LLY, NVO, HIMS: GLP-1 Coverage Questions & Implied Sales
Following our pre-rule report yesterday on CMS’s proposal to extend Medicare / Medicaid coverage to anti-obesity medications (AOMs), we update our assumptions below based on the details included in the release itself. More specifically:
- We give slightly better than even odds to the draft being finalized in a ~mid-April release, with implementation in 2026, noting that the ultimate decision-maker is not necessarily HHS nominee RFK, but President-elect Trump himself.
- CMS utilization assumptions, combined with CBO estimates on pricing / IRA negotiation, would imply a 2.5% to 3.5% tailwind for LLY and NVO, respectively, compared to 2026 consensus revenues.
- We would not expect this policy – however it is resolved (e.g., finalized, withdrawn, litigation) – to extend coverage to compounded versions of these drugs made by HIMS and others.
Statutory “Reinterpretation”
CMS reversal of its long-standing limitation on Medicare / Medicaid coverage is premised entirely on a “reinterpretation” of a single line in federal statute. More specifically, Section 1927(d)(2)(A) [our emphasis]:
“(2) List of Drugs Subject to Restriction – The following drugs or classes of drugs, or their medical uses, may be excluded from coverage or otherwise restricted: (A) agents when used for anorexia, weight loss, or weight gain.”
Based on the wording of the relevant statutory language for Medicare Part D [Section 1860D-2(e)(2-4)] and Medicaid [Section 1927(k)(2)], CMS has historically interpreted this provision as precluding coverage of weight loss products in Medicare, while also giving individual states discretion to make their own coverage decisions in Medicaid. At issue is whether such products can be considered to have a medically accepted indication (MAI) that is not otherwise excluded from program coverage by law.
This explains why 13 state Medicaid programs, with jurisdiction over 14 M (40%) adult beneficiaries, currently cover GLP-1s for obesity treatment, whereas Medicare Part D plans only started covering non-obesity uses in March following NVO’s expanded Wegovy indication for cardiovascular disease (CVD), and only then once CMS clarified its interpretation of the above statute.
“CMS is clarifying that AOMs that receive FDA approval for an additional medically accepted indication, as defined by Section 1927(k)(6) of the Act, can be considered a Part D drug for that specific use.”
What the agency is now proposing to change is to: (A) recognize obesity as a chronic disease, where; (B) weight loss is a medically accepted treatment option, such that; (C) it can now be considered a coverable outpatient drug.
Importantly, however, this does not extend to those who are merely overweight, even in the presence of additional weight-related comorbidities, which would otherwise be the case with coverage of the full FDA-approved labeling. This is relevant insofar as the overweight population represents ~70% of addressable patients.
RFK vs Dr. Oz vs Trump
With the proposal’s inclusion in the CY26 Medicare Advantage Policy & Technical Changes draft rule, which must be finalized by mid-April to give plans time to submit their bids for the following year, the decision on whether to proceed will be left up to the Trump administration. Ultimately, we suspect they will see greater upside political benefits to finalizing the coverage proposal rather than walk back what is likely to be a popular benefit expansion.
It is certainly true that RFK, as Trump’s pick for HHS Secretary, has been a vocal opponent of medication-based treatment of obesity [here, here], telling Fox News that NVO is “counting on selling [Wegovy] to Americans because we’re so stupid and addicted to drugs.” Dr. Mehmet Oz, however, as Trump’s pick to lead CMS, has been far more enthusiastic over the potential of GLP-1s, and as the agency head with direct oversight of Medicare / Medicaid, he is likely to be the primary decision maker. Dr. Oz even goes so far to say the following, in response to NVO’s CVD results last year:
“This trial puts pressure on insurers to pay for the expensive drug, which many have seen as a cosmetic, and not a lifesaving intervention. It’s a big battle happening now, and I think Medicare is going to be the real finish line. Are they going to cover weight loss drugs? They’re not allowed to by law, but Wegovy appears to do more than just help with weight loss.”
Assuming RFK is confirmed as HHS Secretary – as we expect – he would technically have authority to countermand any regulation endorsed by Dr. Oz, but both men are nevertheless answerable to the president. For Trump, we suspect his perspective is more likely to be swayed by the political gains to be had from expanding access to popular drugs (and the political risks of denying that benefit) than they would from RFK’s antipathy towards corporate therapeutics. This is particularly noteworthy given that 60% of those with obesity in the U.S. reside in states that voted for Donald Trump.
This would leave the courts as the only available means of derailing coverage, which leaves us questioning which entities might be most inclined to pursue litigation to block any finalized measure. The most likely candidates, in our view, would be managed care organizations or the states themselves:
- Managed Care: While possible, given that this would impose additional costs, CMS estimates also make clear that much of this will be borne by the federal government. We also note that, following CMS’s clarification in March that plans are free to cover GLP-1s approved for other medically appropriate indications, we saw little pushback from such companies, with several deciding to include the drugs on their formularies within a matter of weeks.
- States: It is improbable, in our view, that Red State governors would wish to antagonize the president by challenging the rule in court, and with the coverage expansion originally emanating from the Biden administration, the same can likely be said of Blue States as well. Moreover, with CMS estimating state Medicaid costs of just $380 M per year, which will be spread across all 50 states, it is unclear how strong their motivations for a legal battle will be.
While it is conceivable that other organizations might take an interest (e.g., taxpayer advocacy groups, public health organizations), it is unclear to us whether any would have relevant standing.
Revenue Implications
It is important to first note that we think it unlikely that a Medicare / Medicaid coverage expansion will be applicable to AOMs from compounding manufacturers (e.g., HIMS) that have entered the space in response to FDA’s determination of ongoing GLP-1 shortages. While the agency does not directly address this issue in its proposal, we remind investors that compounded medications are not “FDA-licensed” products, which CMS cites for its determinations in other sections of the rule.
More specifically, in establishing that Part D deductibles will not apply to “covered insulin products,” the agency finds that, “because a compounded drug product…is not FDA-licensed, it would not meet the definition of a covered insulin product.”
To glean the potential revenue implications for branded manufacturers, we have sought to combine the pricing, utilization, and cost assumptions employed by both CMS in Tuesday’s proposal and last month’s Congressional Budget Office (CBO) analysis. It should also be noted that the latter attempts to control for price reductions associated with anticipated negotiation of NVO’s Wegovy in CY27 under the Inflation Reduction Act (IRA), estimating a net price decline of ~20%, coming on top of existing rebates of ~65%.
