Vaccinating Health Care Supply Chains Against Market Failure: The Case of Civica Rx

Abstract

Summary This article focuses on the value of introducing novel business models into health care to address market failures that are hurting people — delving deeply into learning from real-world examples within the generic drug supply chain and its failure to supply critical medicines reliably at a low cost. Some problems in health care are so complex that traditional private-sector or governmental interventions alone have not been able to solve the problems. In an original response to ongoing generic drug shortages, in 2018, seven U.S. health systems and three philanthropic organizations founded a novel not-for-profit drug manufacturer, Civica Rx, to address the issue. Civica is a new entrant in this supply chain and utilizes a new business model called a health care utility that prioritizes access over profit. The company has been scaled rapidly and now provides more than 75 critical medications that are most at risk for shortages to more than 55 health systems across the United States. This article provides the first empirical evidence of Civica’s effect on security and cost of supply for one of its member health systems by utilizing internal supply chain, pharmacy, and external market data between 2016 and 2022. Results show that Civica was able to improve generic drug access above the wholesaler model. Using data related to 55 Civica orders of 20 distinct products between 2020 and 2022, the authors estimate Civica’s fulfillment of its contractually guaranteed volume at 96% (95% confidence interval [CI] = 92%–100%), whereas data on 302 wholesale orders for the same products over the same period estimate the wholesaler order fulfillment rate at 86% (95% CI = 82%–90%); the difference between these rates is statistically significant (P = 0.03). In addition, through its reserve supply of product, Civica offered a product access benefit of a further 43% above the Civica-guaranteed minimum viable volume floor. Wholesaler prices, at the order level, were estimated to be on average 46% above the Civica price for the same product in the same year (95% CI = 27%–64%, N = 302), with a P value of the difference of less than 0.001. However, through optimizing its wholesaler orders by buying more volume when prices were low from the 62 different non-Civica manufacturers, this closed the actual achieved cost-savings gap between the wholesalers and Civica to 2.7% in aggregate, with Civica still being the lower-cost option.