Major Insurers Pledge $55 Million to Try to Lower Generic Drug Prices

A major group of insurers said it would invest $55 million to create cheaper versions of expensive generic drugs for which there is little competition, in a further sign of dissatisfaction with the pharmaceutical industry’s price-setting practices.

The decision by the Blue Cross Blue Shield Association and 18 of its member organizations, which insure about 40 million people, is part of a partnership agreement with Civica Rx, a nonprofit that is already selling drugs used in hospitals to health systems around the country.

Frustrated with high drug prices, especially on essential medicines like insulin, state and federal lawmakers have signaled interest in manufacturing generic medications to try to lower costs for millions of Americans. Gov. Gavin Newsom of California recently floated a similar proposal, in which the state would contract with outside manufacturers to sell generic drugs under the state’s own label. And Senator Elizabeth Warren, the Massachusetts Democrat seeking her party’s presidential nomination, has advanced a similar proposal.

The insurers and Civica declined to name specific drugs that would be targeted, saying they did not want to tip off potential business rivals. They said that they would start with seven to 10 products that have little competition and that some initial products could become available by early 2022.

Generic drugs are typically cheaper than brand-name products that have patent protection and no competitors. But in recent years, there have been notable exceptions: Entrepreneurs like Martin Shkreli bought up old, off-patent drugs that had no competition, then raised the prices. The drugmaker Mylan took a similar approach with the EpiPen, which contained an old, generic drug. And federal prosecutors have been investigating what they described as wide-ranging price-fixing schemes by the major generic manufacturers, including Mylan.

Dan Liljenquist, the chairman of Civica’s board, said he was motivated to help create the nonprofit after reading about struggles by patients to afford old, off-patent drugs like those sold by Mr. Shkreli and Valeant Pharmaceuticals International, a company with a similar business model.

“This will not solve all the problems of the world,” Mr. Liljenquist said, “but we do know that 90 percent of prescriptions are generic, and there are certain parts of the generic markets that are not functioning like competitive markets should. And we intend to compete in those markets.”

Maureen E. Sullivan, the chief strategy and innovation officer at the Blue Cross Blue Shield Association, said the group could eventually target insulin, a product that has been on the market for decades but whose list price has steadily risen, making it difficult for many patients to afford.

“Given the level of interest, we will be exploring that in the early years,” Ms. Sullivan said. She said the group planned to identify drugs that affect large numbers of people and that appear to be “stuck at a higher price.”

Thomas Goetz, the chief of research at GoodRx, a consumer site that tracks the price of drugs in pharmacies, said some commonly used generic medications could carry list prices of more than $100. He cited the steroid cream clobetasol, a topical antibiotic; clindamycin, an antibiotic; and the flu treatment oseltamivir, the generic of Tamiflu.

“Routine generics are becoming really expensive, or expensive enough to cause a pinch in the pocketbook on a monthly basis,” he said.

Under the plan, Civica would create a subsidiary that would either make the drugs itself or contract with existing manufacturers. Civica said it hoped that others would join the effort, including pharmacies, employers, other insurers or others.

Created in 2018, Civica was founded by a group of charitable foundations and hospital systems to address a spate of shortages of essential hospital drugs. The group has since contracted with for-profit manufacturers and is selling 18 such drugs, including antibiotics and other products, like morphine, that have previously been in short supply. The group delivered the first drugs to a hospital in Utah last fall.

Mr. Liljenquist attributed the group’s success so far to its ability to guarantee a market to the manufacturers that are considering making the products. Nearly 50 health systems are members, representing more than 1,200 hospitals and about 30 percent of all hospital beds in the country.

“That’s maybe the most important step in stabilizing the price,” he said.

The new initiative, involving drugs that patients pick up at the pharmacy, would work on a similar model. With major insurers committed to the plan, Civica could guarantee a market that could make it easier for manufacturers to agree to work with them. Similar approaches have previously been used to entice drug makers to develop vaccines and other products for sale in developing countries.