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Orphan Drug Pricing And Reimbursement: Challenges To Patient Access

Executive Summary

The drug industry and patient advocacy groups have been leery about the imposition of price controls or restrictions on reimbursement for drugs that treat orphan diseases. A review of formulary data from the beginning of the century shows that there has been some pushback from payers about these high-priced drugs, but patient access has not been severely hampered to date.

  • Increased numbers of orphan approvals coupled with rising prices have led to greater payer sensitivity about reimbursement.
  • High prices – such as the $1 million tag on now-defunct Glybera – could affect patient access, either by complete non-coverage or when cost-sharing rises to an unaffordable level for patients.
  • So what? The decision to reimburse a million-dollar drug will depend on the drug’s value and not its price alone. Value can be measured in different ways, including cost-effectiveness, treatment of an unmet need, burden of illness and the degree of rarity of the condition being treated.

In 1983, the US government passed the Orphan Drug Act (ODA), which fosters development of treatments for rare diseases affecting fewer than 200,000 individuals. Available through the act are special research grants, a 50% tax credit on clinical trial costs, shorter Food and Drug Administration (FDA) approval times and a guaranteed seven years of patent exclusivity. In terms of spurring orphan drug development, the ODA has been an unequivocal success.

In the decade prior to 1983 only 34 orphan drugs were licensed, whereas since 1983 the Food and Drug Administration (FDA) has approved over 500 orphan products. These have been developed and launched across numerous rare diseases, particularly in therapeutic areas with considerable unmet need (few or no treatment alternatives). Included, among others, are many different cancers, cystic fibrosis, Fabry disease, hemophilia A, lysosomal storage disorders, muscular dystrophy, Pompe disease and hereditary angioedema. Exhibit 1 shows a breakdown of the 521 approved orphan indications in the US by disease category for the 1983–2015 period.

Exhibit 1

Approved US Orphan Indications, 1983–2015

Note: N=521

Giannuzzi et al. Orphan medical products in Europe and the United States to cover needs of patients with rare diseases: an increased common effort is to be foreseen. Orphanet J Rare Dis 2017;12(1):64

Rising Orphan Drug Prices: Is There An Inflection Point For Payers?

Given the relatively high cost of many orphan drugs and biologics, payers play a key role in facilitating patient access. Payer sensitivity to the cost of orphan drugs is rising, particularly in light of increased numbers of launches of new products in recent years. This implies more payer scrutiny prior to reimbursement. In short, regulatory approval is generally a necessary, but not a sufficient condition for reimbursement or patient access.

The median prices at market entry of orphan drugs for chronic use have doubled every five years. Additionally, in the spate of two decades we have seen price tags for the most costly orphans go from $200,000 per patient per year (e.g., Cerezyme [imiglucerase], which treats Gaucher’s disease), to a half-million dollars (e.g., Alexion Pharmaceuticals Inc.'s Soliris [eculizumab], which treats paroxysmal nocturnal hemoglobinuria), to over $1 million (e.g., uniQure NV's Glybera [alipogene tiparvovec], for lipoprotein lipase deficiency).

Furthermore, of the top-selling 100 drugs in the US in 2016, the average cost per patient per year for an orphan was $140,443, compared with $27,756 for an average non-orphan. Express Scripts Holding Co., one of the country’s leading pharmacy benefit managers, analyzed the prices of orphan drugs on its formulary. Four orphans were priced at more than $70,000 for a 30-day supply, or $840,000 annually. An additional 29 orphan drugs were listed for at least $28,000 for a 30-day supply, or more than $336,000 a year. 

The higher orphan drug prices rise, the more payers indicate there may be a breaking point above which prices become too much to handle. Nonetheless, in spite of the rhetoric, payers have generally reimbursed even the priciest treatments, albeit with increasingly more restrictions.

Asking whether there is an inflection point with respect to orphan drug prices may be the wrong question. Surely, the decision to reimburse a million-dollar drug will depend on the drug’s value and not its price alone. Value can be measured in different ways, including cost-effectiveness, treatment of an unmet need, burden of illness and the degree of rarity of the condition being treated. And, for a payer, an important consideration is budget impact or the number of patients being prescribed the drug times the price per patient. The budget impact of many of the priciest orphan drugs tends to be limited given the very small numbers of patients who are prescribed the drugs, particularly if one looks at it from an individual payer’s perspective. Other less expensive orphan products, however, have far more budgetary impact, due to larger numbers of patients. Novartis AG's Gleevec (imatinib mesylate), for example, has multiple indications including chronic myeloid leukemia and gastrointestinal stromal tumors, among others, and Roche's Rituxan (rituximab) targets non-Hodgkin’s lymphoma and rheumatoid arthritis, among other diseases.

The media, public (patients), policy-makers, payers and health care providers have all voiced concerns about the rise in orphan drug prices, and in particular the high prices of orphan products that are not considered novel; for instance, non-orphan generics used for one indication but prescribed off-label for a rare disease. Such generics can be transformed into profit-makers with much higher prices than those applied to the generics, should the sponsoring firm go through the approval process and obtain a supplemental orphan indication. It should be emphasized, however, that the majority of recently approved orphan products are novel entities – NMEs or biologics – and so this is where our focus is.

Without health insurance, the high prices of many orphan drugs would severely limit access to them as only a small number of patients can pay the list prices. Without access, the original intent of the ODA – to expand access – is undermined. Accordingly, the federal government’s General Accounting Office will soon investigate orphan drug pricing. (Also see "Orphan Drug Act: Congressional, FDA, NORD Reviews Come Amid Pricing Debate" - Pink Sheet, 7 Mar, 2017.) The government’s investigation will shine an unwelcome spotlight on pricing practices. However, if history is an indicator, drug companies will continue to price drugs in accordance with what the market will bear, and the government is unlikely to step in and halt price increases.

In the absence of price controls, downward pricing pressure will come from more market competition as more orphans are entering already existing therapeutic classes (e.g., non-small cell lung cancer, chronic myeloid leukemia, hereditary angioedema). And, there are a growing number of small-molecule generics as well as large-molecule biosimilars in the orphan space.

Payers Respond To Rising Orphan Drug Costs

Previous studies have shown that insured patients in the US face relatively few outright denials of access to orphan drugs. Payers cover the bulk of the costs of orphan drugs for insured patients, with many drug companies operating patient assistance programs to help offset a portion of the costs for uninsured or underinsured patients. But, as payers feel the cost pressure of more patients being prescribed costlier orphan drugs, they may ask people to pay more out of pocket or place other restrictions on access.

In a forthcoming study to be published in Expert Opinion on Orphan Drugs, we examined patient access to orphan drugs approved between 2000 and 2016 in the US. To assess patient access, we identified regulatory approvals of orphan drugs in the US during that period. To investigate coverage we reviewed formulary data from 20 leading commercial insurers in the US.

Most payers employ the following four-tier structure in their formularies, in which the higher the tier the higher the patient cost-sharing:

  • Tier 1: generic drugs
  • Tier 2: preferred brand-name drugs
  • Tier 3: non-preferred brand-name drugs
  • Tier 4 (“specialty tier”) for so-called specialty drugs: specialty drugs are defined by the Centers for Medicare and Medicaid Services as therapeutic agents costing more than $600 per patient per month.

In addition to coverage decisions and tiered formularies, payers can influence orphan drug utilization by employing management tools such as prior authorization, quantity limits and step therapy. Prior authorization requirements create an administrative barrier to accessing an orphan drug’s on- or off-label uses. A patient or health care provider must request coverage of the drug and then await the payer's approval of coverage. Step therapy establishes a sequential course of recommended treatments for a disease in which a less costly drug (likely a non-orphan) must be tried before coverage of the newer, more costly drug is approved. Quantity limits set explicit criteria for the quantity of a drug that will be covered during a given period of time.

Between 2000 and 2016, 138 novel orphans (new molecular entities and biologics) were approved. Seventy-three percent of orphan approvals are outpatient (self-administered) drugs that fall under the pharmacy benefit, and 27% are physician-administered that are included in the medical benefit. Outpatient drugs are generally subject to more intensive formulary management than physician-administered drugs.

Only a small number of orphan drugs (5) are not covered by any payer. And, more than one-third of the orphan approvals (46) are covered by all payers. The median payer covers 93% of orphan approvals. (See Exhibit 2.)

The percentage of orphan drugs in the lowest patient co-payment tiers is 30%. All products in the lowest co-payment tier are generic. Seventy percent of the orphan approvals are either in the highest specialty (co-insurance or percentage of the cost of the medicine to the payer) or highest co-payment (fixed amount per prescription) tier. Overall, about 50% of all orphan approvals were assigned co-insurance tiers. Given the relatively high per-patient costs of orphan drugs, co-insurance constitutes a greater out-of-pocket cost burden to patients than co-payments. Depending on the payer, the levels of co-payment tiers range from $50 to $90, and the levels of co-insurance tiers range from 15% to 30%.

There is moderate use of prior authorization for orphan drugs. The median payer tags 45% of orphans with prior authorization. This represents much higher use of prior authorization than for non-orphan drugs. There is limited use of quantity limits. The median payer assigns quantity limits to 15% of orphans. This represents higher use of quantity limits than for non-orphan drugs. Notably, none of the payers use step therapy as a utilization management tool for orphan drugs. That we observed no use of step therapy suggests possible pushback in recent years by patient advocates and others who consider this particular condition of reimbursement as especially restrictive.

Orphan Drug Formulary Analyses

Faden L, Huskamp H. Medicare Part D coverage and reimbursement of orphan drugs. In: Rare Diseases and Orphan Products: Accelerating Research and Development. Field M, Boat T, editors. Institute of Medicine Committee on Accelerating Rare Diseases Research and Orphan Product Development. Washington, DC: National Academies Press, 2010.

Cohen JP, Felix A. Are payers treating orphan drugs differently? J Market Access Health Policy 2014;2:1–5.

Cohen JP, Awatin J. Barriers to patient access to orphan drugs. Expert Opinion on Orphan Drugs [forthcoming].

We presume a higher payer coverage rate improves patient access, whereas a higher use of conditions of reimbursement and/or a higher tier placement rate pose barriers to access.

There have only been a few similarly comprehensive studies of coverage and reimbursement of orphan drugs. (See box.) Though non-coverage of orphan drugs is still uncommon, coverage denials have increased substantially in recent years;

  • Patient cost-sharing has gone up with most orphan drugs occupying the highest patient cost-share tier, the exception being generic drugs;
  • Use of prior authorization has increased significantly;
  • Use of quantity limits is up slightly, but still limited;
  • Use of step therapy is lower and is in fact non-existent for this set of orphan drugs.

Exhibit 2

Comparing Results From Orphan Drug Formulary Analyses


Faden and Huskamp (2010)

Cohen and Felix (2014)

Cohen and Awatin (forthcoming)

% of Drugs Covered*




% of Drugs in Either Specialty Tier or Tier 3**




% of Drugs Tagged with Prior Authorization




% of Drugs Tagged with Quantity Limits




% of Drugs Tagged with Step Therapy




*Refers to median payer; **Specialty tier refers to highest patient cost-sharing tier (co-insurance or percentage of the cost of a medicine), whereas tier 3 refers to non-preferred drugs (highest co-payment or fixed amount per prescription).

In Vivo research

Payer Policies Misguided?

Ten years ago the conventional wisdom among policy-makers was that because orphan drugs target small populations their impact on the pharmacy budget was limited. It was thought therefore that payers would not subject orphans to the same kind of scrutiny as they do non-orphan drugs. Payers may now be looking at orphans somewhat differently in light of more approvals and a trend toward higher per-unit prices. As noted, we see signs of increased numbers of payer restrictions on coverage, which have resulted in some outright formulary exclusions and widespread imposition of conditions of reimbursement, such as prior authorization and quantity limits. There is also a trend toward higher patient cost-sharing. In this context, payers have continued the shift from fixed co-payments per prescription to “co-insurance” for most novel orphan drugs, which has raised patient cost-sharing considerably.

Generally, the per-patient costs of orphan drugs exceed those of non-orphan drugs. This often implies relatively inferior cost-effectiveness estimates for most orphan drugs. This could explain the trend toward more restrictions on reimbursement. It is unknown, however, precisely how payers are reaching their decisions to apply more restrictive formulary management for orphans. If the decision criteria emphasize cost-effectiveness at the expense of other criteria, payers may want to reconsider. This is particularly relevant given the growth in orphan drug expenditures is expected to slow. (See Exhibit 3.)

Moreover, the overall impact of orphan drugs on each individual payer’s drug budget is still relatively small. Concerns that growth in orphan drug expenditures may lead to unsustainable drug disbursements do not appear to be justified. Specifically, when payers examine orphan product characteristics to support reimbursement decisions, the criteria ought to go well beyond cost-effectiveness given that orphan drugs offer distinctive value, measured in terms of their:

  • Targeting rare and relatively severe diseases (e.g., high burden of illness);
  • Addressing unmet need (e.g., relative lack of availability of treatment alternatives for most orphan products).

While more intensive orphan drug formulary management may appear to be a rational means toward cost containment, one should not ignore that availability and access to certain orphan medicines are important to reduce morbidity and mortality of many rare diseases. For instance, until the recent availability of pirfenidone, a lung transplant was the only treatment option for patients with idiopathic pulmonary fibrosis, a rare disease with a 50% chance of survival at three years.

Exhibit 3

Orphan Drug Expenditures As Percentage Of Total Prescription Drug Spending, 2007-2018

Divino V, DeKoven M, Kleinrock M, et al. Orphan drug expenditures in the United States: a historical and prospective analysis, 2007–2018. Health Affairs 2016;35(9):1588–1594

Take-home Messages

The Orphan Drug Act of 1983 has successfully induced development of hundreds of orphan disease treatments, although its future is somewhat uncertain because the orphan drug tax credit would be eliminated under the GOP's tax reform plan.

To date, increased numbers of orphan approvals coupled with rising per-unit prices have led to greater payer sensitivity with respect to reimbursement. High prices may impede patient access, either when a drug is not covered (and the patient must pay in full) or when cost-sharing rises to an unaffordable level. Almost all single-source orphan drugs occupy the highest patient cost-share tier (co-insurance). There is also a trend toward more restrictions imposed by payers on orphan drug reimbursement, such as prior authorization and quantity limits.

Nevertheless, growth in US orphan drug spending is expected to plateau. In this respect, the discussion of whether an inflection point is reached when prices go above a certain point may be a red herring.

Besides cost-effectiveness and budget impact, payer considerations should include the value of orphan drugs, measured in terms of the nature of the disease being targeted (burden of illness, degree of rarity) and whether the drug adequately addresses an unmet need. Assessing the value of drugs for rare diseases that affect a handful of patients is no easy feat. The Institute for Clinical and Economic Review is working on an approach that could be used as a starting point for discussions between payers and manufacturers over pricing. The approach will adapt ICER's current value framework to suit the unique circumstances around orphan products. Because orphan drugs often have higher prices than non-orphans, they usually would not meet commonly accepted cost-effectiveness thresholds that are used in valuing other drugs. (Also see "Orphan Drug Pricing Heading To Negotiating Table in US?" - Pink Sheet, 5 Jun, 2017.)

In the case of Glybera – the $1 million orphan – clearly the drug’s value was insufficient as demand floundered leading to a marketing withdrawal. Other very expensive orphans, such as Soliris, have met unmet need and therefore succeeded as high-value products.

Joshua Cohen, PhD ( ), is a health care analyst with expertise in prescription drug pricing and reimbursement policy, patient access to biopharmaceuticals, comparative effectiveness research and prescription-to-OTC switching.

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