Association for Public Policy Analysis & Management

Research Objective: Payer sensitivity to orphan drugs is rising with the growing number of expensive orphan drugs in the market and the pressure to contain spending. Payers could be restricting coverage based strictly on high unit-price, without considering the limited treatment options for rare disease patients. If, like other specialty drugs, demand for orphan drugs is not sensitive to price, imposing higher cost-sharing may not curb moral hazard. This research aims to investigate the relationship between coverage restrictions and the use of orphan drugs in Medicare.

Study Design: Using Medicare Part D claims and formulary files of 2017, we describe the coverage of orphan drugs in standalone Prescription Drug Plans (PDPs). We identify orphan drugs using the FDA database. Utilization controls include: Cost-sharing Tier, Prior Authorization, Quantity Limits and Step Therapy. The outcome of interest is 30-day prescription fills per beneficiary. We propose a Negative Binomial Regression model to study the association between utilization controls and use and include random effects to control for drug and formulary unobservable characteristics.

Population Studied: 645,201 beneficiaries filling a total of 2.93 million claims in Medicare PDPs

Principal Findings: As of 2017, there were 470 orphan drugs in the market, with 29 having pediatric indications. The average number of claims per beneficiary was 4.27(sd=3.98). The 20 most common orphan drugs comprised 20.64% of the original sample and had multiple non-orphan indications (such as Humira, Gleevec and Harvoni). Among the 57 drug formularies, each formulary covered on average 11.48 (sd=1.93) of the top 20 orphans. On average, 39% of orphans per formulary were subject to a utilization control (most commonly Prior Authorization) and 55% were placed on the highest tier.

Conclusions: Preliminary results indicate that Medicare formularies widely impose utilization controls on orphan drugs, subjecting beneficiaries to the highest co-insurance rates. Further analysis is underway to investigate the relationship between such restrictions and beneficiaries’ utilization.

Policy Implications: Findings shed light on the current state of orphan drug coverage in Medicare. Final results may support a greater need for oversight by Medicare to guarantee access for patients with rare diseases while containing costs.