That $56,000 Drug? Blame Medicare.

But when Medicare expanded coverage, prices dropped because of a stronger, countervailing effect. Private insurers, which had greater leverage and bargaining savvy than individual consumers, were better able to negotiate lower prices with the drug manufacturers.

For physician-administered drugs, however, Medicare’s policy has raised prices. Medicare has covered such drugs since its inception in 1965, but in the last few decades they have become increasingly important, particularly for treating cancer. For these drugs, Medicare tries to piggyback on the market’s price-setting by matching what other customers pay, plus a little extra for the physician.

This sounds reasonable enough, but the problem is that Medicare’s patients often account for a major share of the drug’s market. When a large purchaser commits to pay what other customers pay, sellers respond by raising drug prices, the evidence shows.

Consider that more than 95 percent of the six million Americans afflicted by Alzheimer’s are covered by Medicare. What price might you charge if the major purchaser for your drug has committed to pay whatever “other customers” pay? Biogen, the drug’s manufacturer, came up with a price of $56,000 per year.

Non-Medicare customers may well balk at the price tag, but so what? By setting a high “market” price, Biogen can earn a lot from Medicare patients — who, in this case, account for almost all of the potential market.

Medicare has yet to announce which Alzheimer’s patients will be covered for the new drug, which the F.D.A. approved against the recommendation of clinical experts. The annual cost to the federal government is, therefore, not yet known, but it could be extremely high.

More important, this drug and its pricing are an extreme case of a pervasive problem. Estimates from a few years ago suggest that Medicare patients are, on average, about one-third of the market for the most expensive of the physician-administered drugs. If Medicare abandoned its current policy, prices on these top-selling drugs could come down by as much as one-third. That estimate is based on the drug pricing effects of a similar policy under Medicaid, the government’s health insurance program for low-income people.