Cost of Exempting Sole Orphan Drugs From Medicare Negotiation

Importance The Inflation Reduction Act (IRA) requires Medicare to negotiate prices for some high-spending drugs but exempts drugs approved solely for the treatment of a single rare disease. Objective To estimate Medicare spending and global revenues for drugs that might have been exempt from negotiation from 2012 to 2021. Design, Setting, and Participants This cross-sectional study analyzed drugs that met the IRA threshold for price negotiation (Medicare spending >$200 million/y) in any year from 2012 to 2021 and had an Orphan Drug Act designation. We stratified drugs into 4 mutually exclusive categories: approved for a single rare disease (sole orphan), approved for multiple rare diseases (multiorphan), initially approved for a rare disease and subsequently approved for a nonrare disease (orphan first), and initially approved for a nonrare disease and subsequently approved for a rare disease (non–orphan first). Outcomes The primary outcomes were the number of sole orphan drugs, estimated Medicare spending on those drugs from 2012 to 2021, and global revenue since launch. Results Among 282 drugs, 95 (34%) were approved to treat at least 1 rare disease, including 25 sole orphan drugs (26%), 20 multiorphan drugs (21%), 13 orphan first drugs (14%), and 37 non–orphan first drugs (39%). From 2012 to 2021, Medicare spending on sole orphan drugs increased from $3.4 billion to $10.0 billion. Each year, a median (IQR) of $2.5 ($1.9-$2.6) billion in Medicare spending would have been excluded from price negotiation because of the sole orphan exemption. The cumulative global revenue of the median (IQR) sole orphan drug was $11 ($6.6-$19.2) billion. Conclusions and Relevance The sole orphan exemption will exclude billions of dollars of Medicare drug spending from price negotiation. The high level of global revenues achieved by these drugs, however, suggests that special exemption is unnecessary for them to achieve financial success. Congress could consider removing the sole orphan exemption to obtain additional savings for patients and taxpayers and to eliminate any potential disincentive for developing additional indications for these drugs.