A Payer Expert Analyzes Rare Disease Drug Policy

US orphan drug policy has been extremely successful in its intended impact of increasing the number of drugs available to treat rare conditions. It was never envisioned to manage drug costs, and the large impact of drugs for orphan diseases on overall drug costs was not projected. It would seem reasonable to target drugs for orphan diseases for control of prices given the special classification of these drugs and the large impact on overall costs. However, it seems unfair to those with rare diseases, and to the developers, to target just this sector and not the rest of drug, or even healthcare, spending. However, it is appropriate to consider if there are any special circumstances created by either the Orphan Drug Act or the concept of orphan diseases that should be addressed.

Considering the patient population of many of the orphan diseases, there is an extra burden put on government programs such as Medicare (with cancer therapies in particular) and Medicaid (for diseases with large impact on children or as a cause of disability in younger adults). Volume and indication-based contracts are potential solutions for managing the cost of these therapies, as is a national benefit program.

Volume-based contracts (either increasing discounts for increasing drug purchase or subscription models) can benefit Medicaid programs because of their large size (think New York and California) or the ability of smaller states to band together in purchasing coalitions. We have seen states take on direct payment for expensive/complex patients and consolidate drug purchasing, taking outpatient drug coverage out of managed Medicaid plans. Mandatory rebates would be helpful since the lack of competing/alternative products contributes to the high cost of drugs for orphan conditions.

Providing Medicare with the ability to negotiate drug prices in general has been discussed and will likely be a solution in the future. In the short term, we can suggest that there be automatic price discounts for Medicare fee-for-service and Medicare Part C and D plans when drug utilization increases over a given amount. This removes the need for specific negotiation and can apply to any drug for any condition, not just drugs for orphan diseases. However, it does specifically address the issue of high prices for indications outside of the orphan designation.

Indication-based pricing makes sense as the value of a treatment will vary according to what disease it is treating. Such a pricing scheme has potential but, as noted in the ICER paper, our payment systems will require significant changes in order to operationalize an indication-based pricing system. Simple measures such as different nationally determined contributions (NDCs) for different indications can lead to system gaming -- using the lower cost NDC for higher cost indication. However, indications are easier to associate with drug use when the drug is covered under Medicare Part B or commercial medical benefits because the provider must include a diagnostic code on the claim form. This can have a particular impact on Medicare by reducing the price by a given amount for non-orphan indications. Such discounts can be automatic and not individually negotiated.

Commercial payers seem to be left out in this discussion so far but they can benefit in a couple of ways.

Affordable Care Act exchange plans eligible for government subsidies should be given access to Medicaid prices. Additionally, drugs for orphan diseases must be part of the 340B program and 340B prices should be available to commercial plans. In other words, the entire benefit of 340B prices should be shared between the provider and the plan. For Medicare Part B drugs the average sales price (ASP) can be adjusted for lower cost indications and that ASP should be available to everyone.

Finally, a national program for rare disease therapy could be a potential solution. Such a program could be a voluntary opt-in for patients via the ACA exchanges. The major benefit of a national program would be to reduce the pressure of high rare disease costs on the premium paid by commercial plan members and employers. However, such a program will require heavy federal subsidies and will bill vulnerable to high prices charged by drug developers unless there is either the ability to negotiate or a cap set by another pricing mechanism such as cost-effectiveness.

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