CMS Confronts an Increase in Medicare Part B Premiums

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CMS reconsiders a recent Medicare premium increase after restricting coverage for a controversial new drug.

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At the beginning of 2022, Medicare Part B beneficiaries began paying 14.5 percent more for their monthly premiums, which cover medical services such as doctors’ services and outpatient care. Why did the Centers for Medicare & Medicaid Services (CMS) raise the standard premium so drastically?

Part of the answer rests on the U.S. Food and Drug Administration’s (FDA) approval last summer of an arguably unproven and expensive Alzheimer’s drug—Aduhelm.

But a decision late last year by Aduhelm’s manufacturer, Biogen, to reduce the price of its new drug by approximately 50 percent calls the premium jump into question. The price reduction has prompted U.S. Health and Human Services Secretary Xavier Becerra to instruct CMS to reassess the Medicare Part B premium increase. And subsequently, CMS made a preliminary decision to limit coverage of the drug to patients participating in randomized clinical trials. Together, CMS’s decision and the Aduhelm price drop appear to weigh in favor of CMS reducing Medicare Part B premiums.

After the approval, three FDA advisers resigned, reportedly citing the “fact that there’s no good evidence that the drug works,” and calling the approval “the worst approval decision FDA has made.” Even a former Biogen scientist involved in the development of Aduhelm reportedly disagreed with FDA’s decision

Much of the backlash stemmed from Biogen pricing Aduhelm at $56,000 a year. After the initial FDA approval, the Kaiser Family Foundation (KFF) estimated that annual Medicare spending could increase by almost $30 billion if only 500,000 beneficiaries used Aduhelm. Even the drug’s reduced price could add to health care costs in the United States—particularly because FDA approved the drug for anyone with Alzheimer’s, which would include millions of Medicare beneficiaries. Because approximately six million Americans have Alzheimer’s and most people with Alzheimer’s are over 65, if providers prescribed Aduhelm broadly, Medicare Part B costs could skyrocket.

And the risk of skyrocketing costs ultimately affects Medicare Part B beneficiaries’ premiums. Aduhelm falls under Medicare Part B spending because it is administered intravenously in a health care setting. By statute, CMS must account for at least 25 percent of estimated Medicare Part B costs through premiums. This requirement means that when Medicare Part B costs increase, premiums increase too.

Facing significant risk of higher costs, CMS increased Medicare Part B premiums for 2022 by the largest dollar amount in Medicare history. Although CMS identified five factors contributing to the historic price increase, it attributed the COVID-19 pandemic and Aduhelm as leading to an “unusually high degree of uncertainty for program costs.” CMS reportedly blamed half of the increase in premiums on Aduhelm costs. The risk of such a high cost drug forced CMS to raise premiums to ensure “Part B is able to pay claims in full and on time.”

In response, and in an effort to make the drug more accessible, Biogen reduced the price of Aduhelm to $28,200 annually. Some commentators attributed the price drop to the backlash from FDA’s approval of the drug and the Medicare Part B premium increase.

And perhaps the price reduction had the desired effect. Shortly after the price reduction, Becerra prompted CMS to reevaluate the premium increase given Aduhelm’s price drop.

With CMS limiting its coverage of Aduhelm to approved clinical studies, experts at KFF have voiced support for reducing Medicare Part B premiums. The pool of Medicare Part B beneficiaries with coverage for Aduhelm is now much smaller than the total number of beneficiaries diagnosed with Alzheimer’s, which poses less financial risk to the Medicare system. Juliette Cubanski, deputy director of the program on Medicare policy at KFF, reportedly called the potential reduction in Part B premiums “unprecedented,” but not “unwarranted.” Interest groups such as AARP also support a premium reduction.

If CMS does reduce Medicare Part B premiums this year, that reduction will simply place a bandage on the problem and will not address the underlying issue of increasing drug prices. As FDA approves new treatments and therapies, CMS still lacks the power to negotiate drug prices. Future drugs could be expensive and widely prescribed, which would balloon costs and potentially Medicare Part B premiums. KFF experts argue that the Aduhelm saga demonstrates the need for incorporating drug price reform into the proposed Build Back Better Act so that the federal government could negotiate drug prices.

In some ways, CMS avoided a drug-price catastrophe with Aduhelm. Biogen voluntarily reduced the price by half. In the future, CMS may not be as lucky. Without the tools to negotiate drug prices, CMS would again need to raise premiums for Medicare Part B beneficiaries.

Whether CMS will in fact reduce Medicare Part B premiums in response to the Secretary’s instruction is still unknown. What some experts do say is that Aduhelm may be a harbinger of future spiraling drug costs.