Weight loss drugs: Why Congress needs to act fast on pricing

GLP-1 weight loss drugs like Novo Nordisk's Ozempic (NVO) offer hope for America's obesity epidemic. However, a recent New York Times opinion piece outlined the potential for steep taxpayer costs if Congress does not act to control the drug's pricing.

Jonathan Gruber, MIT Department of Economics Chairman and one of the authors of the Times op-ed, joins Yahoo Finance to discuss how the obesity drugs could present a budgetary crisis and their potential impact on government funding for research and innovation.

Gruber outlines his estimate for the cost of government coverage of Ozempic: "We estimate that at the current cost if all obese people in America were made eligible for this drug at $15,000 that would be a net cost to the US government of $800 billion a year. That's a huge amount of money. That's the cost of our medicare program. Now, our estimate could be off by $100 billion here, a $100 billion there. It's still a big number no matter what and so we suggest that the federal government needs to aggressively consider how to reset the price of the drug more in line with the value it adds to society. "

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Editor's note: This article was written by Nicholas Jacobino

Video Transcript

JULIE HYMAN: Hope for America's obesity epidemic, thanks to the rocketing popularity of weight loss drugs. But those so-called miracle injections could come at a steep cost for US taxpayers unless Congress takes action, as outlined in a recent "New York Times" op-ed. We're joined now by one of the authors of that article, Jonathan Gruber, MIT Economics Department chairman.

Thank you so much for being here. So as you wrote in the op-ed, the costs of these drugs are indeed quite onerous. And there have been a lot of concerns raised about, you know, eventually, will only wealthy people be able to afford them when it is lower-income folks who suffer higher rates of obesity? So what do you do about this problem?

JONATHAN GRUBER: Well, look, I mean, let's start with the facts. The current list price of these drugs is about $15,000 a year. Let's be very clear about two things.

First of all, these are great, miraculous drugs. I mean, they really seem to be a very effective way to lose weight in an arena where it's been hard to find effective ways before. And remember, once you take them, you have to take them forever. Once you stop, you gain the weight back.

So $15,000 a year is forever. Now, the price might be lower through discounts or other things, but it's still much higher than in other countries, where, for instance, in the home country of Novo Nordisk in Denmark, they cost about $3,500. We estimate that at the current cost, if all obese people in America were made eligible for this drug at $15,000, that would be a net cost to the US government of $800 billion a year.

That's a huge amount of money. That's the cost of our Medicare program. Now, our estimate could be off by $100 billion here, $100 billion there. It's still a big number no matter what. And so we suggest that the federal government needs to aggressively consider how to reset the price of this drug more in line with the value it adds to society.

- So, Jonathan, a natural question for that, how do you think about what your solution would mean for innovation?

JONATHAN GRUBER: It's a great question and one that I get asked all the time and one I discuss in my book "Jumpstarting America" with Simon Johnson, which is to remember that a lot of innovation in the US is driven by private companies, but a lot of it is driven by the government. And if the government's going to have to spend $800 billion a year or something like that on these drugs, they're going to have to cut spending elsewhere, including in the valuable government funding of research and development.

Government spending on the National Institutes of Health is incredibly valuable in terms of promoting innovation. And if we cut spending on NIH to allow high prices on drugs, total innovation in the US will fall, not rise.

JULIE HYMAN: In this case, though, in the case of GLP-1, it didn't come from government innovation specifically, right? I mean, there is some private innovation that these big discoveries come from, right?

JONATHAN GRUBER: Oh, absolutely. Every single drug that's been discovered in the past 40 years, at its base, has government-funded basic science. But the private companies then take that. The key thing that's neat about government science is it complements-- it works with private R&D. It doesn't substitute for it.

So I'm not calling for dramatically less private R&D. What I'm saying is if the cost of allowing private R&D is starving the federal government and not allowing the funding for basic science, which is the basic source of all drug development, that is going to move us backwards in terms of innovation, not forwards.

- What about, Jon-- I understand that you want to make them more widely available, but would there be other ways to do that besides what you're proposing? For example, maybe could the government subsidize the cost, Jonathan? Could that be an option?

JONATHAN GRUBER: Well, basically, our estimate comes from what would happen if the government did subsidize the cost, if the government covered it for people on Medicare and Medicaid, if the government can set it for people on the ACA exchanges to get subsidies, that's where the giant cost comes from. So basically, the government could do that. It'd just be incredibly expensive.

And as I said, that would interfere with a number of other priorities of the government. And once again, look, basic economics tells us that we have a well-functioning market, like for apples. We should let the market determine the price.

When the market doesn't work, when consumers can't shop effectively, when there's imperfect competition, the government needs to intervene to ensure that price is set properly. That is the case here. There is no case for free market pricing of drugs. No other country in the world does it. We shouldn't either.

JULIE HYMAN: Jonathan, what happens to private plan pricing if these companies are-- you know, if they have to negotiate with the government for Medicare pricing, do they try and make up for that in the private market?

JONATHAN GRUBER: Great point. The evidence on that is kind of mixed. There's certainly a concern. Once again, the proper regulation would be a social regulation, like they do in every other country, where the regulatory price would apply to all payers.

If the government regulates the price, there's two things that might happen. On the one hand, that could put pressure on the raised price for the private sector. On the other hand, it turns out in many health care sectors, private payers just follow what the government does.

So private payers could just say, no. Look, the government's paying you this. We're going to pay you this as well.

JULIE HYMAN: Wouldn't that be interesting? Jonathan, thank you so much. Appreciate it.

JONATHAN GRUBER: You bet. My pleasure.