Orphan Drugs: Understanding the Payer Perspective

New drugs for orphan and rare diseases have the potential to positively impact the lives of patients where historically few or no treatments had been available to manage the disease. The passage of the Orphan Drug Act (ODA) in 1983 incentivized manufacturers to develop agents to treat rare/orphan diseases, and the orphan drug landscape has evolved considerably. 


Approvals for orphan drugs have more than doubled in the past decade, and there are over 500 candidates in the pipeline for orphan diseases.1,2 In 2016, the Food and Drug Administration (FDA) received a record 582 applications for orphan drug designations from manufacturers, 333 of which were eventually granted.3 

Impact on Health Plans

These agents present challenges for the health plans that cover them. Worldwide sales of orphan drugs reached $114 billion in 2016, and are projected to exceed $200 billion by 2022.3 The median annual per-patient cost of therapy with an orphan drug was $83,883 last year, surpassing the cost of nonorphan drugs by fivefold.3 The significant increase in orphan drug approvals, coupled with the high cost of these drugs, has led to increased scrutiny and management by payers. 


Regulators are also looking at the high price of orphan drugs. This past March, the Government Accountability Office (GAO) said it would investigate potential abuses of the ODA. The GAO wants to know whether the legislation is still incentivizing drug development for diseases with fewer than 200,000 affected individuals, as intended, and whether some pharmaceutical manufacturers are taking advantage of the multiple designation allowance orphan drug approval process.4 In September, Scott Gottlieb, MD, the FDA commissioner, announced the FDA would advance guidance documents and policies to address alleged abuses of ODA.5

Understanding the evaluation and valuation that payers apply to the orphan drug space will aid manufacturers in study development and competitive positioning. In one large plan, orphan drug spending represented 10% to 20% of its overall specialty drug spend, about $600 to $700 million.6 This type of outlay has resulted in many health insurers looking at new forms of payment for orphan drugs. Health plans are constantly monitoring the drug pipeline and looking for those new drugs and indications that will contribute to new, higher spending. As a result of the significant costs associated with orphan agents, payers are also increasing the use of existing tools, such as formulary exclusion, prior authorization, and step therapy to manage utilization.

The Payer Perspective

Under consideration by payers is the development of metrics that can be used to assess the value of medications for patients with appropriate clinical biomarkers, and creating related pricing models based on those metrics. Some
plans are considering putting orphan drugs through a value framework analysis. Essentially, this analysis would determine if the new drug is better than existing medications. Rather than establishing a price at whatever the market will bear, manufacturers can adopt the payer’s value-based pricing, and insurers could set or waive patient copays accordingly.

Per a request by Kaiser Health News, Express Scripts, a leading national pharmacy benefits manager, analyzed the orphan drugs on its approved list or formulary: 4 orphan agents cost more than $70,000 each for a 30-day supply, or $840,000 annually.7 An additional 29 orphan drugs cost at least $28,000 each for a 30-day supply, or more than $336,000 a year. 


Coverage decisions should be based on an understanding of a drug’s value, or outcomes relative to the cost. Based on the aforementioned orphan drug costs and the increasing number of drugs with an orphan designation coming to market, health plans must proactively develop a management and cost containment strategy for handling these agents. Manufacturers of orphan drugs will need to understand how payers are assessing value for these agents, in order to align the appropriate approval data with data that payers are assessing in determining value. 


1. Orphan drug product designation database. Food and Drug Administration website. https://www.accessdata.fda.gov/scripts/opdlisting/oopd/index.cfm. Accessed September 22, 2017.

2. Medicines in development for rare diseases: a report on orphan drugs in the pipeline. The Pharmaceutical Research and Manufacturers of America website. http://phrma-docs.phrma.org/sites/default/files/pdf/medicines-in-development-report-rare-diseases.pdf. Accessed September 22, 2017. 

3. EvaluatePharma orphan drug report 2017.  EvaluatePharma website. http://info.evaluategroup.com/rs/607-YGS-364/images/EPOD17.pdf. Accessed September 22, 2017. 

4. Tribble SJ. GAO will investigate skyrocketing prices for orphan drugs. NPR website. http://www.npr.org/sections/health-shots/2017/03/22/521081742/gao-will-investigate-skyrocketing-prices-for-orphan-drugs. Published March 22, 2017. Accessed September 11, 2017

5. Gottlieb S. FDA is advancing the goals of the Orphan Drug Act. Food and Drug Administration website. https://blogs.fda.gov/fdavoice/index.php/2017/09/fda-is-advancing-the-goals-of-the-orphan-drug-act/. Accessed September 22, 2017.

6. Silverman E. No price pressure on orphan drugs (yet). Managed Care website. https://www.managedcaremag.com/archives/2017/6/no-price-pressure-orphan-drugs-yet. Published June 2017. Accessed September 11, 2017.

7. Tribble SJ. High prices for orphan drugs strain families and insurers. NPR website. http://www.npr.org/sections/health-shots/2017/01/17/509507035/high-prices-for-orphan-drugs-strain-families-and-insurers. Published January 17, 2017. Accessed September 22, 2017.