Orphan Drugs: A sleeper issue in high healthcare costs

If you want to read something depressing, spend an afternoon going down the rabbit hole on orphan drugs. This is topic is kind of a sleeper issue in the “why are my health care costs so high?” discussion, so I’m going to spend some time unpacking it. The President has a stated goal of lowering prescription drug prices, which is a multi-prong issue. That is to say: drug prices are high in lots of other ways besides orphan drugs. It has also become public knowledge that he intends to issue an Executive Order, possibly soon, on the topic of lowering prescription drug prices. Orphan drugs should absolutely be part of that policy reform. To put it in context, in 2015, orphan drugs accounted for seven of the top ten drugs, by annual sales.

In a nutshell: People living with rare diseases would typically have no real hope of treatment. They often live in pain and eating, sleeping, walking, dressing, and bathing unassisted may be difficult or impossible. They may even be dying in some cases. Their only hope is that a wonder drug will be approved to help them.

So-called “orphan drugs” are promising therapies that — without the Orphan Drug Act of 1983 — would never be brought to market because there are not enough patients suffering from the disease to financially justify the R&D, testing, and production to create a profit for the pharmaceutical companies. Congress passed the Orphan Drug Act to create a set of financial incentives for drug companies to create these therapies to help people suffering from rare diseases, have the taxpayers subsidize R&D, and still realize a reasonable profit to encourage innovation through an exclusive patent for seven years — i.e., they can charge whatever they want in that seven years because they have a monopoly. Seems very generous, but sometimes the government needs to be generous to spur the market.

The Orphan Drug Act worked for awhile (or maybe those drugs would have been made anyway — this is debatable). Drug companies made drugs for rare diseases, which is defined as less than 200,000 people suffering from the condition. Lives were saved and improved. They were expensive drugs, but they were subsidized over large populations. For example, if you have a small number of patients that take a drug that costs $60,000 per year, it won’t break the bank because you have millions of patients that don’t use it, so it is averaged over the population (this is how all health care costs work). So these expensive-but-not-too-expensive orphan drugs did not really affect anyone’s premiums.

Then the loopholes were exploited.

According to Nicholas Bagley at The Incidental Economist, there are three main ways drug companies started gaming the system:

  1. Recycling: Reusing cheap drugs with lapsed patents in trials for orphan patents. Often wide use of cheap drugs for off-label use to treat an orphan condition, they take the drug, run the trials, jack up the price.
  2. Unapproved uses: Get orphan approval and all the incentives that come with it, but then actually sell the drug for other uses. They even use labeling that fails to mention their orphan intended use. If you make a very specific product for one small patient group, but it just so happens that doctors can prescribe it to hundreds of thousands of people… then lucky you.
  3. Salami slicing: This is the process of narrowly subtyping a disease or condition as finely as possible in order to sell the drug to each disease subtype for the seven years of exclusivity. This can get as tedious as cancer mutations that are otherwise the same, but just existing in different organs, being considered different orphan diseases.

Another example, it might surprise you to know that game-changer drugs you see marketed all the time like Crestor, Abilify, Neurontin, and Humira were later submitted for and approved for orphan status for secondary uses, even though they were already drugs on the market. That means that they got the rights that come with orphan status for that use, even though these drugs already existed.

And the greed. The drug companies started charging more and more. So you have more drugs coming onto the market (not even new, in some cases) and now they are charging more. So when I said above that orphan drugs weren’t really affecting premiums? Now there are a lot more drugs and they might cost $300,000 a year or even up to $840,000 a year (and growing!), so they will affect healthcare premiums. They cost more, more people are taking them, and there are more of them.

Those of us in the Medicaid world have been paying close attention to this for the past few years because Medicaid covers over 11 million people whose basis for their Medicaid eligibility is being disabled. As new orphan drugs enter the market, Medicaid is a likely payer, especially when people have rare, debilitating conditions. It is really hard for payers, such as Medicaid, Medicare, the Veteran’s Administration, or commercial health plans to say no to these kinds of treatments — whatever the price — because saying no makes them look really bad and drug companies know it.

The Government Accountability Office is going to start an inquiry into the issue. One of Bagley’s partners at The Incidental Economist, Aaron Carroll, runs Healthcare Triage and adapted Bagley’s posts on this topic into a video explainer and included some solutions to these loopholes above for us to ponder in the meantime:

  1. Reduce the time drug companies have an exclusive patent from seven years to… less than that.
  2. Don’t allow for drugs to be repurposed (recycling or unapproved uses) — this is exploitative.
  3. Drug companies should pay back the public R&D money and the tax credits when they reach certain profit thresholds.

Like everything else with high healthcare costs, there is no singular reason, but this is one more reason and it is important to understand. I look forward to the President’s Executive Order on this topic. There are clearly ways to limit the excessive profits of drug companies that are yielding higher taxes, premiums, and out-of pocket healthcare spending for all Americans.

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