On June 7, the F.D.A approved the use of the controversial Alzheimer’s treatment Aduhelm. This led to a backlash from many Alzheimer’s experts, who say that evidence for the drug’s effectiveness is limited.
Now Medicare must choose whether to cover the drug, which has a sky-high cost. The decision raises a host of big picture questions about what we pay for – and what care we give – particularly to older Americans.
Joshua B. Gordon is the Director of Health Policy for the Committee for a Responsible Federal Budget. On the Great Ideas Podcast with Matt Robison, he explained why Medicare is now in an unwinnable position, and how the government should work around this set of controversial questions to try to fix the larger problems in the healthcare system.
Listen to the full conversation here:
This conversation has been condensed and edited.
Why has this drug been so controversial?
We don’t really know whether it’s effective. If we were able to find a drug that cured Alzheimer’s disease, there is almost no price we wouldn’t be willing to pay. Alzheimer’s disease is so devastating and also costs a lot of money for the healthcare system.
But this is not a cure for Alzheimer’s. There may even be no benefit. That leads to the discussion of the cost of the drug and whether it’s worth it. $56,000 a year is a lot.
What is happening right now in the larger context of Medicare financing?
Part A of Medicare pays for hospitals. Part B pays for outpatient interventions. Aduhelm falls into Part B because you have to go to your doctor’s office. Your Medicare payroll tax comes out of your wages. It goes to pay for the hospital insurance. That part of Medicare will basically run out of assets to pay full benefits in just five years.
Part B is paid 25% by premiums from beneficiaries and 75% by general federal revenues. Growth in costs means that over the next 30 years, we’re basically going to be adding an entire new defense department worth of spending to the federal budget.
One other point is that our healthcare system is very expensive in general. About 20% of GDP goes to healthcare.
So the rising cost of drugs and new treatments is increasing healthcare costs and crowding out the rest of our federal budget. Have we been able to slow down the growth of healthcare costs?
From 2010 to 2019, our healthcare costs grew at about the same rate as economic growth. That is slower than we had in the prior 30 years. But in the future, experts believe that healthcare costs will grow a little bit faster than economic growth. That means healthcare will begin consuming a larger and larger part of the economy, which is unsustainable.
How does Medicare go about making a decision to not fund a drug if it is not proven to be effective enough for the money? How do they draw lines?
The answer is that Medicare normally doesn’t. Medicare does not normally act as a gatekeeper determining what to pay for and what not to pay for. But with Aduhelm, there’s a lot of controversy and pressure to step in. In 2019, Medicare spent about $37 billion on physician-administered drugs. Spending on Aduhelm might reach $29 billion a year. So if they covered it, we would almost be doubling the amount spent on Part B drugs, just because of this one new drug.
In general, do we know how much we might be spending on new treatments that may or may not be more effective than older approaches?
No. We don’t have any formal way of evaluating comparative effectiveness. The Food and Drug Administration doesn’t evaluate new drugs relative to other drugs already on the market. Medicare is not even allowed to do this, nor are a lot of private insurance companies.
This is one of the key market failures we have in healthcare. It is the fundamental fault line that leads back to everything. If we knew we were spending this money on things that actually made us better, we could evaluate trade-offs with cost. But in the U.S. healthcare system we don’t have that information. And that’s one of the reasons why we spend so much money yet our health outcomes are no better. In a lot of cases our outcomes are worse than other developed countries that do have a more formal process for evaluating comparative effectiveness.
Do we ultimately need a mechanism for placing some stronger limits on what we will pay for and provide?
Traditionally our limit has been ability to pay. You can either afford insurance and you buy it, or you can’t. And that is how we have rationed care for a long time. I think we realize now that that’s not the best way to ration care. But we haven’t yet gotten to a better way.
We may not be able to get there directly. But what we could do is at least change some of the incentives in our payment structures. We could improve transparency of prices and quality. And we could deal with some of the issues of how we do chronic care and reducing expensive hospital care, and certainly the cost of prescription drug prices.
We could try and create a system that encouraged providers to get better health outcomes. Similarly with prescription drugs we could reward innovative drugs that actually improved our health. We could set up a system where the amount you charge for a drug was connected to the effectiveness of that drug. Not simply whether the drug was safe or worked just a little bit.
We share edited excerpts from the Great Ideas podcast every week that explain how policies work and present innovative solutions for problems. Please subscribe, and to hear more about how we cover innovative treatments and control Medicare costs, check out the full episode on Apple, Spotify, Google, Anchor, Breaker, Pocket, RadioPublic, or Stitcher
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