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Like many of my compatriots among the Medicare set, I was slightly taken aback by the recent announcement that my monthly Part B bill will be rising by $21.60 come January. That’s a 14.5 percent bump that I was more than happy to absorb — until I learned the primary reason behind the move.

It’s all about aducanumab.

Also known by its brand name, Aduhelm, the controversial Alzheimer’s drug was approved by the Federal Drug Administration (FDA) last summer despite a nearly unanimous thumbs-down by the agency’s advisory panel, and it costs $56,000 for a one-year course of infusions. And because it’s largely folks my age and older who will be clamoring for the treatment, the accountants at Medicare are figuring that the agency — which will be footing 80 percent of the bill — is about to take quite a financial hit.

By law, Part B premiums must cover 25 percent of the annual amount Medicare estimates it will need to pay out over the course of the year.

In its November 12 announcement, the Centers for Medicare and Medicaid Services (CMS) tried to paint a rosier picture by emphasizing the 5.9 percent increase in monthly Social Security payments, which it noted “will more than cover the increase in the Medicare Part B monthly premium.” But the potential spike of payments for Aduhelm clearly loomed large in the agency’s decision: “There is significant uncertainty regarding the potential for future coverage of clinician-administered Alzheimer’s drugs (i.e., Aduhelm), requiring additional contingency reserves.”

All this is taking place during yet another apparently futile debate over drug pricing. And although it’s easy to point to political gridlock (and spineless lawmakers) as the major obstacles to reform, James Robinson, PhD, MPH, suggests there’s plenty of blame to go around.

Writing in the New England Journal of Medicine, the University of California, Berkeley professor of health policy and management describes the mostly invisible market forces that dictate drug pricing and explains why these forces are so powerful. It’s no coincidence, Robinson notes, that Biogen set aducanumab’s price 10 times higher than the rate recommended by the Institute for Clinical and Economic Review, an independent research agency. “If even 10 percent of U.S. patients with Alzheimer’s disease were prescribed aducanumab, drug spending for Medicare Part B would increase from $37 billion to $69 billion per year,” he explains.

And because of the way the system operates, everyone from the manufacturer on down to the individual physician profits from the exorbitant price. This plays out in three major areas: government reimbursement policies, the unique “buy-and-bill” payment mechanism for infused drugs, and the stubbornly uncompetitive prescription-drug marketplace.

Medicare prescription reimbursements are based on the average sales price (ASP) of a drug — the private insurer’s price minus any discounts or rebates — so Biogen has no reason to offer a lower price. A private insurer may push back by limiting the utilization of the drug, but as long as most of the prospective patients are covered by Medicare, the company knows the price point isn’t going to seriously suppress demand or limit its revenues.

The so-called buy-and-bill system is particularly noteworthy. Hospitals and physician practices purchase infused drugs like aducanumab from the manufacturer at one price and then request reimbursement from insurers at a higher price, securing, in some cases, a tidy profit. Medicare typically pays between 4 and 6 percent over the purchase price, for instance, but private insurers on average reimburse physician practices about 10 percent above the going rate and hospitals as much as 100 percent. The higher the drug price, the more revenue flows into the clinic’s coffers.

“In the context of buy-and-bill distribution,” Robinson writes, “price moderation by the manufacturer would reduce providers’ revenues and dampen, rather than boost, their enthusiasm for prescribing the drug.”

Then there’s Medicare’s muscular influence on the prescription-drug marketplace. The FDA’s lackadaisical approval of aducanumab is likely to spur the development of competing products, but for all the reasons Robinson details above, patients are unlikely to see much in the way of a price war. As long as the government will cover 80 percent of the cost, there’s little incentive for Biogen — or any of its competitors — to discount their prices.

“It could be said,” Robinson argues, “that Medicare imposes too much cost sharing on low-priced options and too little on high-priced options.”

The solution, as lawmakers of a certain persuasion have been arguing for decades, begins by allowing Medicare to use its substantial purchasing leverage to negotiate drug prices “rather than passively adopting the prices negotiated by fragmented and sometimes unsophisticated private insurers,” Robinson writes. “The price charged for a new drug should be evaluated in light of the evidence of its performance relative to that of other available treatments — evidence that should be gathered by means of formal health-technology assessments.”

Meanwhile, the “inherently inflationary” buy-and-bill system needs to be reformed, he adds, and Medicare must offer incentives for beneficiaries to choose less-expensive drug options. Other countries have designed programs in which patients can select low-cost prescriptions with little or no copay or pay the full price of a higher-cost option.

Biogen’s $56,000 price tag for aducanumab, Robinson concludes, “is a rational manufacturer response to an irrational insurance system.”

And the upcoming bump to my monthly Part B bill is, I suppose, a rational response by Medicare to maintain solvency and ensure that it can continue to cover the nearly 63 million Americans who rely on it when illness or injury strikes. It’s an insurance program, after all; we all should chip in. I’d just find it a little more palatable if all this “rationality” eventually spurred lawmakers to finally act rationally as well — only with more salutary results.

Craig
Craig Cox

Craig Cox is an Experience Life deputy editor who explores the joys and challenges of healthy aging.

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