New Alzheimer’s drug may burden state budgets

The US Food and Drug Administration (FDA) recently approved aducanumab (brand name Aduhelm) for treatment of Alzheimer’s disease, what former FDA advisory committee member Dr. Aaron Kesselheim called “probably the worst drug approval decision in recent US history.” Not only does the approval further lower the evidence standards for new drugs, but it has serious implications for patient safety, pharma funding of patient groups, and the financial sustainability of public payers.

In a previous blog, we pointed out that Aduhelm could increase Medicare spending considerably if the Centers for Medicare and Medicaid (CMS) decide that Medicare should cover the full cost of the drug. The wholesale price for Aduhelm is a whopping $56,000 per year, not counting the costs of brain scans to monitor potential side effects (which are estimated at $30,000 per patient). Consulting group Altarum has estimated that if just the 1 million people with mild Alzheimer’s are prescribed Aduhelm, the drug’s cost will increase national health expenditures by more than 1%, reaching an annual cost of $73 billion by 2028.

How much will Medicaid pay?

While Medicare will be bearing the largest cost burden for Aduhelm, the impact on Medicaid will also likely be significant, as law professors Nicholas Bagley and Rachel Sachs point out in a recent op-ed in The Atlantic. Medicaid is the state-run public insurance program that covers low-income households. Most people with Alzheimer’s disease will be covered by Medicare, but there are many who are also covered by Medicaid, and some covered only by Medicaid.

How much will this cost Medicaid? Let’s do some quick math. About 11 million people in the US are dually eligible for Medicare and Medicaid; Medicaid covers premiums and co-pays for these patients. We can estimate that about 1 million of these patients have Alzheimer’s disease, assuming that the rate of Alzheimer’s is the same for dually eligible patients as the general Medicare population. Out of pocket costs for Medicare Part B drugs like Aduhelm are 20% of the drug price, which comes out to $11,200 per person — that’s $11,200,000,000 on Medicaid’s bill.

Additionally, an estimated 200,000 people in the US under age 65 have Alzheimer’s disease. Overall, about 20% of Americans are covered by Medicaid, so we can estimate that 40,000 or so of these younger people with Alzheimer’s are covered by Medicaid. If Medicaid pays the entire costs for these patients, that’s $2,240,000,000 more that Medicaid has to pay.

Of course, this is an upper bound estimate because only some people living with Alzheimer’s covered by Medicaid will seek access to the drug. But even if just one-tenth of eligible Medicaid beneficiaries are prescribed Aduhelm, it will still cost Medicaid $1.34 billion per year, more than any other drug that the program currently covers (see table below).

The only drugs relatively comparable to Aduhelm in Medicaid burden were Gilead’s treatments for hepatitis C, which cost nearly 100,000 for each course of treatment, leading some states to ration the drug for Medicaid patients. However, within a few years these treatments were no longer the most expensive drugs for Medicaid, because one course of treatment effectively cures hepatitis C. Aduhelm, on the other hand, needs to be administered every year to patients, meaning the burden on state budgets only increases.

What does this mean for state budgets?

The steep cost of Aduhelm could be painful for state budgets. Unlike Medicare, Medicaid cannot run a deficit, so increases in Medicaid spending mean that states have to cut other services. Paradoxically, some of the services that states cut due to higher Medicaid spending are those that affect the social determinants of health — such as income support, housing assistance, nutrition services, public health, and environmental protections.

A 2019 Lown Institute report demonstrates how this played out in California’s budget. In 2007, California spent $1.22 on public health, environment, and social services for every $1.00 spent on health care. By 2018, however, the state spent much less on these community conditions relative to health care: for each dollar spent on health care, only $0.68 went towards public health, environment, and social services.

It’s not just California — this pattern is being replicated across the country. The Government Accountability Office found that health care has been the major driver of state spending growth, and predicted that over the next several decades, state spending in all other sectors will significantly decline to make up for increases in health spending.

The potential for state budgets to be swallowed up by health care costs, with little left for spending on public health and social services, should concern all of us. Given the added pressure from the high cost of Aduhelm — a drug that has not been proven to meaningfully improve clinical outcomes — CMS should look to limit coverage of this drug until Biogen provides better evidence.