At first glance, a report from the Congressional Budget Office on Oct. 8 would seem to be bad news for new anti-obesity medications (AOM) like Wegovy and Zepbound. The CBO concluded that if Congress allowed Medicare to cover the drugs, net federal spending would increase by about $35 billion from 2026 to 2034.
But the report also contains clues that the calculation may not be the final word on how Congress will view the AOMs, which can reduce body weight by 15% or more, forestall many chronic diseases such as diabetes, and are proving enormously popular.
The agency has the difficult job of making projections based on scant real-world evidence and to limit its model to a 10-year time frame. In the case of AOMs, it was tasked with estimating the budgetary effects of authorizing Medicare coverage starting in January 2026, juxtaposing the salutary effects of beneficiaries’ improved health against the direct costs of the medications.
The key to understanding the calculation is to review the CBO assumptions:
Pricing: CBO estimates that the “average annual federal cost of AOM treatment for each user would be $5,600 in 2026 and $4,800 in 2034.” The only price decline that CBO considers is the result of Medicare price negotiations that they assume would take effect in 2027. They assume that one of the drugs, semaglutide, will be selected for price negotiation, which will result in federal costs per AOM user falling by one-third. They then allow the market price to start increasing with inflation from 2028-2034. CBO does not account for any price reductions resulting from branded price competition. However, we have already seen price reductions in the AOM market with the introduction of a second GLP-1 therapy. Further, the pipeline for AOMs is very robust, with 124 medications in clinical trials as of March 2024—eight of which are being tested in phase 3 trials. The impacts and timing of additional brand name therapies are hard to predict, but we have seen this same dynamic play out in disease areas like hepatitis C and HIV.
CBO pricing assumptions also ignore the impact of generic entry when semaglutide patents expire in 2033. It does not even account for the fact that one of the currently approved AOMs, liraglutide, went generic this year.
Cost offsets: The assumptions here are modest compared to the beneficial health impacts physicians expect from the drugs. CBO estimates that healthcare costs for a beneficiary who continuously took an AOM for 10 years would fall by an average of $250 during the first two years; that annual reduction grows to about $1,600 in year 10. But this fails to account for patients who initiate AOM treatment before they transition into Medicare. Allowing some newly eligible Medicare beneficiaries to be further into their treatment tenure could impact the estimated cost offsets significantly. In June, the House Ways and Means Committee voted to expand Medicare coverage of AOMs to beneficiaries who are already being treated with those medications when they enter the program—highlighting the importance of this population. Looking beyond 10 years, CBO expects the average annual savings from improved health (both in total and per user) will continue to increase, which makes it even more crucial to account for prior AOM use in their estimates.
Discontinuation: CBO assumes that most patients will discontinue treatment before they ever experience serious cost offsets. For example, CBO assumes that 300,000 Medicare beneficiaries will start AOMs in 2026, but only 71,000 will remain on treatment three years later. The other 230,000 beneficiaries will accrue one to three years of treatment costs without any notable benefits. The high discontinuation rates are based on real-world adherence data from selective patient populations during a period of drug-supply shortages and changing insurance coverage. Discontinuation rates from the clinical trials are far lower, and the Zepbound supply shortage officially ended last week, so one may expect adherence to improve in a world with broader access to AOMs.
To its credit, CBO recognizes that it is working in highly uncertain terrain. It notes that estimates of costs and take-up rates are “sensitive to the rapidly evolving evidence on the eligibility, use, price, and clinical benefits associated with those medications.” Those factors are also sensitive to the scope of the policy, including who in the Medicare population would become eligible for treatment with AOMs. These are all good reasons to take the CBO report as a contributor to, but not the end point of, government deliberations on the future of AOM coverage.
Congress has already begun the process of opening the door to coverage through the House Ways and Means Committee’s June vote to expand Medicare coverage of AOMs to new beneficiaries already taking them. A large number of disease-specific groups are advocating for coverage, noting that AOMs generate social value well beyond their federal budget impact. Research at USC Schaeffer projects that Medicare coverage of obesity treatments could generate $4 trillion in social benefit to Americans over three decades. Drugs may not pay for themselves in the short term, but they can provide tremendous value to patients over time.
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