Recent legislative efforts aim to modify a provision within the Inflation Reduction Act (IRA) concerning Medicare drug price negotiations, specifically targeting the exemption granted to “orphan drugs”—medications treating conditions affecting fewer than 200,000 people in the U.S. A group of Democratic senators—Welch (VT), Cortez Masto (NV), and Wyden (OR)—have introduced legislation to repeal the existing exemption, arguing that it limits potential cost savings for Medicare.
The Current Landscape: Orphan Drug Exemptions and Their Impact
The IRA initially included a provision that shielded orphan drugs with a single approved indication from Medicare price negotiations, and excluded those generating less than $200 million annually in Medicare sales. This protection was later strengthened through the inclusion of the “Orphan Cures Act,” effectively preventing all orphan-only drugs from being selected for negotiation.
The rationale behind these exemptions was to preserve incentives for developing treatments for rare diseases. However, researchers and now several senators contend that these protections are unnecessarily broad, preventing potentially billions of dollars in cost savings for Medicare. They question whether granting a “special exemption” for rare disease drugs is truly essential for their financial success.
Proposed Changes: A Sales Threshold for Negotiation
The senators’ proposed legislation seeks to replace the blanket exemption with a more targeted approach. They propose that a drug’s eligibility for price negotiation would hinge on Medicare spending—specifically, if annual spending exceeds $400 million. This means that even a drug initially approved for a rare disease could become subject to negotiation if its use and associated Medicare costs become substantial.
This shift raises a key question: Can we definitively determine whether a drug represents “genuine” rare disease innovation based solely on sales figures? The fact that a drug generates substantial Medicare revenues, exceeding $400 million, doesn’t necessarily diminish the validity of its orphan drug status.
The Complications of Supplemental Indications
The issue becomes further complicated by the possibility of supplemental indications—where a drug initially approved for a rare disease gains approval for treating other conditions, possibly even common ones. Restricting the orphan drug exemption to therapeutics with a single rare disease indication could inadvertently hinder this process. Rare disease drugs often find new uses beyond their original purpose, particularly in oncology, where initial approvals can lead to treatments for various cancer types, stages, and mutations.
Pharmaceutical companies routinely apply for these supplemental indications, but the original IRA stipulations raised concerns that doing so could subject them to Medicare price negotiations, potentially disincentivizing further research and new orphan designations. This concern led to the passage of the “Orphan Cures Act.”
The Impact on Cost Savings and Beneficiary Costs
The changes brought about by the “Orphan Cures Act” have significant financial implications. The Congressional Budget Office (CBO) has revised its forecast, now predicting that these changes will increase government costs by as much as $8.8 billion—a substantial increase from earlier estimates of $4.9 billion. Moreover, Medicare beneficiaries may face sustained higher out-of-pocket costs for drugs that are now shielded from price negotiation.
The biggest blockbuster drugs currently affected include Keytruda, Opdivo, and Darzalex. While most of these drugs have indications for rare diseases, Keytruda has a non-orphan indication that could make it eligible for negotiation in 2027. The modifications could indefinitely delay negotiations for cancer drugs like Opdivo and Darzalex, and potentially numerous others.
Tradeoffs and the Ongoing Debate
Legislative changes involving drug pricing always involve tradeoffs. The current situation sees pharmaceutical companies benefiting from the exemption, while the government and Medicare beneficiaries shoulder the costs. Conversely, if the senators’ efforts to repeal the exemption are successful, the roles will reverse, and a new set of winners and losers will emerge. The ongoing debate underscores the complexities of balancing innovation incentives with the need for affordable healthcare.
