In a previous blog, we pointed out that Aduhelm could increase Medicare spending considerably if the Centers for Medicare and Medicaid (CMS) decide that Medicare should cover the full cost of the drug. The wholesale price for Aduhelm is a whopping $56,000 per year, not counting the costs of brain scans to monitor potential side effects (which are estimated at $30,000 per patient). Consulting group Altarum has estimated that if just the 1 million people with mild Alzheimer’s are prescribed Aduhelm, the drug’s cost will increase national health expenditures by more than 1%, reaching an annual cost of $73 billion by 2028.

How much will Medicaid pay?

While Medicare will be bearing the largest cost burden for Aduhelm, the impact on Medicaid will also likely be significant, as law professors Nicholas Bagley and Rachel Sachs point out in a recent op-ed in The Atlantic. Medicaid is the state-run public insurance program that covers low-income households. Most people with Alzheimer’s disease will be covered by Medicare, but there are many who are also covered by Medicaid, and some covered only by Medicaid.

How much will this cost Medicaid? Let’s do some quick math. About 11 million people in the US are dually eligible for Medicare and Medicaid; Medicaid covers premiums and co-pays for these patients. We can estimate that about 1 million of these patients have Alzheimer’s disease, assuming that the rate of Alzheimer’s is the same for dually eligible patients as the general Medicare population. Out of pocket costs for Medicare Part B drugs like Aduhelm are 20% of the drug price, which comes out to $11,200 per person — that’s $11,200,000,000 on Medicaid’s bill.

Additionally, an estimated 200,000 people in the US under age 65 have Alzheimer’s disease. Overall, about 20% of Americans are covered by Medicaid, so we can estimate that 40,000 or so of these younger people with Alzheimer’s are covered by Medicaid. If Medicaid pays the entire costs for these patients, that’s $2,240,000,000 more that Medicaid has to pay.

Of course, this is an upper bound estimate because only some people living with Alzheimer’s covered by Medicaid will seek access to the drug. But even if just one-tenth of eligible Medicaid beneficiaries are prescribed Aduhelm, it will still cost Medicaid $1.34 billion per year, more than any other drug that the program currently covers (see table below).

The only drugs relatively comparable to Aduhelm in Medicaid burden were Gilead’s treatments for hepatitis C, which cost nearly 100,000 for each course of treatment, leading some states to ration the drug for Medicaid patients. However, within a few years these treatments were no longer the most expensive drugs for Medicaid, because one course of treatment effectively cures hepatitis C. Aduhelm, on the other hand, needs to be administered every year to patients, meaning the burden on state budgets only increases.

What does this mean for state budgets?

The steep cost of Aduhelm could be painful for state budgets. Unlike Medicare, Medicaid cannot run a deficit, so increases in Medicaid spending mean that states have to cut other services. Paradoxically, some of the services that states cut due to higher Medicaid spending are those that affect the social determinants of health — such as income support, housing assistance, nutrition services, public health, and environmental protections.

A 2019 Lown Institute report demonstrates how this played out in California’s budget. In 2007, California spent $1.22 on public health, environment, and social services for every $1.00 spent on health care. By 2018, however, the state spent much less on these community conditions relative to health care: for each dollar spent on health care, only $0.68 went towards public health, environment, and social services.

It’s not just California — this pattern is being replicated across the country. The Government Accountability Office found that health care has been the major driver of state spending growth, and predicted that over the next several decades, state spending in all other sectors will significantly decline to make up for increases in health spending.

The potential for state budgets to be swallowed up by health care costs, with little left for spending on public health and social services, should concern all of us. Given the added pressure from the high cost of Aduhelm — a drug that has not been proven to meaningfully improve clinical outcomes — CMS should look to limit coverage of this drug until Biogen provides better evidence.

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In a Health Affairs Grantwatch blog, Shannon Brownlee and Vikas Saini from the Lown Institute and Benjamin F. Miller from Well Being Trust discuss how state budgets are being squeezed by health care costs and what we can do about it. 

“According to a 2018 projection from the Government Accountability Office (GAO), states will face a “fiscal gap,” driven largely by rising health care expenditures. Health care expenditures are effectively crowding out states’ discretionary capacity to invest in non–health care or social determinants of health. These expenditures include spending on Medicaid and health insurance benefits for state employees and retirees.”

A report from the Lown Institute, supported by Well Being Trust, on California’s budget spending found that spending on health care grew by 146 percent between 2007 and 2018. During that same period, spending on community conditions increased by just 39 percent. Many other states in the same bind; according to a 2018 Government Accountability Office (GAO) report, state spending on health care as a percentage of gross domestic product is predicted to double between 2008 and 2067, while non–health care expenditures are expected to decline by 50 percent.

While rising health care costs are a hot topic in politics, state legislators and policymakers often do not see health care and social spending as connected. “Rarely is the topic of excessive health care spending framed as an opportunity cost, which limits states’ ability to provide other services that can have an even larger impact on population health,” write Brownlee et al. 

This framing issue is not just a California problem; most Americans view access to health insurance as the most important driver of health. We have to convince policymakers and the public that community conditions matter for health just as much as insurance coverage, that “allowing health care costs to continue to rise faster than the rest of the economy not only affects their pocketbooks but also their overall health.”

Read the full piece in Health Affairs Grantwatch!

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Many of these startups promise improved health through increased access to testing (such as blood testing or genetic sequencing), monitoring (constant tracking of steps and heart rate, for example), and personalized care (such as health and nutrition plans based on genetics). However, the evidence that these functions improve health is slim, the authors write. Genomic sequencing has not been shown to improve population health or change health behaviors; wearable fitness trackers don’t actually help people lose weight; and personalized health plans rarely give people information about diet and exercise they don’t already know. 

The promise of health from these startups is based on the assumption that focusing on individual behavior is the answer. However, they ignore that individual health habits themselves are “affected by a set of socioeconomic factors, which together with environmental conditions affect how long we live, our mental well-being, and a host of other health outcomes.” 

Brownlee, Saini, and Miller conclude, “If Silicon Valley really wants to disrupt the health care sector in a way that has the most impact on people’s health, it needs to bake an understanding of community conditions into whatever ideas they put forward.” 

Read the full op-ed here, and the Lown Institute report on California’s spending on community conditions!

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Health care spending grew 146 percent in the past decade—wasting billions in the process on overpriced services and unnecessary care—while spending on community conditions grew by just 39 percent. 

Oakland, Calif. and Brookline, Mass., July 23 — As California spending on health care skyrockets, state spending on programs and services that keep people healthy and prevent illness has grown far slower, according to a new report released today by the Lown Institute and Well Being Trust.

The report shows that from 2007 to 2018, state budget spending on health care (including Medi-Cal, health care for state employees and retirees, and health care for the incarcerated) grew by 146 percent, while spending on community conditions increased by just 39 percent, on average. California now spends just $0.68 on social services, public health, and environmental protection for each $1.00 spent on health care—down from $1.22 in 2007.

“Doing everything we can to address issues of access to health care is critical; however, we know this is not enough to solve the overall issues facing our nation’s health. There are vital community conditions—from a good paying job to a safe neighborhood to access to healthy foods—that truly determine how healthy someone can be,”said Benjamin F. Miller, Chief Strategy Officer for Well Being Trust. “What we know now is if we are not careful, Californians will unwittingly trade paying for these vital conditions for subsidizing the health care system.”

As California’s investment in community conditions declines, millions of Californians continue to suffer from chronic health care problems, high infant mortality rates, and lower life expectancy, brought on by toxic air and water pollutants, poverty, food deserts, lack of affordable housing, and low levels of formal education.

“California is spending billions of dollars on overpriced and unnecessary care, money it should be spending to keep communities healthy from the start,” said Shannon Brownlee, Senior Vice President of the Lown Institute.

To rebalance spending towards community conditions, the report provides a series of recommendations:

• California should redouble its investments in community conditions. Currently, initiatives like the California Accountable Communities for Health Initiative (CACHI) and the Whole Person Care (WPC) pilot program help improve community health through coordination of health care and social services. However, these programs exist only in a handful of communities and have limited state support. The state should take a larger role in improving community conditions by uniting all stakeholders that benefit from investments in community conditions to invest together in larger-scale projects to improve health.
• An essential part of reducing health care waste will be tackling overpriced services and products. State policymakers should create a state-run pharmacy benefit manager (PBM) to offer negotiated prices to all Californians.
• Hospital charges are also often highly inflated, especially when large hospital systems control market share and can dictate prices—state policymakers should enforce anti-trust laws for monopolistic hospital systems.
• State policymakers should could consider converting the state’s hospital payments to a fixed total revenue system (called “global budgeting”). For example, in Maryland, this approach produced $400 million in Medicare hospital savings over five years. In California, global budgeting could translate to $2.7 billion over 5 years.
• A large amount of waste in health care comes in the form of tests and procedures that offer more harm than benefit, known as “low-value care.” Reducing low-value services could save California at least $1.5 billion a year.

About the Lown Institute: Founded by world-renowned cardiologist and humanitarian Bernard Lown, the Lown Institute is a nonpartisan think tank dedicated to transforming America’s high-cost, low-value health system. The institute conducts research, generates bold ideas, and creates a vision for a just and caring system of health that works for all.

About Well Being Trust: Well Being Trust is a national foundation dedicated to advancing the mental, social and spiritual health of the nation. Led by clinical, community, and policy innovators, Well Being Trust brings an ecosystem approach to prevention, treatment, and recovery for mental health and substance misuse issues, while prioritizing an upstream focus on resilience and well-being in communities.

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