How Much Is Medicare Already Spending on New Diabetes and Obesity Drugs?

 New treatments for diabetes and obesity, like Ozempic, attract significant attention for both their effects on clinical outcomes and health care spending. In this piece, I use newly released data to estimate how much Medicare already spends on these products as policymakers consider expanding access to them.

Drugs within the GLP-1 class have been shown to improve diabetic outcomes and trigger significant weight loss. These products include Novo Nordisk’s Ozempic, which is approved for treatment of diabetes, and the nearly identical Wegovy, which is approved for weight loss and cardiovascular disease. In addition, Eli Lilly manufacturers Mounjaro (diabetes) and Zepbound (obesity). Currently, Medicare plans may only cover these drugs when prescribed for indications other than weight loss—a policy that is under debate.

Because nearly a third of Medicare beneficiaries have diabetes, these drugs will meaningfully increase program spending even if Medicare continues to disallow coverage for weight loss purposes. Newly-released data analyzed by KFF shows that gross spending on three of the most prominent diabetes-indicated products—Ozempic, Rybelsus, and Mounjaro—reached $5.7 billion in 2022.

While spending on these drugs is high and rising, these estimates do a poor job of summarizing current program costs. Most notably, these data do not represent actual spending in the program because they exclude discounts negotiated by insurers. One can readily observe this from financial filings of drug makers. According to company reports, total net sales across the entire US market, of which Medicare is much less than half, were only around $7 billion (author’s calculations).

Data on program spending are also released with a nearly two-year time lag. This represents a meaningful limitation given how rapidly this class of drugs is evolving. In this piece, I provide a better estimate of Medicare spending in 2022 and how that likely changed in 2023.

To do so, I use published research which shows that drug makers are paid at least 64 percent below list price for these medicines. These data slightly overstate discounts received by insurers in Medicare Part D. Because of this, I conservatively assume Part D plans pay 55 percent less than list prices for these drugs (this also helps adjust for very small differences in list price measures across data sets).

In addition, I forecast how Medicare spending likely changed between 2022 and 2023 based on company financial releases. Over that time, Novo Nordisk reports that net spending on Ozempic and Rybelsus in the US increased by 63 percent and 38 percent, respectively. Eli Lily reports that net revenue for Mounjaro increased twelve-fold, from $366 million to $4.83 billion. Under the assumption that Medicare accounted for a constant share of spending on each of these drugs, I can use these reports to forecast 2023 spending. The results are illustrated below.

Figure: Estimated Medicare Spending on Selected GLP-1s
Source: Medicare gross spending from KFF. Estimated rebates based on Ippolito and Levy (2023). 2023 net spending based on financial reports from Novo Nordisk and Eli Lilly.

I estimate that net spending on these three products was roughly $2.6 billion in 2022 and likely rose to nearly $5 billion in 2023. The latter result is subject to some uncertainty about utilization levels within Medicare. Nonetheless, they provide a reasonable first order estimate for recent spending levels in the absence of data from CMS.

Spending across these products will increase in 2024, and beyond, as utilization increases. This is particularly true since Wegovy (the sister product of Ozempic) was recently granted an approval for cardiovascular disease among those who are overweight or obese. Plans may cover Wegovy for this indication. Future clinical evidence may justify additional approvals in coming years.

Spending among this category will be moderated starting in 2027 because Ozempic will be subject to price regulation within the program. How Medicare chooses to regulate Ozempic’s price will be the subject of intense scrutiny given the understandable attention dedicated to these products. This will directly lower Medicare spending on Ozempic and likely put downward pressure on the prices of competing products, including Mounjaro. The extent to which this affects spending is, however, the subject of significant uncertainty.

Benedic Ippolito is a senior fellow in economic policy studies at the American Enterprise Institute. His research focuses on a variety of topics within health economics, including the pharmaceutical market, Medicare Advantage, provider pricing, and the role of health care costs in the personal finances of Americans.

Dr. Ippolito has been published in a variety of leading peer-reviewed academic journals, including JAMA, American Economic Journal: Economic Policy, Health Affairs, and Georgetown Law Review. He frequently testifies before Congress and currently serves as an associate editor of Health Affairs Scholar.

Ippolito holds a PhD and an MS in economics from the University of Wisconsin-Madison and a BA in economics and mathematics from Emory University.

https://www.aei.org/health-care/how-much-is-medicare-already-spending-on-new-diabetes-and-obesity-drugs/