Aduhelm decision exposes Medicaid to billion-dollar costs

On April 7, the Centers for Medicare and Medicaid Services (CMS) released its finalized national coverage determination (NCD) for the controversial Alzheimer's treatment, Aduhelm.

Despite strong opposition from advocacy groups such as The Alzheimer's Association, CMS kept the requirement that Biogen must conduct additional randomized controlled trials to prove Aduhelm's clinical efficacy in slowing cognitive decline among those with mild cognitive impairment. Importantly, CMS relaxed the requirement that such trials must take place at major medical centers to provide greater access for trial participants. CMS also allowed future anti-amyloid therapies to bypass additional clinical trials if the therapies can show cognitive improvement in trials prior to FDA approval.

But in terms of providing access to the drug and who will pay for it, the most consequential part of the decision memo clarified Medicaid's responsibilities in covering the drug, potentially at the cost of billions of dollars.

Limiting the costs imposed by dual-eligible beneficiaries

Unlike Medicare, Medicaid—the public health insurance program for the poor— does not have the NCD process as a tool to limit or circumscribe coverage. Last fall, director of pharmacy in CMS’ Center for Medicaid and CHIP Services John Coster told state Medicaid directors that Medicaid is required to cover Aduhelm because Biogen participates in Medicaid’s drug rebate program.

At issue was whether Medicaid must pay for coverage of Aduhelm for "dual-eligible" beneficiaries—Medicare enrollees who are also enrolled in Medicaid to receive services Medicare will not pay for, such as services that assist with activities of daily living like eating, bathing, and dressing. Normally, coverage of Aduhelm for these individuals would first be paid by Medicare. However, because of the narrow NCD issued by CMS, state Medicaid directors worried the NCD would force Medicaid to pick up the tab.

Despite these concerns, CMS made clear Medicaid will not cover Aduhelm for dual-eligible beneficiaries not enrolled in clinical trials. Because the NCD prohibits coverage of the drug for those outside clinical trials, Medicare regulation reclassifies Aduhelm from a Part B drug to a Part D drug for this group, regardless of whether Aduhelm is administered in a physician setting or whether such individuals are enrolled in a Part D plan. Medicaid is prohibited from covering the cost of any Part D drug by law.

Early-onset Alzheimers and "the woodwork effect"

The exclusion of dual-eligible beneficiaries from Aduhelm coverage is a huge cost saver for Medicaid. However, CMS noted that Medicaid must cover Aduhelm for those enrolled in Medicaid only. Given that early-onset Alzheimer’s disease occurs in individuals before they become eligible for Medicare at age 65, it is possible that some individuals who are or will become eligible for Medicaid would gain coverage for Aduhelm so long as they meet prior authorization requirements imposed by states.

Based on an estimated prevalence of 200,000 Americans with early-onset Alzheimer’s under age 65, and the percentage of those enrolled in or possibly eligible for Medicaid, I conservatively estimate up to 50,000 people in that group could gain coverage of Aduhelm through Medicaid.

It is possible that many more than 50,000 could qualify. Not only is mild cognitive impairment underdiagnosed, but individuals could flock to Medicaid to gain coverage because it is virtually the only payer required to cover Aduhelm.

When individuals not enrolled in Medicaid (or other health care programs) make a considerable effort to enroll in response to a lucrative benefit is called the "woodwork effect." That is, a new benefit is so enticing that 'people come out of the woodwork' to take advantage. Aduhelm's large price tag of $28,200 per year and the general desperation many people feel to stave off the devastating effects of Alzheimer's may lure thousands of people onto Medicaid rolls just to try the drug.

A potential windfall in state Medicaid payouts

Besides the number of beneficiaries receiving Aduhelm, the cost to the Medicaid program is based on the price state Medicaid programs would pay for the drug.

In general, states reimburse for the cost of the drug ingredients based on the lowest cost option among a selection of prices. These price selections include the wholesale acquisition cost, the average sales price paid on the commercial market (ASP), or the “usual and customary” price (defined as the price a cash-paying person would pay at the point of sale). A professional dispensing fee, typically around $10–$15, is also added to the ingredient cost. Finally, the manufacturer is required to pay a rebate to the state Medicaid program based on a statutory formula in order to be covered.

Because Aduhelm has seldom been sold in the United States, there is a lack of reliable data on how much Aduhelm sells for after discounts and rebates in the commercial market. Since the ASP is typically calculated from such data, states must use an alternative method to set an initial price point. In addition, Biogen has little incentive to negotiate with private insurance companies to lower costs. The net result is most state Medicaid agencies could end up paying at or near the list price for the drug while also capping the size of the rebate.

Take California’s Medicaid program: If Biogen decided to charge its list price for Aduhelm, the ingredient price California would pay for the average Alzheimer’s patient under its reimbursement rules is $2,171.40 per treatment. After adding in the state’s $13.20 dispensing fee and subtracting the drug’s estimated rebate, the total reimbursement comes to $1,683 per treatment. Since a patient would receive around 13 infusions per year, the annual cost of treatment is $21,879; a discount of only 22.4 percent relative to the list price.

With these figures in hand, it is easy to see how profitable Medicaid coverage of Aduhelm would be for Biogen. Assuming half of the aforementioned 50,000 Medicaid enrollees indicated for Aduhelm take the drug annually, and the national average reimbursement for each treatment matches the rate for California, Biogen would receive nearly $550 million in net annual Medicaid payments—among the highest Medicaid pays for any drug in any given year.

A costly quirk in the drug rebate laws

Alarmingly, the impact of Aduhelm on Medicaid spending could be even more substantial due to a quirk in Medicaid's drug rebate rules. Based on current Medicaid drug rebate laws, single-source brand-name drugs have to pay an additional rebate if the manufacturer raises the price of the drug in excess of inflation. To calculate the rebate, the difference in the drug’s current and original price is compared to the inflation rate over the same period. Because Biogen cut the price of Aduhelm in half from its original price in December, Biogen could raise the price up to this original amount—$56,000—and pay no additional rebate.

Ironically, Aduhelm could be excluded from payment by almost the entire market in perpetuity—including private insurance and Medicare—and still become a billion-dollar blockbuster drug only by treating a relatively small population in Medicaid.

For these reasons, Medicare's NCD process is inadequate to limit coverage of expensive drugs that provide little to no clinical value. A better solution is for policymakers to empower both Medicare and Medicaid to exclude coverage of low-value drugs through closed formularies. In so doing, the two largest national payers of health care services would have the same tools in drug price negotiation used by private and other government payers alike: the power to walk away.