Senators Welch (D-VT), Cortez Masto (D-NV) and Wyden (D-OR) introduced legislation last month to repeal a provision in the One Big Beautiful Bill exempting all orphan-only drugs from Medicare price negotiation. The senators seek to replace it with a policy that would only exempt “true rare-disease drugs” that account for less than $400 million in annual Medicare spending.
The legislators’ objective partly aligns with arguments made by researchers against having orphan drug exceptions. They maintain that these stipulations preclude potentially billions of dollars of cost savings for Medicare, and that granting manufacturers of rare disease drugs a “special exemption” is unnecessary for them to achieve financial success.
The Senators say their goal is to preserve incentives for “genuine rare-disease innovation” while ensuring that “blockbuster drugs can still be negotiated.” The bill sets a threshold: If Medicare spending of a rare disease drug exceeds $400 million annually, that medication would be eligible for negotiation regardless of orphan status.
This raises the question whether we can make a judgment call on what counts as “genuine” orphan drug innovation based on a sales figure, like the $400 million threshold. Why would the fact that a drug has Medicare revenues greater than $400 million make its orphan status any less real?
The Inflation Reduction Act initially included an exception that protected orphan drugs with a single approved indication from price negotiations. It also excluded from negotiations those medicines that generate less than $200 million in annual Medicare sales.
Restricting the orphan drug exemption to therapeutics with a sole rare disease indication could work against pursuit of a common pathway in drug development. Orphan drugs initially granted regulatory approval for one disease often prove useful in treating other diseases. This especially applies in the cancer space. And while the therapeutic value of supplemental indications granted oncology drugs is on average lower than that of initially approved indications, there’s still an important role for post-approval indications in expanding treatment options towards new cancer types, stages, lines, combinations and mutations.
And so, manufacturers can (and often do) apply to add supplemental indications to their drugs’ labels. Under the original IRA stipulation, however, doing so would subject drug makers to possible selection for Medicare price negotiations. The industry lobbied for a change in the law, saying it disincentivized the pursuit of follow-on research to discover new orphan designations and approvals. They succeeded in having a bill called the Orphan Cures Act incorporated in the OBBB.
Under current law, all “orphan-only drugs”—medications used to treat conditions affecting fewer than 200,000 people in the U.S.—are ineligible for negotiation. The two biggest blockbuster drugs affected by the change are the cancer drugs Keytruda, Opdivo and Darzalex. Keytruda gained a one-year reprieve from being selected for Medicare price negotiations. Though most of its indications are for rare diseases, its first non-orphan indication was approved in 2015, which makes it eligible to be selected for negotiation in 2027. The modifications to the IRA may put off negotiations indefinitely for cancer drugs such as Opdivo and Darzalex and possibly numerous others that currently have no non-orphan indications.
While the updates to the IRA assuage the concerns of the pharmaceutical industry, it leads to a substantial decline in government cost savings. The Congressional Budget Office recently revised its forecast after rescoring the impact of changes brought about by inclusion of the Orphan Cures Act in the OBBB. CBO now says this will raise costs to the government by as much as $8.8 billion—up from earlier estimates of $4.9 billion. Moreover, Medicare beneficiaries may see sustained higher out-of-pocket costs prices for longer periods of time for now exempted drugs.
As is almost invariably the case with legislation, the amendment to the orphan drug exemption contained in the OBBB entails tradeoffs with winners and losers. Win-win situations are highly unusual. Similarly, should the repeal efforts led by Democrats be successful, this will involve tradeoffs. Except this time, winners and losers would reverse roles.
