The Inflation Reduction Act directs the federal government to set prices for ten drugs in Medicare, with a recent announcement highlighting how much the government will save as a result of this intervention. However, it remains to be seen if the people who rely on the Medicare Part D benefit for their medicines will see any savings materialize, as many of these drugs were already deeply discounted and preferred in formularies.
Without even seeing the results of the Inflation Reduction Act price setting, President Biden and Senator Sanders want to further expand the government’s role in setting the price for medicines. Notably, they call for more government intervention in setting the price of drugs in Medicare and to use federal government power to reduce the price of the effective and popular medicines that treat obesity and diabetes. However, this call for price controls, specifically for medicines for obesity and diabetes, is based on flawed evidence and unrealistic expectations of the outcome of this type of policy intervention. It will not make these medicines available to more people and will interfere with a marketplace with growing competition and existing pricing pressure that results in lower prices and greater access to effective treatment for obesity and diabetes.
The prices of these medicines, typically called GLP-1s, for obesity and diabetes are already reduced by more than 50% due to discounts negotiated between insurance plans and pharmaceutical companies and also the existing rebates required by the federal government to provide drugs in insurance for low-income people. The cost of obesity medicine to people with insurance coverage is often $25 or less.
Most people in the U.S. with insurance report that they do not have a problem affording their medicines. While not all people have insurance in the U.S., and that is a significant issue, controlling the price of drugs will do nothing to address that problem. An uninsured person will still have a challenge affording their physician visits for diagnosis and treatment. However, addressing the problem of the uninsured is a less popular issue to bring up in an election year relative to drug price controls.
Given the long-term health and cost-benefit from treating obesity, and the advances in obesity medicines, the focus of policymakers should be on how to get coverage for obesity care for as many people as possible while encouraging ongoing scientific advancements in obesity and other diseases that can result in lower healthcare costs, better health, and a more productive workforce. The federal government has figured this out; it requires comprehensive obesity treatment coverage for plans offer its federal employees health insurance. Somehow, the federal government has reached this conclusion or its employees but not for seniors and disabled people who get their treatment in Medicare.
The critique of the medicines to help people with obesity lose weight is not centered on their efficacy, nor does there seem to be much doubt that obesity can be more effectively managed with the help of healthcare treatments, including medication. One flawed argument for price controls is that the manufacturing costs of medicines for obesity and diabetes are small relative to their prices. But covering the cost of production is not enough to sustain investment in manufacturing complex medicines. The companies that make these medicines are investing billions in new manufacturing including in North Carolina and Indiana. If the federal government were to impose price controls, that type of investment in jobs and infrastructure would no longer make sense financially. Moreover, people who need these medicines would not be able to get them even if the prices were low, but there was not enough medicine manufactured.
If the U.S. were to establish a policy to set drug prices, for example at its manufacturing cost plus a profit margin, that would work to bring down prices for the drugs already developed. However, it would significantly deter investment in new medicines, including those under investigation for obesity. In addition to the billions spent on manufacturing, drug companies spend billions to develop a new drug with no promise of a successful outcome. Expanding price controls to include these medicines would discourage investment in manufacturing capacity for the medicines for diabetes and obesity, and for new and better medicines. That would limit, not expand, treatment for people with chronic diseases.
Obesity medicines are the latest target of bad drug price policy ideas that distract from addressing the larger public health issues like prevention and insurance coverage. Federal intervention into obesity drug prices wouldn’t solve the problem of lack of access to treatment. While not perfect, the competitive system in the U.S. has resulted in transformational science and affordable access to medicine in insurance plans. The policy effort should address the gaps in affordability and expand diagnosis and treatment.
No economist, businessperson or investor ever said, “I just got really excited about putting money into that industry once the government took it over.” Science is expensive; it doesn’t happen without business investment. Price controls on popular, transformative medicines would not only limit access to effective treatment today, but also rob future generations of the promise of better health.
Kirsten Axelsen is a visiting Scholar with the American Enterprise Institute and a Senior Policy Advisor to DLA Piper consulting to life sciences companies.
