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Medicare takes center stage in new push to hold down prescription drug prices

Biopharma business model may be on collision course with insurer’s finances

Aduhelm, a controversial Alzheimer’s drug from Biogen, is an example of an expensive drug that Medicare refused to cover for most people.Associated Press

Two months after Medicare refused to cover most patients eligible for a costly new Alzheimer’s treatment, called Aduhelm, the move has sparked a battle over how much the federal health insurance program can afford to pay for biotech therapies that treat millions of older Americans.

Some are now warning the finances of Medicare, which insures 62.7 million US residents age 65 and older, may be on a collision course with a fast-expanding biopharma industry that has built a business model around charging sky-high prices for innovative medicines.

“This was a wake-up call,” said Alicia Munnell, director of Boston College’s Center for Retirement Research, who coauthored a new report on the financial implications of Aduhelm for the Medicare program.


Citing a debate among scientists over whether the Alzheimer’s treatment works, Munnell said, “Medicare dodged a bullet on this drug because the drug itself was controversial. But the system is set up with no guard rails and [coming medicines] could become a huge financial burden.”

Medicare, asked to pay $28,200 per patient for Aduhelm annually, restricted its coverage to those enrolled in clinical trials. The decision set off tremors, with patients protesting, beneficiaries demanding a premium rollback, drug maker Biogen axing hundreds of jobs, and the White House mounting a new push to rein in the cost of prescription drugs.

The federal insurance program already pays much higher prices for gene therapies and other drugs that treat relatively smaller numbers of patients with rare diseases. But it’s only a matter of time before an effective treatment emerges for a widespread condition like Alzheimer’s, which affects about 5.8 million mostly older Americans. That would strain the budgets of Medicare and its beneficiaries to a degree not yet seen.

The heart of the problem, according to BC’s report, is that, unlike private health insurers, Medicare isn’t permitted to negotiate over how much it pays for medications, though President Biden this month joined a chorus of voices that would allow it to do so. Barring that, “Medicare faces an uncertain financial future given the possibility of drastic increases in program spending in response to new drugs,” the report said.


In the run-up to the midterm elections, the Aduhelm saga could give the issue of rising drug prices new political urgency — especially at a time when higher prices at the gas pump and the supermarket are also draining the wallets of older Americans on fixed incomes.

Mike Festa, director of AARP Massachusetts, which represents 750,000 residents, is “sick and tired of these high drug costs” and wants to give Medicare the power to bargain with drug makers. “The pressure has to be brought to bear on Congress to get this done,” he said.

Food and Drug Administration regulators green-lighted Aduhelm last December over the objection of some FDA officials and independent advisers who argued it showed unclear benefits and posed safety risks, such as brain bleeding, in clinical studies. Biogen initially priced the drug at $56,000 per patient annually, before cutting the price in half in response to a public outcry and slower than expected uptake.

Then, in January, the federal Centers for Medicare and Medicaid Services decided it would pay only for beneficiaries who enroll in follow-up clinical trials. The capacity of the trials effectively exclude more than 1 million people who would have been eligible for the drug. That marked the first time in its 57-year history the Medicare agency limited coverage for an FDA-approved drug. The ruling was preliminary, with a final determination expected in April.


Some of the most expensive targeted therapies are paid for under Medicare Part B, the program that covers treatments, like Aduhelm, administered through infusion in medical offices. (Pills from pharmacies are covered under another Medicare program, Part D.) The agency boosted Part B monthly premiums for most beneficiaries this year by $21.60 to $170.10, the largest dollar increase ever, partly to establish a reserve for anticipated Aduhelm payouts.

The higher premium was set before Medicare restricted Aduhelm coverage. Now, seniors’ groups like AARP are pressing the agency to pare back the premium. A spokeswoman said Medicare is reviewing the premium, but has not set a timeframe for a decision.

But pushback is also coming from another direction. A strange-bedfellows alliance of drug makers and patient advocates is just as fired up about Medicare’s move to deny coverage for the vast majority of the seniors who they said could benefit from Aduhelm. They worry more broadly about losing access to high-priced lifesaving or life-extending treatments still under development in the biopharma pipeline.

On Tuesday, a contingent of Alzheimer’s patients and family members, along with advocates for patients with other conditions, plans to demonstrate outside the Washington offices of the Department of Health and Human Services, which runs Medicare.

Sue Peschin, president of the Alliance for Aging Research, a sponsor of the protest, said the Medicare ruling creates a troubling precedent that could let the agency limit who it covers for other treatments, she said.


“It’s really medically unethical to require [Medicare] beneficiaries to enter into a clinical study in order to get coverage,” Peschin said. Because of the way clinical trials are designed, she cautioned, many Medicare-insured residents who take part will get a placebo rather than the drug.

Medicare’s ruling also sent a jolt of anxiety through the drug industry, including the burgeoning biotech hub in Cambridge’s Kendall Square. Many startups there are bankrolled by venture capital investors who place huge financial bets on risky scientific approaches, expecting outsized returns if their drug candidates prove effective.

Biogen, which developed Aduhelm, was once the largest biotech in Massachusetts. Earlier this month, executives at the company, which sunk billions of dollars into research and development, said they’re cutting $500 million a year — and reportedly up to 1,000 jobs, including most of their Alzheimer’s team — as a result of the Medicare ruling.

But drug makers rattled by Medicare’s decision may soon have a bigger problem: In his State of the Union message, Biden’s call for legislation that would let Medicare negotiate prices with drug makers seemed to breathe new life into a long-running effort. Until now, that issue has languished in Congress despite support at times by everyone from Senator Bernie Sanders of Vermont to former president Donald Trump.

Any law that empowers Medicare to haggle with drug makers would have profound implications for the biopharma industry — and for Medicare, which paid out $37 billion through Part B for prescription drugs in 2019, according to the Kaiser Family Foundation. Other nations that negotiate with drug companies often pay substantially less for the same drugs.


Medicare’s bills from roughly 1 million seniors with mild cognitive decline who are eligible for Aduhelm, at its reduced price of $28,200 per patient, would have totaled $23 billion annually, the BC report calculated.

That’s eight times what the Part B program spends on its current most costly drug, Eylea for macular degeneration, and two-thirds of what it now spends on all medicines it pays for. (Medicare covers 80 percent of the cost of these treatments, so patients are responsible for the balance out of pocket or through supplemental insurance plans.)

The biopharma industry has lobbied aggressively against allowing Medicare to negotiate prices, arguing countries where governments haggle with drug makers, such as Germany or the United Kingdom, ration therapies or limit access to revolutionary drugs.

“It’s really hard for any company, anybody, to negotiate with the federal government,” said Brian Newell, deputy vice president of public affairs at the Pharmaceutical Research and Manufacturers of America. “It’s take it or leave it. That’s not the way to solve the problem.”

The trade group, known as PhRMA, has presented a package of alternative proposals to address the price burden on seniors, including a guarantee that Medicare will pay the lowest price drug makers to negotiate with private insurers, and an annual cap on what beneficiaries pay for the typically lower-priced pills and other meds covered by Part D.

Drug makers say the financial incentives built into their business model have catapulted the United States into a leadership role in drug discovery. They also cite the rollout of innovative new treatments that, while costly, save the health system money in the long term. Drugs that cure the Hepatitis C virus, for example, eliminate the need for liver transplants.

“We don’t want to create an environment where it’s harder to bring these drugs to the market or create barriers to getting them,” Newell said.

Robert Weisman can be reached at robert.weisman@globe.com.