Cannabis Potential for Healthcare Cost Savings
By Blake Madden
I’m excited to write this week’s deep dive alongside Kaitlin Domangue. She’s a colleague of mine at Workweek and writes The Green Paper, which dives into the business of cannabis 3 times a week. If you’re interested in learning about the big wide world of cannabis, drop her a subscription here!
In today’s collab piece we’ll be diving into the world of medical cannabis – specifically, is there potential for cost savings and expanded use despite the longstanding stigma?
Let’s get after it!
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Key Takeaways for Cannabis in Healthcare
Cannabis use in healthcare services has the potential to lower drug costs by replacing existing medications across a number of use-cases.
Cannabis innovation continues to show promise from a drug development standpoint as seen by recent pharmaceutical pipeline acquisitions in the sector.
A clear use case for cannabis exists in chronic disease management, which has a ton of support in healthcare.
A vast majority of Americans support legalizing medical marijuana. While there’s limited research for long term cannabis usage, patients anecdotally tout marijuana as a highly effective treatment for a number of conditions.
Cannabis in Healthcare
There’s no beating around the bush here: cannabis, even used for medicinal purposes, is controversial. In fact, one of our colleagues at Workweek had her mortgage funding denied in the 11th hour by Wells Fargo since our website mentions ‘Cannabis’ (despite the fact that we obviously don’t sell cannabis…) That being said, the plant has real potential to drive a nominal level of prescription drug cost savings along with better patient outcomes.
Readers of Hospitalogy are likely well-versed on the drug pricing problem facing this country. Medicare Part D spending represents about 15% of total Medicare spending, or $111 billion. Drug spending will continue to be one of the fastest growing costs in healthcare and is expected to grow at a 6.1% annual clip over the next 5 years.
Although truly nothing can stop the drug pricing train apart from radical regulatory changes, the legalization of cannabis in 17 states back in 2010 led to a $104.5 million decrease in Part D spending. Researchers found that Medicare Part D spending could have dropped by $468 million if all 50 states legalized cannabis.
Despite the fact that total dollars saved here is a drop in the bucket compared to total drug spend, the use-case for wider adoption of cannabis in healthcare is clear and it’s very possible that cannabis will find other potential niches in healthcare, which we’ll explore below.
There are a number of reasons why we’ll continue to see a growing presence of cannabis and cannabinoids in healthcare. Here are a few things Kaitlin and I are excited about:
Chronic Disease Management: We’re in the early innings of understanding use cases for medical marijuana. Anecdotally in an increasing number of cases, patients reported that medical marijuana alleviated symptoms and drove down usage of other prescription medication, leading to higher quality of life.
If a patient taking medical marijuana is more likely to experience symptom relief, sleep better, and have less pain, then surely that would lead to better patient outcomes overall. I have to think that there’s a potential use-case for cannabis in value-based care arrangements to drive down total cost of care that hasn’t been fully tapped yet.
- Berlin-based cannabis and digital health startup Sanity Group looks to be one of the pioneers here, creating a platform for mental health and chronic pain management involving tracking the use of cannabis-based therapies through RPM.
Hospitalizations and Cost Savings: A 2014 study found that states with legalized medical marijuana prior to 2010 had 25% fewer annual opioid overdoses. While medical marijuana could save millions in drug spending, I’m willing to bet it could save state health departments billions on reduced hospitalizations. As the mental health state of our country deteriorates and overdoses hit all-time highs, access to medical marijuana could actually…save lives. Increased cannabis adoption along with more funding for mental health facilities could go a long way too keep ODs out of the ER.
Along with fewer opioid overdoses, there are a number of other health-related conditions that decreased following cannabis legalization. Researchers at The University of Washington found that alcohol, cigarette, and pain reliever misuse decreased following cannabis legalization.
- 25% to 40% of all U.S. patients in general hospital beds are being treated for complications of alcohol-related problems.
- Adult cigarette smoking accounts for 11.7% of all U.S. annual personal healthcare expenditures. This totaled $226.7 billion in 2014. Six percent of all healthcare expenditures were from people who smoke in 2014.
- Finally, don’t forget that opioid misuse, overdose, and dependence costs the United States $35 billion each year. This is still ongoing, yall.
Drug Innovation: Because of the existing stigma and lack of studies into clinical uses of cannabis, there are still plenty of insights and innovation to be had from studying medical marijuana and the properties of its chemicals. The FDA has approved very few cannabis-related drugs, including one cannabis-derived drug and three synthetics, making the endeavor into this world risky, but potentially lucrative as adoption grows.
- Still, you can see major signals developing in the pharma market and cannabis-related M&A. Jazz Pharmaceuticals acquired GW Pharmaceuticals, a major player in the development of cannabinoid-based prescription medicines, for $7.2 billion. And just a few months ago, Pfizer acquired Arena Pharma, a clinical stage company focused on developing therapies to address immuno-inflammatory conditions.
Psychedelics: Continued support for cannabis will also create a positive externality for the up and coming world of psychedelics as well. Several psychedelic startups are developing therapies to address anxiety, PTSD, OCD, and even inflammatory disorders. Japan-based Otsuka Pharmaceuticals became one of the first players to dive into this space after its acquisition of Mindset Pharma back in January and its investment in Compass Pathways.
- With both cannabis and psychedelic drug development in the early stages of development, there’s a huge total addressable market, especially as the behavioral health market continues to grow, specialized therapies become more mainstream, and mental health players continue to focus on serious mental illness.
Although use-cases for cannabis in healthcare are clear, we’re still in the early innings of adoption.
Cannabis, medical marijuana, and future cannabinoid-related drugs (along with psychedelics) should be studied to determine the impact these use-cases could have on reducing opioid overdoses, increasing quality of life, and saving costs downstream in hospital ERs and drug spend.
Some of the biggest roadblocks involve continued education and destigmatization of cannabis-related medical uses as well as continued support from regulatory authorities.
What are your thoughts on cannabis & psychedelics in healthcare? I’d love to hear more! Hit me up on Twitter or LinkedIn.
- Marijuana legalization linked to decreased use of alcohol, nicotine, and opioids
- The FDA and cannabis: Research and Drug Approval Process
- Cannabis and digital health startup Sanity Group closes $44.2 Series A
- Jazz Pharmaceuticals acquires GW Pharmaceuticals for $7.2 billion
- Pfizer buys Arena Pharmaceuticals for $6.7 billion
- So get this – I’m scrolling Twitter one afternoon as I often do, when Brett McMurphy, a great reporter covering college football, tweets out that he’s about to play Pebble Beach and that he’d send a souvenir to whoever guessed his final score correctly. Well…it turns out that ya boi here guessed that he’d shoot a 97 just mere minutes after his tweet. I woke up to a DM, follow, and tweet from Brett McMurphy asking me if I wanted a towel or a hat!! Probably one of the more random but awesome things that have happened on Twitter for me.
- I finished Stranger Things this past week and really thought Season 4 was one of the best seasons to date. In fact, Netflix stated that it was the most watched season ever for a show behind Squid Games. I have to agree with the audience here!
- Tommy Clark, who just launched a dope newsletter at Workweek and has his social game on point, tweeted an incredibly interesting, viral thread on the Minions takeover of social media.
Hospitalogy Top Reads
- Tejas Inamdar wrote a Part 1 and Part 2 (part 3 pending) on the PBM business model and it’s an essay I’m going to be reading several times over to fully grasp how convoluted and fully entrenched these business models are.
- Jacob Effron dropped a new podcast and associated newsletter related to his conversation with Adam Boehler, the founder of Landmark Health which was acquired by Optum.
- Second Opinion dropped another banger piece, this time in collaboration with Health Tech Nerds, on the general consensus for digital health fundraising and how folks in the field are feeling.
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