Get the Government Out of the GLP-1 Market

Its involvement often leads to distortions and perverse incentives

Letter to The WSJ. 

"Dr. Gilberto de Lima Lopes Jr. is right that the market for medications is imperfect, but it is often government that is the culprit (“The Free Market Alone Won’t Cut GLP-1 Prices,” Letters, Nov. 21).

Oncology, his speciality, is the canonical example of government distortion. In Medicare, cancer medications are often reimbursed through the Part B program. Providers get a percentage of the sales price for administering each drug, so it’s hardly surprising that they tend to prefer expensive treatments. This incentive doesn’t exist in Medicare Advantage, where private plans are responsible for reimbursement and thus more likely to deliver cheaper alternatives.

Other, less-regulated disease areas show better market responses. While prices fall most dramatically with the entry of generics after patent expiration, competition among branded drugs can also push prices lower. We saw this occur for hepatitis C treatments. Meanwhile, we have never seen a market like the one that is developing for antiobesity medications. More than 124 drugs were in clinical trials last year. About 40 million Americans already have used an injectable GLP-1 for weight loss. A cheaper pill is expected soon.

The race for market share is leaving pharmacy benefit managers on the sidelines. Drug companies are discounting to customers purchasing directly, and they’ve made similar agreements with big retailers like Costco. The deal the Trump administration struck with Novo Nordisk and Eli Lilly to sell GLP-1s through a new direct-to-consumer platform, TrumpRx, will result in prices 74% lower than previous list prices.

Price transparency is crucial. Ironically, because insurers were reluctant to cover these high-demand drugs, patients demanded more transparency. This helped drive prices lower. USC Schaeffer research shows better access can provide social returns greater than the S&P 500’s performance this century.

These aren’t artificial or government-forced pricing decisions that harm innovation. On the contrary, suppliers are reacting to an unparalleled opportunity and consumers are profiting. That’s what happens in a competitive market.

Dana P. Goldman

University of Southern California"