"the Skim" in Generic Drugs

Last Sunday’s “60 Minutes” had a story on generic drug shortages. Hospitals are running out of $5 drugs that have been curing cancer for 40 years because manufacturers don’t make enough money on them.

Surely the hospital would be willing to pay $20 for a $5 drug that important to insure supply, no?

At 8:30 in the video below, a generic drug manufacturer and a hospital supply purchasing executive sketch out the number of middle men and “health care entrepreneurs” that pocket skim in the drug supply chain. Even if the hospital paid an extra $20 to insure it would get a vital drug, it would never make it to the drug manufacturer. That’s what happens when you have a health care system optimized for Executive Compensation rather than patient health.




I’m a little surprised that no one has tried vertical integration in health care. Seems like hospital chains would own some generic drug manufacturers. Is this legal? How come it doesn’t happen?

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Low margins on generic drugs, so no “huge boost in pay” for any CEO.

Drug companies: Focus on R&D, SALES, MARKETING, IP and technology management, bureaucracy management, regulatory capture and optimization.

Hospitals: Focus on Operations, Emergency Crisis operations management, Government and private administrative receivables and payables management, OPERATIONS management of technical SERVICES staff, regulatory capture and Optimization.

Culture clash to the max, here.

Just about the only thing that aligns is a small overlap between technical service providers and technologists in the IP creation process.

The implications here for vertical integration imply less of a benefit for the pharma supply than the supply and expense portion of the operation where hospital consumables and consumable supply, distribution and optimization in the value chain.

… Unless they want to vertically integrate the lobby process?

Hospitals do have a steady baseload requirement. They also have pharmacists on staff who could lead the operation. Its the manufacturing and regulatory parts they would need to acquire.

The changes in the industry imply facilities may be available. Toll manufacturing may even be possible.

This seems like an obvious solution to the problem.

Where is Bill Gates or Jeff Bezos when we need them?

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Where is Bill Gates or Jeff Bezos when we need them?

Mark Cuban is getting into drug manufacturing.

Mark Cuban, Drug Czar: Mavs Owner Is Launching an Online Pharmacy to Help Solve Skyrocketing Prescription Costs

The Mark Cuban Cost Plus Drug Company is building an $11M, 22,000SF drug manufacturing plant in Dallas’ Deep Ellum, aiming to “disrupt and disable big pharma.” The startup plans to launch an online pharmacy selling 100 of the most commonly prescribed generic prescription drugs at a 15 percent markup plus a $3 dispensing fee.

“Our only goal is to push down the pricing of drugs for every American,” the company pledges.


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Where is Bill Gates or Jeff Bezos when we need them?

From last year:

Jeff Bezos, Jamie Dimon and Warren Buffett tried to solve health care. 3 years later, their company has shut down
Haven, an ambitious health care company formed just three years ago as a partnership between Amazon, Warren Buffett’s Berkshire Hathaway and JPMorgan Chase, is shutting down. “Haven will end its operations at the end of February,” said Haven spokesperson Brooke Thurston in an email to CNN Business. The news was first reported by CNBC.

The venture was created in 2018 with the goal of helping provide better health care services and insurance at a lower cost to workers and families at these three leading American firms – and potentially to other US companies as well.


Yes, the Buffett/Bezos/Dimon health care cooperative was unable to get a critical mass of covered workers at any one location between them to force a significant price concession from health care providers. Just another example of why every other industrialized country has some form of universal healthcare and competitive pricing.