Medicare’s Coverage Decision for the New Alzheimer’s Drug and Why It Matters

After much anticipation, the Centers for Medicare & Medicaid Services (CMS) has announced that Medicare will cover the new Alzheimer’s drug, Aduhelm, subject to evidence development. This preliminary National Coverage Determination (NCD) comes after months of handwringing over the potential impact of this new high-priced drug on Medicare spending and a substantial Medicare Part B premium increase that took effect in January 2022. CMS proposes to cover Aduhelm and similar FDA-approved antiamyloid monoclonal antibody treatments under Coverage with Evidence Development (CED) for patients participating in CMS-approved or NIH-supported randomized clinical trials, which will help to generate the evidence that CMS suggests is currently lacking regarding whether Aduhelm is reasonable and necessary for the treatment of Alzheimer’s disease.

While this decision, which will be finalized in April 2022, proposes the terms of Medicare coverage of these treatments for Alzheimer’s disease, the Aduhelm story is not likely to end here. Only one day before the preliminary NCD was issued, HHS Secretary Becerra directed CMS to reassess the monthly Medicare Part B premium for 2022 in light of the announcement from Biogen, the drug’s manufacturer, that it was slashing the price of Aduhelm by 50% from $56,000 to $28,200 in response to anemic demand for the new drug.

Back in November 2021, prior to the release of the preliminary national coverage determination and the drop in the price of Aduhelm, CMS announced a 14.5% hike in the Medicare Part B premium for 2022. The increase in the premium – from $148.50 in 2021 to $170.10 in 2022 – was based on a “high-cost” scenario that took into account the potential increase in Medicare Part B spending for Aduhelm, among other factors (Figure 1). CMS attributed about half of the premium increase to the need to boost revenues to cover higher projected Part B spending for this one drug alone.

While only a small fraction of Medicare beneficiaries are likely to use the drug, all but the very lowest income Medicare beneficiaries will pay the higher Medicare Part B premium this year. For many beneficiaries, the Part B premium is not a trivial share of income. For example, a senior living on an income at 175% of the federal poverty level (~$23,000 for an individual) will spend nearly 9% of her income this year on the Part B premium alone, before factoring in other expenses, like Part D drug plan premiums or cost sharing for Medicare covered services. And for low-income Medicare beneficiaries who have coverage from both Medicare and Medicaid, the Part B premium increase will have implications for Medicaid spending because Medicaid pays their Medicare premiums.

CMS is now considering a possible adjustment in the 2022 Medicare Part B premium, a change which would be unprecedented – with the Part B premium already determined for the year and being deducted from Social Security payments – but perhaps not unwarranted in this case. Yet even if CMS rolls back a portion of the Part B premium for 2022, Medicare beneficiaries who use Aduhelm could still be on the hook for the Part B coinsurance, which is 20% of the drug’s total cost, or more than $5,000. While most beneficiaries have supplemental coverage to help them pay their Medicare cost-sharing requirements, many do not. This group includes nearly 6 million beneficiaries with no supplemental coverage and most of the 26 million enrollees in Medicare Advantage plans, which typically charge the same 20% coinsurance rate that beneficiaries in traditional Medicare face for Part B drugs (though out-of-pocket costs for Medicare Advantage enrollees would be limited to their plan’s out-of-pocket maximum, which averaged $5,091 for in-network services and $9,208 for both in-network and out-of-network services (in PPOs) in 2021).

In terms of Medicare spending, it appears that Medicare will not experience as large an increase in Part B spending associated with Aduhelm as was originally forecast and that CMS projected when setting the Part B premium for 2022, based on the drug’s initial high price and relatively high expected utilization. For example, in the summer of 2021, just after the FDA approved aducanumab, we estimated that the drug’s initial price tag of $56,000 could boost annual Medicare spending by roughly $30 billion if used by 500,000 Medicare beneficiaries. Considering the reduction in the price of Aduhelm and the likelihood of lower utilization based on the preliminary NCD, it is likely that Medicare spending on this drug will be substantially lower, at least in the near term.

In addition to Medicare, the Aduhelm coverage decision could have implications for Medicaid. While Medicaid must cover FDA-approved drugs under the Medicaid Rebate program, states may be able to impose medical necessity criteria as well as strict prior authorization requirements based on the Medicare coverage determination limiting utilization. The magnitude of the financial implications for Medicaid could hinge on further coverage guidance from CMS.

It is not hard to imagine a future scenario where a combination of a high-priced drug and high utilization actually do generate billions of dollars in additional Medicare spending annually and contribute to sizable increases in Medicare premiums. Given that Medicare has no authority under current law to lower drug prices or limit drug price growth, this raises the stakes for ongoing policy discussions around prescription drug price proposals in the Build Back Better Act. These proposals include allowing the federal government to negotiate the price of certain high-cost drugs, requiring drug companies to pay rebates if drug prices rise faster than the rate of inflation, and capping out-of-pocket costs under Medicare Part D. While these proposals could result in a very modest reduction in the number of new drugs coming to market in the U.S. over the next few decades, according to CBO, and would not affect spending associated with Aduhelm, they could provide meaningful savings on other high-cost drugs down the road.

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