The Economic Lesson From Weight-Loss Drugs

What if the most important lesson from the rise of GLP-1 weight-loss drugs isn’t medical but economic?

Like millions of Americans, I’ve benefitted from the price war between the two pharmaceutical companies producing these drugs, which are arguably the most important new medicines of the decade. Prices for Wegovy and Zepbound have fallen by more than 70 percent in just the past three years.

The pharmaceutical business model is naturally vulnerable to such competitive price declines, combining as it does high upfront investment costs and low production costs to make each dose. The same dynamic appears in airlines, telecommunications, and high-value manufacturing sectors ranging from steel to semiconductors.

But rapid price decline is rare in the rest of the health-care sector. Why?

Health care’s cost problem isn’t really about the new and innovative being uniquely expensive—it’s that the old and routine fails to get cheaper as it does in virtually every other industry. Health care is an outlier in this regard because pressures that should produce lower prices for established services fail to do so.

For example, declining demand doesn’t reliably mean lower prices. Demand for inpatient hospital services has fallen as recovery times shorten, more procedures move into outpatient clinics, and long-term patients receive care in less costly settings. Telemedicine and remote monitoring further reduce the need for expensive facilities. Nonetheless, hospital prices have risen three times faster than inflation over the last 25 years.

Similarly, consider that for a full decade before Covid-19, hospitals were operating with average occupancy rates around 64 percent—meaning roughly a third of inpatient capacity sat empty. Those years of substantial slack did nothing to moderate hospital prices. By contrast, in commercial real estate, a post-pandemic demand shock led to roughly a 25 percent decline in office lease prices.

Labor trends tell a similar story. Doctor pay has lagged inflation while work traditionally performed by physicians is increasingly handled by lower-cost nurse practitioners and physician assistants. Nearly all patient data is now digitized, enabling enormous potential administrative savings in prescribing, ordering, coordination, and billing. None of this has materialized as lower prices.

Why are GLP-1s getting cheaper while health care remains expensive? The answer lies in what makes GLP-1 drugs different: actual consumers have to pay actual prices.

Manufacturers initially followed the standard playbook: maintain high retail prices (paid by almost no one) while offering modest discounts to Medicare and insurers. But coverage for weight-loss drugs expanded much less rapidly than usual. As a result, manufacturers had to sell directly to consumers; a majority of weight-loss patients pay for their GLP-1s out of pocket. Manufacturers therefore face the same incentives confronting companies outside health care: reduce prices or lose customers and profits.

Exposure to real consumer demand reliably makes the difference. Whenever health-care providers must sell directly to consumers—whether in LASIK surgery, orthodontics, chiropractic services, mental health care, or cosmetic procedures—competitive pressures frequently produce meaningful price reductions.

Without price competition for consumers, providers have little incentive to cut prices—and no incentive to let outsiders observe declining costs. As a result, we’ve had a decade of efficiency gains absorbed by newly integrated hospital systems, pharmacy benefit managers, and expansive revenue-management bureaucracies.

In spite of this, policymakers still cling to the misplaced hope that government agencies and insurers will use bargaining power to force lower prices. Within a few years of Medicare’s enactment in 1965, federal leaders recognized that uncontrolled spending required reform. For decades since, reforms have targeted whichever factor appeared to be driving cost growth at the moment—a recurring game of whack-a-mole. After more than half a century of bipartisan frustration, it’s time to acknowledge reality: effective top-down price discipline is impossible, even when underlying costs are falling.

Emerging technologies—remote care, robotics, advances in biomedical science, and especially artificial intelligence—are accelerating reductions in the resources needed to deliver effective treatment. But if we stay on our current path, these advances will be subsumed by unnecessary costs, new layers of administration, and invented complexity—just like the past two decades of efficiencies were swallowed up.

Simply put, if our goal is to translate declining health-care costs into declining prices, health care needs a different customer. The United States will spend almost $6 trillion on health care in 2026, with the vast majority flowing through insurers and government programs. Redirecting more of those dollars toward patient-consumers—and reducing the role of intermediaries purchasing care on their behalf—will create greater opportunity for disruptive innovators to profit by lowering prices.

One approach is to reverse the decades-long trend of expanding what routine insurance covers, instead reserving insurance for genuine catastrophic risk and leaving more everyday spending in patients’ hands. Another is to convert insurance benefits for defined categories of care into direct cash benefits, giving patients money to spend rather than having insurers effectively purchase services on their behalf. Either approach would reintroduce the price sensitivity that helps discipline costs in every other consumer market.

A common objection is that health care simply cannot work like other markets because so much consumer need is urgent and leaves no room for choice. This argument made more sense in the mid-twentieth century, when acute crises—heart attacks, infections, injuries—dominated both care and spending.

But today, roughly 60 percent of U.S. adults have a chronic disease, which consumes 90 percent of health-care costs. Managing diabetes, heart disease, obesity, or depression is not an emergency; it is an ongoing, iterative process that in many cases requires patients to weigh competing treatment paths, make lifestyle tradeoffs, and choose among providers over months and years.

Since Medicare’s creation in 1965, industries once considered too complex or too essential for normal competition—banking, air travel, telecommunications, and retail—have been transformed to create trillions of dollars of consumer benefit. If we allow it, health care can be next.