Payday on the Way for America's New Epidemic Disease?

How much is one word worth?

If that word is "disease," it could be billions of dollars. The American Medical Association, or AMA, recently decided to categorize obesity as a disease. Almost 37% of adults in the U.S. and around 17% of children are obese, prompting many to refer to the condition as an epidemic.

If obesity gains acceptance as a disease, it could open the doors for significant new spending on treatments. Is a payday on the way for some companies helping to fight America's new epidemic disease?

Echo effect
Before we get ahead of ourselves, keep in mind that the AMA's decision doesn't mean much on its own. No insurance company or governmental agency is obligated to begin paying for additional treatments just because the AMA now calls obesity a disease.

However, as the largest organization in the nation representing physicians, the AMA carries considerable weight (no pun intended). Already, other influential parties are echoing the decision made by the AMA.

For example, Sens. Tom Carper and Lisa Murkowski and Reps. Bill Cassidy and Ron Kind jointly wrote an op-ed piece in the New York Times commending the AMA's action. The legislators have introduced a bill in both chambers of Congress to allow Medicare to reimburse for obesity drugs and promote intensive behavioral counseling for obesity. This bill is bipartisan. Carper and Kind are Democrats, while Murkowski and Cassidy are Republicans.

Money on the way?
The AMA's move could kick off a change in the way insurance companies reimburse for obesity treatments. If that happens, it should particularly benefit pharmaceutical companies that make FDA-approved weight-loss drugs.

Arena Pharmaceuticals (NASDAQ: ARNA  ) and VIVUS (NASDAQ: VVUS  ) currently stand as the two drugmakers that fit this bill. VIVUS launched Qsymia in the latter part of 2012, but early sales for the drug were more sluggish than the company had hoped. Arena was held up on launching Belviq as it awaited DEA clearance. However, the company received the go-ahead earlier this month and is now on the market.The prospect of additional reimbursement bodes well for both Arena and VIVUS.

How did Wall Street react to the potential good news for these companies? Arena's shares climbed 7% since the AMA decision. However, VIVUS' stock is down by nearly the same percentage. It's not that the classification of obesity as a disease is a bad thing for VIVUS. Investors are probably more concerned about the impact of head-to-head competition with Arena's Belviq.

The check's not in the mail
It stands to reason that if insurance companies are pressured to pay out more money for obesity treatments, their profits could suffer. That could be, but bigger insurance reimbursement checks aren't in the mail yet.

Cigna's (NYSE: CI  ) senior medical director for coverage policy, Julie Kressel, said the company doesn't anticipate any major changes. She noted that Cigna already pays for obesity treatments in many cases. The company hasn't classified obesity as a disease in the past but views it as a chronic medical condition.

Aetna (NYSE: AET  ) , the nation's third-largest health insurer, already covers use of weight-loss drugs, such as Belviq and Qsymia, in some instances. Patients must have first unsuccessfully tried to lose weight with a six-month regimen including diet, exercise, and behavioral therapy. Any of these patients who failed to lose at least one pound per week and have a body mass index, or BMI, of 30 or higher can receive reimbursement for weight-loss drugs. These drugs are also covered for any of the patients with a lower BMI of 27 or higher who have one of several obesity-related conditions.

However, the biggest health insurer, UnitedHealth Group (NYSE: UNH  ) , doesn't cover obesity drugs as of yet. The company provides reimbursement for bariatric surgery in some cases but excludes coverage for prescription drugs or any other weight-loss medications.

Although covering more obesity treatments such as weight-loss drugs could cause insurers to feel a financial pinch at first, the companies could actually save money over the longer horizon. Mike Thompson, a principal with PwC's global human resources practice, said that over time insurers could see a positive impact as a result of lower overall health-care costs associated with reducing obesity.

Payday someday
Not everyone agrees with the AMA's decision to use the word "disease" in describing obesity. The group's own Council on Science and Public Health even stated that labeling obesity as a disease could "improve health outcomes for some individuals, but may worsen outcomes for others."

Concerns have also been raised about the use of BMI as the benchmark for determining who is obese and who isn't. Atlantic health correspondent Dr. Richard Gunderman notes that athletes often have high BMIs but are in great shape. Gunderman observed that even Dwayne "The Rock" Johnson would be considered obese on the AMA's BMI scale.

Despite the AMA's recent decision, the matter isn't yet settled. More money could be on the way for companies offering obesity treatments, especially if the federal government enacts new laws. A payday is likely someday -- but that "someday" is still in the future for now.
 

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 29, 2013, at 9:24 AM, DELILAHSINGLETON wrote:

    I want doctors to be able to prescribe a gym membership.

  • Report this Comment On June 29, 2013, at 9:37 AM, Cowgirl1986 wrote:

    Cancer is a disease, diabetes is a disease, obesity is not a disease. Obesity , alcoholism and drug addiction are being called a disease so that there is an easy way out for people and they can collect welfare on disability. This is ridiculous. When did being a lazy , over eater become acceptable in our society. Obesity can be cured by exercising and eating CORRECTLY , it is not a disease it is called get off of your lazy **** and stop stuffing yourself with Cheetos. I object to this ruling because I am tired of my tax dollars going to people who just don't WANT to work and will make up any excuse , for example ..I am obese , I have a disease, I can't work .

  • Report this Comment On June 29, 2013, at 10:12 AM, mobadthangood wrote:

    This is ridiculous!

    Obesity is NOT a disease.

    People stuffing their face and blaming it on restaurants and food is absurd!

    I don't doubt there are a few, and I mean a very few, that could have some type of gland problem or something but 98% is simple over-eating and sitting on their lazy fat butts.

    This is wrong and will be ANOTHER drain on the economy. There will be more people expecting not to work and get paid for it.

    There are more obese people than smokers now. This is disgusting!

  • Report this Comment On June 29, 2013, at 11:53 AM, keahou wrote:

    The positive side of this situation is that if these folks do lose weight the burden on Medicare and Medicaid will likely be reduced far more than the cost of this additional coverage. Reliable resources show that this cost is over $100 Billion per year and increasing.

    So in spite of the above opinions, which most of us may agree, the reduced medical costs may far exceed the cost of such a program, benefiting us tax payers as an end result.

  • Report this Comment On June 29, 2013, at 11:53 AM, plumcrazy0408 wrote:

    Why does it seem that the AMA and the pharmaceutical companies are in bed together???

    The AMA declares a condition a disease and the drug companies make bank off of it!?!

    Hmmmmm......

  • Report this Comment On June 29, 2013, at 12:38 PM, gaynorhenry wrote:

    I am fat. I know I am fat and have always been fat from a baby all through life. I am also (and perhaps surprisingly to most), healthy. No diabetes, no high blood pressure, no heart issues. I eat my 5 servings of fruits and veggies everyday, hate jam,jelly,honey,syrup and enaything very sweet like donuts (disgusting). I watch fat, salt, sugar, read labels and ensure we both get enough fibre. If I have chips or fries I count them out and that is my limit usually 8 or 10. My average-size hubby has had open heart-surgery and is diabetic. I do not stuff my face, never eat fast food (and I mean never), don't care much for candy or desserts at all but I'm still fat. Does this mean I have a disease? I don't think so; for some people those who sit in parking lots and scarf own Big Macs and shakes and fries or a box of donuts, well perhaps they have a disease but like alcoholism & drug-addiction this is less of a physical disease and more of a behavioural issue or habit, which can be changed, We all come ino the world in different sizes it's naive to think that we should all magically become the same size 10, 20 or 30 years on. The real reason for obesity being declared a disease is so that people can make money, it's that simple. Anyone who thinks differently truly has a problem.

  • Report this Comment On June 29, 2013, at 12:53 PM, adumfraudstain wrote:

    Declaring obesity as a disease will cut consumer costs. Exactly what US medical, grocery, restaurant + junk food industries all don't want to see happen.

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