Nonprofit Manufacturer Could Keep Generic Drug Costs Down

A nonprofit manufacturer could help keep generic drug prices down and maintain their supply, according to a perspective piece published in the May 17 issue of the New England Journal of Medicine.

Dan Liljenquist, J.D., from Intermountain Healthcare in Salt Lake City, and colleagues discuss generic drug market failure, whereby a generic drug manufacturer increases the drug price, which can compromise care.

The authors note that other manufacturers do not enter the seemingly lucrative generic drug market partly because of the initial investment required and cost of obtaining U.S. Food and Drug Administration approval. In addition, there is concern that once a second drug is approved for the condition, the manufacturer of the original generic will reduce the price of its product. One solution is establishment of a nonprofit generic drug manufacturer with the aim of producing affordable versions of essential drugs and ensuring a stable supply. A consortium of hospitals and health plans is currently developing a nonprofit generic drug manufacturer named Project Rx. The nonprofit manufacturer, which has a legal constraint that it cannot distribute earnings, will pursue a cost-plus strategy, generating enough revenue to cover costs and maintain a limited surplus for financial viability rather than profit maximization.

"We believe that Project Rx may drive other nonprofit and for-profit manufacturers to enter generic-drug markets, compete among themselves, and collectively improve market efficiency and broaden access to generic drugs," the authors write.

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