From The Editor | August 1, 2024

GLP-1 Drugs Driving Big Budget Impact: PwC's Medical Cost Trend 2025

Ben Comer_2022_1

By Ben Comer, Chief Editor, Life Science Leader

Philip Sclafani Headshot
Philip Sclafani

During my stint (five years and some change) as a senior manager in PwC’s Health Research Institute, I had the opportunity to work on the pharmaceutical and life sciences sections of several Medical Cost Trend: Behind The Numbers reports. Produced annually, the reports — which cover the payer, provider, and life sciences sectors — build on surveys and interviews conducted with the actuaries working at U.S.-based health plans to identify and anticipate major “inflators” and “deflators” hitting healthcare budgets in the coming year.

For most of the Behind The Numbers reports I worked on, the medical cost trend increased each year by a more or less consistent rate of between 5% and 6%. In 2025, however, PwC anticipates an 8% increase; report authors also revised upward the real percentage increases experienced during 2023 and 2024. Those increases in medical cost, and the increases expected next year, source back to a key “inflator,” according to the report: higher than expected utilization of GLP-1 inhibitors, known to just about everyone as the Novo Nordisk brands Ozempic and Wegovy, and the Eli Lilly brands Mounjaro and Zepbound. With new indications and additional studies ongoing, manufacturing capacity increasing, and new direct-to-patient models forming, the GLP-1 class of medications is just getting started.

GLP-1 Expansion

To better understand the impact of GLP-1s on healthcare spending, and to get a read on some of the other cost inflators and deflators in the 2025 report, I spoke with Philip Sclafani, a partner in PwC’s pharmaceutical and life sciences practice. Regarding the GLP-1 class of drugs, the name of the game is utilization, or increased patient access via improved insurance coverage, says Sclafani. Manufacturers are building out larger production capacity, which effectively “sets the table” for bringing drug volume on par with increasing patient demand.

Looking at utilization in terms of insurer costs per member, per month, the increase in obesity and weight loss management alone is significant, and that increased usage will have a knock-on effect for use in other approved indications, as well as off-label uses, notes Sclafani. As new and ongoing clinical studies make the case for additional GLP-1 indications, such as in sleep apnea and certain CNS conditions, patient access and utilization will continue to grow.

Regarding new direct-to-patient commercial models, such as Eli Lilly’s LillyDirect program, the GLP-1 class of drugs is uniquely positioned to succeed, explains Sclafani. In general, the model works like this: patients access the manufacturer or drug sponsor program, which connects the patient to a healthcare professional, often virtually. An evaluation of the patient is conducted, and if a GLP-1 drug is appropriate, a prescription is written and sent into a direct fulfillment channel, from which the patient receives the drug at a price point of around $400 or $500. This model makes sense from a GLP-1 manufacturer’s standpoint, because $400 or $500 is “close to the same that the manufacturer might get after rebates, distribution fees, and costs” paid to insurers, PBMs, and distributors in a traditional delivery model, says Sclafani.   

Other Medical Cost ‘Inflators’

Therapeutic innovation in other disease areas, while not as substantial as the GLP-1 class of drugs, also will contribute to higher medical costs next year and in the future, according to the report. Growing use of biosimilars in areas like immunology and inflammation — a medical cost “deflator” named in the 2025 report — will help to offset some of the cost increases associated with new CNS and rare disease therapies, but won’t make up the difference in the short term.

New therapies for Alzheimer’s disease are a significant inflator but should be separated out by patients with early and mild cognitive impairment, which will be covered more often by private commercial insurers, and the 65-year-old and older population, which is covered by Medicare, says Sclafani. Other new therapies getting close to approval in schizophrenia and other CNS conditions will arrive with high price tags, and will begin with smaller utilization. If they succeed, manufacturers may have a chance to “rebrand the class” and drive uptake away from generic options, which currently comprise over 90% of utilization in therapeutic areas like depression.     

Other therapeutic areas, such as sickle cell disease, hemophilia B, and fatty liver disease may also contribute to higher medical costs next year, due to new treatment options. Rare and ultra-rare diseases, too, will impact medical costs. “When you start to add up the wealth of innovation that’s coming in rare and ultra-rare diseases — products that might cost $4 or $5 million per patient, or even new technologies delivering treatments to a specific, individual patient, which might cost $10 million — it adds up,” says Sclafani. “We need more curative treatments, rather than just chronic treatments, but at some point, that small percentage of patients benefiting from those therapies will make up a large percentage of medical spending.”   

IRA Impact Subdued, For Now

PwC’s 2025 report calls out the Inflation Reduction Act (IRA) as a “trend to watch,” but doesn’t characterize it as strictly an inflator or deflator. Anecdotally, passage of the law has led to higher launch prices for new drugs, as manufacturers aim to price in subsequent indications while clinical studies continue. “We’re definitely seeing that impact of the shorter time to recoup an investment and get the product to market,” says Sclafani. The thinking around multi-indication sequencing, in some cases, is that the price can only get set once, and can’t be increased to reflect new indications down the road, due to Medicare inflationary penalties or price protections in commercial insurer contracts. As a result, launch prices are going up, which could increase medical costs in the short term.

Longer term, however, the IRA will likely have a deflationary effect. Uncertainty remains around how Medicare Part D plans and commercial insurers will manage spending and formularies related to negotiated drugs under the IRA. So far, only 10 drugs have been selected for negotiation, but “by the time you get to 100 drugs in 2031, there won’t be many drugs left with over $200 million in annual sales,” says Sclafani. “When you start to negotiate almost everything, you will have a pretty significant deflationary effect.”