Obesity

Should Medicare Cover Anti-Obesity Drugs?

James Bailey2 Comments

It seems like we finally have anti-obesity drugs that are effective and come without deal-breaking side effects: GLP-1 inhibitors like semaglutide (Wegovy). But they are currently priced over $10,000 per year for Americans. Should insurance cover them?

So far Medicare has decided to cover these drugs only to the extent that they treat diseases like diabetes (which these drugs were originally developed to treat) and heart disease (Wegovy reduces adverse cardiac events by 20% in overweight patients with heart disease). Just based on the diabetes coverage, Medicare was already spending $5 billion per year on these drugs in 2022, making semaglutide the 6th most expensive drug for Medicare with prescriptions still growing rapidly. The addition of other indications for specific diseases, like heart disease coverage added last month, is sure to expand this dramatically, especially if trials confirm other benefits.

But with almost 3/4 of Americans now officially overweight, weight loss makes for a bigger potential market than any specific disease. Medicare currently spends about 15k per beneficiary for all medical care; if they actually paid for an 11k/yr drug for 3/4 of their beneficiaries, their spending could rise to 23k per beneficiary per year. The effect on Medicare Part D, which covers prescription drugs and currently spends about 2.5k per beneficiary per year, would be even more dramatic, with spending quadrupling. This would blow a huge hole in the federal budget, where health insurance already accounts for about 1/4 of all spending (and Medicare 1/2 of that 1/4).

Of course, the reality would not be nearly that bad. Not all overweight people would want to take a weight loss drug, even if it were covered by insurance; the side effects are real. To the extent people do take the drugs, the reduction in obesity could lead to lower spending on treatments for things like heart attacks. Rebates can already reduce the cost of these drugs to be less than half of their list price, and Medicare may be able to negotiate even lower prices starting in 2027. Key patents will expire by 2033, after which generic competition should dramatically lower prices. Competition from other brand-name GLP-1 drugs could lower prices much sooner.

Patents always come with a tradeoff: they encourage innovation in the future, but mean high prices and under-use of patented goods today. The government does have one option for how to lower the marginal price of a drug without discouraging future innovation: just buy out the patent. This would likely cost hundreds of billions of dollars up front, but this could be recouped over time through lower spending, while bringing large health benefits because the drug would be much more widely used if it were sold at a price near its marginal cost of production.

Of course, for now supply of these medications is the bigger problem than the cost. Even with the current high prices and insurers tending not to cover drugs of weight loss alone, demand exceeds supply and shortages abound. The manufacturers are trying to ramp up production quickly to meet the large and growing demand, but this takes time. Insurers like Medicare covering weight loss drugs wouldn’t actually mean more people get the drugs in the short run, it would simply change who gets to use them.

But once production ramps up, I do expect that it will make sense for Medicare to cover weight loss drugs. The health benefits appear to be so large that the drugs are cost effective even at current prices, and prices are likely to fall substantially over time. The big restriction I suspect will still make sense is to require that patients be obese, rather than merely overweight, since being “merely” overweight (BMI 25-29) probably isn’t that bad for you:

Source

Disclosure: Long NVO

Update 4/18/24: I started thinking about this question because of an interview request from Janet Nguyen at Marketplace. She has now published an excellent article on the subject that also includes quotes from John Cawley of Cornell, who knows a lot more than I do on the subject.

Analysts See Sweeping Financial Impact of New Weight Loss Drugs; Reality May Fall Short

Scott BuchananLeave a comment

Wall Street analysts love to get out ahead and tout The Next Big Thing. Earlier this year it was Generative AI that was going to Change Everything. I am old enough to remember a surge of enthusiasm when fractal number sets were going to Change Everything  (“How did we manage to get along without fractals?” was a question that was really asked), so I tend to underreact to these breathless hot takes.

Well, The Next Big Thing as of last week seemed to be the new generation of weight loss drugs. With names like Ozemic and Wegovy and Mounjaro (who thinks up these names, anyway?), these are mainly GLP-1 blockers which up till now have been mainly used in treating Type 2 diabetes.

From the august Mayo Clinic:

These drugs mimic the action of a hormone called glucagon-like peptide 1. When blood sugar levels start to rise after someone eats, these drugs stimulate the body to produce more insulin. The extra insulin helps lower blood sugar levels.

Lower blood sugar levels are helpful for controlling type 2 diabetes. But it’s not clear how the GLP-1 drugs lead to weight loss. Doctors do know that GLP-1s appear to help curb hunger. These drugs also slow the movement of food from the stomach into the small intestine. As a result, you may feel full faster and longer, so you eat less.

I’ll append a table at the end with a bunch of these drug names, for reference. At this point, most of them are only FDA approved for diabetes treatment, but are being prescribed off-label for weight control. It is no secret that obesity is rampant in America, and is spreading in other regions. The knock-on health problems of obesity are also well-known. So, these treatments might be very helpful, if they pan out.

What does Wall Street think of all this? Well, there is first the potential profit to accrue to the makers of these wonder drugs. You typically take them via daily or weekly skin injections, similar to insulin shots. A month’s worth of these meds may cost a cool $1000. Cha-ching right there, for makers like Novo Nordisk and Eli Lilly.

But wait, there’s more – Jonathan Block at Seeking Alpha calls out a number of possible financial angles for these drugs:

While at first glance the impact of these medications — known as GLP-1 agonists — might just impact food and beverages, the reality is that they could influence many other consumer industries.

Apparel retailers, casino/gaming names, and even airlines are just some of the industries that could see an impact from the growing popularity of weight loss drugs.

The thinking is that folks who lose 15 pounds will go out and buy a whole new wardrobe, which is good for clothing makers and retailers. On the other hand, gambling is highly correlated with obesity, so maybe casino business will fall off.  There are claims that kidney health is so improved with these drugs that purveyors of dialysis equipment may be under threat.

Fuel represents some 25% of airlines’ expenses, so somebody with a sharp pencil at Jefferies sat down and calculated that for one airline (United) the cost savings would be $80 million per year if the average passenger shed 10 pounds.  And who know, if people get really thinner, maybe the airlines can pack in an extra row of seats…

A concern over declining food sales has cut into the prices of companies like Walmart:

Analysts estimate that nearly 7% of the U.S. population could be on weight loss drugs by 2035, which could lead to a 30% cut in daily calorie intake due to the consumption changes for the targeted group. There is also some conjecture that the increased attention to dieting and weight loss in general could have a downstream impact on the consumption of snacks and sweets.

Real World Efficacy of Weight Loss Drugs May Fall Short of Clinical Trials

Throwing buckets of cold water on these scenarios of slenderized Americans is a study by RBC Capital Markets suggesting that the actual impact of these meds may be much less than indicated by clinical trials:

“Unlike clinical studies, insights from real-world use of these drugs imply weight loss can be limited or short-lived as a result, making it difficult for some users to justify the treatment’s lofty price tag,” RBC analyst Nik Modi said. “Recent insurance claims data on 4k+ patients who started taking GLP-1s in 2021 indicate only 32% remained on therapy and just 27% adhered to treatment after 1 year, citing an increase in healthcare costs.” He mentioned one study on 3.3k subjects that found after a year on the drugs, patients saw an average of just 4.4% weight loss. That is significantly less than declines cited by Novo Nordisk (NVO) and Eli Lilly (LLY) in their studies.

Also, he said IQVIA data found that the growth in GLP-1s is due mostly to new prescriptions, not refills, “making us question its sustainability.” Given this information, “we believe GLP-1s have genuine hurdles to prolonged use that have the potential to limit their long-term societal/economic impact.” To back up his argument, Modi provided several real-life examples of drugs or products where hype that it would shake up a consumer segment ended up falling flat.

The clinical trials for the GLP-1 blockers were paid for by the manufacturers, so they tend to be skewed to the positive. It is not clear whether these flattish real-world results are due to the drugs themselves not being so effective, or to other factors. These factors include side effects, unpleasantness of self-injection, and the  huge out-of-pocket cost (~ $12,000/year).  Weight loss drugs are often not covered by insurance, since obesity is considered a behavioral outcome, not a disease.

My guess is the final outcome will fall somewhere between mass weight loss and nothing. We hope that progress continues to be made in this area, since so many other health conditions are worsened by being overweight. For instance, fellow blogger Joy Buchanan recently  linked to an article by Matt Iglesia in which he described significant and long-lasting weight loss from bariatric surgery.

And as promised, that list of diabetes/weight-loss meds:

Eat 20 Potatoes a Day…. For Science

James Bailey3 Comments

Several people have tried eating an all-potato diet for a few weeks and reported losing lots of weight with little hunger or effort. Could this be the best diet out there? Or are we only hearing from the rare success stories, while all the people who tried it and failed stay quiet?

Right now we don’t really know, but the people behind the Slime Mold Time Mold blog are trying to find out:

Tl;dr, we’re looking for people to volunteer to eat nothing but potatoes (and a small amount of oil & seasoning) for at least four weeks, and to share their data so we can do an analysis. You can sign up below.

I was surprised to see that they are the ones running this, since they are best known for the “Chemical Hunger” series arguing that the obesity epidemic is largely driven by environmental contaminants like Lithium. The conclusion of that series noted:

Bestselling nutrition books usually have this part where they tell you what you should do differently to lose weight and stay lean. Many of you are probably looking forward to us making a recommendation like this. We hate to buck the trend, but we don’t think there’s much you can do to keep from becoming obese, and not much you can do to drop pounds if you’re already overweight. 

We gotta emphasize just how pervasive the obesity epidemic really is. Some people do lose lots of weight on occasion, it’s true, but in pretty much every group of people everywhere in the world, obesity rates just go up, up, up. We’ll return to our favorite quote from The Lancet: 

“Unlike other major causes of preventable death and disability, such as tobacco use, injuries, and infectious diseases, there are no exemplar populations in which the obesity epidemic has been reversed by public health measures.”

That said, they did still offer some advice based on the contaminant theory that is consistent with the potato diet:

1. — The first thing you should consider is eating more whole foods and/or avoiding highly processed foods. This is pretty standard health advice — we think it’s relevant because it seems pretty clear that food products tend to pick up more contaminants with every step of transportation, packaging, and processing, so eating local, unpackaged, and unprocessed foods should reduce your exposure to most contaminants. 

2. — The second thing you can do is try to eat fewer animal products. Vegetarians and vegans do seem to be slightly leaner than average, but the real reason we recommend this is that we expect many contaminants will bioaccumulate, and so it’s likely that whatever the contaminant, animal products will generally contain more than plants will. So this may not help, but it’s a good bet. 

Overall though I think the idea here is to ignore grand theories and take an empirical approach. The potato diet works surprisingly well anecdotally, so lets just see if it can work on a larger scale. Seems worth a try; I’m sure plenty of my ancestors in Ireland and Northern Maine did 4-week mostly-potato diets and lived to tell about it. You can read more and/or sign up here. Let us know how it goes if you actually try it!