Prominent Democratic economics advisers are arguing that the Biden administration and Congress must revamp rules regarding drug price negotiation to lower the price of new wonder drugs for obesity, such as Ozempic, or run the risk of bankrupting the federal government.
“The magnitude of potential benefit and potential cost … posed by these drugs suggests that policymakers may have no alternative but to step in and bring their costs in line with their social benefits,” MIT economist Jonathan Gruber wrote in a recent op-ed in the New York Times. Gruber has been called the architect of Obamacare.
Gruber, along with former National Economic Council Director Brian Deese and former Council of Economic Advisers staff economist Ryan Cummings, argued that government intervention is necessary so the price of all products in the new drug class called GLP-1s, which are thought to have the potential to counter America’s obesity epidemic, can be lowered swiftly.
To treat obesity, the average cost of Novo Nordisk’s Wegovy and Eli Lilly’s Zepbound is roughly $15,000 per year, which accounts for a 12-month supply and a few doctor’s visits each year to manage the care.
Although federal dollars now only go toward Ozempic and Mounjaro, both of which have been approved by the Food and Drug Administration for Type 2 diabetes management, the evidence that GLP-1s are highly effective in significantly reducing cardiovascular deaths means that it is unclear how long the Centers for Medicare and Medicaid Services can forgo spending on obesity treatment GLP-1s.
At current prices, Gruber and his colleagues estimate, GLP-1s could end up costing Medicare $1 trillion per year if the medications were given to treat both Type 2 diabetes and obesity. Meanwhile, they also estimate that the current federal spending on diabetes and obesity combined is only $200 billion, making the theoretical “savings” from covering GLP-1s essentially a deficit of $800 billion — almost as much as the entire Medicare budget.
Medicare negotiation as a solution
Gruber, Deese, and Cummings said the Biden administration should push for Congress to tweak the Drug Price Negotiation Program established in the Inflation Reduction Act to allow for the Centers for Medicare and Medicaid Services to negotiate with Novo Nordisk and Eli Lilly to lower the price.
The rules of the Drug Price Negotiation Program only allow CMS to choose 10 drugs annually for the negotiation process, and the drugs must have been on the market for nine to 13 years, thereby preventing the government from acting to lower prices on GLP-1s until well into the 2030s.
“Waiting this long is letting the proverbial horse out of the barn,” Gruber and his colleagues wrote. “Instead, Congress could augment Medicare’s negotiating authority by granting it explicit, immediate authority to negotiate prices for this class of drugs, and states could follow for Medicaid.”
There are several lawsuits from various pharmaceutical companies, including Eli Lilly, arguing that the extant version of the Drug Price Negotiation Program is unconstitutional, violating the excessive fines clause of the Eighth Amendment and the eminent domain clause of the Fifth Amendment.
Patient advocates and pharmaceutical companies without products subject to the negotiation program have also derided the program as establishing price controls. They also warn it will chill innovation for less profitable drugs, especially for rare diseases, the costs of which are offset by higher prices for more widely useable medications.
Free market argument for Medicare negotiation
Michael Cannon, a healthcare expert at the libertarian Cato Institute, told the Washington Examiner that he agrees with Gruber and his colleagues regarding the benefit of allowing Medicare to negotiate with GLP-1 manufacturers to lower the price. Cannon said that Medicare negotiating a price is not setting “price controls” but rather acting as it would as a purchaser in a free market.
“Socialized medicine corrupts everything, including the discourse surrounding socialized medicine,” Cannon said.
Cannon said that the Drug Price Negotiation Program is not coercive because drug companies can refuse to sell their products to CMS for Medicare patients.
“It doesn’t prevent the manufacturer from selling that drug at whatever price they want to anyone else,” he said. “What it does is it says the federal government as a purchaser, not as a regulator … of medical care, is going to shift the demand curve. It’s going to negotiate. It’s going to walk away from the table and say, ‘We’re just not going to buy that.'”
Gruber, when asked if he believed prices would come down naturally without Medicare negotiation, especially with new competing medications entering the market, told the Washington Examiner that it may happen eventually but not soon enough.
“The price will likely come down,” Gruber said, “but we don’t know by how much and how fast. In the meantime, patients who need the drug aren’t getting it.”
Gruber told the Washington Examiner that he favors government-led negotiations to bring the costs of GLP-1s in line with the “social value of the drug.”
Cannon said that any negotiation should be “driving the price down as low as possible.”
Novo Nordisk and Eli Lilly did not respond to the Washington Examiner’s request for comment.
