Business
Column: The Ozempic revolution in weight-loss drugs exposes the weakest links in our healthcare system — drug pricing and insurance
It’s rare — miraculously rare — that a drug can have such a pronounced effect that its immediate benefits translate into healthcare savings for years, even decades. To the wonder drugs Harvoni and Sovaldi, which wipe out hepatitis C, we can now add the weight-loss medicine Ozempic and its cousins Wegovy, Mounjaro and Zepbound.
These drugs have shown remarkable effectiveness in reducing obesity. That points to long-term reductions in users’ vulnerability to the whole spectrum of obesity-related medical conditions, including diabetes, cardiovascular disease, bad knees and sleep apnea.
They appear to work on other unhealthful dependencies such as narcotic and alcohol addiction, and possibly even on Alzheimer’s.
‘Insurers routinely don’t see people for more than a few years at a time …. This limits the length of time that health gains can be internalized as reduced claims.’
— David Anderson, University of South Carolina health policy expert
Yet millions of Americans are unable to access these drugs, thanks to the two big, interrelated flaws in our healthcare system: unrestrained pricing by drug companies and the economics of health insurance.
We’ll explore how these factors work to deny access to drugs that address America’s No. 1 health malady. But first, a look at the seriousness of the obesity epidemic.
Weight is typically measured by the body mass index, or BMI, which correlates weight with height. Roughly speaking (and not accounting for differences between males and females), a “healthy” weight for a 5-foot-10-inch person is reckoned by the Centers for Disease Control and Prevention to be 128 to 173 pounds, which translates to a BMI of between 18.4 and 24.9.
Between 173 and 208 pounds places that person in the “overweight” category and heavier than that is judged to be “obese,” defined as a BMI of 30 or higher. Those with a BMI of 40 or higher, or 278 pounds for a 5-foot-10 adult, are “severely obese.”
America has been getting more obese over time, according to the CDC. In 1960, about 31.5% of U.S. adults were overweight; in 2017, the latest period tracked by the agency, the figure was 30.3%. In 1960, however, 13.4% of adults were obese and 0.9% severely obese; by 2017, about 42.8% of adults were obese and 9.6% severely obese.
The rate of obesity among children — about 20% — is especially worrisome. Obese children are more likely than those with healthy weights to have high blood pressure and diabetes, and more likely to be obese in adulthood.
The toll this epidemic takes on the economy is horrific. Obesity and its consequences cost the U.S. healthcare system nearly $173 billion a year, the CDC estimates.
Experience with the weight-loss medicines thus far shows that they can cut the rates of obesity-related conditions materially. A five-year study of more than 24,000 nondiabetic but obese subjects published earlier this month by a team of Taiwanese researchers found significant reductions not only in heart disease, hypertension, stroke and kidney failure but in mortality from all causes as well. Those in the control group (not receiving the drug) had a 3.5% annual mortality rate; for those given the drug, it was only 0.75%.
So why would stakeholders in our healthcare system not be beating down the doors to make these drugs more widely available?
The answer, of course, boils down to money.
The estimated cost of Wegovy and similar drugs for insurers, net of bulk discounts provided by manufacturers (Denmark-based Novo Nordisk for Wegovy and Ozempic and Indianapolis-based Eli Lilly for Mounjaro and Zepbound) runs from about $8,600 to $9,100 a year. That’s a big lift for insurers contemplating coverage of drugs for which the public demand can be in the millions.
That might work if insurers could be sure that the long-term savings from their enrollees’ health improvements would save them as much or more. In our fragmented healthcare system, however, they can’t be sure that they’ll still be covering those enrollees in the cost-avoidance period. Customers can move to other insurers or leave the employers who were providing the insurance.
“Insurers routinely don’t see people for more than a few years at a time,” observes David Anderson, an expert in health policy at the University of South Carolina. “This limits the length of time that health gains can be internalized as reduced claims.”
As a result, insurers have been placing obstacles in the way of customers seeking coverage. Some require advance authorization before they’ll pay or limit coverage only to patients with a high BMI. Some insurance plans will cover them only for employees already diagnosed with diabetes, the condition for which these medicines were first developed, but not for weight loss alone.
Insurers administering plans for self-insured employers — large companies and institutions — are probably responding to their clients’ directives.
Some big employers that originally covered the weight-loss drugs have pulled back. The Mayo Clinic has imposed a $20,000 lifetime limit on the coverage for its employees. Purdue University will cover the drugs for employees with BMIs over 30, but requires employees to have lost at least 5% of their body weight after three months to continue coverage.
Others have simply dropped the option altogether. That leaves employees or the uninsured on the hook for the cost of $1,000 or more a month.
The insurer best positioned to pay for the weight-loss drugs and to reap the long-term benefits is Medicare, in which enrollees typically remain for life. Moreover, insurers are generally required to cover drugs considered the standard of care for known conditions.
Unfortunately, Medicare is prohibited by law to cover drugs prescribed specifically for weight loss. It can pay for them only if they’re prescribed for a related condition, such as heart disease or diabetes. For example, Wegovy was added to the standard formulary for Medicare’s Part D prescription benefit after it received approval from the Food and Drug Administration in March for the treatment of heart attack risk.
The popularity and efficacy of the drugs prompted legislators in June to update a measure unsuccessfully introduced in 2014 legalizing Medicare coverage for weight loss alone. The new version would cover mostly those who had been taking a drug for at least a year before joining Medicare, however.
Some experts estimate that expanding coverage of the weight-loss drugs would cost Medicare up to $6.1 billion a year, assuming that 10% of patients eligible for the coverage actually receive prescriptions. That would increase the $120-billion annual cost of Medicare prescriptions (net of enrollee premiums and contributions from state programs) by a little over 5%.
Whether that cost would be fully offset by subsequent healthcare savings for Medicare is unclear. Not every patient prescribed the weight-loss drugs tolerates them well enough to stay on them for even a year, and not all will escape a major health crisis that could have been averted by weight loss alone.
But it seems now that our healthcare system will have to deal with the new class of weight-loss drugs in one way or another. Wegovy and Ozempic are expected to be selected for the next round of Medicare price negotiations, due to take place next year with price reductions effective starting in 2027. Drug industry analysts don’t expect the drugs’ popularity to wane. The market for them reached $6 billion last year, according to Goldman Sachs, which projected that it would grow to $100 billion by 2030.
The weight-loss drugs are by no means the most expensive on the market — that trophy belongs to certain cancer drugs and gene therapies, some of which clock in at several million dollars per treatment. But none of those serve a market anywhere near the potential size of weight-loss treatments.
Unless the U.S. moves toward a single-payer healthcare system and starts to place limits on drug prices, it’s the manufacturers of the weight-loss drugs that will reap most of the benefits. Sales of Wegovy and Ozempic made Novo Nordisk the most valuable European company last year and helped drive an increase in profit at Lilly for the second quarter that ended June 30 by nearly 69% over the year-earlier period.
To put it another way, America’s 20th century healthcare system is coming face to face with a spate of 21st century drugs. Something will have to give.
Business
U.S. Space Force awards $1.6 billion in contracts to South Bay satellite builders
The U.S. Space Force announced Friday it has awarded satellite contracts with a combined value of about $1.6 billion to Rocket Lab in Long Beach and to the Redondo Beach Space Park campus of Northrop Grumman.
The contracts by the Space Development Agency will fund the construction by each company of 18 satellites for a network in development that will provide warning of advanced threats such as hypersonic missiles.
Northrop Grumman has been awarded contracts for prior phases of the Proliferated Warfighter Space Architecture, a planned network of missile defense and communications satellites in low Earth orbit.
The contract announced Friday is valued at $764 million, and the company is now set to deliver a total of 150 satellites for the network.
The $805-million contract awarded to Rocket Lab is its largest to date. It had previously been awarded a $515 million contract to deliver 18 communications satellites for the network.
Founded in 2006 in New Zealand, the company builds satellites and provides small-satellite launch services for commercial and government customers with its Electron rocket. It moved to Long Beach in 2020 from Huntington Beach and is developing a larger rocket.
“This is more than just a contract. It’s a resounding affirmation of our evolution from simply a trusted launch provider to a leading vertically integrated space prime contractor,” said Rocket Labs founder and chief executive Peter Beck in online remarks.
The company said it could eventually earn up to $1 billion due to the contract by supplying components to other builders of the satellite network.
Also awarded contracts announced Friday were a Lockheed Martin group in Sunnyvalle, Calif., and L3Harris Technologies of Fort Wayne, Ind. Those contracts for 36 satellites were valued at nearly $2 billion.
Gurpartap “GP” Sandhoo, acting director of the Space Development Agency, said the contracts awarded “will achieve near-continuous global coverage for missile warning and tracking” in addition to other capabilities.
Northrop Grumman said the missiles are being built to respond to the rise of hypersonic missiles, which maneuver in flight and require infrared tracking and speedy data transmission to protect U.S. troops.
Beck said that the contracts reflects Rocket Labs growth into an “industry disruptor” and growing space prime contractor.
Business
California-based company recalls thousands of cases of salad dressing over ‘foreign objects’
A California food manufacturer is recalling thousands of cases of salad dressing distributed to major retailers over potential contamination from “foreign objects.”
The company, Irvine-based Ventura Foods, recalled 3,556 cases of the dressing that could be contaminated by “black plastic planting material” in the granulated onion used, according to an alert issued by the U.S. Food and Drug Administration.
Ventura Foods voluntarily initiated the recall of the product, which was sold at Costco, Publix and several other retailers across 27 states, according to the FDA.
None of the 42 locations where the product was sold were in California.
Ventura Foods said it issued the recall after one of its ingredient suppliers recalled a batch of onion granules that the company had used n some of its dressings.
“Upon receiving notice of the supplier’s recall, we acted with urgency to remove all potentially impacted product from the marketplace. This includes urging our customers, their distributors and retailers to review their inventory, segregate and stop the further sale and distribution of any products subject to the recall,” said company spokesperson Eniko Bolivar-Murphy in an emailed statement. “The safety of our products is and will always be our top priority.”
The FDA issued its initial recall alert in early November. Costco also alerted customers at that time, noting that customers could return the products to stores for a full refund. The affected products had sell-by dates between Oct. 17 and Nov. 9.
The company recalled the following types of salad dressing:
- Creamy Poblano Avocado Ranch Dressing and Dip
- Ventura Caesar Dressing
- Pepper Mill Regal Caesar Dressing
- Pepper Mill Creamy Caesar Dressing
- Caesar Dressing served at Costco Service Deli
- Caesar Dressing served at Costco Food Court
- Hidden Valley, Buttermilk Ranch
Business
They graduated from Stanford. Due to AI, they can’t find a job
A Stanford software engineering degree used to be a golden ticket. Artificial intelligence has devalued it to bronze, recent graduates say.
The elite students are shocked by the lack of job offers as they finish studies at what is often ranked as the top university in America.
When they were freshmen, ChatGPT hadn’t yet been released upon the world. Today, AI can code better than most humans.
Top tech companies just don’t need as many fresh graduates.
“Stanford computer science graduates are struggling to find entry-level jobs” with the most prominent tech brands, said Jan Liphardt, associate professor of bioengineering at Stanford University. “I think that’s crazy.”
While the rapidly advancing coding capabilities of generative AI have made experienced engineers more productive, they have also hobbled the job prospects of early-career software engineers.
Stanford students describe a suddenly skewed job market, where just a small slice of graduates — those considered “cracked engineers” who already have thick resumes building products and doing research — are getting the few good jobs, leaving everyone else to fight for scraps.
“There’s definitely a very dreary mood on campus,” said a recent computer science graduate who asked not to be named so they could speak freely. “People [who are] job hunting are very stressed out, and it’s very hard for them to actually secure jobs.”
The shake-up is being felt across California colleges, including UC Berkeley, USC and others. The job search has been even tougher for those with less prestigious degrees.
Eylul Akgul graduated last year with a degree in computer science from Loyola Marymount University. She wasn’t getting offers, so she went home to Turkey and got some experience at a startup. In May, she returned to the U.S., and still, she was “ghosted” by hundreds of employers.
“The industry for programmers is getting very oversaturated,” Akgul said.
The engineers’ most significant competitor is getting stronger by the day. When ChatGPT launched in 2022, it could only code for 30 seconds at a time. Today’s AI agents can code for hours, and do basic programming faster with fewer mistakes.
Data suggests that even though AI startups like OpenAI and Anthropic are hiring many people, it is not offsetting the decline in hiring elsewhere. Employment for specific groups, such as early-career software developers between the ages of 22 and 25 has declined by nearly 20% from its peak in late 2022, according to a Stanford study.
It wasn’t just software engineers, but also customer service and accounting jobs that were highly exposed to competition from AI. The Stanford study estimated that entry-level hiring for AI-exposed jobs declined 13% relative to less-exposed jobs such as nursing.
In the Los Angeles region, another study estimated that close to 200,000 jobs are exposed. Around 40% of tasks done by call center workers, editors and personal finance experts could be automated and done by AI, according to an AI Exposure Index curated by resume builder MyPerfectResume.
Many tech startups and titans have not been shy about broadcasting that they are cutting back on hiring plans as AI allows them to do more programming with fewer people.
Anthropic Chief Executive Dario Amodei said that 70% to 90% of the code for some products at his company is written by his company’s AI, called Claude. In May, he predicted that AI’s capabilities will increase until close to 50% of all entry-level white-collar jobs might be wiped out in five years.
A common sentiment from hiring managers is that where they previously needed ten engineers, they now only need “two skilled engineers and one of these LLM-based agents,” which can be just as productive, said Nenad Medvidović, a computer science professor at the University of Southern California.
“We don’t need the junior developers anymore,” said Amr Awadallah, CEO of Vectara, a Palo Alto-based AI startup. “The AI now can code better than the average junior developer that comes out of the best schools out there.”
To be sure, AI is still a long way from causing the extinction of software engineers. As AI handles structured, repetitive tasks, human engineers’ jobs are shifting toward oversight.
Today’s AIs are powerful but “jagged,” meaning they can excel at certain math problems yet still fail basic logic tests and aren’t consistent. One study found that AI tools made experienced developers 19% slower at work, as they spent more time reviewing code and fixing errors.
Students should focus on learning how to manage and check the work of AI as well as getting experience working with it, said John David N. Dionisio, a computer science professor at LMU.
Stanford students say they are arriving at the job market and finding a split in the road; capable AI engineers can find jobs, but basic, old-school computer science jobs are disappearing.
As they hit this surprise speed bump, some students are lowering their standards and joining companies they wouldn’t have considered before. Some are creating their own startups. A large group of frustrated grads are deciding to continue their studies to beef up their resumes and add more skills needed to compete with AI.
“If you look at the enrollment numbers in the past two years, they’ve skyrocketed for people wanting to do a fifth-year master’s,” the Stanford graduate said. “It’s a whole other year, a whole other cycle to do recruiting. I would say, half of my friends are still on campus doing their fifth-year master’s.”
After four months of searching, LMU graduate Akgul finally landed a technical lead job at a software consultancy in Los Angeles. At her new job, she uses AI coding tools, but she feels like she has to do the work of three developers.
Universities and students will have to rethink their curricula and majors to ensure that their four years of study prepare them for a world with AI.
“That’s been a dramatic reversal from three years ago, when all of my undergraduate mentees found great jobs at the companies around us,” Stanford’s Liphardt said. “That has changed.”
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