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High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives designed to encourage the development of treatments for rare diseases


Over 7,000 rare diseases affect more than 30 million Americans. The Orphan Drug Act (ODA) provides financial incentives—such as tax incentives and an exemption from marketing application fees—to encourage the development of drugs for rare diseases or conditions for which treatments might not be developed otherwise. If a drug is approved for marketing of an orphan indication, the manufacturer is generally eligible for 7 years of market exclusivity for the approved orphan indication. As a result, manufacturers have received approval for hundreds of orphan drugs that provide a benefit to previously overlooked populations. However, research has shown that some manufacturers increase profits for their orphan drugs by setting high launch prices and subsequently seeking approval for multiple orphan indications or by repurposing high-revenue mass-market drugs to acquire certain ODA incentives. Researchers' critiques of the ODA raise questions concerning potential unintended effects on manufacturers' behaviors and whether a realignment of eligibility requirements and incentives, at least in certain instances, may be warranted. OIG's analysis aims to provide stakeholders with relevant information on a specific subset of high-expenditure drugs that have qualified for ODA incentives.


We selected a purposive sample of 40 drugs—20 with the highest expenditures in Medicare Part B and 20 with the highest expenditures in Medicare Part D. We determined how many of these high-expenditure drugs were orphan drugs (i.e., had at least one orphan designation) as of March 2020. We also reviewed the rare diseases or conditions for which the orphan drugs had been granted orphan designations and the approved indications within those diseases. Lastly, we determined the extent to which these orphan drugs were utilized for their approved orphan indications.


A majority of the highest-expenditure drugs in Medicare—some of the best-selling drugs in the world—have been granted at least one orphan designation, qualifying their manufacturers for ODA financial incentives. Some of these orphan drugs have managed to generate significant Medicare expenditures and billions of dollars in annual revenue while treating only rare diseases and conditions. However, orphan drugs are not limited to the treatment of rare diseases or conditions. Although the vast majority of orphan drugs treat only rare diseases or conditions, many of the high-expenditure orphan drugs included in our review were originally approved—and are still primarily used—to treat relatively common diseases or conditions. Furthermore, orphan drug exclusion from the 340B Drug Pricing Program may provide significant financial incentives for manufacturers to seek orphan designation for drugs approved to treat common diseases or conditions.


On one hand, the examples highlighted in our findings may illustrate the ODA functioning as intended. By encouraging manufacturers to study whether existing drugs could also be used to treat rare diseases and conditions, the financial incentives offered under the ODA subsidize manufacturers' investment costs for numerous presumptively unprofitable orphan indications. From another perspective, our findings raise questions for further consideration, including the following:

This report provides an independent analysis on a specific subset of orphan drugs—those with the highest Medicare expenditures-and serves to both inform ongoing discussions and support congressional and decisionmakers' efforts to improve the Orphan Drug Program. OIG encourages the policymaking, oversight, and research communities to seek answers to the additional questions raised by our findings. In debating any potential changes, it will be vital to ensure that the program continues to successfully encourage the development of drugs to treat rare diseases and conditions while taking into consideration questions surrounding affordability, profitability, and the meaning of rare use.


In its comments to the draft report, FDA expressed concern with the narrow scope of OIG's report, stating that the high-expenditure drugs included in our sample are not representative of the spectrum of orphan-designated drugs and subsequently noting that OIG does not speak to the role that orphan-drug designation plays in drug pricing, or if it plays one at all.

OIG notes that our current work's focus on high-expenditure Medicare drugs and the resulting limitations of our sample are discussed throughout the report. Further, OIG agrees that this study is not focused on drug pricing; rather our findings offer insights related to a particular subset of blockbuster drugs, thereby providing descriptive context about their orphan status, associated Medicare expenditures, and the revenue that manufacturers are able to generate. We believe this approach is generally responsive to Congressional interests in providing appropriate oversight of ODA and will help to support any efforts to ensure that the Orphan Drug Designation Program is best able to meet its vital goals.