Next-Gen Weight-Loss Drugs Receive Tentative Embrace by Medicaid

A small but growing number of state Medicaid programs are negotiating discounts for a high-priced weight-loss drug in a bid to hold down costs as low-income patients increasingly seek obesity treatment.

Nine states from California to Rhode Island have begun to cover expensive, next-generation weight-loss drugs like Novo Nordisk’s Wegovy on their Medicaid preferred drug lists. Preferred drug status allows patients to receive coverage for weight-loss drugs without the need to undergo step therapy, where patients are required to try less expensive and potentially less efficacious drugs before receiving their original drug of choice.

The move to cover weight-loss medication comes as states find new ways to grapple with the high yearly costs for patient care stemming from obesity-related comorbidities like diabetes ($9,601), heart disease ($18,953), and cancers ($21,503). The Milken Institute, an economic think tank, estimates the ensuing health costs and lost productivity of the obesity epidemic cost the US over $1.7 trillion in 2019.

With 44% of Medicaid beneficiaries qualifying as obese, expanding coverage to all eligible beneficiaries will present a significant financial challenge for state Medicaid programs. Wegovy, the most recent weight-loss drug to be added to Medicaid formularies, retails at over $1,300 per month and must be taken indefinitely to maintain results.

Still, some state Medicaid agencies are banking on the belief that Wegovy, a drug that works by suppressing appetite and slowing digestion, may have the potential to drastically reduce health costs down the line.

Wegovy, which contains the active ingredient semaglutide, was the first drug approved by the Food and Drug Administration for chronic weight management since 2014. Other drugs such as tirzepatide, which is sold as a diabetes treatment under the brand name Mounjaro, are awaiting FDA approval to be sold for weight loss.

The move to expand access to Wegovy and similar drugs also reflects a growing push from state lawmakers to shift the way Medicaid agencies view obesity, according to Medicaid advocates like Kate McEvoy, executive director of the National Association of Medicaid Directors.

Instead of treating obesity medication as a vanity drug, a growing number of state Medicaid agencies have revised their drug formularies to reflect the growing sentiment from lawmakers that obesity is a disease that requires treatment with drugs or other medical measures, McEvoy said.

Leveraging Discounts

Since Wegovy received FDA approval in 2021, nine state Medicaid programs have made moves to cover the drugs on their preferred drug list, allowing low-income individuals access to the name-brand obesity drug via negotiated discounts with manufacturers.

The states are California, Connecticut, Delaware, Michigan, Minnesota, Pennsylvania, Rhode Island, Virginia, and Wisconsin.

Antonio Ciaccia, CEO and Founder of 46brooklyn, an Ohio-based drug pricing think-tank, says these preferred drug lists leverage the Medicaid Drug Rebate Program to allow states to receive significantly higher discounts than private insurers.

“Drug manufacturers are statutorily required to give Medicaid agencies the best price available for prescription drugs in exchange for access to Medicaid’s large pool of potential patients,” he said.

“As a baseline, the program allows state Medicaid agencies to receive about 20% lower rates for drugs than private insurers, with additional supplemental rebates added after a state agrees to preferentially cover a manufacturer’s drug over a competitor’s drug,” said Ciaccia.

Although these supplemental rebates to the states are confidential, they can offer discounts that are significant enough for states to cover name-brand prescription drugs in manageable quantities.

These negotiations are one of the main reasons why Medicaid agencies, which have inflexible state budgets, are able to cover expensive designer drugs like Wegovy, which retails at $1,349 for a one-month supply, said Ciaccia.

Ciaccia said it’s still too early to say whether more states will hop on the bandwagon. Considerations will hinge on whether they have the budget to offer the drugs in limited quantities, or as a general benefit to all Medicaid recipients.

“The question for Medicaid agencies will be to assess the degree with which they are comfortable opening the flood gates for coverage,” he said.

“We know that these drugs can provide health benefits. What we don’t know are the long-term trade-offs and exactly how much savings can accrue for states on the medical side by covering these medications,” Ciaccia said. “States are going to have to figure out if it’s worth the investment.”

Pennsylvania was one of the first states to embrace the drug, choosing in 2022 to add it to the state’s Medicaid benefit. Other states have followed suit, although with varying degrees of access.

Most states dispensing the drug require prior authorization like mandating patients have a certain body mass index (BMI) before receiving treatment. Virginia takes things a step further by prohibiting access to the drug for children under 18.

Benefits of Competition

Geoffrey Joyce, associate professor of pharmaceutical and health economics at the University of Southern California, said he believes the rollout of new weight-loss drugs could mirror that of the revolutionary hepatitis C drug Sovaldi in 2014.

The drug effectively cured hepatitis C, but its list price of $84,000 made it too expensive for mass adoption by state Medicaid agencies—even after the deep discounts from the manufacturer.

“States gave the hepatitis C drugs to only 5 to 10% of the population with hep C because they just couldn’t afford them,” said Joyce. “As more and more similar drugs came in, prices started to fall significantly and states started expanding eligibility.’”

Joyce predicts a similar trajectory for anti-obesity medications like Wegovy.

“As more and more new competitors like Mounjaro enter the market, prices will eventually go down. In the case of a drug like Wegovy, states can say, ‘We’re going to put you as our preferred weight-loss drug over Mounjaro if you give us a bigger supplemental rebate.’”