New obesity drugs will not likely lead to lower overall medical costs

August 14, 2024

I took some time off last week, so this is a repeat of a post from late 2023. I wrote about the lack of cost saving from most preventive care a few weeks ago in “The Fallacy of Future Cost Savings,” and this applies to most therapeutic medical care, too.

One pharmaceutical executive told the Financial Times that his company would be “flexible” in its pricing to be sure that more people would benefit from medications to treat obesity. Then, he suggested that his company would seek payment methodologies to “make it possible to adopt medicines upfront, [and] see the benefits and pay down the road.” 

Early indications are that use of these drugs will prevent heart attacks and strokes and delay progression of renal failure and progression to diabetes. Therefore, many believe that if more people take these drugs, we will see some medical savings. I’m afraid we are not likely to see “net” medical savings from these medications, even if the drugs were sold for far less than their current net prices.

In fairness, there is little within medical care delivery, besides for well-established childhood vaccinations and birth control, that lowers medical costs. In general, we are happy to pay for medical services which are cost-effective rather than cost-saving.

The Institute for Clinical and Economic Review (ICER) found that the medical cost of semaglutide over a lifetime would be $274,4000, while the medical costs saved would be $61,600. (These numbers are from Table 4.5.) ICER has discounted future savings and future drug costs to account for the time value of money, although has not accounted for the issue that many of the savings from these medications will occur when members of employer sponsored health plans have retired and are covered by Medicare.

There are other studies of cost-effectiveness of GLP-1 medications; these are generally simulations, as the drugs haven’t been in widespread use long enough for us to see “real world” impact on medical costs over years and decades.

●      The SELECT study showing that semaglutide decreased major adverse cardiac events required treating 100 people for 3 years to prevent 1.5 events. The cost of treating 100 people with semaglutide for three years (after rebates and discounts) is ~$2.7 million. Major adverse cardiac events are unlikely to cost enough each for medical claims cost savings!

●      An industry-funded simulation showed that 100,000 people treated for 5 years with loss of 15% of body weight would lead to $85 million lower medical spending. But the cost of the drugs would be $900 million annually, so cost saving is less than two cents per dollar spent on the medications.

●      Researchers at University of Southern California built a microsimulation model which included all societal benefits, which were strongly influenced by $150,000 per quality adjusted life year saved. In other words, there were no savings in the medical budget itself.

●      A 2020 study  found the drugs to be cost-effective, but not cost-saving. Total estimated societal benefit of about $1.9-2.5 trillion was ~10 times higher than total obesity-related medical expenses ($147-210 billion).

Implications for employers:

-        Alternative payment models for anti-obesity medications could be key to making these medications affordable to a wider group of plan members who could gain benefit from these.

-        These alternative models could include subscriptions or deeper discounts in exchange for market exclusivity or increased access.

Employers should be cautious about reimbursement models that would require back-loaded payments in exchange for drug effectiveness, as employers will likely not see enough medical savings to fund these payments.

Update: As the GLP-1 drugs are found to lower risk of other long-term diseases (including kidney disease, Metabolic Associated Steato Hepatitis, MASH (formerly known as fatty liver disease, and various kinds of cancer, and as prices come down it’s possible that these drugs will lower overall medical costs at some point.

No post tomorrow; new posts return on Friday.

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Illustration by Dall-E