Joshua P. Cohen, Ph.D., senior research fellow with the Tufts Center for the Study of Drug Development (CSSD), told GEN there’s no causal link between cost of development and pricing, though biopharmas will generally set higher prices for orphan products. Instead, rare-disease drug prices reflect supply and demand: Few treatment alternatives allow companies to charge what they can, knowing that payers will often ultimately foot the bill.
“The rarity of the disease means that few people are affected. Generally, the fewer disease sufferers there are, the higher the price of the drug. Companies that invest the same amount of money or more in orphan drugs as they would nonorphan drugs want to recoup their investment,” Dr. Cohen said.
While U.S. healthcare reform has caused insurers to restructure or even cancel policies for millions, citing rising costs, Grossman said payers are unlikely to scale back wholesale on paying for rare disease drugs, even as prices continue to rise. One reason, he said, is because health insurance is guided by the principle of medical necessity: “In most instances with orphan drugs, the medical necessity is not only indisputable, but very obvious. There is nothing subtle about Morquio A syndrome.”
Insurers are already paying six-figure expenses for medical care and palliative medicine for orphan drug patients. Also, the number of rare diseases cases for which any given insurance company will be “at risk” is very small, Grossman said, since millions of Americans are now covered by employers who are self-insured and government programs that include Medicaid, Medicare, and the federal health benefits program.
“They can get better returns, sleep better at night, and get less adverse publicity if they try to save money by converting all Lipitor patients to generics or providing better oversight of back pain cases or negotiating lower reimbursements for cardiac bypass surgery,” Grossman added.
Insurer willingness is one of two reasons why Grossman says containing orphan drug costs is unlikely to major factor in holding the line on overall healthcare costs; the other is because the treatments are a small percentage of drugs sold—about 13% in 2012, set to rise to 15.9% in 2018 at twice the annual growth rate of the overall drug market, according to an Evaluate Pharma analysis released last year.