Medicare’s Finances and the Aduhelm Saga

The Centers for Medicare & Medicaid Services (CMS) created headlines last fall when it increased the Medicare Part B premium for 2022 by 14.5 percent. A significant portion of the increase was aimed at creating “contingency reserves†in the event that Medicare ended up covering Aduhelm – the controversial and expensive new drug for early-stage Alzheimer’s disease. In January, the decision was made to limit the coverage of Aduhelm to those in clinical trials. While the CMS decision will hold Medicare costs in check for the short run, it highlights the program’s financial vulnerability to high-priced, potentially valuable drugs when CMS has no ability to negotiate prices. The discussion proceeds as follows. The first section provides a brief overview of Medicare financing. The second section describes the 2021 Trustees Report projections that use current-law assumptions and projections based on alternative assumptions that involve higher payments for hospital and medical services. The third section turns to payments for drugs, an expenditure component not considered in the alternative assumptions, and explores the implications of Aduhelm for Medicare and its beneficiaries. The final section concludes that the Aduhelm saga has highlighted the risk to the system’s finances if very valuable and very expensive drug should become available and Medicare remains unable to negotiate prices. Hopefully, the lessons from Aduhelm will rekindle Congressional interest in giving Medicare some authority to do so.