The Centers for Medicare and Medicaid Services said last week it will not cover the chemical, called Amyvid, which highlights brain plaque in medical imaging scans. The government program provides health coverage to more than 47 million seniors, and is the largest payer for prescription drugs in the U.S.
In its decision, posted online, Medicare said more trials are needed to prove the tool works. The government will pay for patients enrolled in future studies, but not for general use.
The radioactive imaging agent works by binding to beta-amyloid plaques and causing them to show up on positron emission tomography, or PET, scans of the patient's brain. The presence of these plaques may help indicate that a patient with cognitive problems has Alzheimer's disease, although such a scan does not definitively show that.
Eli Lilly, which is based in Indianapolis, has said Amyvid is one tool intended to help find the cause of a patient's cognitive decline.
The ruling is an unexpected setback for the product after European Union regulators endorsed the chemical in January. The U.S. Food and Drug Administration approved the drug for sale in 2011.
"Lilly remains steadfast in our request for Medicare coverage of beta-amyloid imaging agents for the appropriate patient population," said Wei-Li Shao, director of the company's Alzheimer's business, in a statement.
Eli Lilly and Co. paid $300 million in 2010 to acquire the drug and its developer, Avid Radiopharmaceuticals Inc.
Avid Radiopharmaceuticals CEO Daniel Skovronsky said in a statement the Medicare ruling "may stifle future innovation aimed at improving diagnosis."
Doctors currently diagnose Alzheimer's disease by observing patients and administering physical and mental tests. The disease is the sixth-leading cause of death in the U.S. and the most common form of dementia, a term for brain disorders that affect memory, judgment and other mental functions.
Alzheimer's attacks neurons in the brain, leading to problems with memory, thinking and behaviour. There is no cure for the disease, and scientists are not even sure what causes it.