Summary: Using current scenarios in the arena of healthcare, we will examine how each group’s perspective (Patients, Healthcare Providers, Hospitals, Pharmaceutical Companies, Private Insurance Companies, and the U.S. Government, among others) on value differs, to show that a more considered approach to Value in Healthcare must be performed when healthcare policy changes are proposed.
The rising cost of healthcare in the United States is a topic that has dominated news headlines regularly for years due to the vastly negative economic effects on U.S. citizens, both immediate and long-term. Now that the election cycle is under way, politicians and news outlets will surely up the ante, and for good reason: In 2021, the United States spent 18.3% of the Gross Domestic Product (GDP) on healthcare services.1 That amounts to 4.3 trillion dollars, or $12,914 per person in the United States. Compare that to healthcare spending in 2000 at 13.3% of the GDP2. The 5% difference in such a relatively short time period represents a simply unsustainable growth in cost. To make matters worse, the government share of these costs, through programs like Medicare and Medicaid among others, continues to rise. In 1971, government-funded programs accounted for 26.5% of healthcare dollars spent3. In 2021, that number jumped to 34%3. Therefore, it follows that any conversation about reducing taxes must include a proposal on reducing healthcare expenditures.
A catchphrase that has taken hold in these conversations lately is “Value Based Healthcare.” Value Based Healthcare pays physicians and hospital systems based on how successfully they have treated the patient, according to research-based protocols (vs. “Fee for Service,” the traditional model in which physicians and hospitals were simply paid for the services they performed, whether they helped the patient or not). At the core of this new reimbursement system is determining the “value” of every single procedure, process, and medication provided to patients. How is this done? One way of evaluating value in healthcare is by using a formula such as this:
Using this formula, it is clear that better patient outcomes and/or lower costs increase value, while poorer patient outcomes and/or higher costs decrease value. In reality, the perceived value of any of these interventions is determined by where you “sit” at the table of healthcare, with each seat being occupied by a different category of stakeholder: Patients, Healthcare Providers, Hospitals, Pharmaceutical Companies, Private Insurance Companies, and the U.S. Government, among others. Using current scenarios in the arena of healthcare, we will examine how each group’s perspective on value differs, to show that a more considered approach to Value in Healthcare must be performed when healthcare policy changes are proposed.
The first example we will examine is the category of medications known as glucagon-like-peptide 1 (GLP-1) receptor agonists, commonly known by their retail names: Ozempic, Wegovy, and Trulicity, among others. Initially, these drugs were specifically designed for patients with Type 2 diabetes since they stimulate the release of insulin and slow digestion. After these drugs started to be used widely, patients and healthcare professionals noticed weight loss as a side-effect. The drug companies who produce these medications then responded by marketing – and subsequently designing them – for weight loss, and recently both Ozempic and Wegovy have been approved by the FDA for this purpose. This means that physicians have much greater latitude in prescribing these drugs to patients – even those without diabetes. In addition, recent research studies have suggested that these medications decrease the risk of cardiac disease and may increase longevity in certain patient groups – independent of the benefits of weight loss. Add to that, these medications are remarkably safe with very few side effects. From a cost perspective, these drugs can be expensive, ranging from $500-$1500 per month when not covered by insurance. How this scenario gets dropped into the Value formula above depends on the perspective of the stakeholder.
If you are a Patient, the value of these GLP-1 receptor agonists is tremendously high: Patients can lose 15-20% of their body weight, have a lower risk of cardiac disease, and potentially live longer – with few side-effects. While the cost is high, most patients would say the results are worth the cost, if they can afford them (consider how many people who could really use them will go without due to cost). If insurance covers the medication, out-of-pocket cost is reduced to about $25 per month. That would make these drugs a proverbial no-brainer. Patient Value = HIGH
If you are a Private Insurance Company or the Government however, things are not so straightforward. The Centers for Disease Control estimates that almost 40% of adults between 20 to 39 years of age are classified as obese. For people over 60, 41.5% are considered obese. If Private Insurance and the Medicare program were to begin paying for all obese people in the United States to receive these medications today, the cost would be staggering. So, while the positive patient results are hard to deny, Private Insurance Companies and the Government will make efforts to resist covering these medications until lower-cost, generic forms become available in the next 5-7 years. Conversely, from a long-term perspective, the potential value of these medications becomes much greater over time for Private Insurance Companies and the Government. A less-overweight population will decrease healthcare needs on a national level, and therefore the overall cost of healthcare in the U.S. over time. The question comes down to whether the payors can absorb the short-term financial losses in exchange for the long-term benefits. Insurer Value = MIXED (depending on time frame).
If you are a Pharmaceutical Company, these drugs represent the highest value products they have had in years. Some could argue that these companies are charging outrageous prices for such a widely useful medication, but before making that accusation, one should consider the cost to develop these drugs. The development process is lengthy and costly, involving multiple rounds of testing, the FDA submission and approval process, manufacturing, sales, and marketing. And, for every “successful” medication that makes it to market, there could be dozens that fail in the testing phase and never make it to market to generate revenue. It is also important to consider that if pharmaceutical companies were to not profit from their efforts, they would have no incentive to create new and helpful medications. There is a middle ground to be obtained here, but lack of innovation is a potential devastating cost as we aggressively pursue value in healthcare. Pharmaceutical Company Value = HIGH
If you are a Healthcare Provider, these drugs can affect you differently depending on your specialty. Most providers and hospitals are still paid on a Fee-For-Service basis. That means that the more procedures you do, the more you get paid. Bariatric surgeons (physicians who perform weight loss surgeries) will rapidly be out of business if patients can simply take a pill and lose the same amount of weight as they do with bariatric surgeries. And since the complication rate of bariatric surgeries is very high, the value of those surgeries will further plummet in comparison to the medications. In contrast, to a Primary Care Provider, these medications are of great value. When their obese and overweight patients lose weight, their medical conditions naturally become less complicated. Achieving the same financial reimbursement for an office visit for a less complicated patient represents significant value to the physician. Less complicated patients are treated in less time, which lowers costs. Provider Value = DEPENDENT ON SPECIALTY
If you are a Hospital getting paid for bariatric procedures, these medications could represent a loss in revenue just like the provider example referenced above. On the flip side, less obese and presumably healthier patients will require shorter inpatient stays in the hospital – a financial plus since hospitals often get paid a flat rate for hospital stays regardless of how many days the patient stays. Hospital Value = DEPENDENT ON A NUMBER OF FACTORS
Now that we’ve got your attention, it’s probably clear that the perceived values of medical interventions such as GLP-1 receptor agonists are completely dependent on one’s perspective. If you liked this segment, you’ll be pleased to know we’ll be revisiting these differing value perspectives on additional topics. Be on the lookout for Round 2 of our Perspectives on “Value” in Healthcare series next month.
1. Centers for Medicare and Medicaid Services, NHE Fact Sheet:
2. Healthcare Executive, “Analysis of Healthcare Spending Since 2000.”
3. Peter G. Peterson Foundation, “Healthcare Spending in the United States Remains High,” April 5, 2023. ”