By Sarah Karlin-Smith

A non-profit generic drug company led by some well-known U.S. hospital systems and the Department of Veterans Affairs is trying to expand the market for inexpensive medicines — fast.

The nonprofit aims to fulfill two needs. It wants to produce generic drugs that are in short supply. And it's trying to create more competition for pricey, older off-patent drugs so that they become more affordable.

The fast-rising company could soon count one-third of all U.S. hospital operators as its members.

Seventy hospital systems have expressed interest in joining the venture since its launch about six weeks ago, said Dan Liljenquist, vice president at Intermountain Healthcare in Utah, one of the lead institutions behind the project, on Monday.

The driving force behind the plan is not a typical nonprofit backer but a businessman who adamantly believes in the role of capitalism in health care.

Liljenquist, who came up with the idea and ran it by former HHS Secretary Mike Leavitt for his approval, described himself as a conservative Republican — he once mounted a primary challenge to Sen. Orrin Hatch (R-Utah) — who wants to "make markets work."

But speaking at a Johns Hopkins Carey Business School meeting on drug pricing and access on Monday, he argued that portions of the generic drug space amount to a market failure that capitalist solutions alone can't correct. He pointed to shortages of hundreds of old drugs and instances where old off-patent medicine like Martin Shkreli's Daraprim have no generic competition, leading to huge price spikes.

The nonprofit — led by Intermountain with Ascension, SSM Health, Trinity Health and the Department of Veterans Affairs — plans to directly ship to hospitals, bypassing wholesalers and other middlemen to keep costs down. It will also publish product prices. There will be a single market price and justifications for increases driven by higher raw material costs or investments in new manufacturing, similar to how public utilities defend rate adjustments.

The nonprofit will be incorporated this summer and should begin operating in the fall, focusing first on the lowest-hanging fruit: off-patent drugs deemed essential medicines by groups like the World Health Organization that are in short supply. If successful, it aims to look at making other medicines like insulin, which has become very expensive for consumers despite being on the market for decades, or the transformative cancer drug Gleevec, which recently went generic but hasn’t seen prices come down very much, Liljenquist said.

"We initially thought it would take us five years to get 10 drugs to market, but we're now thinking it will be a lot faster than that," Liljenquist said Monday.

Liljenquist has been making the rounds pitching his plan. He met with the full bipartisan staff of the Senate HELP Committee last week, as well as with Hatch, Sens. Mike Lee (R-Utah) and John Thune (R-S.D.) and House Majority Leader Kevin McCarthy's offices last week. "We said we don't need anything from you. We just want to make sure FDA rules are applied to use as fairly as anyone else," Liljenquist said.

He acknowledged that drugs the venture makes may not be the cheapest on the market, but added the nonprofit will offer health systems the assurance of constant supply.

There aren't many incentives for redundancy in the current drug market, Liljenquist said. "We may not be the lowest price on market but will be the lowest price with redundant supply ... like a public utility would be focused on not having rolling blackouts. I think that is something our members will pay for."

He also hinted of future partnerships with businesses like Amazon that are looking to disrupt health care. Liljenquist said he had a conversation with a major pharmacy benefits manager about his plan — and they directed him to Amazon and similar companies who have the scale to disrupt the current drug market.