Commentary

NTU Comments on Medicare and Medicaid Coverage of Anti-Obesity Medications

by Pete Sepp, Nicholas Johns January 27, 2025

January 27, 2025

Centers for Medicare and Medicaid Services

Department of Health and Human Services

Attention: CMS-4208-P

P.O. Box 8013

Baltimore, MD 21244–8013

Re: Comments on Medicare and Medicaid Programs; Contract Year 2026 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly (CMS-4208-P; RIN 0938-AV40)

On behalf of National Taxpayers Union (NTU), the nation’s oldest taxpayer advocacy organization, we write with brief comments on your notice and request for public comments on Medicare and Medicaid Programs; Contract Year 2026 Policy and Technical Changes to the Medicare Advantage Program, Medicare Prescription Drug Benefit Program, Medicare Cost Plan Program, and Programs of All-Inclusive Care for the Elderly, posted on November 24, 2024. Although NTU could offer many assessments—positive and negative—of other elements contained in this 240-page proposed rule, we have chosen to focus on two parts:

Section III.A, “Part D Coverage of Anti-Obesity Medications (AOMs) (§ 423.100) and Application to the Medicaid Program,” owing to its potential for a major, salutary impact on the unsustainable fiscal trajectory of the government-funded health care system in general and on Part D’s finances in particular; and
Section III.W, “Formulary Inclusion and Placement of Generics and Biosimilars,” owing to its potential for fiscal impact on the utilization of generics and biosimilars, and, more generally, the balance between affordability and innovation established in the landmark Drug Price Competition and Patent Term Restoration Act of 1984.

Nothing in these comments should be construed to imply support or opposition for other portions of CMS-4208-P, or an endorsement of CMS-4208-P in its entirety.

Introduction

NTU is the nation’s oldest taxpayer advocacy organization, founded in 1969. For nearly as long, our experts and advocates have engaged policymakers on important questions surrounding the fiscal impact of federal legislation and regulations on the health care space. We have noted with great concern the decades-long cost spiral in federal health care programs, which has seemed to defy attempts at reducing or at least controlling the burden on current and future taxpayers. According to the Congressional Budget Office (CBO), between 2024 and 2054 the share of federal noninterest outlays consumed by major health care programs is projected to rise from 28% to 39%. By contrast, Social Security, another cost driver in the budget, will see its share of non-interest outlays increase from 26% to 28%.¹

To NTU, it is abundantly clear that innovative approaches to reducing health care costs must be explored and implemented, to begin shifting this unsustainable trajectory toward a more realistic and affordable direction. We believe that thoughtful deployment of prescription drugs (both branded and generic/biosimilars) in more settings, as longer-term alternatives to costlier treatments, can be a vital part of this necessary exercise. There are, in any case, specific matters such as upfront costs, intellectual property rights, and accessibility, which affect the fiscal equation in which taxpayers have an abiding interest. The following comments attempt to explore these matters in greater detail.

Comments

1) Section III.A, Implemented Carefully with Stakeholder Input, Could Help to Reduce Some Long-Term Systemic Taxpayer Costs for Health Care.

Although opinions can (and should) vary on the cost estimates of implementing Section III.A, in NTU’s view, the rulemaking begins from a position that is neither irresponsible nor reckless:

We [CMS] are not proposing to reinterpret the statutory exclusion of ‘[a]gents when used for . . . weight loss’ in section 1927(d)(2) of the Act to permit Part D coverage of AOMs when used for weight loss or chronic weight management in individuals with overweight, even if such individuals have weight-related comorbid conditions.²

While CMS has expressed concern that this choice could create an incentive for individuals to gain weight and therefore qualify for AOMs, prudent skepticism among prescribing physicians could also help to keep the federal taxpayer costs of Section III.A closer to the estimates established in CMS-4208-P: $24.8 billion over 10 years to Medicare Part D, and $14.8 billion over 10 years to Medicaid.³ On the other hand, the Congressional Budget Office (CBO) estimated the gross direct costs to Medicare alone for covering AOMs at $38.8 billion.⁴ This suggests that even after accounting for the fact that Section III.A covers only Part D beneficiaries, the parameters of expanded coverage may be somewhat more modest than what CBO incorporated in its estimates. CBO also mentioned that gross taxpayer savings per Medicare beneficiary from expanded AOM coverage would accelerate from $50 in 2026 to $650 in 2034, but that on net, coverage would still cost more than it saved over the scoring window. According to CBO, however, these findings were subject to significant uncertainties in methodologies, which, it should be noted, were not able to include the late 2024 studies highlighted below. On another contrasting note, a group of Joint Economic Committee staff estimated that “[o]ver the 2024–2033 period . . . the combined Medicare and Medicaid spending on obesity and obesity-related diseases will total $4.1 trillion.”⁵

Still, we are sympathetic to calls among fiscal conservatives, especially those who might be in decision-making positions with the new administration and Congress, that additional measures might be advisable to keep upfront costs under control. In November 2024, NTU Senior Vice President of State Government Affairs, the Hon. Leah Vukmir, spoke of such measures in testimony before the Texas Senate Committee on Health and Human Services, which was considering proposals to expand AOM coverage in state programs:

If judiciously introduced with an eye toward minimizing administrative burdens and managing government’s near-term phase-in costs, these medications can offer the promise of greater public and economic health for your state over the long run. As part of a phase-in, you could set limits on a yearly basis for the total amount the state will reimburse, or you could begin with a pilot program limited to the most obese and at-risk patients. As market competition starts to drive down the prices of these drugs, you could always widen their availability as the benefits of reduced comorbidities take hold in the obese community.⁶

Other possible cost-control responses, based upon state-level experiences, would be to establish lifetime per-person coverage of AOM reimbursements, as well as requirements for patients to participate in counseling, thereby encouraging adherence rather than wasting resources on those who drop out of their treatments prematurely.⁷

To reiterate, NTU appreciates the relatively modest fiscal parameters within which Section III.A has been drafted; however, should CMS decide to revise Section III.A with additional safeguards, ample options exist (including others elucidated below) that could answer to the purpose of additional fiscal responsibility. In addition, more frequent and vigorous consultation with the Congressional Budget Office, the Office of Management and Budget, the staff of Medicare’s actuaries, and trusted private-sector sources could, through a regular reporting process, keep policymakers and the taxpaying public informed of the costs and benefits associated with Section III.A. NTU stands ready to assist CMS with developing the processes and types of data that could make such reporting timely and useful.

Central to any questions going forward with a cost-benefit analysis of Section III.A are published studies that continue to refine our understanding of the implications for taxpayers in introducing AOMs into current public sector health care programs.

In March of 2023, National Taxpayers Union Foundation (NTUF), a research-oriented organization affiliated with NTU, published a major paper entitled “How Much Is Medicine Worth to the American Taxpayer? A Cost-Benefit Analysis.”⁸ This paper summarized a great deal of research on the economics of prescription drugs, much of which is familiar to CMS, while contextualizing the findings for taxpayer-funded health care programs and making recommendations for fiscally responsible policy going forward. The initially heavy up-front costs to develop drugs (and then for early adopting patients and providers to fund them) is often eventually offset by the lighter costs for non-drug care in the future. As the paper noted:

Academic literature indicates that advances in medicine have brought trillions of dollars of benefits to the American economy in recent decades, helping people live and work longer, lead healthier and more productive lives, and avoid more expensive medical interventions that occur in hospital or physician settings. This is perhaps one reason why prescription drug spending remains a relatively small portion of overall health spending (less than 10% of national health expenditures) and of the nation’s economic output (less than 2% of GDP).⁹

Several findings of the paper have relevance to Section III.A. For example, CMS is no doubt aware of a 2019 Health Affairs study which examined per capita Medicare spending from 1999 through 2012. The study determined that Medicare spending growth began to wane in 2005 and that, by 2012, “actual spending [per capita] was $2,899 (14 percent) less than the forecasted trend.” The authors attributed more than half of the “reduction in cardiovascular disease events” (a major driver of the spending growth slowdown in Medicare) to “increased medication use for hypertension, high cholesterol, and diabetes”—an $824 per capita slowdown in spending.¹⁰

A major purpose of Section III.A is to facilitate greater access to Anti-Obesity Medications (AOMs), which is one of three “case studies” presented in the National Taxpayers Union Foundation paper. Among the studies NTUF reported on:

A 2021 Journal of Occupational and Environmental Medicine paper estimated that the “annual medical cost of obesity in the United States was $147 billion” (in 2008 dollars).¹¹
A 2017 Johns Hopkins University (JHU) study calculated that “[m]ore than 70 percent of adults in the United States are considered to be overweight or obese, which in direct medical expenses alone costs nearly $210 billion per year.”¹²
A 2015 PharmacoEconomics paper found that “adult obesity raised annual medical care costs by $US3,508 per obese individual, for a nationwide total of $US315.8 billion” (in 2010 dollars).¹³
A 2019 Journal of Medical Economics (JME) paper reported that the “estimated economic burden of obesity and obesity-related treatment was $427.8 billion in 2014, an amount that has undoubtedly escalated in subsequent years alongside the rising number of people with obesity.” JME went so far as to project that “expanding coverage of anti-obesity interventions to eligible individuals could generate $20–$23 billion budgetary savings to Medicare over 10 years,” or $6,842 over 10 years for “treated participant” (offset by $1,798 in intervention costs) and $308 over 10 years for each beneficiary (treated or untreated).”¹⁴

All these figures, adjusted to 2024 dollars, would be much higher, in the latter case exceeding $500 billion. Since the publication of NTUF’s paper, subsequent research appears to have reaffirmed and strengthened the case for the ability of AOMs to reduce long-term health care expenditures, despite initial short-term costs. An April 2023 USC Schaeffer Center White Paper modeled the fiscal impact of enacting legislation known as the Treat and Reduce Obesity Act to provide access to AOMs in Medicare Part D and projected 10-year savings to Medicare ranging from $175 billion to $245 billion.¹⁵

While some have criticized the Schaeffer Center’s findings, a multi-year SELECT trial of one popular AOM (Wegovy) for more than 17,000 patients across 41 countries provided a more comprehensive view. First publicized in August of 2023, the study reported that the drug’s regular use “was associated with a 20% reduction in major adverse cardiac events during a mean exposure period of 33 months. This benefit was observed even in the setting of widespread concurrent statin use.”¹⁶

While Section III.A pertains to Medicare Part D, the SELECT trial reached below Medicare’s age cohort to patients as young as 45 years old. It is therefore becoming increasingly difficult to ignore the potential benefit of greater access to AOMs in reducing surgeries, hospital stays, and other costlier interventions in many types of taxpayer-funded health systems.

Since that time, projections of the long-term fiscal promise of tackling obesity have accumulated. A December 5, 2024, review authored by Kenneth E. Thorpe and Peter J. Joski, published on the Journal of the American Medical Association network, noted, “Among adults with Medicare who had 1 or more comorbid conditions, a 5% weight loss was estimated to reduce spending by $1262 (95% CI, $1217-$1306) (7% less) and a 25% weight loss was estimated to reduce health care spending by a mean of $5442 (95% CI, $5254-$5629) (31% less).”¹⁷ More specifically to AOMs, a paper presented at Obesity Week in San Antonio, TX, in November 2004 showed another measurable decline in health care costs among 806 patients utilizing the drug therapies. As reported in the American Journal of Managed Care:

Results demonstrated the mean total medical costs per patient per year (PPPY) decreased significantly after patients began semaglutide treatment. Specifically, the average total medical costs dropped from $29,654 in the baseline period to $22,152 in the follow-up period, a reduction of $7502 (25.3%; P = .003) . . .

Investigators noted that these reductions in medical costs occurred despite the additional cost of the semaglutide treatment itself, which is known to be expensive. This suggests that the clinical benefits of semaglutide, including weight loss and improvement in HF symptoms, may lead to fewer hospital admissions, fewer outpatient visits, and less frequent use of emergency services, ultimately reducing overall health care costs.¹⁸

Indeed, many taxpayer-funded health care systems outside of Part D are already embracing AOMs. As the NTUF paper points out, in addition to the Department of Veterans Affairs and the Federal Employee Health Benefits Program (FEHBP):

Some states . . . are already covering AOMs in Medicaid (at least 15, according to a February 2022 report from the Urban Institute) and in State Employee Health Plans (at least 16, according to a 2021 STOP Obesity Alliance report). New Mexico has gone so far as to provide wide coverage of AOMs in its statewide “Essential Health Benefit Benchmark Plan,” a concept established under the Affordable Care Act (ACA) to define coverage standards for individual and small group markets. The reason was that health actuaries identified specific beneficial health and fiscal outcomes compared to a cost of increased claims that was statistically insignificant, at 0.03 percent.¹⁹

Additional insights from state use of AOMs in their own Medicaid systems show that “uptake rates” of the medications can be far from the massive percentages that were initially thought to occur (and that threatened unmanageable upfront costs of introducing the drugs). Using calculations derived from Kaiser Family Foundation information and Medicaid data, in 2023, the full-year utilization among eligible patients in a dozen states that allowed AOM coverage under Medicaid ranged from 0.30% (Hawaii) to 1.99% (Minnesota).²⁰ CBO’s 2024 analysis (see above) assumed an initial rate among newly eligible patients of 2%, rising to 14% in ten years. Although utilization rates will inevitably climb as AOMs become more accepted for treating obesity in government-funded health care systems, the most recent indications are that such rates would likely not approach the extreme projections (up to 50%) of drug price control advocates for decades, if ever.²¹

Given the necessity of mitigating the enormous impact of government health expenditures on taxpayers, NTU believes that CMS can and should help to facilitate more widespread availability of AOMs to patients. Hopefully, the proposal in Section III.A can be designed to deliver that availability in a manner that smooths out taxpayer costs and maximizes long-term savings.

2) It Is Vital to Clarify CMS’s Authority to Propose the Changes Envisioned in Section III.A.

Apart from the fiscal aspects of expanding permissible AOM coverage in Part D, a controversy has arisen over whether CMS has the authority to implement what it calls a “reinterpretation” of its regulations that:

would align with our longstanding policy interpreting the phrase ‘[a]gents when used for . . . weight gain’ in section 1927(d)(2)(A) to not include drugs used to treat acquired immunodeficiency syndrome (AIDS) wasting and cachexia (73 FR 20490). CMS believes that its longstanding interpretation of the phrase ‘[a]gents when used for . . . weight gain’ in section 1927(d)(2)(A) is correct, and by adjusting its interpretation of ‘[a]gents when used for . . . weight loss,’ we would be bringing the interpretation of these two phrases into alignment.²²

Some distinguished analysts have praised CMS for this reasoning, owing to “large potential health benefits to patients and net savings for the health care system from covering anti-obesity drugs that justify revising the anachronistic rules constraining Medicare’s ability to improve overall health outcomes.”²³ Other, equally distinguished analysts have criticized CMS for “linguistic legerdemain” that “relies on an agency’s interpretation of a statute rather than the statute’s plain language.”²⁴

In general, NTU believes that concerns about overreach in executive branch rulemaking are quite valid and should be afforded wide latitude. Our experience with entities such as the Internal Revenue Service, the Federal Trade Commission, and the Consumer Financial Protection Bureau provide three of many examples we have encountered that raise such concerns.

Establishing the boundaries of CMS’s authority in this area is an admittedly complicated task, especially given recent jurisprudential developments. One analysis focused on the notion that the “reinterpretation” in CMS-4208-P is better described as a return to an originalist construction of CMS’s prerogatives regarding AOM coverage—a construction that is actually more attuned to the legal environment that has evolved in the wake of the U.S. Supreme Court’s 2024 Loper Bright decision that freed courts from granting automatic deference to regulatory agencies’ interpretation of statutes.²⁵ As an in-depth review from experts with Akin Gump Strauss Hauer & Feld for the Alliance for Aging Research explained, some 20 years ago CMS had already allowed for coverage of medications under Part D for “morbid obesity,” but, at the time, the only drugs available were relatively ineffective, prone to more dangerous side effects, and primarily developed for cosmetic weight loss. Now, times have changed to the point where CMS’s original regulatory position is relevant and indeed necessary to follow current jurisprudence:

In light of Loper Bright, CMS must revert to the interpretation the agency originally provided in 2005 during implementation of the SSA provision. CMS’s interpretation at that time considered the purpose and context of the exclusions—for such things as cosmetic uses—and reasoned that coverage of medications for uses such as morbid obesity would be permissible. This interpretation is arguably the “best reading” of the statute, and the one that remained in place until AOMs ushered in a new wave of policy considerations and potential costs for the Medicare program. In the face of this change, CMS reversed its stance and issued a new statutory interpretation—that the provision prohibits coverage of AOMs. The statute and the use that CMS analyzed (obesity) did not change during this time. The only change is that now, at last, there are medications that can treat obesity. The agency’s assumed flexibility to reverse policies is impermissible under Loper Bright.²⁶

How can CMS provide clarity to those on both sides of this authority matter? One way would be to seek evaluations from other entities within the federal government. Much in the same manner that the U.S. Supreme Court relies upon the Solicitor General of the United States to furnish opinions about complex technical matters on the docket, CMS could request an expedited opinion from the U.S. Department of Justice or the Office of Management and Budget on its prerogatives surrounding Section III.A. Although CMS may have received some input from these or other entities prior to the issuance of CMS-4208-P, the reality of a new administration might counsel a review such as this.

While NTU is hopeful that such an opinion would provide a clear way forward for Section III.A in its current or some slightly modified form, there may be other, albeit less desirable, paths CMS could take if official advice would tend to proscribe the expanded AOM coverage envisioned under CMS-4208-P. For instance, the coverage reinterpretation could be evaluated through the demonstration project authority under the Centers for Medicare and Medicaid Innovation (CMMI).

In the past, NTU and its research arm, National Taxpayers Union Foundation, have criticized CMMI’s approaches to many demonstration projects because of (as one of our analysts put it) the “circularity” of the premise that Congress’s budget scorekeeping agency “‘expects’ CMMI to achieve savings because CMMI will ‘achieve savings.’”²⁷

Avoiding this trap will not be easy with respect to AOM coverage, but it is hardly impossible. For one, there is already a major body of evidence showing that AOMs do, indeed, have a measurable impact on reducing costs of other non-pharmacological treatments as well as increasing economic benefits such as productivity.

Rather, the purpose of a CMMI demonstration here would be to create a gradualistic environment for how, operationally, AOM expansion investments could be managed to maximize the return to taxpayers. In a 2022 Policy Paper, NTU outlined some principles that CMMI demonstration projects could follow to achieve more helpful results. This is not an ideal way for AOM coverage under Part D to proceed, but it could be fashioned to work in the absence of any broader reinterpretation of authority under CMS-4208-P:

Limit the duration of CMMI demonstrations to as few as two years;
Narrowly define, in the general criteria for CMMI phase 1 testing, “deficits of care,” “poor clinical outcomes,” and “potentially avoidable expenditures”;
Require HHS to project that a model will, at minimum, be budget neutral before proceeding with phase 1 testing;
Require public reporting on CMMI models within a specified period, rather than just in a “timely fashion”; and
Require the CMS Actuary to certify net spending reductions, rather than mere budget neutrality, to approve phase 2 expansion.²⁸

Again, NTU does not enthusiastically endorse this course of action, but we offer it as another reason for CMS, under this administration, not to abandon entirely the expansion of AOM coverage under Part D. It would be a mistake to allow an opportunity for a genuine change of fiscal direction in Medicare to slip entirely from government’s grasp now. President Donald Trump has noted that his administration will seek to combat the “chronic disease epidemic;”²⁹ we know of no better place to begin this battle than with obesity, and the new generation of AOMs now in the U.S. arsenal.

Another helpful step that CMS could take under this administration is greater cooperation with the legislative branch. As you are well aware, a bipartisan consensus is emerging in Congress to provide greater AOM availability in Medicare through the Treat and Reduce Obesity Act (TROA).³⁰ Even though TROA provides for wider latitude of such availability than CMS-4208-P, to the extent that basic parameters of the Part D coverage of doctor-prescribed AOMs solely for obese individuals can reach legislative and administrative harmony, this will aid in strengthening the resiliency of any rulemaking in a post-Loper Bright world.

3) The Pharmacy Benefit Manager Reforms in Section III.W Likewise Deserve Careful Consideration and Balance in Their Implementation.

In the past, NTU has commented at length on generic and biosimilar access matters in Section III.W. One NTU observation is contained in a brief 2019 analysis of legislation then known as the Ensuring Access to Lower-Cost Medicines for Seniors Act:³¹

In April 2016, CMS said it would allow Part D prescription drug plan (PDP) sponsors to create a “non-preferred drug tier” that includes both brand-name and generic drugs starting in 2017 - a change from just requiring a “non-preferred brand tier.” CMS said that PDP sponsors could choose between a “non-preferred drug” tier and a “non-preferred brand” tier, but not both. In their announcement, CMS acknowledged that “it is our understanding that the new non-preferred drug tier likely will contain a greater proportion of generic drug products than the current non-preferred brand tier composition.”

Non-preferred tiers typically have higher cost-sharing requirements for patients than either the preferred brand-name tier or the generic tier, so the inclusion of more generic drugs on the non-preferred tier discourages patients and doctors from choosing generic drugs. While the CMS guidance may have been intended to offer additional flexibility to PDP sponsors in customizing their plans, an unforeseen development appears to have been less generic utilization than desired for the Part D program.³²

Although subsequent changes occurred to tiering in 2019 and beyond, the following caveat from NTU’s analysis more than five years ago remains timely:

Additional tiers generally mean more flexibility for PDP sponsors to steer their customers to lower-cost drugs, which in turn would enable sponsors to create plans with either lower premiums, coverage tailored to certain populations, or both.

Regulators should be careful, though, not to use these additional tiers to straitjacket PDP sponsors into overly specific tier requirements. Part D has been successful in part because private insurers have had considerable flexibility to design plans that are best suited to their customers’ needs and wants. In fact, a way to improve this part of the legislation would be to use “carrots” for PDP sponsors instead of the “stick” of required tiers. One way to construct this “carrot” would be to allow plans that have specialty generic tiers to offer more than three prescription drug plans per region . . . While there should be a fair and level playing field for brand-name and generic drugs in the Part D program, price competition is a better way to lower costs for patients than requiring the inclusion of a large class of drugs.³³

The following assessment under Comment 3 was provided by NTU Senior Policy and Government Affairs Manager Nicholas Johns, who has wide experience with several policy areas that Section III.W would impact. It is offered in response to CMS’s observations in CMS-4208-P “as to PBM [Pharmacy Benefit Manager] practices generally.” NTU hopes this assessment will prove helpful.

While NTU would not support requiring insurers, PBMs, manufacturers, and pharmacists nationwide to open up their books and disclose all privately negotiated rates to the federal government, we do believe increased transparency around spread pricing practices of PBMs is appropriate when taxpayer dollars are directly on the line (i.e., in Medicaid and Medicare).

As a Government Accountability Office (GAO) analysis indicates, spread pricing appears to be a limited problem in the Part D program.³⁴ Federal policymakers in Congress and at CMS should monitor the prevalence of spread pricing in Medicare going forward, but that should not be the primary focus of spread pricing transparency efforts.

Instead, where federal law could increase transparency around spread pricing practices is in Medicaid programs, jointly managed by federal and state governments.

The Kaiser Family Foundation (KFF) noted in 2019 research that investigations by state government agencies in Ohio, Massachusetts, and Michigan found PBMs managing those states’ Medicaid programs engaged in significant spread pricing:

“In 2018, a report by Ohio’s state auditor found that PBMs cost the state program nearly $225 million through spread pricing in managed care”;
“Similar analysis by the Massachusetts Health Policy Commission found that PBMs charged MassHealth MCOs more than the acquisition price for generic drugs in 95% of the analyzed pharmaceuticals in the last quarter of 2018”; and
“Michigan found that PBMs had collected spread of more than 30% on generic drugs and a report found that the state had been overcharged $64 million.”³⁵

Ohio’s state auditor report found that the spread in its Medicaid program averaged $5.71 per claim and made up 8.9% of drug spending amounts overall. For generic drugs in particular, PBMs in Ohio’s Medicaid program achieved a $6.14 per claim spread (accounting for 31.4% of generic drug spending amounts).³⁶ In other words, PBMs disproportionately targeted generic drugs in their spread pricing practices.

The Kentucky agency also expressed “concern that spread pricing is not correctly accounted for in the state’s medical loss ratio (MLR),” given the “lack of transparency” around spread pricing.

Finally, an extensive Bloomberg investigation released in 2018 indicated that PBM spread pricing had a disproportionate impact on generic drugs in Medicaid:

. . . Bloomberg examined the prices of 90 of the best-selling generic drugs used by Medicaid managed-care plans. In 2016, the drugs made up a substantial portion of Medicaid’s spending on generics . . . For the 90 drugs analyzed, which includes more than 500 dosages and formulations, PBMs and pharmacies siphoned off $1.3 billion of the $4.2 billion Medicaid insurers spent on the drugs in 2017.³⁷

While spread pricing differentials may be a negotiable source of revenue for PBMs’ private lines of business, or affecting MLRs, policymakers should exact greater scrutiny when it comes to spread pricing that costs taxpayers. The investigations in Ohio and Kentucky—and the experience of other states like Massachusetts and Michigan—indicates that PBMs are collecting significant revenue via spread pricing in Medicaid programs, sometimes in amounts that well exceed their administrative costs per claim and a profit margin that aligns with other PBM lines of business.

Sens. Maria Cantwell (D-WA) and Chuck Grassley (R-IA) have proposed legislation to ban all PBMs from spread pricing, in their public and private lines of business. NTU believes that this is currently a bridge too far, given it would disrupt negotiations between PBMs, plans, manufacturers, and pharmacies in their private lines of business.³⁸ Federal policymakers could accomplish this aim by requiring PBMs to regularly report to state Medicaid programs on the scale and scope of their spread pricing in Medicaid, and to send such reports to CMS for federal oversight purposes. GAO or the Department of Health and Human Services (HHS) inspector general could provide an additional federal layer of oversight and reporting on the use of spread pricing throughout all 50 states. CMS and the state agencies managing Medicaid programs should have full visibility on potential program savings lost to spread pricing.

GAO noted that reporting requirements have contributed to the lack of spread pricing in Medicare Part D,³⁹ suggesting that similar requirements in Medicaid could discourage the use of excessive spread pricing by PBMs in Medicaid programs. And transparency could discourage these distortive business practices in a less disruptive manner than banning spread pricing in the public and private sectors. (Banning spread pricing in the private sector could even have the opposite of policymakers’ intended effect, squeezing the cost bubble on PBMs and inducing them to increase fees charged to public and private payers, PBM retention of rebates, and other cost increases for plans, consumers, and taxpayers.)

Federal policymakers could also consider providing more information on spread pricing in the Medicaid program to manufacturers, plan sponsors, and pharmacies (i.e., other private-sector participants in the pharmaceutical supply chain). Such transparency could ensure all parties have more information at their disposal in negotiations over fees. However, Congress and/or CMS must craft such policies carefully so as not to put their thumb on the scale for either manufacturers, pharmacies, or PBMs and plans in exclusively private-sector negotiations.

4) Other Policy Considerations Cloud the Future Potential of Prescription Drugs in the U.S. Health System.

No examination of the costs and benefits of CMS-4208-P can be complete without mentioning numerous outside factors both within and outside of CMS’s control. NTU will raise but one of those factors because of its direct proximity to CMS’s decision-making: the Part D prescription drug negotiation provisions contained in Subtitle B, Section 11003 of the Inflation Reduction Act (IRA) of 2022.

Less than two weeks ago, just prior to the new administration taking office, CMS announced that a second round of prescription drugs, including certain AOMs, would be subject to new Section 11003 proceedings, leading NTU to comment:

Far from delivering stable savings in the government-funded health program for seniors, over the long run taxpayers will suffer, as pharmaceutical development slows and with it the cures that could offset costlier surgeries, hospital stays, and other therapies. From cardiac drugs to vaccines, the use of cutting-edge medications in Medicare, Medicaid, and public employee health plans has been proven to benefit taxpayers when given the time and space to work for patients. Now, this progress is in danger. Equally disturbing, the negotiation scheme is backed by the threat of a 95% tax for companies that refuse to surrender to government pricing demands—a tax that is administratively burdensome, economically untenable, and constitutionally dubious.⁴⁰

Aside from the negative impact on investments in new innovator drugs,⁴¹ investments in generic and biosimilar equivalents are also being stifled under IRA, because the brand-name drugs falling under negotiations have generics under development, but not yet approved for marketing. This greatly deters interest in the attractiveness of generics to those with the capital to bring them to patients.⁴²

As NTU has noted before, no other country in the world can boast of such a successful policy environment that both encourages discoveries to reach patients (nearly 90% of newly launched drugs worldwide are available here) and controls costs (over 90% of prescriptions written in the U.S. are for generics).⁴³ For the sake of both innovation and affordable access in the U.S. prescription drug space, the new leadership at CMS should halt implementation of the next round of 15 drugs subject to “negotiation” under Section 11003 of the IRA, which is within the Secretary of Health and Human Services’ authority, pending further action from Congress on underlying statute. Otherwise, any gains from Section III.A and III.W of this rulemaking could be entirely negated in the future.

5) Private-Sector Compliance Costs with the Proposals in Sections III.A and III.W Should Be Explored and Addressed.

Industry observers who focus on the medical economics of pharmaceutical development have greeted the results of the SELECT trial referred to earlier with considerable enthusiasm, suggesting that over the longer term, not only taxpayers but also providers may eventually welcome the increased availability of AOMs. Unlike other CMS rulemakings attempting to widen AOM availability,⁴⁴ Sections III.A and, to a certain extent, III.W of CMS-4208-P propose changes in coverage and reimbursement systems with which most providers are already familiar.

Furthermore, Markus Manns of Union Investment told Reuters that the SELECT outcome, “[w]ith these numbers,” means that “medical insurances should also become more inclined to cover the costs of Wegovy.” Presumably, this could be the case with other AOMs reporting similar success. Henrik Laustsen of Jyske Bank added that “[t]he results could improve the willingness to pay for obesity drugs and provide higher incentive to treat obesity at earlier state.” Terence McManus of Bellevue Asset Management observed that “[c]ardiovascular events such as strokes are expensive for healthcare systems through the increased care such patients need, therefore reducing these events should be supportive of pharmacoeconomic evaluations.”⁴⁵

Yet, in the nearer term, some disruptions to existing administrative procedures that those providers employ are bound to occur, which is why implementation of Sections III.A and III.W would need to be managed with circumspection.

As part of our mission, we have devoted a great deal of effort toward exploring the compliance burdens of various government regulations, chiefly those resulting from tax laws. Since 1999, NTU’s research arm (NTUF) has published an annual report on the time, material, and other costs to the public and private sectors associated with administration of the complex tax system.⁴⁶ However, we have also provided analysis and commentary on regulatory burdens in other areas, including rulemakings issued by the Federal Trade Commission, the Department of Energy, the Surface Transportation Board, and the Federal Housing Finance Agency, to name a few.⁴⁷

In our experience, these rulemakings have diverse intentions and mechanics, but can reflect common drawbacks:

Whether the rulemakings are initially the product of robust stakeholder input or not, they tend to lack ongoing input to help improve their effectiveness over time.
Paperwork burden and information collection estimates concentrate on the design of products such as forms without also devoting attention to recordkeeping requirements, training, and legitimate private sector concerns over exposure to new enforcement actions.
Implementation periods and learning curves vary from sector to sector and often among regulated businesses and individuals that appear to be similarly situated to regulators but actually are quite different.

CMS can at least minimize these problems by adapting solutions that have proven useful to other agencies, or at least instructive to agencies whose rulemaking processes are evolving. This is especially true for tools employed in the tax realm, where regulations, notices, guidance, and other pronouncements rival or exceed those confronted by stakeholders in the health care industry. While CMS already has several advisory panels (e.g., the Pharmaceutical and Therapeutics Committee) and other consultation processes at its disposal closely resembling several of the following suggested remedies, we nonetheless believe these are useful starting points:

Adequate implementation periods, which can be further adjusted as feedback informs the pace of change, should be provided. While seemingly simplistic, the element of time not only affords the private sector adequate planning to institute new systems, but it also allows the public sector to discover and address the “unknowns” while the process is underway rather than attempt to “de-bug” a process that has been hastily completed.
Successful rulemakings proposing major changes can still start from a common and familiar knowledge base. In the case of Sections III.A and III.W, that knowledge base already exists to some degree for actors in the Part D universe. If CMS is to make a transition to the arrangements contemplated in III.A and III.W, it must ensure that the most widely understood procedures those actors now use are initially promulgated.
Mechanisms are available to provide more regular feedback from stakeholders. One technique that NTU would recommend for CMS’s study is the Internal Revenue Service’s “Job Aid” concept. While they can vary in their composition and operation, Job Aids are generally initiated by the IRS for either members of its own staff or the practitioner community as “how-to” guides for ensuring best practices in carrying out the intent of tax regulations.
CMS should also closely examine the “regulatory sandbox” concept, which has already been put to practical use in U.S. states and abroad.⁴⁸ Recently NTUF proposed this framework to the Internal Revenue Service for developing tax regulations governing cryptocurrency. As NTUF Attorney Lindsey Carpenter explained in comments to the IRS:

Under this sandbox method, the IRS would recruit cryptocurrency experts from outside the IRS. These experts should represent all areas of cryptocurrency: Regulatory, taxation, trading platforms, cybersecurity, investors, brokers, sellers, etc. Then, in a controlled environment, the IRS should foster discussion amongst these individuals, allowing for the free flow of ideas about cryptocurrency and how to properly tax such.⁴⁹

CMS could adapt this proposal, as well as actual sandbox procedures already in place, by calling upon experts from the industry to design the least burdensome methods of implementing Sections III.A and III.W.

CMS should design and promulgate “safe harbor” guidance to give a level of legal reassurance to regulated entities that they are compliant with regulations by following specific government guidance. While safe harbors appear in many parts of tax regulations, the Department of Health and Human Services (HHS) also issues such guidance. For example, HHS’s Office of Inspector General has published safe harbor regulations that “describe various payment and business practices that, although they potentially implicate the Federal anti-kickback statute, are not treated as offenses under the statute.”⁵⁰

All of these concepts deserve CMS’s consideration to provide a policy framework that is flexible, responsive, transparent, and less onerous for the entities that must comply with it. Those entities are, after all, taxpayers as well.

Conclusion

Taxpayers have a deep and abiding interest in ensuring both access and affordability of prescription drugs. Yet, a variety of recent policies—ranging from the extortionary drug price “negotiation” process created by the Inflation Reduction Act to the state of Florida’s ill-advised drug importation plan—threaten to undermine these unique attributes of the American health care system. Whatever other flaws may exist in the ACA marketplace model, the introduction of certain new prescription drug therapies such as AOMs can, if thoughtfully planned with an eye toward minimizing administrative burdens, offer the prospect of longer term economic and fiscal benefits. Thank you for your consideration of these comments, and should you have any questions, we are at your service.

Sincerely,

Pete Sepp, President Nicholas Johns, Senior Policy and Government Affairs Manager

¹ See the Congressional Budget Office report at: https://www.cbo.gov/publication/60127.

² See p. 38 of CMS-4208-P (page 99377 of the Federal Register).

³ See p. 6 of CMS-4208-P (page 99345 of the Federal Register).

⁴ See the Congressional Budget Office analysis at: https://www.cbo.gov/publication/60816.

⁵ See Chapter 4 of the following report: https://www.jec.senate.gov/public/vendor/_accounts/JEC-R/2024RepublicanResponse.pdf.

⁶ See State Senator Vukmir’s (R-WI) testimony at: https://www.ntu.org/publications/detail/anti-obesity-medications-can-boost-patient-health-and-lower-expenditures.

⁷ See, for example: https://www.ajmc.com/view/rising-costs-lead-insurers-to-drop-weight-loss-drug-coverage-further-increasing-patient-burden.

⁸ To read the NTUF paper, visit: https://www.ntu.org/publications/detail/how-much-is-medicine-worth-to-the-american-taxpayer-a-cost-benefit-analysis.

⁹ Ibid.

¹⁰ For further details, see: https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2018.05372.

¹¹ For further details, see: Weight Loss-Associated Decreases in Medical Care Expenditures for Commercially Insured Patients With Chronic Conditions - PMC (nih.gov).

¹² For further details, see: Weight Loss For Adults at Any Age Leads to Cost Savings, Study Suggests | Johns Hopkins | Bloomberg School of Public Health (jhu.edu).

¹³ For further details, see: Savings in Medical Expenditures Associated with Reductions in Body Mass Index Among US Adults with Obesity, by Diabetes Status | PharmacoEconomics (springer.com).

¹⁴ For further details, see: https://www.tandfonline.com/doi/full/10.1080/13696998.2019.1652185#:~:text=The%20estimated%20economic%20burden%20of,of%20people%20with%20obesity4.

¹⁵ For further details, see: 2023.04_Schaeffer_Center_White_Paper_Benefits_of_Medicare_Coverage_for_Weight_Loss_Drugs.pdf (usc.edu).

¹⁶ For further details, see: https://www.acc.org/Latest-in-Cardiology/Clinical-Trials/2023/11/09/15/04/select.

¹⁷ See the authors’ findings at: https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2827550?resultClick=1.

¹⁸ See the Journal article at: https://www.ajmc.com/view/semaglutide-linked-to-reduced-health-care-expenses-for-patients-with-obesity-hf-ascvd.

¹⁹ To read the NTUF paper, visit: https://www.ntu.org/publications/detail/how-much-is-medicine-worth-to-the-american-taxpayer-a-cost-benefit-analysis.

²⁰ See the Medicaid data set at: https://data.medicaid.gov/dataset/0ad65fe5-3ad3-5d79-a3f9-7893ded7963a.

²¹ See the claims of Senate Health, Education, Labor, and Pensions Committee Chair Bernie Sanders (I-VT) here:

https://www.help.senate.gov/dem/newsroom/press/media-advisory-sanders-to-lead-help-committee-hearing-on-outrageous-ozempic-and-wegovy-prices-with-novo-nordisk-ceo; and NTU’s response here: https://www.ntu.org/publications/detail/senate-committees-drug-price-interrogation-fails-taxpayers.

²² See p. 38 of CMS-4208-P (page 99377 of the Federal Register).

²³ See the analysis of Dr. Sally Pipes and Wayne Winegarden of the Pacific Research Institute at: https://www.washingtontimes.com/news/2025/jan/3/medicare-cover-anti-obesity-drugs/.

“Under current law, Medicare distinguishes between weight management drugs for medically necessary reasons, which are covered, and cosmetic reasons, which are not. Yet current policy does not cover anti-obesity drugs, ‘even if used for non-cosmetic purposes.’ The current policy is hypocritical.”

²⁴ See the analysis of Dr. Joel Zinberg of the Competitive Enterprise Institute and Paragon Health Institute at: https://www.wsj.com/opinion/a-thumb-on-the-scale-for-wegovy-biden-cms-extends-coverage-legal-nonsense-bcc373e3. “No matter how salutary obesity treatment is, its purpose is precisely what the congressional statute forbids. CMS’s recharacterization of obesity as a chronic disease doesn’t change the facts or the law.”

²⁵ NTU’s sister organization, National Taxpayers Union Foundation, filed an amicus brief in support of what eventually became the Court’s final decision in Loper Bright. See the brief and analysis of the decision here: https://www.ntu.org/foundation/detail/ntuf-applauds-the-loper-bright-decision-and-end-of-chevron-deference.

²⁶ See the analysis at: https://www.agingresearch.org/news/whitepaper-cms-has-the-legal-authority-to-cover-anti-obesity-medications/.

²⁷ See the 2018 National Taxpayers Union Foundation analysis from Doug Badger at: https://www.ntu.org/foundation/detail/resetting-the-scoreboard.

²⁸ See the 2022 NTU analysis from Doug Badger, et al., at: https://www.ntu.org/publications/detail/center-for-medicare-and-medicaid-innovation-12-years-into-the-game-taxpayers-still-dont-know-the-score.

²⁹ See, for example: https://www.medpagetoday.com/washington-watch/washington-watch/113856.

³⁰ See the most recent version of TROA, from the 118^th Congress, at: https://www.congress.gov/bill/118th-congress/house-bill/4818 and https://www.congress.gov/bill/118th-congress/senate-bill/2407.

³¹ See the legislation (HR 4913) at: https://www.congress.gov/bill/116th-congress/house-bill/4913?s=7&r=13.

³² For the NTU analysis of HR 4913, see: https://www.ntu.org/publications/detail/some-generic-drugs-are-not-making-it-onto-part-d-formularies-a-new-bill-could-fix-that.

³³ Ibid.

³⁴ See the GAO analysis at: https://www.gao.gov/assets/gao-19-498.pdf#page=23.

³⁵ The KFF analysis is available at: https://www.kff.org/medicaid/issue-brief/management-and-delivery-of-the-medicaid-pharmacy-benefit/.

³⁶ See the Auditor’s report at: https://audits.ohioauditor.gov/Reports/AuditReports/2018/Medicaid_Pharmacy_Services_2018_Franklin.pdf.

³⁷ See the Bloomberg investigation at: https://www.bloomberg.com/graphics/2018-drug-spread-pricing/?leadSource=uverify%20wall.