Congress Expands Orphan Drug Exemptions From Medicare Price Negotiations
The One Big Beautiful Bill Act ("OBBB") expands exemptions for orphan drugs from mandatory Medicare price negotiations and modifies their eligibility timeline.
On July 4, 2025, President Trump signed into law the OBBB, which introduces significant amendments to the Inflation Reduction Act regarding the treatment of orphan drugs under the Medicare Drug Price Negotiation Program. The aim of these amendments is to incentivize the development of therapies for rare diseases and conditions.
The OBBB amends 42 U.S.C. § 1320f-1(e) in two important ways. First, for initial price applicability year ("IPAY") 2028 and after, orphan drugs designated as a drug for one or more rare diseases or conditions will be excluded from the definition of qualifying single source drug ("QSSD"), and thus, exempt from Medicare price negotiations. Before the OBBB amendment, this exemption was limited to orphan drugs designated as a drug for only a single rare disease or condition.
Second, for IPAY 2028 and after, the time for measuring a former orphan drug's eligibility to be a QSSD will be calculated from the first day after the date of the drug's approval for which the drug does not have orphan drug designation. Thus, to be a QSSD, at least seven years (for a small molecule), or at least eleven years (for a biological product), need to have elapsed from the first day after the date of the approval of the drug for which the drug does not have orphan drug designation. This change increases the time for orphan drugs to be exempt from eligibility for selection for Medicare price negotiations. Previously, the time period to be a QSSD for orphan drugs was at least seven years or at least eleven years from the date of FDA approval.
The expanded exemptions for orphan drugs provide greater incentives to continue research and development of orphan drugs for additional rare diseases and conditions. Thus, the law encourages pursuit of new indications for existing orphan drugs without losing valuable pricing protections.
Pharmaceutical companies should review their orphan drug portfolios and development plans considering the timing of new indications and impacts on pricing and market access.
