’s about to come online. And so we’re really poised to take a model that’s been validated over the past five years and really shown its reliability and also net cost savings over time and scale that up. And of course, the more hospitals we have and the more purchase commitments we have, the greater our ability to reduce shortages.

Chip Kahn (06:59):

So there are two aspects of what you’ve described that are very interesting, which I’d like you to go into more depth of. One is that you have this, I think six month supply of the chosen pharmaceuticals. And second, you’re now about to get into actually the manufacturing, not just the sourcing business. How do those two relate to each other? And on the second question, how do you think having a manufacturing plant is going to change at all what you do?

Allan Coukell (07:29):

So the purpose of the buffer inventory is because pharmaceutical production’s inelastic. And so we’ve all seen this where even if you’ve got four different manufacturers approved to make the same generic drug, if one of them drops out of the market because they have a quality problem or they’ve decided they can do better using their line to make some other product, it takes a long time for other manufacturers to step in, crank up their production and fill that gap. And so you have a shortage for quite a prolonged period. And so having that buffer inventory really smooths out those kinds of disruptions. When we have our own facility, it’s a facility that will be able to change lines over quite quickly and it’ll give us a lot of nimbleness to respond, but I think we’ll continue to maintain a buffer stock just to provide an insurance policy.

(08:20):

And as long as we have that committed volume, we can be selling the older stock and continually replenishing it. But when we have our own manufacturing facility, of course, first of all, we have control over the quality, and I’m happy to say that it’s a brand new state-of-the-art generic manufacturing facility, and we’ll be manufacturing dozens of different products there with a lot of ability to scale up to meet demand. And it’s a facility really that can serve a lot of hospitals.

Chip Kahn (08:52):

Are all of your 80 drugs and however that list will expand over time? Are they all generics or are there some brand drugs there too? And how does brand relate to this? Because there still could be shortages of drugs that a particular pharmaceutical company controls.

Allan Coukell (09:10):

There can be shortages of brand drugs, but mostly the drug shortage problem is a generic problem. And the reason for that is usually the margins on a brand drug are pretty healthy. And so the company has an extremely strong interest to make sure they’ve got adequate production capacity, whereas generic drugs are really, really low margin products. And because the market chases prices down to very, very low levels and often we’re talking about a dollar a vial, even less, manufacturing tends to go overseas to low wage economies. They tend to have a lot of quality problems. And so you end up with shortages there. So all the drugs we’re supplying are generic or off patent products.

Chip Kahn (09:57):

Do you see any future in terms of direct to consumer for Civica, considering what you’re describing as drugs that are essential for care but may not be economic in terms of having a pharmaceutical company that’s interested in producing them?

Allan Coukell (10:15):

Yeah, it’s interesting. So the original mission that hospitals came together around was, “Let’s have a reliable and affordable supply of essential drugs.” That’s the drug shortages mission. But when we started a nonprofit pharmaceutical company, people immediately said, “Oh, that’s really interesting. Can you do anything about price of drugs at the pharmacy counter?” And so we’ve started an operating unit called CivicaScript, and there the focus is really affordability. So it’s not so much drugs where there have been shortages, but it’s looking at drugs still in that off patent, out of exclusivity space, but where the market isn’t working to bring prices down the way it should. You’ve got lots of places now where a consumer might show up at the pharmacy counter, and even though the drug’s generic, they’re looking at hundreds, even thousands of dollars of out-of-pocket costs. And so we’re taking products on a really targeted basis there saying where are the pain points where we can bring those prices down for consumers? And so that’s an initiative that we’ve created in partnership with a whole group of health plans.

(11:18):

And so those drugs will be distributed, are being distributed through pharmacies really to lower costs for consumers.

Chip Kahn (11:25):

That’s great Allan. Let’s talk a little bit about the policy and politics of this area that Civica is in. And I know Allan, that you’ve testified several times before the House and Senate committees. From a public policy standpoint, what are your priorities and would you have testified, what were the points you were trying to make in terms of public policy regarding pharmaceuticals to the members of Congress?

Allan Coukell (11:53):

The first and most important point is just to get across that idea that this isn’t a passing phase. Drug shortages are a result of the system as it is, and if we don’t change that system, we’re going to live with shortages into the future. And I really want policymakers to understand that and hospitals too. But then the question is, all right, so what are the changes that we need?

(12:17):

And right now we have a system where everybody’s incentivized to go out there and buy the lowest cost generic and not necessarily to look at reliability of supply. And so what we’re strongly encouraging policy policymakers to do is to look at things like how do you pay hospitals a little bit extra so that they can contract with somebody to carry a buffer inventory? How do you build in a recognition of some sort of process of vetting suppliers for quality? So you’re looking at price, but you’re also looking at who are those manufacturers who have a good culture of quality and are less likely to produce a supply shortage? We had CMS last year propose a supplemental payment to hospitals who created a buffer inventory. They decided not to go forward with that, but they said they’re going to come back and continue to look at this.

(13:05):

So both at the congressional level and at the level of the administration, I think we do have policymakers who are starting to hear that message that we have to do something different. I think there are also some targeted investments that Congress could make to shore up the domestic manufacturing base and make sure that we have basically an insurance policy so that we have high quality US manufacturers ready to go when a shortage hits.

Chip Kahn (13:32):

Along those lines, I think COVID provided some object lessons for the way that hospitals operated in terms of their cost containment efforts, because most hospitals, I think, really have tended towards just-in-time supply because they didn’t want to hold a lot of inventory. And I think when it came to PPE and other essentials during COVID, and now obviously in the drug area, being just in time may be the wrong time when it comes to actually providing the care in terms of what hospitals need to do.

Allan Coukell (14:11):

I think this is the beauty of the Civica model is it lets hospitals continue to operate just in time. They don’t have to have a whole lot of capital tied up. They don’t have to have space, they don’t have to have people managing a lot of inventory, but they know that somebody just upstream of them is holding dedicated inventory on their behalf that will be there if and when they need it.

Chip Kahn (14:34):

Along those lines, do you think you’d ever go into other areas of supply, even beyond drugs themselves?

Allan Coukell (14:41):

Well, listen, we’ve got a lot on the go right now. We’ve got a manufacturing plant to start up. We are developing three different types of insulin to address the cost of insulin in the market and growing that hospital business. So never say never. I think this whole model, which we think of as a healthcare utility, has a lot of other potential applications, but our focus right now is really continuing to address the problem of drug shortages and that problem of high cost generics in the retail pharmacy space.

Chip Kahn (15:14):

Well, Allan, this has been so informative and I really appreciate you taking time to be with us and letting our public know about the role of Civica and what Civica has accomplished. And I wish you luck as you proceed with the new pharmaceutical facility and hope that it really will be the kind of game changer that your sponsors expected. You’ve had success before and as every reason to believe that we can be optimistic about the next stages for Civica.

Allan Coukell (15:47):

Thanks Chip. Really great to talk with you.

Speaker 1 (15:54):

Thanks for listening to Hospitals in Focus from the Federation of American Hospitals. Learn more at fah.org. Follow the Federation on social media @fahhospitals and follow Chip @ChipKhan. Please rate, review, and subscribe to Hospitals in Focus. Join us next time for more in-depth conversations with healthcare leaders.

Allan Coukell is Senior Vice President Public Policy, Civica & President, Civica Foundation.

He is responsible for public policy for Civica and CivicaScript, and oversight of Civica’s 501 (c)(3) Foundation, which raises funds to help make essential medications such as insulin available and more affordable. Allan has testified before Congress on the topics of drug shortages and high drug prices and is often a resource for government teams developing federal and state policy designed to benefit patients.

Allan previously led Health Programs at The Pew Charitable Trusts, where he created a wide range of health initiatives. A clinical pharmacist by training, he also spent many years as a journalist. He holds a Bachelor of Science in Pharmacy from the University of Manitoba.