April 5, 2016

Kaiser Permanente’s work to provide affordable pharmaceuticals — since 1943

Few know that Kaiser Permanente's efforts to bring down drug costs began during World War II, when we created our own in-house drug manufacturing capability.

Pharmacists fill prescriptions, 1940s, Kaiser Oakland Hospital

Pharmacists fill prescriptions, 1940s, Kaiser Oakland Hospital
Pharmacists fill prescriptions, 1940s, Kaiser Oakland Hospital

Everybody complains about the high cost of pharmaceuticals in the United States.  Medication that is within one's budget can make the difference between a course of treatment that is successful and one that isn’t. Kaiser Permanente is part of a coalition of health care organizations and other stakeholders determined to make drugs for health more affordable. But few know that our efforts to bring down drug costs began during World War II, when we created our own in-house drug manufacturing capability.

One of our emeritus physicians, Morris Collen, MD, spoke about it in a 1986 oral history transcript:

During the war, since the purchase of medications was very expensive, Dr. Garfield set up Royfield, which is a combination of syllables for Sidney Roy Garfield - Roy and Field. Julian Weiss was our first director of pharmacies. I remember we had an old barn and in it they made most of our medications. I recall that they stamped out the pills for common drugs like Donnatal, and that was our Rx number five. Donnatal, Phenobarbital, and aspirin — we had a formulary, which contained a majority of the common drugs we used. At considerable savings, Royfield stamped out all these pills, made all the cough medicines, and all that sort of stuff.

On October 13, 1943, Permanente Foundation Health Plan physicians Sidney Garfield (general partner) and Cecil Cutting (special partner) formed a limited partnership titled “Royfield & Company” to supply many needed drugs and medications for the hospital, clinics, and first-aid stations operated by the Foundation. To capitalize the partnership, Garfield put up $15,000 and Cutting put up $5,000. Dr. John Smillie’s book about the history of the Permanente Medical Group, Can Physicians Manage the Quality and Costs of Health Care? described the importance of this effort:

... Garfield introduced into the Foundation program a capacity for in-house drug manufacture that would make the future Kaiser-Permanente Health Plan the largest private prescription drug distributor in the United States.

Pharmacist Julian Weiss at counter of Kaiser Oakland Hospital pharmacy, late 1940s.
Pharmacist Julian Weiss at counter of Kaiser Oakland Hospital pharmacy, late 1940s.

Royfield operated out of a secure warehouse not far from the flagship Kaiser Permanente Oakland hospital near 51st Street and Broadway, where trucks could drive inside and securely load these crime-magnet products.

In 1952 Royfield became formally integrated into the health plan as Dapite. The program was highlighted in a TIME magazine article from 1962, "Prepaid Medical Care: Nation's Biggest Private Plan”:

Dapite, Inc. is a planwide subsidiary which prepackages medicines and supplies them at bargain rates to the hospitals and clinics (whose doctors also agree to use mostly generic-named drugs, cheaper than the trademarked equivalents).

Northern Ireland pharmacist Margaret McClelland worked at Dapite for eight months in 1961, and wrote this account in the United Kingdom publication The Chemist and Druggist:

The Kaiser Foundation Hospital in Vallejo, where Dapite is situated, has a rehabilitation centre at which is operated a specialised technique perfected by Dr. Mead and Miss Knott (chief physiotherapist). Dapite, Inc., has, in the past, employed many disabled people from the Centre as part of its rehabilitation scheme. At the time of writing two such workers, victims of mining accidents, repackage drugs and two polio victims are on the office staff. Products manufactured by Dapite include x-ray solutions, pharmaceutical solutions, lotions, mixtures, ointments, eye preparations and disinfectants. Much of the work comprising repackaging of drugs in smaller quantities.

While I was at Dapite two young assistants carried out the heavier and "bulk" work — for example running alcohol from 40-gallon drums into l-gallon containers. Disinfectants, x-ray solutions, dextrose solutions, were put up similarly.

Orders were mailed in each morning by the various pharmacies or recorded on the telephone. Our day started at 7.30 a.m. when a hospital truck collected the orders and delivered them, providing a reasonably fast service within the 40-mile radius from Vallejo. The trend towards proprietary drugs I found even more marked in California than in Ireland.

Don Murray, Dapite manager, shows samples of drugs packaged at Dapite to Virginia Young (right) and her assistant, Paula Haug in 1964
Don Murray, Dapite manager, shows samples of drugs packaged at Dapite to Virginia Young (right) and her assistant, Paula Haug, who handle drug purchasing. Inset: Julian Weiss, purchasing agent and director of pharmacies. KP Reporter June, 1964.

In January 1963, the manufacture and wholesaling of drugs, previously conducted by Dapite, Inc., as a subsidiary of Kaiser Foundation Health Plan, was taken over by the department called Permanente Services, which centralized the competitive bid purchasing of virtually all supplies and equipment for Kaiser Permanente operations in Northern California. The KP Reporter described the transition:

At the same time Permanente Services took over the retail pharmacies at detached Medical Offices which had previously been operated by KF Health Plan. Purpose of these organizational changes, which do not affect the day-to-day functioning of the pharmacies, was to eliminate from the Health Plan structure any enterprise which might be considered commercial. The Dapite Company will be dissolved.

Today, Kaiser Permanente continues its efforts to address the high prices of prescription drugs by participating in public dialogue around the issue, advocating for our members and communities, and thus continuing the work we started in 1943 to reduce the cost of pharmaceuticals.