The Miracle Weight-Loss Drug Is Also a Major Budgetary Threat
"By Brian Deese, Jonathan Gruber and Ryan Cummings
Mr. Deese was director of the National Economic Council. Mr. Gruber is chairman of the economics department at MIT. Mr. Cummings was a staff economist at the Council of Economic Advisers.
The U.S. health care system has struggled for decades with the tension between providing incentives for pharmaceutical innovation and keeping breakthroughs affordable for those who would most benefit from them. Even as countries around the world have stepped in to require lower priced drugs for their citizens, the United States has been reticent to do so. As a result, U.S. consumers pay the highest prices in the world for drugs, by a wide margin.
But the impetus for more fundamental reform may come from an unexpected place: America’s obesity epidemic. Many of us are aware that there is a new class of weight-loss drugs that offer enormous promise in addressing obesity. But there is far less awareness of the fact that these drugs also introduce an enormous risk to America’s taxpayers.
The magnitude of potential benefit and potential cost — roughly $15,000 per year per person — posed by these drugs suggests that policymakers may have no alternative but to step in and bring their costs in line with their social benefits. If policymakers succeed in doing so, we could build a model for drug price negotiation that enables an extraordinary medical breakthrough to improve both our health and our fiscal position. Or we could do nothing and create one of the biggest fiscal problems of the decade, with pharma companies profiting at the expense of the taxpayer and of equitable health outcomes.
Produced by the Danish pharmaceutical company Novo Nordisk, Ozempic and Wegovy are part of a new class of “GLP-1 receptor agonists” that regulate dopamine and help the body process sugar more effectively. Recent studies have shown that the drugs are effective at both reducing weight and preventing diabetes, and their U.S. sales reached more than $13 billion in 2023.
These drugs have the potential to significantly reduce the expenses for obesity-related illnesses and for the condition itself, the cost of which is about $210 billion annuallyand growing. More than 40 percent of Americans are already classified as obese, and that share is projected to reach nearly 50 percent by 2030. In 2021, already 38 percentof Americans were estimated to be prediabetic, and in that same year, another 12 percent were diagnosed as diabetics. We desperately need game-changing weight-loss innovations.
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Unfortunately, these drugs are also very expensive, and current evidence suggests that users need to continue to take the drug indefinitely to keep the weight off.
Right now, Medicaid spends a relatively modest amount — roughly $3 billion — on these treatments because federal government health insurance plans generally only cover them for those with type 2 diabetes. But the government may have a hard time limiting access in the future, given how beneficial they may be for a broader set of people. The savings generated from treating obesity sooner generate a host of health benefits, including reducing the likelihood of someone suffering deadly conditions like heart failure, coronary artery disease and strokes. Restricting the usage of GLP-1’s will become extremely difficult to defend because that is not in the public interest.
We have estimated the cost, and savings, to state public insurance programs, health insurance exchange subsidies, and U.S. taxpayers from making this class of drugs more broadly available. Under reasonable assumptions, and at current prices, making this class of drugs available to all obese Americans could eventually cost over $1 trillion per year. That exceeds the savings to the government from reduced diabetes incidence and other health care costs from excess weight by $800 billion annually.
This is a staggering sum. It is almost as much as the government spends on the entire Medicare program, and almost one-fifth of the entire amount America spends on health care.
We have faced problems of highly beneficial but highly expensive drug innovations in the past, but none has come close to the potential scale of this. Recent drug breakthroughs to treat Hepatitis C approached $100,000 for a treatment period, but the universe of potential patients is three million to four million, or roughly 2 percent of the overweight population in America.
What can be done? We could simply make patients pay more. But this would be likely to ensure that only richer Americans receive the drugs, compounding existing equity issues surrounding diabetes. Poor Americans are two-thirds more likely to be diabetic than the population as a whole.
It’s becoming clear that the only way to solve the weight-loss drug dilemma is to create a mechanism to bring the costs of these drugs closer in line with their social benefits. These drugs are extremely profitable: Novo Nordisk earned $4.8 billion in sales in the third quarter of 2023 alone. And the U.S. price is unusually high, with Ozempic in the United States costing about 10 times what it does in Britain, Australia or France, where drug prices are negotiated or regulated by the government. In Denmark — the home country of Ozempic producer Novo Nordisk — the cost of the drug is under $3,500 a year.
The federal government could use its purchasing authority through Medicare to negotiate lower prices. In 2022, as part of the Inflation Reduction Act, Congress for the first time granted Medicare limited authority to negotiate drug prices. However, the current authority under that act is limited to a select set of drugs, starting with 10 in 2026. The law further requires drugs to have been on the market for several years. This would only be relevant for GLP-1’s in the 2030s; waiting this long is letting the proverbial horse out of the barn. Instead, Congress could augment Medicare’s negotiating authority by granting it explicit, immediate authority to negotiate prices for this class of drugs — and states could follow for Medicaid. Bringing the price down to what is paid in Denmark, for example, could save public payers almost $500 billion per year.
Arguments that price declines that would result from such negotiation would kill innovation are misplaced. They ignore the fact that higher government spending of the magnitude necessary to cover Americans in need of this treatment would reduce the government’s ability to invest in basic science, which is a highly effective complement to private research. Starving the federal government would actually result in less overall innovation in the U.S. economy and less pharmaceutical innovation in the future. We can set a price that provides strong incentives for private innovation without creating a crushing fiscal burden. And going forward, we can innovate with new tools to get this balance right, like the government offering research prizes for societally beneficial health innovations alongside utilizing more aggressive price negotiation tools.
Policymakers should address the cost issue now, rather than withhold promising treatments from millions of Americans or just letting the costs explode.
Brian Deese is innovation fellow at the Massachusetts Institute of Technology, and was director the White House National Economic Council in the Biden administration. Jonathan Gruber is chairman of the economics department at M.I.T. Ryan Cummings is a doctoral economics student at Stanford University and was formerly a staff economist at the White House Council of Economic Advisers.
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