Drug Expenditures Surge; Drug Prices Not So Much.

Spending on weight-loss drugs will continue to climb in 2024 and beyond as drug makers catch up with the huge global demand.

Eric Tichy, PharmD, MBA, division chair, supply chain management at Mayo Clinic, is lead author of a new study detailing how and where the U.S. spent $772 billion on drug in 2023, up 13.5% from 2022, and what's in store for 2024.

In this HealthLeaders interview, Tichy explains how weight-loss drugs pushed double-digit increases in drug expenditures last year, even as drug price increases were relatively modest. 

Tichy projects that spending on weight-loss drugs will continue to climb in 2024 and beyond as suppliers catch up with the huge global demand. That growth will continue as new and similar drugs come to market and as the FDA approves the medications for more conditions.

HL: What are some of the big take-aways from your report?

Tichy: It was very impressive how much the diabetes medications that are used for weight loss have grown over the last year. Last year, we had seen that they were growing at a very high rate, and this year they continued to grow at a very high rate. It was just very impressive. And now those are the number one expenditure drugs in the U.S.

People are sensitive to prices of drugs and there's like this public perception that drug prices are driving our expenditures, but prices have been below inflation. It's more about utilization. We have this whole category of weight-loss drugs that we didn't have a couple of years ago. The drug industry is very good at innovating and developing new areas of care that grow our drug expenses.

HL: Is the public conflating drug spending and drug costs?

Tichy: Yes. In our, in our report there are three categories of spending. There's the price, there's brand new drugs that didn't exist last year, and there's utilization. Those get all conflated into price but price is just one driver of expenditures. It's not so much price, at least in the recent five years or so. It's more about utilization and utilization of new drugs.

People are sensitive to prices of drugs and there's a public perception that drug prices are driving expenditures, but prices have been below inflation. It's more about utilization. The pharmaceutical companies would like this to be more widely known, but it takes a long time to shift that narrative. Think about patients spending so much on insulin, but that's a five-years-ago problem. Insulin expenditures have decreased over the last couple of years. Now it's the GLP-1s that have taken off, so it takes society time to catch up.

HL: Have these weight-loss drugs sufficiently demonstrated ROI to the point where private insurers would include them in their formularies?

Tichy: We know people have struggled for years with weight have now dropped weight and they're doing great. But it takes years to accrue health benefits would influence an insurance plan. It's yet to be determined if GLP-1s are "cost effective" from that standpoint. But there's more evidence every day showing that these drugs help with sleep apnea, cardiovascular diseases, joint replacements and other chronic conditions.

HL: Do you think the cost of weight-loss drugs will go down? Would any savings be offset by volume expenditures?

Tichy: Because the use is growing so fast, even if the price comes down, it's not going to show up because the utilization is just so large. In fact, the demand for these products is so strong that manufacturers can't even make them fast enough. They’re doing everything they can to meet that demand because it’s a permission slip to print money.

HL: What about the opportunities for cheaper, generic weight-loss drugs?

Tichy: We're aways off from that because of the patents. These drugs are relatively new so we're not going to see a meaningful generic competition in the next couple of years. What could happen is that there's more and more of these other drugs in development that do similar things. That'll create competition. Wegovy competes with Zepbound; different companies making a drug that has the same mechanism. We will see if there's another drug that's approved that does the same thing. So, we might see some competition in that way.

But that doesn't show up in the expenditures because a lot of times the discounts or rebates go to the PBMs. HUMIRA is the No. 2 drug spend and it has biosimilar competition, but the expenditures are still very high because there's a lot of rebates. We use purchase data, so it does get inflated with rebates that show those discounts.

HL: What effect did 340B have on hospital drug expenditures?

Tichy: 340B was a big factor that kept hospital expenditures almost flat, unlike some of the other sectors. Another factor is that the pandemic is very much over and we're no longer using the drugs that we were spending a lot of money on in the hospitals to treat COVID. And that's because people aren't ending up in the hospital with COVID and now we have oral medications and vaccines. So that has totally changed, and it's really impressive how in just a short couple of years that has shifted. 

HL: We’re hearing about widespread drug shortages. Why is this happening?

Tichy: With the GLP-1s it's the insatiable demand. But most of the shortages are generic injectable drugs. A big part of the cause for that is there's just not a lot of money in those for manufacturers and there's a lot of regulatory burdens and a lot of competition. They run into quality issues that lead to recalls so there are a lot of market forces at play.

HL: What is the effect of this ongoing drug shortage on drug spending or costs?

Tichy: With the GLP-1s, if there weren't shortages this spending would have been even higher. The manufacturers are doing everything they can to make those products. It's in their best interest but the demand is so insatiable that they can't meet it. Eventually, maybe this year, they'll get to where they're meeting market demand. We did factor that in because we think that expenditures for GLP-1 are going to continue to increase at a high rate because the demand is very strong, and we know that they'll ramp up supplies.

But with generic drugs, we don't think that that has much of an impact because generic drugs are such a small percentage of our expenditures and they're just using a different drug if they can't get the drug they’d would prefer to use.

HL: What’s the next blockbuster drug?

Tichy: Alzheimer's was one of those drugs that we thought was going to take off and it has not yet, but they have the potential to be a very big market and an expensive drug. A lot of our spending growth has been with cancer drugs, and we expect that to continue. One of the hot areas of study in cancer is vaccines, whether they're therapeutic or preventative. They’re in clinical trials at this point. Nothing's FDA approved yet.