How to Beat the High Cost of Weight-Loss Drugs

New weight-loss drugs are working wonders, but they are also out of many patients’ financial reach. Enrollees in Medicare, Medicaid and most employer insurance plans generally don’t cover them.

President Trump has changed that by asking companies to negotiate discounts with the government. Novo Nordisk’s list price for Wegovy is $1,349.02 for a four-week supply. Ozempic, also from Novo Nordisk, has a list price of $1,000. But to gain access to the Medicare market, the company has agreed to sell either drug for $245 plus a $50 patient copayment.

Mr. Trump also advocates a radical idea for non-Medicare patients: buying drugs directly from the makers. Novo Nordisk has agreed to sell its drugs to patients for $350. Eli Lilly has agreed to sell Zepbound and Orforglipron for $346. Other companies are falling in line. Cigna Scripts, the nation’s largest pharmacy benefit manager, has announced that for many clients it will end its rebate system and pass along drug-price discounts negotiated with manufacturers to patients at the pharmacy.

A regulation from Mr. Trump’s first administration would have required the pharmacist to pass along any discount to the patient at the point of sale. While not a perfect solution to a persistent problem, that would have been a huge benefit for millions of patients. Unfortunately, Democrats in Congress delayed the effective date of that rule for 10 more years under the Inflation Reduction Act of 2022.

Mr. Trump has also announced a government website, TrumpRX. No, the White House isn’t setting up its own pharmacy. It will direct patients to discount pharmacies like Mark Cuban’s Cost Plus Drugs. Mr. Cuban’s business plan is simple. He buys drugs directly from the manufacturer, adds a 15% administration fee and sells to patients. Mr. Cuban does not accept payment from insurance companies or employers. The idea is to bypass the insurers and pharmacy benefit managers that pocket big discounts they negotiate and don’t pass them along to patients.

Most people with health insurance have coverage for drugs, either as an integrated plan or a supplemental one. Yet if drug companies sell drugs to insurance companies or to employers who are self-insured, two problems arise.

The first is Medicaid. By law, drug companies must charge Medicaid the lowest price they sell to any other health plan. That restriction doesn’t apply to sales to individuals. Unlike insurance companies or employers, drug companies can sell to a patient for any price without affecting their Medicaid revenue. That is why individual patients may be able to get better prices than a PBM like Cigna.

The second problem is incentives. PBMs have perverse incentives to discriminate against the sick in favor of the healthy. The “profit” they make when patients are overcharged at the pharmacy tends to get competed away in the form of lower premiums. Since most people are healthy and don’t need expensive drugs, they prefer plans with low premiums without realizing that those premiums are made possible by the higher prices paid by the sick.

A solution must address both problems. There are three types of commonly used accounts in which individuals have control over their own healthcare spending: health savings accounts, flexible spending accounts, and health reimbursement arrangements.

In the first two, employees have a property right in the funds. Money not spent is theirs. When combined with high-deductible health insurance, these plans are ideal vehicles for purchasing generic and other moderately priced drugs directly.

They are not as useful for really expensive drugs, however. The annual limit on deposits is $4,300 for an HSA or $3,300 for an FSA. Employers can contribute to these accounts. But if an employer puts a dollar in the account of an employee who needs a drug, the employer must also put a dollar into the accounts of all the employees who don’t need the drug.

HRAs are more promising. An employer could have a health plan that pays for expensive drugs with 20% employee coinsurance. The health plan could waive the coinsurance if the employee agrees to pay for the drug directly with the HRA account. But since HRA funds belong to the employer rather than the employees, this appears to violate the conditions for a direct-to-consumer sale.

Paydhealth is a Dallas firm that has found a solution to this problem. Without going into technical detail, I can say the company satisfies all the legal requirements if the employee uses a special kind of credit card to pay the bill.

The opportunity is huge. Coinsurance is required in 43.2% of commercial insurance contracts. Further, two of three patients with commercial insurance pay from their deductible or coinsurance based on the drug’s list price, which is almost always higher than the cash price. That means millions of patients are overpaying for drugs.

Direct-to-consumer purchasing is a promising answer. In addition to saving money, such transactions provide other benefits, including faster first appointments via telehealth, fewer trips to brick-and-mortar pharmacies, and automated refills.

Much in the healthcare system still needs an overhaul. But lowering drug prices and giving people options for buying them is a promising first step.