By Josh Nathan-Kazis

Eli Lilly just unlocked a big new market for its megablockbuster obesity drug Zepbound. The cost to taxpayers could be enormous.

Sales growth of Zepbound in the U.S. has been constrained by rules that bar Medicare, the government-funded insurance plan for people over 65, from paying for any weight-loss drugs. Now, there is a way around that restriction.

The Centers for Medicare and Medicaid Services, which manages the Medicare program, confirmed to CNBC and other outlets late Wednesday that Medicare prescription drug plans can now pay for Zepbound for patients with obstructive sleep apnea. In late December, the Food and Drug Administration expanded Zepbound's label to include the condition.

Obstructive sleep apnea, a serious disorder that causes people to briefly stop breathing while they sleep, can increase the risk of heart attack and stroke over time. While obstructive sleep apnea is common among all adults, the condition is particularly prevalent among people with obesity. In severely obese people, it occurs at rates as high as 90%.

That means that a significant group of Medicare patients with obesity who had been unable to access Zepbound will now be eligible for prescriptions.

The potential cost for Medicare is difficult to predict, but in a back-of-the-envelope calculation in a note published late Wednesday, Leerink Partners analyst David Risinger wrote that the number of patients newly eligible for Zepbound prescriptions could be higher than 3.7 million. Roughly 700,000 U.S. patients were on Zepbound in the third quarter of 2024, Risinger wrote, suggesting that the opportunity for Lilly is enormous.

"The Medicare moderate-severe OSA population represents a substantial revenue opportunity for LLY," Risinger wrote.

The private companies that operate the Medicare prescription-drug plans will still need to add Zepbound to their formularies, and will be allowed to require prior authorization for Zepbound prescriptions.

The shift in Medicare policy comes just over two weeks after the FDA officially determined that a longstanding shortage of Zepbound and its sister medicine, the Type 2 diabetes treatment Mounjaro, had ended.

The decision makes the debate over whether Medicare should cover obesity drugs even less relevant. While federal law currently bars Medicare from paying for weight-loss medicines, the Biden administration said in November that it would seek to change that policy with new rules effective in 2026. That proposed rule change seems unlikely to take effect.

Calls for Medicare to pay for the weight-loss drugs have been met with concerns about the potential cost.

Zepbound has a list price of over $1,000 a month, and roughly a fifth of Medicare beneficiaries have obesity. Experts have warned for years that allowing Medicare to pay for GLP-1 drugs like Novo Nordisk's Wegovy and Lilly's Zepbound for obesity would put an enormous financial strain on the system, and on the taxpayers who fund it.

In October, the Congressional Budget Office said that changing the law to allow Medicare to pay for weight-loss drugs as of January 2026 would incur direct federal costs that would ramp up from $1.6 billion in 2026 to $7.1 billion in 2034, with a total cost over that period of $35 billion. It said that the savings to the government due to improved health would be "small."

In the end, however, it is looking like a large proportion of motivated patients with obesity will be able to get Medicare to pay for their weight-loss drugs even without a change in the law. Since early last year, Medicare has been allowed to pay for Wegovy when the medicine is prescribed to reduce the risk of heart attacks and strokes in overweight or obese people who also have cardiovascular disease.

Medicare spending on GLP-1 drugs to treat diabetes has already skyrocketed from $56.8 million in 2018 to $5.7 billion in 2022, according to KFF.

This coming year could see a major crunch for a healthcare system struggling to pay for the GLP-1 drugs, as Barron's predicted in late 2023 . The new ability to prescribe Zepbound to many Medicare patients, with Wegovy's eligibility for a lower negotiated price for Medicare patients still two years off, means the challenge will be significant.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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January 09, 2025 09:28 ET (14:28 GMT)

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