Supply, Demand, and Wegovy
Millions of Americans have turned to weight-loss injections to help them lose weight and live healthier lives. As of May 2024, about 25,000 people have begun using Wegovy (the most common injectable weight loss treatment) each week. Similar treatments are being used off-label to help adolescents lose weight. The New York Times reports Wegovy may soon be used to treat addiction.
As popular and successful as these drugs are, severe shortages are keeping them out of patients’ hands. Starting this April, many weight loss treatments have been inconsistently available at pharmacies across the country. Consequently, many patients ration or delay treatment until they become available. Doing either can be harmful.
Many blame these shortages on a combination of high demand and low supply. Things have become bad enough that some have asked the Food and Drug Administration (of all agencies) to step in and help ramp up supply. Controversially, the agency has tried to alleviate this problem by allowing compounding pharmacies to make “copycat” versions of popular weight loss drugs. The decision has been met with criticism—and legal action.
Drug shortages can happen for a host of complex and interconnected reasons. But all shortages can be explained with basic economics.
When the demand for a good (including weight loss drugs) increases, the price of that good also increases. A price increase motivates producers to ramp up production and reap the rewards of higher prices. Obviously, it takes time to make more of anything. But those who can produce the product the quickest are better able to profit from their ingenuity to meet demand.
Situations where production consistently falls short of demand only occur when prices are not free to adjust to market conditions. So, what is the price of these weight loss drugs?
It depends. With insurance? Without insurance? On a card program? With Medicare? With Medicaid? With a coupon? A quick Google search finds that, depending on the patient’s situation or location, the price of Wegovy ranges from $0 to $1,350 for a 28-day supply. Even then, it is not clear how much of these charges are covered by the insurance provider, producer, or patient.
When the price of a single drug ranges from zero to thousands, it is not surprising that changes in demand create widespread shortages. Since these complicating factors exist for most prescription drugs, it is no surprise that there were 323 other national drug shortages when weight loss drug shortages were first reported.
Supply and demand are coordinated through prices. Once we divorce either from the price system, it is only a matter of time before shortages emerge and persist. There are not any quick fixes to let the price system play a bigger—and vital—part of the U.S. healthcare system. But recognizing this role at least provides us with the correct diagnosis.
