(Bloomberg) -- The Biden administration is proposing a rule that would require the US government to cover obesity drugs for millions of Americans, teeing up a financial and political challenge for President-elect Donald Trump as he prepares to take office.
The Medicare insurance program has been barred by law from paying for weight-loss shots like Novo Nordisk A/S’s Wegovy and Eli Lilly & Co.’s Zepbound, though similar drugs for conditions such as diabetes are covered. The Biden plan relies on a new interpretation of the law, based on a fresh understanding of obesity as a disease.
“The medical consensus has evolved,” Chiquita Brooks-LaSure, administrator of the Centers for Medicare and Medicaid Services, said on a call with journalists. Obesity “is a serious condition that increases the risk of premature death and can lead to other serious health issues such heart disease, stroke and diabetes,” she said.
The new rule would give an estimated 3.4 million older Americans on Medicare, and four million more adults in Medicaid programs for the poor, access to the wildly popular treatment, according to White House estimates. It would slash out-of-pocket costs by as much as 95% for the drugs that can carry a price tag of $1,000 a month, officials said.
The proposal still needs to go through a formal comment and rule-making process that will take months, so the incoming Trump administration — which has made reducing government spending a key objective — would need to finalize it. Meanwhile, Trump’s top health pick, Robert F. Kennedy Jr., has advocated healthy eating over drug treatment to address the nation’s obesity and diabetes epidemics.
“Given the GOP’s goal to cut spending it seems unlikely they would finalize the measure, though there are members on both sides of the aisle who support the idea,” Rick Weissenstein, an analyst at TD Cowen, wrote in a note to investors.
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The change would increase Medicare costs by $25 billion over 10 years, while adding $11 billion in federal Medicaid costs and $4 billion in state costs, a CMS spokesperson said. Medicare is expected to spend more than $2.1 trillion on retail prescription drugs in that period.
Trump’s team didn’t immediately respond to a request for comment. The proposal isn’t expected to be finalized until April, according to Bloomberg Intelligence senior analyst Duane Wright.
While the Biden administration said the costs could be offset by the reduced incidence of diabetes, heart conditions and other illnesses tied to obesity, those gains would take time to emerge. Medicare provides prescription drug coverage to about 52 million older Americans. About 22% of people on Medicare have been diagnosed with obesity, Brooks-LaSure said. Just 13 state Medicaid programs currently cover the the blockbuster weight-loss medications.
Drugmaker Victory
The proposal is a victory for drugmakers Novo and Lilly, which are just emerging from shortages that have curtailed access to the brand-name medicines for the past two years. The booming market for obesity shots is expected to hit $130 billion by 2030, and both companies have been racing to convince insurers that the drugs are worth paying for.
Covering obesity medicines under Medicare and Medicaid “is an important step forward for patients,” Novo said in a statement. Lilly said in a statement it looks forward to working with the White House, Medicare and Medicaid, and the new administration to ensure “fair access” to weight-loss drugs.
Novo shares rose as much as 4.9% in Copenhagen, and year-to-date the stock is up about 9%. Lilly rose as much as 6.9% in New York, and it’s now up about 37% for the year. Both stocks were also bolstered by a major setback for a competing weight-loss shot being developed by Amgen Inc.
Wider Access
Not everyone is a fan of the medications. Kennedy, Trump’s nomination to lead the Department of Health and Human Services, said last month that delivering healthy food to the American public could “solve the obesity and diabetes crisis” for a fraction of the cost of obesity drugs.
Patients and doctors have been advocating for wider access to the drugs, and efforts to remove restrictions on Medicare coverage have been picking up momentum in Congress.
Covering the drugs at their current prices won’t be cheap. However, a Congressional Budget Office analysis released last month suggested that semaglutide, the active ingredient in Novo’s Wegovy, Ozempic and Rybelsus, will be included in government price negotiations under the Inflation Reduction Act in 2025, which could help lower costs.
Medicare officials estimate about 10% of the people newly eligible for the drugs, or about 340,000, would start taking them when coverage is expanded. That percentage would tick up over time, but just over half of people starting the drugs are expected to discontinue them after two months.
The agency isn’t counting any potential savings from health improvements, noting in the proposal that any offsetting savings “will be much slower to emerge” than the costs of paying for the drugs.
The proposed rule would go into effect at the same time as the program to lower medication costs through price negotiations, the White House official said.
In the meantime, Novo and Lilly have been conducting studies to show that the shots have health benefits beyond weight loss, part of their effort to expand insurance coverage. In March, major health insurers began paying for Novo’s Wegovy for some Medicare beneficiaries with heart disease, opening the door for wider access to the medication.
The proposed Medicare and Medicaid changes may be only the beginning, analysts said.
“This marks a major evolution in the treatment of obesity as a disease,” said Evan Seigerman, an analyst at BMO Capital Markets, in a note to clients. “We are starting to see the US healthcare system shift how it thinks about the treatment of metabolic disease, moving from the long-held view that obesity was a lifestyle condition to the recognition that metabolic disease deserves real treatment.”
--With assistance from Naomi Kresge and Ike Swetlitz.
(Updates with additional details from CMS starting in the third paragraph)
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