The fallout from the Food and Drug Administration’s hasty approval of a new Alzheimer’s drug in June was predicted to be severe: Excessive pricing for a drug lacking strong evidence of effectiveness would impose heavy costs on the healthcare system nationwide, especially on Medicare.
That latter shoe has now dropped. The 2022 premium increase Medicare announced Friday for Part B is one of the largest increases ever. According to the Medicare trustees, half the increase is directly due to the projected cost of Aduhelm, the drug approved by the FDA in June.
The case is a perfect illustration of how the government’s self-imposed powerlessness to control drug companies’ greed combines with the general dysfunction of the U.S. healthcare system to hit consumers where it hurts the most: in the pocketbook.
The 14.5% increase in the minimum monthly premium for Part B, which generally covers services other than inpatient hospital care, will bring that premium to $170.10 a month, up from $148.50.
The trustees had projected an increase to $158.50, not counting what it would cost to cover Aduhelm, the brand name for a drug formally known as aducanumab. The $10 projected increase — that is, the non-Aduhelm portion — was based mostly on “rising prices and utilization across the healthcare system,” according to the Centers for Medicare and Medicaid Services.
Those figures apply to the premiums that will be charged to Medicare enrollees with annual incomes up to $91,000; premiums rise by steps for higher-income enrollees, topping out next year at $578.30 a month for those with incomes of $500,000 or more.
The additional minimum premium increase of $11.50 for Aduhelm was imposed even though Medicare hasn’t formally decided whether to pay for the drug or, if so, for which Alzheimer’s patients in terms of their disease severity.
The coverage determination process is still underway, but Medicare officials said they’re duty-bound to “plan for the possibility of coverage for this high-cost Alzheimer’s drug.”
Among other services, Part B covers drugs such as Aduhelm that need to be administered by a doctor. Inpatient services and nursing home and hospice care are covered by Medicare Part A, for which there’s no premium.
The Part B premium is typically subtracted automatically from members’ Social Security checks. Because Social Security recipients will see a 5.9% cost-of-living increase next year — about $91 monthly for the average beneficiary — they’ll still see a net gain in their benefit. But about one-fourth of the increase will be eaten away by the Medicare premium hike.
To see why even Medicare members who aren’t Alzheimer’s patients will pay the price, let’s start with the FDA approval process.
The FDA gave Aduhelm the green light under its “accelerated approval” rules, which allow it to approve a drug before all conclusive evidence has been submitted.
The approval was issued despite the nearly unanimous opposition of the agency’s own scientific advisory committee that had examined results from the drug’s clinical trials. The 11-member panel rejected the drug in three key votes, concluding that clinical trials didn’t show that it was effective in slowing the course of Alzheimer’s.
“Four years from now, it is very unlikely that any Alzheimer patient will genuinely be better off as a result of aducanumab — at best slightly less worse, but no better,” one panel member observed. “Perfection may be the enemy of the good, but for aducanumab, the evidence doesn’t even rise to ‘good.’ ... The evidence shows it will offer improvement to none, it will harm some of those exposed, and it will consume enormous resources.”
The author of those words, neurologist David Knopman of the Mayo Clinic, resigned after the FDA’s approval. Two other members also resigned, including Aaron Kesselheim of Harvard Medical School, whose resignation letter called the FDA’s action “probably the worst drug approval decision in recent U.S. history.”
Biogen took the ball handed it by the FDA and ran with it, pricing the drug at a sky-high $56,000 a year. Never mind that the Institute for Clinical and Economic Review, an independent think tank devoted to judging the relative medical and financial merits of new drugs, estimated the proper price for Aduhelm at $3,000 to $8,400 a year.
Biogen’s pricing is expected to prompt insurance companies to narrow the patient population for which they’ll cover Aduhelm. The clinical trials focused on treatment of patients with early manifestations of the disease. The FDA’s approval, however, didn’t specify any target population.
Medicare may have less latitude than private insurers in reaching its coverage decision, as it is required by law to cover any drugs approved by the FDA, within certain limits. The campaign to allow Medicare to negotiate with drug companies over pricing is directed chiefly at Part D prescriptions, though proposals on the table would also cover some Part B drugs.
Biogen executives were shameless about the potential profits they expect to be reaped from the full price. “We believe Aduhelm represents a significant long-term growth driver with modest revenue in 2021 ramping to a multibillion-dollar U.S. sales opportunity over the next several years,” Chief Financial Officer Michael McDonnell told Wall Street analysts the day after the FDA action.
Warnings about the fiscal effect of Aduhelm followed the FDA approval. Even if only 500,000 Medicare members were placed on the drug, the Kaiser Family Foundation observed as a conservative estimate, total spending for Aduhelm in one year alone would be nearly $29 billion, more than the spending on any other drug covered by Part B or Part D.
“To put this $29-billion amount in context, total Medicare spending for all Part B drugs was $37 billion in 2019,” the foundation reported. By law, Medicare pays doctors 103% of the price of a new drug covered by Part B. If 1 million patients took the drug, the foundation calculated, the cost would be “roughly the same that Medicare paid for all hospital outpatient services in 2019.”
Moreover, since Part B pays only 80% of the costs of treatment, members taking Aduhelm could be on the hook for about $11,500 per year, or almost 40% of the $29,650 median income of Medicare Part B members. Because the drug doesn’t cure Alzheimer’s, that cost could recur year after year until their death.
It gets worse. Because the clinical trials revealed that about 30% of patients receiving a high dose of Aduhelm experienced brain swelling, patients will have to undergo regular MRI tests to watch out for this dangerous side effect. They’ll have to pay their 20% share of those too.
Plainly, no one in America can escape the burden of unregulated pricing by drug companies, even for consumers who aren’t taking the drug in question.
The great benefit of the Aduhelm case may be that it will bring home the effect of high drug prices to 62.7 million Medicare beneficiaries.
They might respond by increasing pressure on politicians to enact some form of price regulation on the drug industry. In that light, the FDA and Biogen may have done us all a big favor.
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