Employer Power: A (Nearly) Magic Bullet for Drug Affordability    

COMMENTARY

The recent federal ban on knockoff versions of popular weight-loss drugs like Mounjaro and Ozempic was a big win for Eli Lilly and Novo Nordisk, which produce the GLP-1 drugs that help people lose weight seemingly overnight. But it’s unwelcome news for many people using cheaper versions and highlights the unnecessarily burdensome way the U.S. pays for prescription drugs. 

The availability of off-brand copies of new branded drugs is unusual. Ozempic and Mounjaro were victims of their own success: demand exceeded supply, prompting the Food and Drug Administration to declare shortages. This allowed compounding pharmacies to make and sell copies of the popular obesity drugs, leading to aggressive marketing of much cheaper versions.  

The compounding gold rush slashed prices for consumers but was followed by a 45% increase in calls to poison control centers, as well as widespread concerns about impurities and contamination. A trade-off between lower prices and consumer safety became clear. The new FDA restriction on compounded drugs will promote safety, but consumers will now face higher costs as pharmaceutical companies, rather than the market, are back in control of drug prices. 

The tradeoff isn’t necessary: better patient safety and affordability are both possible if we change the way we pay for medicines.  

Imagine if lawmakers gave employer-based health insurance plans the ability to negotiate the prices of drugs they cover? Congress recently gave Medicare the power to negotiate, leveraging the market power of the roughly 50 million Americans it covers to bargain directly with pharmaceutical companies on their behalf, just as countries like Germany and Japan have done for years. These countries pay 80%-90% less for GLP-1s than we do.

Our private sector, which provides employer-based health insurance to more than 160 million Americans, should advocate for a similar approach. 

Employer-based plans need the help. They each operate as individual health plans, which makes them price takers in a market where pharmaceutical companies set list prices. Employers pay for drugs based on rates set in negotiations between pharmaceutical companies and a handful of companies called pharmacy benefits managers, which administer health plans. Drugs like Ozempic and Mounjaro compete by offering rebates to PBMs in exchange for health plan coverage. 

This system fosters competition but has major drawbacks. One is that it encourages bigger rebates, not lower list prices. Other countries (and now Medicare) avoid this problem by negotiating one price for all patients and payers, making rebates unnecessary. The other is that even after rebates, net prices remain unaffordable. That’s because employer health plans can’t bargain collectively for the nearly two in every five adults who qualify for weight-loss treatment.

As a result, most health plans don’t cover the drugs. Eli Lilly and Novo Nordisk have responded by offering lower-priced versions directly to cash-paying consumers. For example, Eli Lilly recently announced it was offering vials of Mounjaro for $499 a month. But the vials are restricted to cash-paying customers only. Health plans are only offered autoinjector pens with the same amount of drug at $1,200.

The $700 difference is a rare glimpse into a broken payment system that makes the syringe more valuable than the drug itself. 

The U.S. payment system benefits companies like Novo Nordisk, which recently grew to a market cap rivaling the economy of its home country, Denmark. But consumers are left holding the bag — they’ll either pay more or miss out on the drugs’ health benefits for conditions like heart attacks, diabetes and kidney disease.  

Just this week, a report from the Institute of Clinical and Economic Review highlighted the myriad ways in which current U.S. policies can create more problems than solutions in creating affordable access. Admittedly, the challenge is daunting. The number of people eligible for obesity treatments is so large that even the cheapest prices will strain budgets. Perhaps that’s why the Trump administration announced recently that it would limit Medicare coverage of these drugs, even as negotiated prices for Ozempic will begin in 2027.   

But the market size is also what makes collective negotiation by employers the closest thing we have to a magic bullet.

The market is so large that even at significantly reduced prices, pharmaceutical companies stand to make record windfalls and invest that money into developing the next generation of drugs. And the potential health benefits to Americans are substantial. This is where employers should exercise negotiating power on behalf of their workforces.  

With Medicare finally on a path to exerting its market power, perhaps it’s time Congress enable employers to do the same.  

Timothy A. Lash is president of the Gary and Mary West Foundation, West Health Institute in San Diego and the West Health Policy Center in Washington, D.C., where he is also chairperson of the organization. Lash leads the development and execution of West Health’s health care and successful aging portfolio and its federal, state and local public policy agenda. West Health be found here.

Dan Liljenquist is chairman of the board at Graphite Health, chief strategy officer for Intermountain Healthcare and board chair of Civica Rx, an initiative to create a not-for-profit generic drug company. Liljenquist previously served in the Utah State Senate. He can be found here.