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In a recent USA Today op-ed President Biden and Senator Sanders penned a stinging attack on the pricing of weight loss drugs calling the $1,100/month price tag “outrageous”. Drug pricing is a highly politicised issue, that is only going to heat up as we head to election. In the case of weight loss drugs, we believe such calls are unjustified. In this blog, we lay out five reasons why.
Drug pricing 101
Drug pricing is complicated but it is worth keeping these basic facts in mind:
- GLP-1 drugs cost at list price $1,100 - $1,300 per month for Wegovy (Novo Nordisk) and Zepbound (Eli Lilly).
- The actual price paid can be 40-50% lower because of discounts and rebates given to large commercial payers. This is called “gross to net”. The net price is what matters, although the gross price is what is often used in public discourse.
- Patients, where the drug is covered by an insurance company, often pay a co-pay which can be as low as a tens of dollars a month or as high as hundreds.
- Government payers like Medicare and Medicaid tend to take their pricing with reference to commercial price negotiations. For Medicare, a big change is underway with the Inflation Reduction Act (IRA) which allows negotiations directly with manufacturers for the first time.
Is the net price of $5,000 - $6,000 per year justified for GLP-1 drugs?
We believe they are for the following reasons:
- Significant clinical benefit. GLP-1 drugs provide a significant proven clinical benefit. For example, in the 17,000-patient five-year SELECT study Wegovy was shown to reduce the risk from major cardiovascular events by 20%. This means fewer heart attacks, deaths, and hospitalizations. Significant benefits extend to areas like MASH[1] (metabolic dysfunction-associated steatohepatitis), chronic kidney diseases, obstructive sleep apnea, and control of blood glucose. As these benefits mount we believe the price becomes more and more justified.
- Quality of life improvement. Aside from treating these underlying obesity-related diseases, of which there are over 200, patients also experience large improvements in quality of life.
- Third party cost-effectiveness assessment. ICER[2], an independent body that assess the cost-effectiveness of drugs, found that “The health-benefit price benchmark range for semaglutide is $7,500 to $9,800 per year”[3]. The current net price for both obesity treatments is below this level for cost-effectiveness.
- Large health economic savings. The USC’s Centre for Health Policy & Economics recently did a study assessing what coverage of weight loss drugs by private insurance and Medicare does in terms of cumulative cost savings to the Medicare system. These savings stem from fewer hospitalizations, surgeries, doctor’s visits, drugs, nursing home stays, and other associated costs. They found that over 30 years $1.5 trillion could be saved by Medicare alone. When looking at total social benefit, a broad definition that includes quality of life improvement measured by quality-adjusted life years (QALYs)[4], the figure reaches $6.7 trillion over 30 years[5].
Source: USC Schaeffer, Benefits of Medicare Coverage for Weight Loss Drugs, April 2023 - Comparable to other drugs. The pricing of weight loss drugs is actually similar to the price of other chronic disease drugs that address large populations (for example, PCSK9 inhibitors) but have a more narrow clinical benefit.
Summary
Although headlines about GLP-1 drug cost dominate, we believe the net price is justified due to the large clinical benefits and potential healthcare system savings these drugs bring.
