A controversial provision in the One Big Beautiful Bill Act, which exempts more so-called orphan drugs from Medicare pricing negotiations in order to encourage further development, may not warrant that protection, according to a new analysis.

At issue is a portion of the Inflation Reduction Act that went into effect three years ago and allows Medicare to negotiate prices for certain drugs. Under that law, orphan drugs, which are used to treat rare diseases, were exempt in the case of drugs granted just one orphan designation and approved by the Food and Drug Administration.

However, the Orphan Cures Act, which was part of the Big Beautiful Bill Act that became law last year, broadened the exception by allowing medicines with multiple orphan indications to remain exempt. The law also delayed the timelines for which an otherwise eligible orphan drug may be considered for price negotiations.

As a result, drugs with indications that expand from one rare disease to multiple rare diseases will not have their negotiation countdown triggered until the drug reaches into broader markets. The pharmaceutical industry lobbied for the changes, arguing they were needed to encourage innovation.

The new analysis, however, which was published Monday in Health Affairs, suggests that establishing these incentives for drugmakers to invest more money to develop orphan drugs may have been misplaced. As a result, Medicare beneficiaries and taxpayers are coming up short, according to the lead study author.

“The notion of completely exempting or delaying orphan drugs arises out of the premise there’s no market for these products, but that assumption is not accurate for drugs that get to high levels of spending in Medicare,” explained Anna Kaltenboeck, a health economist who heads Verdant Research and studies prescription drug pricing.

“A key question for policymakers is do those drugs, once they’ve reached certain spending levels, merit additional protection that other drugs — those that are not granted orphan status — don’t receive? I think that we need to look at the underlying economic assumptions and probably need to revisit [Medicare] negotiations for orphan drugs.”

To reach that conclusion, the researchers compared clinical trial costs, worldwide revenues, and the time to recover expenses for 167 drugs that were projected to exceed $200 million in annual Medicare spending between 2206 and 2030 and were also classified as orphan drugs. This term is often used to describe rare disease treatments.

From there, they created four categories — orphan drugs exempt from Medicare price talks under the Inflation Reduction Act that originally created a narrow exception; drugs exempt under the law that went into effect last year; orphan drugs subject to delay under the new law; and other drugs — not orphan — that did not qualify for exemption or delay.

Overall, 94% recovered trial costs within 10 years of global launch. Those exempt under the Inflation Reduction Act were newer, had lower trial costs but comparable revenues, and recovered costs more quickly than drugs that did not qualify for exemption. Those exempt or delayed under the newer law did not differ significantly from drugs that did not qualify.

The findings come amid ongoing debate over the rising cost of prescription medicines and industry arguments that life-saving innovation requires significant funding, whether that comes from pricing, tax breaks, or other financial incentives. In 1983, legislation was passed offering market exclusivity and tax credits to boost orphan drug development.

A study published three years ago found that, since the Orphan Drug Act was passed more than 40 years ago, 6,340 orphan drug designations were granted by the FDA representing drug development for 1,079 rare diseases. And 882 of those designations resulted in at least one FDA approval for use in 392 rare diseases.

But last October, the Congressional Budget Office revised a forecast showing the One Big Beautiful Bill Act will cost taxpayers as much as $8.8 billion — up from earlier estimates of $4.9 billion — over 10 years thanks to provisions that will exempt or delay certain drugs from Medicare pricing negotiations.

The update was largely attributed to the added expense of exempting three drugs for which Medicare has spent great sums of money. But it was seized upon by patient groups and some congressional Democrats as evidence of a “sweetheart” deal the White House and Republican lawmakers made with the pharmaceutical industry at the expense of seniors.

Now, though, Kaltenboeck contended that the recent law should be revisited.

“What would it look like if we included [those exempt and delayed] drugs in negotiations and consider the value they provide to patients?” she asked.

“Going back [to the previous approach} would save money — fewer drugs will be excluded from negotiations, but they make money back faster than other drugs do. The study suggests the premise that those products can’t make their money is not justified because they can. And they look no different than other drugs.”

We asked the EveryLife Foundation for Rare Diseases, which is funded in part by drug makers, and the National Organization for Rare Disorders, which represents pharmaceutical companies that develop orphan drugs, for comment and will update you accordingly.