Medicare Changes to Orphan Drug Price Negotiation Increase Costs
Recent changes to Medicare’s drug price negotiation program, enacted through a new tax and budget reconciliation law, are projected to increase Medicare spending by at least $5 billion over time and raise out-of-pocket costs for Medicare beneficiaries. The original Medicare Drug Price Negotiation Program, established under the Inflation Reduction Act of 2022 (IRA), required the federal government to negotiate prices for selected high-spending drugs to reduce Medicare drug spending and beneficiary costs. It notably excluded orphan drugs—which treat rare diseases and historically have had protections to incentivize research and development. The recent law modifies this exclusion by expanding it to cover orphan drugs designated for multiple rare diseases, not just single indications, and delays the timing of eligibility for negotiation until these drugs have FDA approval for non-orphan indications. This shift means many high-cost orphan drugs will be ineligible or face delayed price negotiation, reducing potential Medicare savings and increasing patient cost burdens.
Several high-spending cancer drugs, including Keytruda, Darzalex, Opdivo, and Jakafi, are directly affected. As of 2023, Medicare and beneficiary spending for these drugs totaled $17.5 billion, up 83% since 2019. Keytruda alone accounted for $5.6 billion in expenditures. The modifications to orphan drug negotiation rules will delay negotiations for these expensive medications, pushing back potential price reductions by years or removing them from eligibility entirely unless the drugs gain non-orphan indications. For example, Yervoy’s price negotiation eligibility will likely be delayed from 2026 to 2030 due to its multiple approvals.
Medicare beneficiaries face substantial out-of-pocket expenses due to coinsurance, which is typically a percentage of the total drug price. For drugs like Keytruda and Opdivo, per-claim coinsurance amounts to thousands of dollars, potentially leading to annual out-of-pocket costs exceeding $14,000. For Part D drugs like Jakafi, a single prescription fill could reach the annual out-of-pocket cap. The delay or exclusion of price negotiation thus directly correlates to higher beneficiary liabilities and may impact medication access.
The Congressional Budget Office initially estimated increased Medicare spending of about $4.9 billion between 2028 and 2034 from these orphan drug exclusion changes, although this figure may underestimate true costs since some key drugs were not fully factored in. The pharmaceutical industry’s response to these changes in terms of drug development strategies and orphan drug designation is expected to influence future spending trends.
CMS will need to exclude these high-cost orphan drugs when selecting drugs for negotiation, which will consequently defer savings and extend the affordability challenges for Medicare patients. While the changes respond to concerns about preserving incentives for rare disease drug development, they restrict the Medicare negotiation program’s ability to lower drug prices and out-of-pocket spending for a critical subset of costly therapies.
This evolving regulatory landscape underscores the complex balance between supporting innovation in rare disease treatments and controlling Medicare drug expenditures. Health insurers, policymakers, and healthcare providers should anticipate shifts in market dynamics and beneficiary cost exposure tied to these legislative revisions. The cost pressures on Medicare enrollees highlight ongoing challenges in managing specialty drug affordability across payer systems.
Data from CMS and analysis indicate that high-priced orphan drugs represent a significant portion of Medicare Part B and D spending growth, emphasizing the need for careful monitoring of drug price negotiation policies and their downstream financial impacts on beneficiaries. This development exemplifies how legislative changes can substantially alter the trajectory of Medicare drug pricing and beneficiary cost-sharing mechanisms in the context of specialized pharmaceutical products.