The cost of unproven Alzheimer’s drug

The U.S. Food and Drug Administration’s approval last week of Biogen Inc.’s Alzheimer’s treatment aducanumab was a mistake based on weak evidence. The question now is just how much the U.S. will spend on a drug that may not help patients. No one but Biogen will like the answer.

Biogen priced its drug at about $56,000 a year, which is exceptionally high for a medicine targeting a large population like the 6 million Americans believed to have Alzheimer’s. But that’s not all: A misguided bit of U.S. health care policy will compound the burden of its price.

Medicare pays doctors a fee worth 6% of the cost of any drug administered in their office, creating a substantial financial incentive to choose more expensive medicines regardless of merit. The fee is supposed to compensate doctors for local variation in the price of medicines and storage costs. Instead, it’s become part of a perverse feedback loop in which physicians favor expensive drugs, and drugmakers price aggressively to appeal to them and pad profits. Any logical system would encourage the opposite and limit unproven drugs like aducanumab, sold under the brand name Aduhelm.

Instead, the U.S. will likely accelerate its use with hefty bonuses tied to its unjustifiable price. And Medicare Part B, which covers physician-administered medicines, cannot negotiate costs.

Aducanumab may accelerate spending growth and turn Medicare’s fee structure into a bigger profit engine.

While most expensive medicines are approved for relatively small and specific groups and treat acute conditions like cancer, Alzheimer’s is an illnesses that can linger for years. The combination of price, an aging U.S. population, and the FDA’s perplexing decision to put few limits on prescribing aducanumab leads to some pretty scary math.

Additional charges for patient visits, scans and infusions would further increase the cost to Medicare. What can be done about this? Moving from a percentage of inflated prices to a flat fee would be the most straightforward way to shift incentives away from expensive medicines.