Employers bear the consequences of pharmaceutical companies’ influence on the prices of Wegovy and Ozempic

North Carolina’s health insurance plan for state employees made the decision to cease coverage of popular weight-loss medications due to concerns over potential costs exceeding $1 billion within the next six years.

Around 750,000 public employees who are part of the plan are currently required to bear the cost themselves if they wish to access Wegovy, as well as another comparable medication called Saxenda. The state, the pharmaceutical companies, and the company responsible for managing the plan’s pharmacy benefits are all pointing fingers at one another, each laying blame on the other.

Large employers in the United States are facing challenges in managing the costs associated with the new generation of weight-loss drugs, similar to what occurred in North Carolina. This situation sheds light on the flaws in the U.S. drug pricing system, where manufacturers hold significant influence, ultimately hindering patients’ access to highly effective treatments.

North Carolina’s initial intention was to cut costs by requiring patients to try lifestyle management programs for weight loss before prescribing medication. However, the state faced a dilemma when the manufacturer and the pharmacy benefit manager, CVS Caremark, informed them that they would have to pay the full list price for the drugs unless they allowed all patients with a prescription to access the medication without any initial requirements. In this scenario, the state could receive rebates amounting to a 40 percent discount.

The board of the state plan voted to discontinue coverage for the medications.

According to Sam Watts, the administrator of the North Carolina State Health Plan, the contracts between manufacturers and pharmacy benefit managers are inflexible. He explains that these contracts are all-or-nothing, leaving no room for negotiation. As a result, the health plan is obligated to pay for medications for all individuals, regardless of whether it is cost-effective for them or not. This approach is necessary to ensure that medications are accessible for those who would benefit from them financially.

Drug companies are willing to go to great lengths, even if it means sacrificing short-term business, to prevent employers from implementing restrictions that could potentially impact their sales in the long run.

CVS Caremark, the prescription benefits manager for North Carolina’s plan, attributed the blame to the manufacturer. The manufacturer offers rebates to reduce the cost of brand-name drugs in exchange for better positioning on insurers’ lists and a larger market share. CVS explained that it cannot pass on these rebates from the drugmakers if the state fails to meet certain conditions outlined in its contract with the manufacturer. These conditions include the inclusion of the drugs on the state health plan’s list of covered medications. However, CVS emphasized that it does pass on 100 percent of the rebates offered by the drugmaker to the state health plan.

According to a statement from CVS Caremark spokesperson Phil Blando, the main focus of CVS Caremark is to negotiate the most affordable net cost for weight-loss drugs for North Carolina’s teachers and public servants.

According to Blando, Novo Nordisk, the manufacturer of Wegovy and Saxenda, has the power to immediately reduce the prices of these medications and provide much-needed relief to the State Health Plan.

Novo Nordisk argues that the state health plan is interfering with personal medical choices. A spokesperson for the company emphasizes that patients should not be required to prove cost-saving benefits to the entire healthcare system in order to access proven treatment options.

“We were taken aback and disheartened by North Carolina’s decision to reject several viable alternatives that were presented to them since our last board meeting in January,” expressed Nicole Ferreira, a spokesperson for Novo. “Instead, the State Health Plan officials are neglecting their responsibility towards employees who suffer from the chronic disease of obesity, and denying them coverage for safe and effective treatments.”

Similar resistance

According to the Centers for Disease Control and Prevention, obesity affects over 40 percent of Americans, and North Carolina is no exception. When it comes to implementing lifestyle management programs aimed at reducing the costs of weight-loss drugs, large employers face challenges from pharmacy benefit managers and drugmakers. This resistance is not unique to North Carolina, as similar issues have been reported by large employer coalitions across the country.

The objective of lifestyle management programs is typically to decrease the number of employees who require medications like Ozempic and Wegovy, which can cost around $1,000 per month per patient. These programs can also assist employees in sustaining long-term lifestyle modifications while enabling employers to achieve significant healthcare savings by mitigating obesity.

Drug companies such as Novo Nordisk strongly disagree with this approach, considering it irresponsible. Ferreira, a representative from Novo Nordisk, emphasized the company’s firm opposition to creating additional obstacles that could hinder patients’ access to necessary care. PhRMA, the leading lobbying group for the pharmaceutical industry, echoed Novo Nordisk’s position on the need to limit the coverage of these drugs.

According to a statement made by PhRMA spokesperson Stami Williams, these actions that discriminate against innovative medicines for people with obesity fail to recognize their potential in improving the lives of those with this chronic disease. Williams also highlights the opportunity for significant cost savings in the healthcare system and economy through the use of these groundbreaking medicines. Rather than allowing insurers and health plans to deny coverage, Williams emphasizes the need for solutions that expand access to these medications for those who require them.

According to health economists, the current situation reflects the typical process of determining drug prices in the United States. In this system, manufacturers hold a significant amount of pricing power, while pharmacy benefit managers are responsible for enforcing this power during negotiations with employers. Matthew Fiedler, a senior fellow at Brookings’ Center on Health Policy, explains that if employers choose to restrict the volume of drugs sold, they will not receive a discount from the manufacturer in most cases.

Employers may be inclined to raise the cost-sharing burden for their employees or even eliminate coverage altogether, resulting in limited patient access to these medications. This dilemma is especially pronounced when it comes to weight-loss drugs, given the considerable number of individuals who could potentially derive significant benefits from such medications, as noted by Fiedler.

The exorbitant expenses could potentially devastate employers, insurers, and government programs responsible for providing coverage for these treatments.

According to James Gelfand, president and CEO of the ERISA Industry Committee, the ultimate loser in a system where a few big and powerful companies can dictate terms is the patient. He believes that there could have been numerous individuals who could have benefited from these drugs and accessed them if the drug company had been more reasonable and if the PBM had negotiated a better deal.

Cost of drugs to employers

According to a recent survey on employer-sponsored health plans by Mercer, employers are anticipating a 5.2% increase in health costs for 2024. This projection is attributed in part to the growing demand for weight-loss medications such as Ozempic and Wegovy.

According to the Mercer survey, many employers find it difficult to cover the high costs of obesity drugs, which has led them to either not offer coverage or limit their coverage. Approximately 40 percent of employers currently provide coverage for obesity treatment drugs, but often with certain restrictions. Another 19 percent are contemplating the possibility of offering some form of coverage in the future. It is worth noting that most plans currently cover these drugs for diabetes treatment rather than weight loss purposes.

Randa Deaton, the Vice President of Purchaser Engagement at the Purchaser Business Group on Health, emphasizes the importance of allowing self-insured organizations to customize their benefit plans and coverage criteria without affecting the price of medications. According to Deaton, most organizations desire to provide their plan members with weight-management options. However, they also want to ensure that these options are clinically suitable and accompanied by the necessary medical and lifestyle modification support to guarantee the long-term safety and effectiveness for each individual.

According to Shawn Gremminger, the president and CEO of the National Alliance of Healthcare Purchaser Coalitions, the developments in North Carolina serve as a representation of the ongoing discussions between employers nationwide and drug manufacturers and PBMs. These conversations aim to find cost-effective ways to provide coverage for weight-loss drugs.

According to the expert, when it comes to organizing benefits, one party will always aim to maximize their financial gain, while the employers will strive to minimize their expenses in exchange for the desired access.

According to the head of the ERISA Industry Committee, Gelfand, if drug companies refuse to reduce drug prices or impose restrictions on who can be covered for medication, employers may be compelled to eliminate coverage altogether. This is evident in the case of North Carolina’s decision to do so.

According to the speaker, if the situation in North Carolina is typical and not an isolated incident, and if pharmaceutical companies have decided not to allow the combination of these drugs with behavioral modification, employers will likely not provide coverage for these drugs. The reason behind this is that the loss of rebates makes the price of these drugs unreasonably high.

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