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  • Writer's pictureJeremy Cohen

Weighing the Costs: The GLP-1 Dilemma in Healthcare Spending



As waistlines have expanded, so has the list of proposed solutions to the obesity crisis – yet nearly all have fallen short. Enter GLP-1s, the new heavyweight champions in the battle against obesity and diabetes. Stakeholders across the healthcare industry – from health plans and employers to pharma companies and patients – are scurrying to determine the potential ripple effects. At nearly $1,000 a month, GLP-1s like Ozempic, Wegovy, and Mounjaro are not just thinning waistlines but also wallets, leaving payors and patients to play a high-stakes game of fiscal hot potato. For the most part, they are leaving patients footing the bill.


Medicare, historically turning a blind eye to weight loss drugs, finds itself in a regulatory twist. Despite its hands tied by current laws, it's peeking through legal loopholes to cover GLP-1s for uses beyond mere weight loss, even as many are concerned about near-term budget implications – particularly as it relates to Part D plan costs and coverage premiums.


While Medicare is prohibited under current law from covering weight loss drugs, Medicare Part D plans can cover GLP-1s for their other medically accepted indications (e.g., diabetes), and recent CMS guidance has suggested more change is coming. In March, the FDA expanded Wegovy’s label to say the drug can be used to reduce the risk of cardiovascular death, heart attack, and stroke in people with cardiovascular disease who are overweight or obese. Following this, CMS quickly agreed to expand coverage for this indication.


Medicare is not alone in restricting access. Most commercial insurers are not yet covering GLP-1s for weight loss, leaving most patients paying out of pocket. State-based insurers and large employers are particularly concerned about the acute near-term impacts on their budgets. For example, in North Carolina, the health plan that covers 750,000 state employees and their dependents recently reversed course as it relates to covering GLP-1s, noting that spending would have exceeded $170M this year.


In response to these budgetary concerns, a viable middle ground may emerge. As payors grapple with the financial implications of covering GLP-1s, a potential compromise could stipulate that coverage for these medications be contingent upon patient engagement in comprehensive lifestyle modification programs. By integrating medical treatment with structured support for diet and exercise, insurers can encourage a comprehensive approach to managing obesity. This strategy not only aims to enhance the effectiveness of GLP-1 treatments but also ensures their benefits are sustained, addressing the broader lifestyle factors contributing to these conditions.


A potential compromise could stipulate that coverage for these medications be contingent upon patient engagement in comprehensive lifestyle modification programs.

Despite all this, the GLP-1 prize still seems enormous and companies are racing to get in the action. The clock is ticking, and the stakes are high as the healthcare system braces for the financial impact of these promising but costly treatments. So, what’s the best path forward to ensure widespread access without a catastrophic impact on total healthcare spend?


The View from the Crow’s Nest


Payors are in a pickle here. While many expect competition and potential Medicare negotiations as early as 2025 to help lower GLP-1 prices, there is a clear desire to closely manage direct near-term spending on the class, even if perceived health outcomes and overall cost benefits could be enormous. Analysis conducted by researchers at the USC Schaeffer Center predicts that the cumulative social benefits from Medicare coverage of GLP-1s for obesity would reach almost $1 trillion over ten years; the impact would be even more significant if commercial coverage was also included.


While payors and patients navigate this financial labyrinth, one wonders if the promise of GLP-1s will catalyze a shift from penny-pinching to paradigm-changing. As we await this evolution, one must ask: Are we on the brink of a healthcare renaissance, or are we merely reshuffling the deck chairs on the Titanic? Moving forward, we must balance innovation with economic realities, where the societal benefits and the health of budgets are seen not as opponents but as partners in progress.

 
Author: Jeremy Cohen, a managing partner in Spinnaker’s Minneapolis office

If you are interested in learning more, get in touch at strategy@spinnakerLS.com. 

Spinnaker offers true partnership and comprehensive guidance to help leaders navigate the complexities of the Life Sciences industry and chart a path to success. From early-stage market assessment through commercial execution and ongoing lifecycle management, we deliver tailored solutions to ensure optimized practicable results.
 

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