How Might the FDA’s Approval of a New Alzheimer’s Drug Impact Medicaid?

The recent approval of Aduhelm (aducanumab), which treats Alzheimer’s disease and carries an expected annual price tag of $56,000, has brought increased attention to high-cost drugs approved through the FDA’s accelerated approval pathway. While Medicare and its beneficiaries likely will be most impacted by the costs of the drug, as Alzheimer’s disease is most prevalent among older adults, the drug approval also has implications for Medicaid spending. Medicaid covers more than 80 million people, including many older adults who have not yet reached the age of Medicare eligibility. Medicaid will see increased costs through direct payment of Aduhelm for individuals who receive their drug coverage through Medicaid, as well as through potentially higher Medicare premium payments and cost-sharing for dual eligible beneficiaries (people eligible for both Medicare and Medicaid). Recent policy proposals targeted to accelerated approval drugs, as well as states actions to address coverage issues for very high-cost drugs in Medicaid, may mitigate the cost impact for Aduhelm, but challenges remain in addressing the impact of very high-cost drugs coming to market.

Despite rebates, Medicaid could face substantial costs for covering Aduhelm for enrollees who receive their prescription drug coverage through Medicaid. Because of the structure of the Medicaid Drug Rebate Program, Medicaid must cover nearly all FDA-approved prescription drugs, including those approved through the accelerated approval pathway, though the program receives substantial rebates on most drugs. Medicaid rebates vary for brand-name and generic drugs and also account for price increases over time. Applying the 23.1% base rebate for brand drugs to Aduhelm, the yearly net price would be reduced to approximately $43,000. In Medicaid, states and the federal government share in both drug spending as well as drug rebates received. Using the average of federal and state shares of spending and rebates, state net spending per year per enrollee for Aduhelm would be approximately $13,800, and federal net spending would be about $29,200.¹ CBO analysis recently found that high-cost specialty drugs have an average base rebate (excluding inflation rebates) of 29%, so this calculation could underestimate the reduction in cost from rebates. In addition, rebates may increase if the drug’s price rises faster than inflation (Biogen has stated it will not raise the price for four years) or if other payers receive a discount higher than the minimum rebate, triggering the Medicaid “best price” rule.

Even though Medicaid enrollees account for a small share of people with Alzheimer’s disease, high per enrollee costs could lead Aduhelm to have a large aggregate impact on Medicaid drug spending. Nationally, 6 million people are estimated to have Alzheimer’s disease, though most receive their drug coverage through Medicare. Based on analysis of Medicaid drug utilization data, we estimate that approximately 67,000 Medicaid beneficiaries used current drugs for Alzheimer’s.² If 25% of these beneficiaries switched to Aduhelm, the total net cost (post-rebate) would be approximately $720 million per year, states’ share of spending would be $230 million and the federal share would be $490 million. If 75% of these beneficiaries switched to Aduhelm, the total net cost would be more than $2 billion per year, which is 7% of current Medicaid net drug spending. States’ share of spending would be $695 million and the federal share would be $1.47 billion. These amounts could overestimate spending if fewer Medicaid beneficiaries switch drugs but could also underestimate spending because they do not account for beneficiaries with Alzheimer’s currently not using any drugs. Biogen has also announced a narrower prescribing policy for Aduhelm, which creates further uncertainty in how many beneficiaries would use the drug. Aduhelm is not a curative therapy, and costs could continue for multiple years for the program.

Policy proposals and state actions could further lower the cost of Aduhelm for Medicaid. A recent proposal recommended by MACPAC would increase the minimum rebate amount on accelerated approval drugs and would provide a further inflationary rebate if confirmatory trials are not completed in a specified amount of time. While the MACPAC proposal does not include specific rebate amounts, CBO scored the proposal assuming a 10 percentage point increase in the minimum rebate and a 20 percent increase in inflationary rebates.  Under this proposal, assuming the base rebate increases from 23.1% to 33.1%, total net spending would be $37,000 per enrollee per year based on the assumptions used above, of which approximately $12,000 would be state costs and $25,000 federal. States also may use utilization controls such as establishing clinical criteria for reimbursement and requiring prior authorization as they have for other high-cost drugs and those approved through the accelerated approval pathway, which would not lower the cost per person but would decrease the number of people receiving the drug.

Medicaid also will share in the costs of providing coverage and care to dual eligible enrollees, or people who are receive both Medicare and Medicaid. Medicaid provides some level of wrap-around assistance to approximately 12 million dual eligible Medicare enrollees, covering Medicare premiums and, in most cases, cost-sharing (Medicaid also provides full wraparound benefits to many dually eligible people). Aduhelm is covered under Medicare Part B as a physician-administered drug, making it subject to the 20% Medicare Part B cost-sharing that Medicaid covers for most dual eligible individuals. However, as allowed under federal rules, states may (and often do) pay the “lesser of” the Medicare cost-sharing amount or the difference between the Medicare payment and the Medicaid payment rate for the service, meaning states may not incur the entire 20% (or anything at all); if states do pay cost-sharing, they can also collect rebates for payments for the drugs, lowering their net cost.^3,4 In addition, premiums for Medicare Part B may increase as a result of increased costs due to the drug, which would increase Medicaid payments on behalf of enrollees for whom Medicaid pays Medicare premiums. In 2019, the cost of Part B premiums to Medicaid was $19.7 billion in federal and state Medicaid spending, so even a small percentage increase could result in significant additional spending for Medicaid.⁵

Other high-cost specialty drugs have had an impact on the Medicaid program, but Aduhelm stands out in that it is a high-cost maintenance drug without a verified clinical benefit that could potentially be widely-prescribed. Medicaid has covered other very costly outpatient drugs, including other maintenance drugs and curative therapies. Some drugs, such as antiretrovirals, drugs used to prevent and treat HIV, are both frequently prescribed in Medicaid and expensive, with list prices ranging between $20,000-$30,000 per year. Medicaid is the largest source of coverage for people with HIV and nearly 300,000 Medicaid enrollees are estimated to have HIV.  Other drugs carry one-time high cost, such as hepatitis C drugs, including Harvoni and Sovaldi, that entered the market at a list price of $84,000 for a single course of treatment. Although the hepatitis C population (around 2.5 million people in the U.S.) is smaller than the number of individuals with Alzheimer’s, a disproportionate share are enrolled in Medicaid, and despite state actions to limit costs, these drugs contributed to a 25% increase in Medicaid drug spending 2013-2014. Other accelerated approval drugs have carried very high sticker prices but have been targeted to relatively small populations: for example, a previous drug approved through the accelerated approval pathway in 2016, Exondys 51, for Duchenne muscular dystrophy also raised concerns with a cost of $300,000 per year or more. While the population impacted by the disease is extremely small, drug costs may be significant for Medicaid. The confirmatory trials were originally scheduled to be completed by 2020; however, they will not be completed until 2026, requiring Medicaid to cover the drug at least through that time.⁶

Drug pricing remains on the policy agenda, and while the discussion remains focused on Medicare, expensive drugs, and proposed policies to address them, will also impact Medicaid. Other drugs may now seek approval through this pathway following on the success of Aduhelm’s approval which may have additional budgetary implications for Medicaid. States may also continue to seek alternatives to paying for expensive drugs approved through this pathway such as closed formularies, value-based agreements or restricting access through clinical criteria.