The diabetes drug Ozempic will cost you roughly $1,000 a month in the United States. It’s a whopping sticker price. And if you’re using it for weight loss, insurance is unlikely to cover it, even if your doctor thinks it could really improve your health.
But a really interesting paper, published in the journal Obesity in May, estimated that the potential minimum profitable price for a semaglutide like Ozempic is more like $40 per month. And, once the pill versions of these drugs are widely available, the minimum profitable price will be significantly less, since, ironically, the cost of the injector is a significant part of the cost of the product.
Drug companies exist to make money, not help the maximum number of people possible. They’re not going to charge $40 for a drug when the market will bear 25 times that. But there’s actually a way that drug companies can give many, many more people access to a drug while also taking home a tidy profit.
The trick here is to think like Netflix. Not with entertainment—rather, how Netflix thinks about pricing. Netflix has a high cost up front to make TV shows and movies. But once it’s already distributing those shows to millions of people, it costs the company relatively little to serve up content to another new subscriber. New subscribers, however, increase its profit. In setting their subscription prices, services like Netflix try to figure out what monthly charge will give them the best combination of profits today and number of subscribers for the long term.
Drug companies typically think very differently from Netflix. While the product is under patent, they want to maximize the amount of money they can get—not the number of people who might benefit from the product. Rarely do they think about the product in the long term at all. They charge what they think the market will bear for as long as they can, but when it’s your money or your health, it’s more like a holdup than fair pricing. And they don’t even seem to act in their own long-term financial best interests!
The secret here is to get the insurance companies’ financial interests involved.
To examine how a subscription model would work for all parties, let’s take Kaiser Permanente, for example (just because its numbers are available). Kaiser now has about 12.6 million members and about $100 billion in yearly revenue, which works out to about $8,000 per member, per year. (This is more than the roughly $5,500 current cost for the average relatively high-deductible “Silver” plan for a 40-year-old on the “Obamacare” exchange.)
I think we can all agree that there is not a snowball’s chance in heck that any insurance companies would be willing to pay $12,000 a year for a drug, except in the most extraordinary of circumstances. Yet Ozempic is covered for some of Kaiser’s members (including for weight loss, for some very specific plans). But generally, it’s just not in Kaiser’s financial interests to greenlight a drug that a large portion of their members would qualify for, and for which the annual price of the drug is substantially more than the cost of an average plan. Sure, deductibles would come into play here—but it still wouldn’t add up to a good deal for Kaiser.
But the real question is: Is there a price that a company like Kaiser would pay if it could give Ozempic or one of the other similar drugs to all the members who might benefit from it? Is there a subscription all-you-can-use model that works for all parties and results in the proverbial “win–win”? (To extend the Netflix metaphor: In this case, Kaiser is the subscriber, and its members are the viewers, crowding around the couch and pressing play.)
Relevant here is that insurance companies do have monetary incentives to offer patients an option to lose weight that actually works. A very important paper that appeared in the journal PLOS ONE a couple of years ago gave good estimates on the extra costs obesity brings to medical care. It turns out that in 2016, for each unit increase in a person’s body mass index (BMI) above 30, costs went up by about $253. So, for example, a patient with a BMI of 32 would have had $506 in extra medical costs, on average, in 2016. Accounting for inflation, which for health care costs has been steep, the current cost is probably closer to $350, in current dollars, per unit increase in BMI. So, a person with a BMI of 32 is probably incurring about $700 in extra costs a year in 2023. Note: BMI is a reasonably accurate measure of obesity for populations, but it is not a great measure of obesity for individuals (and, further, does not correlate neatly to health costs for any individual person). But if we’re imagining we’re an insurance company, making decisions about a large population, these numbers are a good rough-average estimate.
Roughly speaking, current drugs like Ozempic/Wegovy (semaglutide) or Mounjaro (tirzepatide) can reduce a BMI of 36 by about 15 percent, or about 5.5 units. Drugs in development will do even better; one of the newest drugs in development (retatrutide) would seem to reduce this by about 24 percent, or almost 9 units!
All this means Kaiser would save about 5.5 times $350, or about $1,900, per member with obesity in 2023 if it could give them one of the modern (approved) diet drugs. Admittedly, it may be a bit less than $350 per unit of BMI for Kaiser, but because Kaiser is better at managing chronic conditions than most, it’s a good enough approximation for us. Keep in mind, though, that the savings, as large as they are in our hypothetical, are a fraction of the $12,000 approximate yearly retail cost of Ozempic. It’s just not a “good deal” for Kaiser to give a person with obesity the right dose of semaglutide.
OK, but what about the savings if it can get many people Ozempic? The National Health and Nutrition Examination Survey (NHANES) estimated that in 2018, 42.4 percent of adult Americans had obesity, which is defined as having a BMI of over 30. Extrapolating from the data starting from 2012, that number is probably closer to 48 percent now. Digging further, it turns out the average BMI for obese adults over 18 in the NHANES survey was about 36.6. Let’s imagine that our example company, Kaiser, has members with BMIs that break down roughly along the same lines as the NHANES data for average Americans.
Doing a little more math, we can estimate that in 2023, Kaiser has roughly 6 million members with obesity (0.48 times 12.6 million members = 6,048,000). This means, in our hypothetical example, Kaiser would—before factoring in the cost of the drug—save over $11 billion ($1,900 times 6.048 million = 11.49 billion) in the first year if it could give one of the modern weight loss drugs to all its members with obesity. Of course, not every member will want or need it, some would have contraindications to using it, and some will discontinue using it because of the side effects. And, most importantly, you have to continue giving them the drugs year in and year out, so the cost savings in future years need to be calculated differently.
But let’s place those caveats to the side: Imagine Kaiser goes to the makers of Ozempic and offers them a few billion dollars for unlimited access to their drug. That’s not a small sum! This means our calculation shows that a willing drug company, the obese members of Kaiser, and Kaiser itself would be a lot better off—if Kaiser could find that drug company that will give it a subscription to its modern weight loss drugs for a few billion dollars. The maker of Ozempic forecasts that it’ll sell about $12.5 billion worth of the drug in 2023. In our example, we’re talking about an insurance company that covers a fraction of the U.S. population. Imagine if all insurance companies made a deal worth a few billion to gain access to the drug. The drug could be distributed to more people. The insurance companies could save on long-term health costs. And the drug companies could keep turning a sizeable profit. Yes, a smaller one than if they charged each person the full sticker price (and each person was able to pay that price). But we, as a society, should have access to drugs that can improve our health. Moreover, if they lock in a long-term deal that will continue once the product is off patent, the drug company will do better in the long term, as well.
Still, regardless of arguments one can make for subscription models for these kinds of drugs, maybe what we need is legislation that changes the pricing of drugs. If a company has an exclusive patent on a drug that can help a wide swath of the population … how about a law that says that after you sell a zillion copies of a drug, you can only charge the cost of production, plus a small profit margin? One way or another, people should be able to access drugs that will improve their health, without paying thousands of dollars per year out of pocket.