U.S. Department of Health and Human Services 
 
Office of Inspector General 
 
High-expenditure Medicare 
drugs often qualified for 
Orphan Drug Act incentives 
designed to encourage the 
development of treatments 
for rare diseases
Suzanne Murrin 
Deputy Inspector General for Evaluation and Inspections 
September 2021, OEI-BL-20-00080  U.S. Department of Health and Human Services 
O  ffice of Inspector General 
 
Report in Brief 
 
Se ptember 2021, OEI-BL-20-00080 
 
High-expenditure Medicare drugs often qualified for Orphan Drug Act 
incentives designed to encourage the development of treatments for 
rare diseases 
Why OIG Did This Review 
The Orphan Drug Act (ODA) provides financial incentives to encourage the development of drugs for rare diseases 
or conditions for which treatments might not be developed otherwise. 
 
Note: A manufacturer that is granted an orphan designation for a drug is generally eligible for the financial incentives; however, each incentive has 
its own criteria and the incentives apply narrowly to the drugs use in the designated rare disease or condition. 
In addition to the direct incentives specified in the ODA, an orphan designation excludes a manufacturer from 
requirements to sell its drug at a discounted price to some types of entities (i.e., certain providers eligible for the 
340B drug discount program) even if the drug is being used for a common disease or condition.  For a drug to 
qualify for an orphan designation, and for the associated financial incentives, the manufacturer must document 
that the drug is intended for a rare disease or condition that affects a small U.S. patient population (less than 
200,000 persons), or that there is no reasonable expectation to recover costs associated with developing the drug.   
What OIG Found  
OIG examined a nonrepresentative, purposive sample of 40 high-expenditure Medicare drugs, and determined the 
following:   
  A majority of the highest-expenditure drugs in Medicaresome of the best-selling drugs in the worldhave 
been granted at least one orphan designation, qualifying their manufacturers for ODA financial incentives. 
  Some orphan drugs in our review have generated significant Medicare expenditures and billions of dollars in 
annual revenue while treating only rare diseases or conditions, a result of (1) their considerably higher prices 
and (2) being FDA-approved to treat multiple orphan indications, thereby increasing sales.  
  Orphan drugs are not limited to the treatment of rare diseases or conditions.  Although the vast majority of 
orphan drugs treat only rare diseases or conditions, many of the high-expenditure orphan drugs included in 
our review were originally approvedand are still primarily usedto treat relatively common conditions.  
  Orphan drug exclusion from the 340B Drug Pricing Program may provide significant financial incentives for 
manufacturers to seek orphan designation for drugs approved to treat common diseases or conditions. 
    Why This Matters 
The ODA, enacted by Congress in 1983, provides financial incentives to encourage the development of drugs to treat, 
diagnose, or prevent rare diseases or conditions for which treatments might not be developed otherwise.  As a result, 
manufacturers have received approval for hundreds of orphan drugs that provide a benefit to previously overlooked 
populations.  However, research has raised concerns that the ODA may also result in some manufacturers increasing 
their profits by setting high prices for drugs that generate billions of dollars in revenue despite treating small 
populations or by repurposing high-revenue mass-market drugs to acquire certain ODA incentives. 
When it was originally enacted in 1983, the ODA required manufacturers to show the nonprofitability of a drug for a 
rare disease or condition when seeking an orphan designation.  However, a year later, Congress revised the ODAs 
language such that a manufacturer was no longer required to provide evidence that a drug would not generate a profit 
as long as the affected population fell below 200,000 persons.  In doing so, Congress anticipated that Government and 
industry would monitor the profitability of orphan drugs and inform Congress if the population threshold becomes a 
problem.  
On one hand, the examples highlighted in our findings may illustrate the ODA functioning as intended.  By encouraging 
manufacturers to study whether existing drugs could also be used to treat rare diseases or conditions, the financial 
incentives offered under the ODA subsidize manufacturers investment costs for numerous orphan indications.  From 
another perspective, however, our findings raise questions for further consideration, including the following: 
  How do the trends and patterns observed in this purposive sample of 40 high-expenditure Medicare drugs align 
with the overall goals of the ODA? 
  Are current eligibility requirements and incentives the most effective way to ensure the continued development 
of affordable drugs to treat patients suffering from rare diseases and conditions? 
  How has the increasing number of drugs granted orphan designations in recent years affected other Federal 
programs outside of FDA (for example, Medicare or the 340B Drug Pricing Program)? 
This report provides an independent analysis on a specific subset of orphan drugsthose with the highest Medicare 
expendituresand serves to both inform ongoing discussions and support congressional and decisionmakers efforts to 
improve the Orphan Drug Designation Program.  OIG encourages the policymaking, oversight, and research 
communities to seek answers to the additional questions raised by our findings.  In debating any potential changes, it 
will be vital to ensure that the program continues to successfully encourage the development of drugs to treat rare 
diseases and conditions while taking into consideration questions surrounding affordability, profitability, and the 
meaning of rare use. 
How the Agency Responded 
In its comments to the draft report, FDA expressed concern with the narrow scope of OIGs report, stating that the 
high-expenditure drugs included in our sample are not representative of the spectrum of orphan-designated drugs 
and subsequently noting that OIG does not speak to the role that orphan-drug designation plays in drug pricing, or if 
it plays one at all.   
 
OIG notes that our current works focus on high-expenditure Medicare drugs and the resulting limitations of our 
sample are discussed throughout the report.  Further, OIG agrees that this study is not focused on drug pricing; rather 
our findings offer insights related to a particular subset of blockbuster drugs, providing descriptive context about their 
orphan status, associated Medicare expenditures, and the revenue that manufacturers are able to generate.  We 
believe this approach is generally responsive to Congressional interests in providing appropriate oversight of ODA and 
will help to support any efforts to ensure that the Orphan Drug Designation Program is best able to meet its vital 
goals. 
     
TABLE OF CONTENTS 
 
 
 
 
GLOSSARY  1 
BACKGROUND  2 
Methodology  6 
FINDINGS  8 
More than half of high-expenditure Medicare drugs in our review, which generate billions of  8 
dollars in annual sales, are eligible for orphan drug incentives for treating rare diseases 
Seven orphan drugs in our review that were approved for only rare diseases or conditions  10 
generated significant Medicare expenditures and billions of dollars in sales 
Many orphan drugs in our review were also approvedand primarily usedfor more  11 
common indications 
CONCLUSION   14 
AGENCY COMMENTS AND OIG RESPONSE  16 
DETAILED METHODOLOGY   17 
APPENDICES  20 
A.  Total orphan designations with and without an FDA-approved orphan indication  20 
B.  The orphan status of each high-expenditure Medicare drug in our review  21 
C.  FDA approvals for orphan and nonorphan indications for each orphan drug in our review  22 
D.  2018 Medicare expenditures for the orphan drugs in our review  23 
E.  2018 Medicare orphan utilization for each orphan drug in our review  24 
F.  Agency Comments  25 
ACKNOWLEDGMENTS AND CONTACT  28 
ABOUT THE OFFICE OF INSPECTOR GENERAL  29 
ENDNOTES  30 
 
 
    GLOSSARY 
 
For the purposes of this report:  
Term  Definition 
Orphan designation  The Orphan Drug Act provides for granting special status to a 
drug or biological product (drug) to treat a rare disease or 
condition upon request of a sponsor (i.e., manufacturer).  This 
status is referred to as orphan designation (or sometimes 
orphan status).  When the Food and Drug Administration 
(FDA) grants a drug an orphan designation, the manufacturer is 
generally eligible to earn certain financial incentives.  
Orphan drug  A drug that has been granted at least one orphan designation.  
This includes drugs that have been granted an orphan 
designation but may not currently have marketing approval for 
any orphan indications (i.e., the drugs only FDA-approvals 
apply to nonorphan indications).   
Marketing approval  FDA grants marketing approval for a drug once the agency 
finds there is substantial evidence of safety and effectiveness 
for the intended population.  Marketing approval of a drug is 
specific to an indication (i.e., the use of that drug for treating a 
particular disease or condition).  
Orphan indication   An FDA-approved indication to treat an orphan-designated 
rare disease or condition.   
Nonorphan indication  An FDA-approved indication to treat a common disease or 
condition (i.e., the disease or condition does not meet the ODA 
criteria to be considered rare). 
   
High-Expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080      Glossary | 1   
BACKGROUND 
 
Objectives 
1.  To determine how many high-expenditure Medicare drugs in 2018 have 
been granted orphan designations and received approval for orphan 
indications from the Food and Drug Administration (FDA).  
2.  To determine the extent to which high-expenditure Medicare orphan drugs 
were used for their orphan indications compared to any nonorphan 
indications in Medicare in 2018. 
 
Over 7,000 rare diseases affect more than 30 million Americans.1  The Orphan Drug 
Act (ODA), enacted in 1983, provides financial incentives to encourage the 
development of drugs to treat, diagnose, or prevent (hereinafter, treat) rare diseases 
or conditions.2  FDA has granted orphan designations to almost 4,200 drugs as of 
February 1, 2021.  Following designation, manufacturers generally qualify for statutory 
incentives, such as tax incentives and an exemption of application fees, to support 
development related to the orphan designation.a  In total, 615 of these orphan drugs 
ultimately received FDA approval to treat 938 orphan indications.  Sixty percent of 
these approvals have occurred in the past decade, with more than a quarter of the 
total approved in the last 3 years alone.  FDA approval generally qualifies the drug for 
the additional benefit of 7 years of market exclusivity for the orphan indication.b  
The ODA has resulted in manufacturers developing orphan drugs that have provided 
a benefit to previously overlooked populations, including new drugs offering 
breakthrough therapies and existing drugs providing medical benefits for new 
populations.  However, research has shown that some manufacturers increase profits 
for their orphan drugs by setting high prices and subsequently seeking approval for 
multiple orphan indications or by repurposing high-revenue mass-market drugs to 
acquire certain ODA incentives.3, 4, 5  Researchers critiques of the ODA raise questions 
concerning potential unintended effects on manufacturers behaviors and whether a 
realignment of eligibility requirements and incentives, at least in certain instances, 
may be warranted.  OIGs analysis aims to provide stakeholders with relevant 
information on a specific subset of high-expenditure drugs that have qualified for 
ODA incentives.   
 
a The ODA provides for granting special status to a drug or biological product (drug) to treat a rare 
disease or condition upon request of a sponsor (e.g., manufacturer).  This status is referred to as orphan 
designation (or sometimes orphan status).  Drugs that have been granted at least one orphan 
designation are hereinafter referred to as orphan drugsregardless of whether such drug ever receives 
approval for the orphan indication. 
b See Exhibit 2 on page 5 for a more detailed explanation.  
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Background | 2  The Orphan Drug Act 
Definition of a Rare Disease or Condition.  The ODA originally defined a rare disease 
or condition as any disease or condition which occurs so infrequently in the United 
States that there is no reasonable expectation that the cost of developing and making 
available in the United States a drug for such disease or condition will be recovered 
from sales in the United States of such drug.6  However, because of stakeholders 
concerns that demonstrating unprofitability would be overly burdensome, Congress 
revisited this definition a year later.7, 8   
Congress amended the ODA by redefining a rare disease or condition as one that 
(1) affects less than 200,000 persons in the United States or (2) one that affects 
more than 200,000 in the United States and for which there is no reasonable 
expectation that the cost of developing and making available in the United States a 
drug for such disease or condition will be recovered from sales in the United States of 
such drug.9  In other words, as long as the affected population falls below 200,000 
persons, a manufacturer is not required to show that a drug would not generate a 
profit treating the rare disease or condition to qualify for an orphan designation.  In 
adopting the amendment, Congress recognized the possibility that a drug granted 
orphan status might be commercially viable for the rare disease or condition and 
anticipated that Government and industry would monitor the profitability of orphan 
drugs and inform Congress if the population threshold becomes a problem.10  All 
but three of several thousand designations granted by FDA have qualified under the 
low-population criteria, meaning that their manufacturers did not have to 
demonstrate that their drugs would not generate profits treating the rare diseases or 
conditions.11 
Orphan Drug Designation.  As of February 1, 2021, FDA has granted nearly 5,800 
orphan drug designations to more than 4,000 drugs.  An orphan designation is 
specific to a rare disease or condition; as a result, a drug may be granted a 
designation for each distinct disease or condition for which it qualifies.   
FDAs Office of Orphan Products Development administers the Orphan Drug 
Designation Program and evaluates requests for orphan designation.  A drug 
manufacturer may submit an orphan drug designation application at any point in a 
drugs development process prior to submitting a marketing application for that rare 
disease or condition.c, 12  The designation application must include a description of 
the rare disease or condition, documentation of the number of people affected by the 
disease or condition in the United States, and a scientific rationale explaining why the 
drug may effectively treat the disease or condition.13  If the population affected by the 
rare disease or condition exceeds 200,000 persons within the U.S., the manufacturer 
must demonstrate that there is no reasonable expectation to recover the cost of 
developing and producing the drug from U.S. sales alone.14   
 
c A drug manufacturer may request an orphan drug designation for a previously unapproved drug or for 
a new use of an already marketed drug. 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Background | 3  Marketing Approval for an Orphan Indication.  In total, 615 of the more than 
4,000 drugs for which FDA has granted orphan designations have subsequently 
received marketing approval to treat 938 orphan indications.  FDA applies the same 
statutory standards for safety and effectiveness (for New Drug Applications15) or 
safety, purity, and potency (for Biologics License Applications16) when considering 
marketing approval for all drugs (i.e., including orphan drugs), but the overall benefit-
risk evaluation and the clinical trials may vary depending on the circumstances.17  The 
Center for Drug Evaluation and Research (CDER) or the Center for Biologics Evaluation 
and Research (CBER) evaluates clinical trial data provided in a submitted and filed 
marketing application to determine whether the safety and efficacy of the drug (or 
safety, purity, and potency of the biological product) in the intended population are 
adequately supported by the data and whether the drug provides benefits that 
outweigh its known and potential risks for the intended population.18 (See Exhibit 1.)  
FDA may approve the same drug for multiple orphan indications under a single 
designation (i.e., for the same rare disease or condition).  For example, the orphan 
drug Velcadedesignated for the treatment of mantle cell lymphomahas been 
approved for two orphan indications: (1) as a first-line therapy and (2) for patients 
who have received at least one prior therapy.  
Exhibit 1: Orphan drug designation and marketing approval application 
process 
 
Source: OIG review of FDA orphan drug designation and marketing approval application process.   
An orphan drug may receive marketing approval for a single orphan indication, 
multiple orphan indications, or a combination of orphan and nonorphan indications.  
In many cases, despite being granted an orphan designation, a drug may never 
receive marketing approval for any orphan indications (e.g., studies fail for the rare 
disease indication and the drugs only FDA approvals apply to nonorphan indications).  
Even without an approval, these drugs generally will maintain their orphan status 
indefinitely unless the designation is withdrawn by the manufacturer or revoked by 
FDA.   
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Background | 4  Orphan Drug Incentives 
As shown in Exhibit 2, receiving an orphan designation allows a drug manufacturer to 
benefit from financial incentives for the development of the orphan drug (or in the 
case of an existing drug, to benefit from the exploration of its effectiveness in treating 
a rare disease or condition).19  If an orphan drug is then approved for marketing for an 
orphan indication, the manufacturer may receive the added benefit of 7 years of 
market exclusivity for that specific orphan indication.20, 21  
Exhibit 2: Incentives for the development of qualified orphan drugs 
Orphan Drug Designation 
a tax credit equaling 25 percent of the qualifying clinical 
trial costs for the orphan-designated disease or 
  condition;22, 23 and   
an exemption of marketing application fees for an orphan 
indication, currently valued at nearly $3 million24, 25 
 
 Marketing Approval for an Orphan Indication 
7 years of market exclusivity once the orphan drug receives 
marketing approval for the orphan indication26 
 
Source: OIG review of orphan drug benefits.  
Note: Not every orphan drug will qualify for every incentive.  
 
In addition to the direct incentives specified in the ODA, orphan drugs may also be 
eligible for other programs FDA administers for drugs in development.  For example, 
OOPD administers two Orphan Products Grants programs for clinical trials and natural 
history studies of rare diseases.27   
Orphan Drug Exclusion from the 340B Drug Pricing Program.  Separate from the 
ODA, an orphan designation also excludes a manufacturer from requirements to sell 
its drug at a discounted price to certain providers eligible for the 340B Drug Pricing 
Program (hereinafter referred to as the orphan drug exclusion).d  The 340B Drug 
Pricing Program enables eligible providersgenerally, those that serve a 
disproportionate share of needy patientsto purchase drugs at statutorily discounted 
prices.28  Congress intended the savings from these discounts to enable eligible 
providers to stretch scarce Federal resources, thereby reaching more eligible patients 
and providing more comprehensive services.29  On average, the estimated discount 
has ranged from 20 to 50 percent off what the providers would have otherwise paid.30 
 However, because of the orphan drug exclusion a drug manufacturer is not required 
to sell an orphan drug to certain 340B providers at the statutory discount even if the 
drug is being purchased for a more common disease or condition.   
 
d 42 U.S.C.  256b(a)(4) and (e).  Manufacturers are not required to provide the 340B statutory discount to 
four types of participating health care providersfreestanding cancer hospitals, critical access hospitals, 
rural referral centers, and sole community hospitalswhen purchasing an orphan drug.   
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Background | 5  Medicare Prescription Drug Programs 
Medicare Part B.  Medicare covers a limited number of outpatient drugs under its 
Part B benefit.31  Part B-covered drugs generally fall into the following three 
categories: drugs furnished incident to a physicians service (e.g., injectable drugs 
used in connection with the treatment of cancer); drugs explicitly covered by statute 
(e.g., some vaccines and oral anticancer drugs); and drugs used in conjunction with 
durable medical equipment (DME) (e.g., inhalation drugs).32  Medicare beneficiaries 
can receive Part B drugs through physician offices; hospital outpatient departments; 
DME suppliers; and in certain specific instances, pharmacies. 
Medicare Part D.  Medicare Part D, also known as the Medicare Prescription Drug 
Benefit, is an optional prescription drug benefit available to Medicare beneficiaries to 
supplement their Medicare benefits.  Individuals enrolled in Part D can choose to 
receive benefits through stand-alone prescription drug plans or through Medicare 
Advantage prescription drug plans that provide integrated medical coverage, 
including drugs.  Part D typically covers a broad range of outpatient drugs, including 
cardiovascular drugs, insulin, antibacterial drugs, and some vaccines.  The Centers for 
Medicare & Medicaid Services (CMS) contracts with private companies, known as plan 
sponsors, that offer Part D prescription drug plans with varying drug coverage and 
cost-sharing requirements.   
Methodology 
Scope 
This review is national in scope.  It focuses on the orphan status of 40 high-
expenditure drugsthe 20 drugs with the highest Medicare expenditures in Part B 
and the 20 drugs with the highest Medicare expenditures in Part D.  This review is not 
designed to (1) provide insight into the full array of economic forces involved in drug 
manufacturer decisions to seek orphan status or establish drug prices; (2) evaluate the 
value of the ODA incentives; or (3) review whether the public health goals of the ODA 
are being met.  
We determined how many of these high-expenditure drugs were orphan drugs 
(i.e., had at least one orphan designation) as of March 2020; reviewed the rare 
diseases or conditions for which the orphan drugs had been granted orphan 
designations and the approved indications within those diseases; and determined the 
extent to which these orphan drugs were utilized for their approved orphan 
indications. 
Sample.  We developed our list of top Medicare drugs using 2018 data on Medicare 
drug expenditures from CMSs Medicare Part B Drug Spending Dashboard and 
Medicare Part D Drug Spending Dashboard (2018 was the most recent year for which 
complete data was available at the time of our analysis).  We then selected a 
nonrepresentative, purposive sample of 40 drugs20 with the highest expenditures 
in Part B and 20 with the highest expenditures in Part D.   
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Background | 6  Data Analysis 
Determining how many high-expenditure Medicare drugs have orphan 
designations and approvals.  We used FDAs Orphan Drug Product Designation 
Database to determine which drugs in our sample had been granted an orphan 
designation.  Because a drug may have multiple orphan designations, we counted the 
number of orphan designations each drug has received.  We also determined how 
many, if any, orphan indications had been approved for marketing.  We reviewed each 
drugs orphan designation(s) to identify the rare disease or condition and patient 
populations associated with each designation and orphan indication.  Lastly, using the 
Drugs@FDA Database, we determined whether the orphan drugs had also received 
marketing approval for any nonorphan indications. 
Determining total expenditures and sales for high-expenditure Medicare orphan 
drugs.  To determine how much Medicare spent on the orphan drugs in our sample, 
we calculated the expenditures for each orphan drug using Part B and Part D claims 
data from 2018.  We also compiled each orphan drugs total sales revenue in the U.S. 
and globally in 2018 from manufacturers publicly available annual financial reports.   
Determining the extent to which high-expenditure Medicare orphan drugs are 
utilized for their approved orphan indications in Medicare.  Using the ICD-10-CM 
code set, we matched the FDA-approved orphan indications to any associated 
diagnosis codes for each of the orphan drugs in our sample.  In Medicare Part B, the 
ICD-10 code(s) related to a patients diagnosis are included on the drug claim.  
However, in Medicare Part D, drug claims do not list diagnosis codes.  Therefore, for 
Part D claims listing an orphan drug in our sample, we examined a beneficiarys 
associated claims in Part B or Part C encounter data to determine the diagnosis 
code(s) associated with the drug.   
See the Detailed Methodology section for more information.  
Limitations 
We selected a nonrepresentative, purposive sample of 40 high-expenditure Medicare 
drugs; therefore, our findings are limited to the orphan drugs in our sample and not 
generalizable to all orphan drugs.  Because we did not conduct a medical record 
review, this analysis relied on the accuracy of Part B claims, Part C encounter data, and 
Part D prescription drug event (PDE) records for drug utilization and diagnosis 
information. 
Standards 
We conducted this study in accordance with the Quality Standards for Inspection and 
Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency.  
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Background | 7   
FINDINGS 
 
More than half of the high-expenditure Medicare drugs in our 
review, which generate billions of dollars in annual sales, are 
eligible for orphan drug incentives for treating rare diseases 
Twenty-two of the 40 high-expenditure Medicare Part B and Part D drugs included in 
our review have been granted at least one orphan designation as of March 2020.  All 
but 6 of the 22 received multiple designationseach for a different rare disease or 
conditionand thus were generally eligible for one or more statutory incentives for 
each orphan designation (see Exhibit 3 and Appendix A).  Furthermore, 20 of these 22 
orphan drugs have received FDA approval for marketing of at least 1 orphan 
indication, with 12 approved to treat multiple rare diseases or conditions.  For 
example, the orphan drug Imbruvica has been granted 13 orphan designations, of 
which 8 have at least one FDA-approved orphan indication.  Eylea and Orencia, on the 
other hand, have both been granted at least one orphan designation but had not 
received FDA approval to market any orphan indications in the U.S. at the time of our 
review.  
Exhibit 3: Nearly three-quarters of the orphan drugs in our review have been 
granted multiple orphan designations.  
 
Source: OIG analysis of FDAs Orphan Drug Product Designation database, as of March 30, 2020. 
*Note: These orphan drugs have been approved to treat multiple orphan indications under a single designation for at 
least one of their orphan designations.  The manufacturers of these drugs may have received incentives for each 
approved indication under a designation.  
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Findings | 8  Orphan drugs accounted for billions of dollars in Medicare drug 
spending, with high-cost physician administered drugs more 
likely to have orphan status than drugs dispensed through 
pharmacies  
The Part B drugs in our review are much more likely to have orphan status.  
Specifically, 16 of the 20 highest-expenditure Medicare Part B drugsgenerally drugs 
that are injected or infused in physicians offices or outpatient settingshave been 
granted at least one orphan designation.33  Conversely, only 6 of the top 20 Part D 
drugsdrugs that are primarily dispensed by pharmaciesare orphan drugs (see 
Appendix B for the orphan status of each drug in our review).   
In 2018, Medicare and its beneficiaries spent over $17 billion on the 16 Part B orphan 
drugs in our review, representing 52 percent of all Part B drug expenditures that 
year.34  On average, Medicare paid between $2,600 and $341,000 per patient for each 
of the orphan drugs in 2018, with 7 of the 16 having annual per-beneficiary costs 
exceeding $25,000.e, 35  Medicare beneficiaries were responsible for 20 percent of 
these annual drug costs through coinsurance.f  See Appendix D for further details. 
Medicare Part D spent $14 billion on the 6 Part D orphan drugs in our review, 
representing 8 percent of all Part D drug spending in 2018.  On average, Medicare 
Part D paid between $38,000 and $103,000 per beneficiary for each of the orphan 
drugs, with 4 of the 6 orphan drugs having annual per-beneficiary costs exceeding 
$50,000.  Medicare Part D and its beneficiaries are directly affected by high drug 
prices, with total out-of-pocket costs for these orphan drugs potentially totaling 
thousands of dollars per year including deductibles, copayments (fixed payment 
amounts), and coinsurance (payments based on a percentage of the drugs cost).g   
The orphan drugs in our review included some of the best-selling 
drugs in the world 
According to manufacturer reports, U.S. sales aloneacross all orphan and 
nonorphan indicationsexceeded $1 billion per drug in 2018 for 19 of the 22 orphan 
drugs in our review.h  As shown in Exhibit 4, global sales for these orphan drugs 
reached close to $20 billion for a single drug.  
 
 
e Part B spending and annual per-beneficiary costs are based on all utilization for the drug (i.e., utilization 
for both orphan and nonorphan indications).  
f In 2016, 8 in 10 beneficiaries in traditional Medicare (81%) had some type of supplemental insurance to 
cover some or all of Medicare Part B cost-sharing requirements.  Supplemental insurance helps protect 
beneficiaries from incurring high medical expenses; however, high-cost Part B drugs may still financially 
affect individual patients through higher premiums as insurers redistribute costs across beneficiaries. 
g When a drug is covered under Part D, beneficiaries could end up owing thousands of dollars out of 
pocket because supplemental insurance would not apply. 
h Annual 2018 U.S. sales and global sales data were not available for Gammagard Liquid. 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Findings | 9  Exhibit 4: Nearly all of Medicares high-expenditure orphan drugs reported 
total U.S. sales of over $1 billion in 2018.   
 
Source:  OIG analysis of manufacturers 2018 annual financial reports. 
Note: The reported sales in this exhibit are for total annual sales in 2018 for each drug, and therefore do not 
distinguish whether the drug was sold to be used for an orphan indication or a nonorphan indication.  
* Note: Eylea and Orencia did not have any approved orphan indications in 2018, meaning that all reported sales for 
these drugs were for use in more common diseases.  
 Note: Annual 2018 U.S. sales and global sales data were not available for Gammagard Liquid. 
Seven orphan drugs in our review that were approved for only 
rare diseases or conditions generated significant Medicare 
expenditures and billions of dollars in sales 
While some orphan drugssuch as Humira and Eyleafirst reached blockbuster 
status treating nonorphan indications, 7 of the 22 orphan drugs in our review have 
not received FDA approval for any nonorphan indications.  Yet despite primarily 
treating rare diseases or conditions, the drugs generate significant Medicare 
expenditures and billions of dollars in annual revenue.  This revenue is generally a 
result of the orphan drugs receiving approval to treat multiple rare diseases or 
conditions (i.e., a larger combined population) and their considerably higher costs 
(see Exhibit 5).36  For example, Revlimida drug with no nonorphan approvalshas 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Findings | 10  achieved $6.5 billion in 2018 U.S. drug sales for the treatment of rare diseases with 9 
orphan indications.  Three of these indications are distinct patient populations within 
the same rare diseasemultiple myeloma.  In 2018, multiple myeloma accounted for 
over 90 percent of Revlimids total orphan use, with Medicare spending $3.7 billion on 
the drug to treat slightly more than 35,000 beneficiaries with the disease (an average 
of $106,000 per patient).37  Under Medicare Part D, beneficiaries potentially had to pay 
thousands of dollars in out-of-pocket costs to cover the high cost of the drug.38  
Exhibit 5: In general, orphan drugs approved to treat only rare diseases or 
conditions had the highest annual per-beneficiary costs compared to drugs 
approved to treat both orphan and nonorphan indications.  
 
Source: OIG analysis of Medicare Part B and Part D 2018 drug spending data.  
Many orphan drugs in our review were also approvedand 
primarily usedfor more common indications  
Less than 20 percent of all orphan drugs are approved to treat a common diseases or 
conditions in addition to their orphan-designated rare diseases or conditions. 
However, 68 percent (15 of the 22) of orphan drugs in our sample have approvals for 
common diseases or conditions (see Appendix C for details).  This includes 10 drugs 
that were originally approved for one or more common nonorphan diseases or 
conditions before being FDA-approved for a rare disease (see Appendix A for 
details).39  For example, Avastinone of the best-selling drugs in the worldwas 
originally approved by FDA in 2004 for a nonorphan common disease indication 
(i.e., metastatic colorectal cancer).  Since then, Avastin has been approved to treat five 
rare diseases as well. 
 
 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Findings | 11  Of the 15 orphan drugs in our review that were also approved for a nonorphan 
indication, only 1 (Rituxan) was used more often to treat a rare disease or condition 
(see Appendix E for details).i  For 10 of the drugs, less than a quarter of their 
utilization was for an orphan-approved indication (see Exhibit 6)a proportion not 
completely unexpected given the small populations affected by the associated 
diseases.j  For example, approximately 5,000 Medicare beneficiaries received 
Prolia/Xgeva to treat hypercalcemia of malignancy or to treat giant cell tumors of the 
bone, its two approved orphan indications.40  In contrast, more than 532,000 
beneficiaries received the drug for more common indications, such as osteoporosis. 
Exhibit 6: Drugs with both orphan and nonorphan approvals were much less 
likely to be used for their orphan indications.  
 
Source: OIG analysis of 2018 Medicare Part B claims and Part D PDE records. 
*Note: Opdivo and Keytruda both have FDA approval for orphan indications to treat small cell lung cancer (SCLC,) as 
well as nonorphan indications to treat non-small cell lung cancers (NSCLC).  Because ICD-10 diagnosis codes do not 
distinguish between SCLC and NSCLC, we removed units related to any form of lung cancer from our analysis.  
 
 
 
 
i We did not calculate orphan utilization for two drugsEylea and Orencia.  Although both drugs have at 
least one orphan designation, they do not have FDA-approval for any orphan indications.  
j Some of the drugs in our review, such as Enbrel and Harvoni, have only been granted orphan 
designations for pediatric populations.  Therefore, utilization for their approved orphan indications is low 
in Medicare because Medicare beneficiaries are primarily at least 65 years old.   
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Findings | 12  Orphan drug exclusion from the 340B Drug Pricing Program may 
provide significant financial incentives for manufacturers to seek 
orphan designation for drugs approved to treat common 
diseases or conditions  
Orphan drug exclusion from the 340B Drug Pricing Program may provide an 
additional financial incentive for manufacturers to seek an orphan designation for 
their drugs that is separate from the incentives outlined in the ODA.  The 340B 
program enables eligible health care providersgenerally, those that serve a 
disproportionate share of needy patientsto purchase prescription drugs at 
statutorily discounted prices, which have been estimated to range between 20 to 50 
percent off what the provider would have otherwise paid.41, 42  However, a  
manufacturer is not required to sell an orphan drug at the statutory discount to 
certain types of health care providers participating in the 340B Drug Pricing Program 
even if the drug is being purchased for a more common disease or condition.k  For 
example, fewer than 1 out of 10 Medicare beneficiaries who were prescribed Humira 
(the best-selling drug in the world) in 2018 received it for an approved orphan 
indication (i.e., hidradenitis suppurativa or uveitis).l  However, because of Humiras 
orphan status, the manufacturer would not be required to sell the drug (which costs 
up to $38,000 per year)43 to certain covered entities under the 340B Drug Pricing 
Program at a significant statutory discounteven when its being used for common 
nonorphan indications such as arthritis, psoriasis, or Crohns disease.44   
Even further, a drug needs only to be granted an orphan designation to be excluded 
from the 340B program (i.e., the drug does not need FDA market approval for an 
orphan indication).  For example, two of the orphan drugs in our reviewEylea and 
Orenciahave both been granted at least one orphan designation but had not 
received FDA marketing approval for any orphan indications in the U.S. at the time of 
our review.  The manufacturers of both drugs are not required to sell their drugs at 
the 340B discount price to certain covered entities because the drugs have been 
granted an orphan designation.
 
k 42 U.S.C.  256b(a)(4) and (e).  Manufacturers are not required to provide the 340B statutory discount to 
four types of participating health care providersfreestanding cancer hospitals, critical access hospitals, 
rural referral centers, and sole community hospitalswhen purchasing an orphan drug.   
l Humira also has two FDA-approved orphan indications for pediatric conditions including juvenile 
idiopathic arthritis and pediatric Crohns disease.  
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Findings | 13   
CONCLUSION  
 
 
The ODA provides financial incentives to encourage the development of drugs for 
rare diseases or conditions for which treatments might not be developed otherwise.  
As a result, manufacturers have received approval for hundreds of treatments for 
diseases or conditions affecting small, previously overlooked populationstreatments 
that likely would have never been developed without the incentives offered under the 
ODA.  However, as the Orphan Drug Designation Program continues to grow with 
more than a quarter of orphan indication approvals occurring in the last 3 years 
aloneit is important that stakeholders have relevant information on the orphan 
drugs that have qualified for ODA incentives to inform ongoing discussions and 
support congressional and decisionmakers efforts.  
Although this report does not represent a comprehensive view of all orphan drugs, it 
provides several insights on a subset of blockbuster drugs that have benefited from 
ODA incentives:  
  A majority of the highest-expenditure drugs in Medicaresome of the best-
selling drugs in the worldhave been granted at least one orphan 
designation, qualifying their manufacturers for ODA financial incentives. 
  Some orphan drugs in our review have managed to generate significant 
Medicare expenditures and billions of dollars in annual revenue while treating 
only rare conditions.  
  Although the vast majority of orphan drugs treat only rare diseases or 
conditions, many of the high-expenditure orphan drugs included in our review 
were originally approvedand are still primarily usedto treat relatively 
common conditions.  
  Orphan drug exclusion from the 340B Drug Pricing Program may provide 
significant financial incentives for manufacturers to seek orphan designation 
for drugs approved to treat common diseases or conditions. 
On one hand, these findings may illustrate the ODA functioning as intended.  For 
example, by encouraging manufacturers to study whether existing drugs could also 
be used to treat rare diseases (i.e., drug repurposing), the financial incentives offered 
under the ODA subsidize manufacturers investment costs for numerous orphan 
indications.  From another perspective, however, these insights raise important 
questions for further consideration:  
  How do the trends and patterns observed in this purposive sample of 40 high-
expenditure Medicare drugs align with the overall goals of the ODA? 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Conclusion | 14    Are current eligibility requirements and incentives the most effective way to 
ensure the continued development of affordable drugs to treat patients 
suffering from rare diseases and conditions?  
  How has the increasing number of drugs granted orphan designations in 
recent years affected other Federal programs outside of FDA (for example, 
Medicare or the 340B Drug Pricing Program)?  
OIG encourages the policymaking, oversight, and research communities to seek 
answers to these compelling questions.  In debating any potential changes to the 
Orphan Drug Designation Program, it will be vital to ensure that the program 
continues to successfully encourage the development of drugs to treat rare diseases 
or conditions while taking into consideration questions surrounding affordability, 
profitability, and the meaning of rare use.
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Conclusion | 15  AGENCY COMMENTS AND OIG RESPONSE 
 
 
In its comments to the draft report, FDA highlighted the success of ODA incentives in 
advancing Congresss goal of ensuring available drugs for rare diseases while 
emphasizing that ODA remains vital today given that many rare diseases still lack 
FDA-approved treatment.  To that end, FDA expressed concern with the narrow scope 
of OIGs report, noting that the high-expenditure drugs included in our sample are 
not representative of the spectrum of orphan-designated drugs that the ODA helped 
bring to market.  FDA then goes into greater detail about the steps sponsors who 
seek orphan status for a drug must take to receive the various incentives, and that 
without such incentives, sponsors may decide not to undertake the significant 
investment necessary to study the safety and effectiveness of the drug for a rare 
disease use. 
FDA also acknowledged the need to examine drug development incentives to ensure 
that they remain tailored to achieving their purpose.  However, the agency notes that 
there are many factors that drive Medicare drug expenditures, and that the OIG report 
does not speak to the role that orphan-drug designation plays in drug pricing, or if it 
plays one at all.   
OIG notes that our current works focus on high-expenditure Medicare drugs and the 
resulting limitations of our sample are discussed throughout the report.  Further, OIG 
agrees that this study is not focused on drug pricing; rather our findings offer insights 
related to a particular subset of blockbuster drugs, providing descriptive context 
about their orphan status, associated Medicare expenditures, and the revenue that 
manufacturers are able to generate.  We believe this approach is generally responsive 
to Congressional interests in providing appropriate oversight of ODA and will help to 
support any efforts to ensure that the Orphan Drug Designation Program is best able 
to meet its vital goals. 
 
 
 
 
 
 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Agency Comments and OIG Response | 16   
DETAILED METHODOLOGY 
 
 
Data Sources 
Medicare Part B Drug Spending Dashboard.  We obtained 2018 Part B drug 
spending data from CMSs Medicare Part B Drug Spending Dashboard (2018 is the 
most recent year for which complete data was available at the time of our analysis).  
This dashboard is an interactive, web-based tool that presents Medicare spending and 
utilization information for Part B drugs at the Healthcare Common Procedure Coding 
System (HCPCS) code level.45 
Medicare Part D Drug Spending Dashboard.  We obtained 2018 Part D drug 
spending data from CMSs Medicare Part D Drug Spending Dashboard (2018 is the 
most recent year for which complete data was available at the time of our analysis).  
This dashboard is an interactive, web-based tool that presents Medicare spending and 
utilization information for Medicare Part D drugs at the drug brand name and generic 
name level.46 
Orphan Drug Product Designation Database.  We obtained data on orphan drug 
designations and approvals for drugs included in our review from FDAs Orphan Drug 
Product Designation Database on March 30, 2020.  These data contain information on 
the drugs generic and trade name, the orphan designation (i.e, the disease or 
condition the drug is intended to treat), and the orphan designation status.  The 
database also lists whether the drug received FDA approval for marketing, the 
approved label indication, and the market exclusivity end date.47 
Drugs@FDA Database.  We obtained all marketing approval data for orphan drugs in 
our review, including approvals for nonorphan indications.  These data contain patient 
information, labels, approval letters, and reviews for drug products.  CDER imports 
this information daily from FDAs Document Archiving, Reporting, and Regulatory 
Tracking System.48 
Paid Medicare Part B Claims.  We obtained all 2018 Part B-paid claims (i.e., claims 
from the hospital outpatient and physician-office settings) for HCPCS codes 
associated with the orphan drugs in our sample (i.e., the 20 highest-expenditure 
drugs in Part B) from CMSs National Claims History File.  Each record contains 
information about the drug received, diagnosis, and beneficiary as well as the 
identification numbers for the provider who billed Medicare.  
Prescription Drug Event (PDE) Data.  We obtained all 2018 Part D-paid claims for the 
orphan drugs in our sample (i.e., the 20 highest-expenditure drugs in Part D) from 
CMSs PDE File.  Part D sponsors submit a PDE record to CMS each time a drug is 
dispensed to a beneficiary enrolled in its plans.  Each record contains information 
about the drug and beneficiary, as well as the identification numbers for the 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Detailed Methodology | 17  pharmacy and the prescriber.  PDE claims do not include diagnosis information on the 
claim. 
Part B Medical Claims and Part C Encounter Data.  We obtained 2017-2018 Part B 
medical claims and Part C encounter data claims from CMSs Integrated Data 
Repository (IDR) for beneficiaries who had a PDE for an orphan drug in our sample.  
Part B medical claims (for beneficiaries with a standalone Part D plan) and Part C 
encounter data (for beneficiaries with a Medicare Advantage plan) contain diagnosis 
codes for a beneficiarys corresponding PDEs because the PDE record itself does not 
contain diagnosis codes. 
International Classification of Diseases Code Set.  We obtained the International 
Classification of Diseases, Tenth Revision, Clinical Modification (ICD 10 CM) code set 
from CMS.  This code set contains the diagnosis codes that providers report on 
certain Medicare claims.  Providers select codes on the basis of documentation in the 
patients medical record.   
Drug Manufacturers 2018 Financial Reports.  We obtained drug manufacturers 
publicly available 2018 annual financial reports for the orphan drugs in our sample.  
These reports contain information on U.S. and global drug sales. 
Sample 
We obtained 2018 data on Medicare drug expenditures from CMSs Medicare Part B 
Drug Spending Dashboard and Medicare Part D Drug Spending Dashboard.  We then 
selected a purposive sample of 40 drugs20 with the highest expenditures in Part B 
and 20 with the highest expenditures in Part D.   
Data Analysis  
Determining how many high-expenditure Medicare drugs have orphan 
designations and approvals.  We used FDAs Orphan Drug Product Designation 
Database to determine which drugs in our sample had been granted an orphan 
designation.  Because a drug may have multiple orphan designations, we counted the 
number of orphan designations each drug has received.  We also determined how 
many, if any, of those orphan designations had been approved for marketing.  We 
reviewed each drugs orphan designation(s) to identify the patient populations 
indicated for each designation.  Lastly, using the Drugs@FDA Database, we 
determined whether the orphan drugs had also received marketing approval for any 
nonorphan indications and counted the total number of approvals. 
Determining total expenditures and sales for high-expenditure Medicare orphan 
drugs.  To determine how much Medicare spent on the orphan drugs in our sample in 
2018, we calculated the expenditures for each orphan drug using Part B and Part D 
claims data.  We also compiled each orphan drugs total sales revenue in the U.S. and 
globally in 2018 from manufacturers publicly available annual financial reports.   
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Detailed Methodology | 18  Determining the extent to which high-expenditure Medicare orphan drugs are 
utilized for their approved orphan indications in Medicare.  Using the ICD-10-CM 
code set, we matched the FDA-approved orphan indications to any associated 
diagnosis codes for each of the orphan drugs in our sample.  For each Part B orphan 
drug, we calculated the number of beneficiaries and the total units associated with its 
approved orphan indication(s) as well as nonorphan utilization.49  In Medicare Part B, 
ICD-10(s) related to a beneficiarys diagnosis are included on the drug claim.  
Therefore, we determined whether a beneficiary was using the drug for an orphan 
indication on the basis of whether the claim contained an orphan-indication 
diagnosis.  Beneficiaries may have multiple claims for an orphan drug in 2018.  To be 
conservative in our estimates of orphan utilization, if an orphan indications diagnosis 
code was present on any of a beneficiarys claims, we categorized each of that 
beneficiarys claims as being utilized for that orphan indication. 
For each Part D orphan drug, we calculated the number of beneficiaries and the total 
units associated with its approved orphan indication(s).  However, in Medicare Part D, 
drug claims do not list diagnosis codes.  Therefore, for Part D claims listing an orphan 
drug in our sample, we examined a beneficiarys associated claims in Part B or Part C 
encounter data to determine the diagnosis code(s) associated with the drug.  Because 
a Part D drug can be refilled, the office visit with the prescriber may have been several 
months before the drug was dispensed.  Thus, we examined Part B claims and Part C 
encounter data with dates of service from January 1, 2017 to December 31, 2018.  If 
an orphan indications diagnosis code was present on any of a beneficiarys claims in 
2017 or 2018, we categorized each of that beneficiarys PDEs as being utilized for that 
orphan indication.  See Appendix C for 2018 Medicare orphan utilization for each 
orphan drug in our review. 
 
 
 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Detailed Methodology | 19   
APPENDIX A 
 
Total orphan designations with and without an FDA-approved 
orphan indication 
Orphan Drug  Orphan  Orphan  Total  First FDA-
Designations with  Designations  Orphan  Approved 
at Least One FDA- Without an FDA- Designations  Indication 
Approved Orphan  Approved Orphan  Granted 
Indication  Indication 
Alimta  1  0  1  Orphan 
Avastin  5  2  7  Nonorphan 
Copaxone  1  2  3  Orphan 
Darzalex  1  4  5  Orphan 
Enbrel  1  0  1  Nonorphan 
Eylea  0  1  1  Nonorphan 
Gammagard Liquid  1  0  1  Nonorphan 
Harvoni  1  0  1  Nonorphan 
Herceptin  1  1  2  Nonorphan 
Humira  4  2  6  Nonorphan 
Imbruvica  8  5  13  Orphan 
Keytruda  8  4  12  Orphan 
Neulasta  1  0  1  Nonorphan 
Opdivo  4  6  10  Orphan 
Orencia  0  4  4  Nonorphan 
Prolia/Xgeva  2  0  2  Nonorphan 
Remicade  3  2  5  Orphan 
Revlimid  7  2  9  Orphan 
Rituxan  3  1  4  Orphan 
Sandostatin LAR  3  1  4  Orphan 
Soliris  4  4  8  Orphan 
 
Velcade  2  1  3  Orphan 
Source: OIG analysis of FDAs Orphan Drug Product Designation Database and Drugs@FDA Database, as of March 30, 2020. 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Appendix A | 20   
APPENDIX B 
 
The orphan status of each high-expenditure Medicare drug in 
our review  
High-expenditure Part B drugs are much more likely to have orphan status than are 
high-expenditure Part D drugs. 
20 Highest-Expenditure Part B Drugs   
Alimta  Herceptin  Prolia/Xgeva  Velcade 
Avastin  Keytruda  Remicade  Gammaked 
Darzalex  Neulasta  Rituxan  Lucentis 
Eylea  Opdivo  Sandostatin LAR  Ocrevus 
Gammagard Liquid  Orencia  Soliris  Xolair 
20 Highest-Expenditure Part D Drugs 
Copaxone  Revlimid  Eliquis  Novolog 
Enbrel  Abiratone Acetate  Invega Sustenna  Spiriva 
Harvoni  Admelog  Januvia  Symbicort 
Humira  Advair Diskus  Levemir  Tresiba Flextouch 
Imbruvica  Basaglar Kwikpen  Lyrica  Victoza 
Source: OIG analysis of FDAs Orphan Drug Product Designation Database, as of March 30, 2020.  
 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Appendix B | 21   
APPENDIX C 
 
FDA approvals for orphan and nonorphan indications for each 
orphan drug in our review 
Medicares high-expenditure orphan drugs were typically approved for 
nonorphan indications as well.  
Orphan Drugs with FDA-Approved Orphan and Nonorphan Indications
Alimta  Harvoni  Neulasta  Rituxan 
Avastin  Herceptin  Opdivo 
Enbrel  Humira  Prolia/Xgeva 
Gammagard Liquid  Keytruda  Remicade 
Orphan Drugs with FDA-Approved Nonorphan Indications Only 
(Designation Only) 
Eylea  Orencia 
Orphan Drugs with FDA-Approved Orphan Indications Only
Copaxone  Imbruvica  Sandostatin LAR  Velcade 
Darzalex  Revlimid  Soliris 
Source: OIG analysis of FDAs Orphan Drug Product Designation and Drugs@FDA Databases, as of March 30, 2020. 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives 
OEI-BL-20-00080  Appendix C | 22   
APPENDIX D 
 
2018 Medicare expenditures for the orphan drugs in our review 
Orphan Drugs  2018 Medicare  Average Spending 
Expenditures  Per Beneficiary 2018 
Revlimid  $4,065,312,202  $103,028 
Humira  $3,169,970,208  $38,649 
Eylea  $2,630,237,218  $10,684 
Enbrel  $1,905,134,334  $39,324 
Imbruvica  $1,867,219,911  $85,128 
Keytruda  $1,833,481,477  $51,104 
Opdivo  $1,742,149,938  $52,241 
Rituxan  $1,735,522,535  $23,986 
Harvoni  $1,725,031,870  $78,257 
Prolia/Xgeva  $1,442,335,118  $2,657 
Neulasta  $1,392,385,512  $15,449 
Copaxone  $1,378,539,482  $55,527 
Remicade  $1,181,714,327  $22,073 
Avastin  $1,030,280,650  $4,517 
Herceptin  $835,765,289  $39,919 
Orencia  $819,142,115  $29,907 
Darzalex  $655,526,968  $69,328 
Alimta  $477,289,506  $24,416 
Velcade  $450,993,873  $21,882 
Sandostatin LAR  $421,420,868  $41,627 
Soliris  $404,038,556  $340,910 
Gammagard Liquid  $341,643,109  $21,488 
TOTAL   $31,505,135,066  N/A 
Source: OIG analysis of Medicare Part B data and Medicare Part D data, 2018. 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Appendix D | 23   
APPENDIX E 
    
 
2018 Medicare orphan utilization for each orphan drug in our 
review 
 
Orphan  Units  Percentage  Units  Percentage  Units  Percentage 
Drug  Utilized for  of Units  Utilized for  of Units  Removed  of Units 
Orphan  Utilized for  Nonorphan  Utilized for  from  Removed 
Indications  Orphan  Indications  Nonorphan  Analysis  from 
Indications  Indications  Analysis 
Alimta  546,760  7%  7,318,020  93%     
Avastin  5,405,712  37%  9,093,651  63%     
Copaxone*  3,790,835  99%  28,754  1%     
Darzalex*  12,853,462  98%  203,370  2%     
Enbrel  0  0%  1,576,376  100%     
Eylea             
Gammagard  177,862  2%  8,804,902  98%     
Liquid 
Harvoni  0  0%  1,524,726  100%     
Herceptin  288,565  3%  8,689,045  97%     
Humira  112,148  9%  1,176,256  91%     
Imbruvica*  7,607,342  96%  301,338  4%     
Keytruda  8,339,647  20%  9,986,106  24%  23,687,792  56% 
Neulasta  18  0%  333,994  100%     
Opdivo  18,357,094  26%  19,858,126  28%  32,236,528  46% 
Orencia             
Prolia/Xgeva  1,268,440  1%  83,449,538  99%     
Remicade  3,201,742  21%  12,052,002  79%     
Revlimid*  5,746,547  99%  83,112  1%     
Rituxan  1,144,585  54%  973,497  46%     
Sandostatin  1,889,982  78%  521,963  22%     
LAR* 
Soliris*  1,920,541  96%  89,885  4%     
Velcade*  9,950,411  94%  608,128  6%     
Source: OIG analysis of 2018 Medicare Part B claims and Part D PDE records. 
*Note: These are orphan drugs with FDA-approval for orphan indications only.  Any nonorphan utilization for these drugs may be 
attributable to off-label uses for the drug or to limitations of the diagnosis codes listed on the claims. 
Note: We did not calculate orphan utilization for two drugsEylea and Orencia.  While both drugs have at least one orphan 
designation, they do not have FDA-approval for any orphan indications.  
Note: Opdivo and Keytruda both have FDA-approval for orphan indications to treat small cell lung cancer (SCLC), as well as 
nonorphan indications to treat other non-small cell lung cancers.  However, ICD 10 diagnosis codes for SCLC are not distinguishable 
from other non-small cell lung cancers.  Therefore, we removed units utilized for lung cancer from our analysis.
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Appendix E | 24  Appendix F:  Agency Comments
DATE:  Sept. 24, 2021 
TO:  Deputy Inspector General Suzanne Murrin 
FROM:  Director, Public Health Strategy and Analysis Staff 
SUBJECT:  FDAs Comments to OIG Draft Report: 
FDA is providing the attached general and technical comments to the OIG Draft Report, 
High-expenditure Medicare drugs often received Orphan Drug Act incentives designed to 
encourage the development of treatments for rare diseases, OEI-BL-20-00080.  
We appreciate the opportunity to review and comment on this draft report before it is 
published. 
Lisa B.  Digitally signed by Lisa 
B. Rovin -S 
Rovin -S Date: 2021.09.24 
____________________________ 
16:27:16 -04'00'
Lisa Rovin 
Director, Public Health Strategy and Analysis Staff 
Attachment 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives 
OEI-BL-20-00080                     Appendix F | 25 FDAs General Comments to OIG Draft Report, High-Expenditure Medicare Drugs often 
Received Orphan Drug Act Incentives Designed to Encourage the Development of Treatments for 
Rare Diseases, OEI-BL-20-00080  
The Agency appreciates the opportunity to review and comment on this draft report. 
Persons suffering from rare diseases often have no treatments.  Because their populations are so 
small, they cannot depend on the usual market forces (e.g., supply and demand) to address their 
unmet needs. Recognizing this, in 1983 Congress enacted the Orphan Drug Act (ODA), to 
provide incentives for developing drugs needed by patients with rare diseases.  In the decade 
prior to enactment of the ODA, very few drugs for rare diseases had been developed and 
approved.  However, since the ODA was enacted, FDA has approved over 500 unique drugs for 
the treatment, diagnosis, or prevention of rare diseases.  The incentives created by the ODA have 
helped advance Congresss goal of ensuring patients with rare diseases have the diagnostics and 
therapies they need.  However, despite significant advances in recent years, most rare diseases 
continue to lack an FDA approved treatment.  The ODA remains vital to driving interest in the 
development of products for rare diseases. 
FDA appreciates OIGs look at Medicare expenditures on certain drugs that have orphan-drug 
designation.  However, FDA is concerned thatbecause the objective of the report is narrow in 
scopethe majority of orphan drugs are not adequately assessed or represented in OIGs 
findings.  The 20 drugs approved for rare disease indications1 discussed in OIGs report 
represent approximately only 4% of all orphan-designated drugs with FDA approval for rare 
disease indications. In significant ways, these drugs are not representative of the spectrum of 
orphan-designated drugs that the ODA has helped bring to market for rare disease indications.  
For example, most of the orphan-designated drugs discussed in the report are approved for both 
rare disease indications and common (i.e., non-rare) disease indications.  Although OIG chose to 
refer to these as orphan drugs, these drugs are primarily used for their common disease 
indications, and according to OIGs analysis, most of the Medicare expenditure noted in the 
report was for the drugs common disease indications.  This is not representative of orphan drugs 
generally, because most drugs with orphan-drug designation that are FDA-approved are 
approved only for use in rare diseases.  FDA believes it important to highlight these limitations 
so that the reports conclusions can be viewed with appropriate perspective.  
The ODA provides important incentives for drug sponsors to study the safety and effectiveness 
of existing drugs approved for common diseases that may also show promise in treating a rare 
disease.  Such re-purposing is both resource-intensive for sponsors and valuable to patients.   
Re-purposing may require significant investment from the drug developer and usually requires 
new clinical studies to assess safety and efficacy, including proper dosage for patients with the 
rare disease.  Incentivizing this investment can allow companies to move a rare disease 
development program forward.  Without ODA incentives, the sponsor of a drug approved for a 
common disease may decide not to undertake the significant investment necessary to study the 
safety and effectiveness of the drug in a promising rare disease use.   
Where a sponsor is developing a drug for both a common disease and a rare disease, it is 
important to note that the orphan drug incentives associated with the ODA apply narrowly to 
1 The OIG report discusses two other drugs that have orphan-drug designation that are FDA-approved for common 
(i.e., non-rare) disease indications, but those two drugs are not FDA-approved for rare disease indications. 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives 
OEI-BL-20-00080                    Appendix F | 26 FDAs General Comments to OIG Draft Report, High-Expenditure Medicare Drugs often 
Received Orphan Drug Act Incentives Designed to Encourage the Development of Treatments for 
Rare Diseases, OEI-BL-20-00080  
spur development of the drug for the rare disease and do not apply when the same drug is 
developed for a common disease.2  Further, the sponsor is not eligible for incentives simply upon 
designation of its drug as an orphan drug, but the sponsor must meet additional criteria to benefit 
from each incentive.  For example, a sponsor is only eligible for the orphan drug tax credit for 
certain, qualified studies in the rare disease; a sponsor is only eligible for the exemption from the 
marketing application fee if it submits an original application for a use in the designated rare 
disease and the application does not include an indication for a common disease; and orphan-
drug exclusivity only applies to the drug for the approved use or indication in the rare disease 
and does not block approval of the same drug for a common disease use.  Therefore, when the 
report notes that a drug has orphan-drug designation, that does not signify that the sponsor has 
received any incentives. To the extent that the sponsor did receive incentives, those incentives 
would have been tied to the development of the drug in the rare disease only. 
FDA understands that drug pricingparticularly in instances in which sponsors seek and receive 
exclusivity incentivesis an important issue, and that decisions about drug pricing have wide-
ranging effects on public health.  The Agency also acknowledges the need to examine drug 
development incentives, to ensure that they remain tailored to achieving their purpose.  However, 
as noted above, the OIG report only touches on a small piece of this complex public health issue.  
There are many factors that drive Medicare drug expenditures, and these apply whether or not a 
specific drug has orphan-drug designation.  Ultimately, the report does not speak to the role that 
orphan-drug designation plays in drug pricing, or if it plays one at all.   
FDA is committed to facilitating the development of treatments for patients with rare diseases. 
The ODA is an important tool in achieving this goal. The enactment of the ODA in 1983 was a 
seminal legislative eventpart of a decades long Congressional effort to ensure that everyone in 
this country with an illness has access to safe and effective medicinesand rare disease drug 
development has greatly accelerated since its enactment.  Core to the ODA is the concept of 
equity: whether the disease is common or rare, everyone deserves treatment.  Today, many 
countries have embraced this concept and enacted laws to encourage the development of orphan 
drugs.  The ODA is one of the brightest lights that shine on efforts to improve public health, 
aspiring to ensure that all patients with rare diseases will one day have the diagnostics and 
therapies they need. 
2 As discussed in the report, the 340B program is not part of the ODA and is not implemented by FDA, and the 
orphan drug exclusion applies differently than other orphan drug related incentives. 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives 
OEI-BL-20-00080                    Appendix F | 27  
ACKNOWLEDGMENTS AND CONTACT 
 
Acknowledgments 
Michael Kvassay served as the team leader for this study, and Louis Day served as the 
lead analyst.  Office of Evaluation and Inspections staff who provided support include 
Kevin Farber, Michael Novello, Hilary Slover, and Sara Swisher.   
We would also like to acknowledge the contributions of other Office of Inspector 
General staff, including Sarai Infante, Jessica Swanstrom, Peter Taschenberger, and 
Christopher Weiser.  
This report was prepared under the direction of Dave Tawes, Regional Inspector 
General for Evaluation and Inspections in the Baltimore regional office, and Heather 
Barton, Deputy Regional Inspector General and Louise Schoggen, Assistant Regional 
Inspector General. 
Contact 
To obtain additional information concerning this report, contact the Office of Public 
Affairs at Public.Affairs@oig.hhs.gov.  OIG reports and other information can be found 
on the OIG website at oig.hhs.gov. 
Office of Inspector General 
U.S. Department of Health and Human Services 
330 Independence Avenue, SW 
Washington, DC 20201 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Acknowledgments and Contact | 28   
ABOUT THE OFFICE OF INSPECTOR GENERAL 
 
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-
452, as amended, is to protect the integrity of the Department of Health and Human 
Services (HHS) programs, as well as the health and welfare of beneficiaries served by 
those programs.  This statutory mission is carried out through a nationwide network 
of audits, investigations, and inspections conducted by the following operating 
components: 
The Office of Audit Services (OAS) provides auditing services for HHS, 
either by conducting audits with its own audit resources or by overseeing audit work 
done by others.  Audits examine the performance of HHS programs and/or its 
grantees and contractors in carrying out their respective responsibilities and are 
intended to provide independent assessments of HHS programs and operations.  
These audits help reduce waste, abuse, and mismanagement and promote economy 
and efficiency throughout HHS. 
The Office of Evaluation and Inspections (OEI) conducts national 
evaluations to provide HHS, Congress, and the public with timely, useful, and reliable 
information on significant issues.  These evaluations focus on preventing fraud, waste, 
or abuse and promoting economy, efficiency, and effectiveness of departmental 
programs.  To promote impact, OEI reports also present practical recommendations 
for improving program operations. 
The Office of Investigations (OI) conducts criminal, civil, and administrative 
investigations of fraud and misconduct related to HHS programs, operations, and 
beneficiaries.  With investigators working in all 50 States and the District of Columbia, 
OI utilizes its resources by actively coordinating with the Department of Justice and 
other Federal, State, and local law enforcement authorities.  The investigative efforts 
of OI often lead to criminal convictions, administrative sanctions, and/or civil 
monetary penalties. 
The Office of Counsel to the Inspector General (OCIG) provides 
general legal services to OIG, rendering advice and opinions on HHS programs and 
operations and providing all legal support for OIGs internal operations.  OCIG 
represents OIG in all civil and administrative fraud and abuse cases involving HHS 
programs, including False Claims Act, program exclusion, and civil monetary penalty 
cases.  In connection with these cases, OCIG also negotiates and monitors corporate 
integrity agreements.  OCIG renders advisory opinions, issues compliance program 
guidance, publishes fraud alerts, and provides other guidance to the health care 
industry concerning the anti-kickback statute and other OIG enforcement authorities.
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  About the Office of Inspector General | 29   
ENDNOTES 
 
 
1 FDA, Rare Diseases at FDA, February 20, 2020.  Accessed at https://www.fda.gov/patients/rare-diseases-fda on January 26, 
2021. 
2 Orphan Drug Act of 1983, P.L. No. 97414 (enacted Jan. 4, 1983).  Adding Subchapter BDrugs for Rare Diseases or 
Conditions to Chapter V of the Federal Food, Drug, and Cosmetic Act (FD&C Act). 
3 Meekings, Kiran N., Cory S.M. Williams, and John E. Arrowsmith.  "Orphan drug development: an economically viable strategy 
for biopharma R&D." Drug discovery today 17.13-14 (2012): 660-664. 
4 Chua, Kao-Ping, Lauren E. Kimmel, and Rena M. Conti. "Spending For Orphan Indications Among Top-Selling Orphan Drugs 
Approved To Treat Common Diseases." Health Affairs 40.3 (2021): 453-460. 
5 Michael G. Daniel, et al., The Orphan Drug Act: Restoring the Mission to Rare Diseases, American journal of clinical oncology, 
April 2016, 39.2: 210-213. 
6 Orphan Drug Act of 1983, PL. No. 97414 (enacted Jan. 4, 1983). 
7 Senator Hatch (UT).  Health Promotion and Disease Prevention Amendments.  Congressional Record 130: 25 (October 11, 
1984) p. 31839.  Available from: LexisNexis Congressional; accessed 10/20/20. 
8 Senator Kassebaum (KS).  Health Promotion and Disease Prevention Amendments.  Congressional Record 130: 25 (October 
11, 1984) p. 31840.  Available from: LexisNexis Congressional; accessed 10/20/20. 
9 Health Promotion and Disease Prevention Amendments of 1984, Pub. L. 98551, 98 Stat 2815 (1984),  4 and 526 of the 
FD&C Act. 
10 Senator Hatch (UT).  Health Promotion and Disease Prevention Amendments.  Congressional Record 130: 25 (October 11, 
1984) p. 31839.  Available from: LexisNexis Congressional; accessed 10/20/20. 
11 One of the three orphan designations granted by FDA was subsequently revoked by the agency. 
12 21 CFR  316.23. 
13 21 CFR  316.20-316.21. 
14 To do this, the manufacturer must submit a cost recovery analysis that demonstrates the costs associated with developing 
the drug and an estimate of the expected revenues generated during its first 7 years of marketing. 
15 The New Drug Application is the vehicle through which drug sponsors (e.g., manufacturers) formally propose that FDA 
approve a new pharmaceutical for sale and marketing in the U.S. 
16 The Biologics License Application is a request for permission to introduce, or deliver for introduction, a biologic product for 
sale and marketing in the U.S. 
17 FDA, Delivering Promising New Medicines Without Sacrificing Safety and Efficacy, August 2019.  Accessed at 
https://www.fda.gov/news-events/fda-voices-perspectives-fda-leadership-and-experts/delivering-promising-new-medicines-
without-sacrificing-safety-and-efficacy on February 10, 2020. 
18 FDA, Development and Approval Process, October 28, 2019.  Accessed at https://www.fda.gov/drugs/development-approval-
process-drugs on January 22, 2020. 
19 FDA, Rare Diseases at FDA, February 20, 2020.  Accessed at https://www.fda.gov/patients/rare-diseases-fda on January 26, 
2021. 
 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Endnotes | 30   
20 Orphan drug exclusivity (ODE) applies to that particular drug product (i.e., drug ingredient) and that specifically approved 
orphan indication.  ODE prevents FDA from approving another manufacturers marketing application for the same product to 
treat the same orphan indication that is currently protected by ODE.  ODE does not prevent FDA from approving another 
manufacturers application for the same product if the drug is intended to be used for another indication that is not specifically 
protected by ODE. 
21  21 CFR 316.34.  FDA will send the manufacturer timely written notice recognizing orphan drug exclusivity (ODE) once a 
marketing application for a designated orphan indication has been approved.  In certain cases, an orphan drug may not be 
eligible for ODE if the same drug product (i.e., drug ingredient) has been previously approved for the same use or indication, 
unless the manufacturer can demonstrate clinical superiority over the previously approved orphan drug.  For the definition of 
clinically superior, see 21 CFR 316.3(b)(3).  
22 26 U.S.C.  45C.  The Tax Cuts and Jobs Act of 2017 (Pub.L. No. 11597) reduced the tax credit from 50 to 25 percent. 
23 The Internal Revenue Service implements this incentive.  Drug sponsors (e.g., manufacturers) can only claim the tax credit for 
costs for clinical trials that are studying the drug in the designated rare disease or condition. 
24 84 FR 37882 (Aug. 2, 2019). 
25 A supplement is an application to allow a company to make changes in a product that already has an approved new drug 
application.  Applicants may submit new supplemental drug applications under Prescription Drug User Fee Act VI, and these 
will not incur fees regardless of orphan status.  According to FDA, many approvals of orphan indications are done through 
supplements, and thus not subject to a fee. 
26 Section 527 of the FD&C Act. 
27 FDA, About Orphan Product Grants, December 11, 2020.  Accessed at https://www.fda.gov/industry/about-orphan-products-
grants#history on May 20, 2021.  
28 Veterans Health Care Act of 1992, Pub L. No. 102-585,  602, 106 Stat. 4943, 496771. 
29 H.R. Rep. No. 102-384(II), at 12 (1992) (Conf. Rep.). 
30 GAO.  Medicare Part B Drugs: Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals. 
GAO-15-442. (2015). 
31 To obtain payment for covered drugs, providers submit claims to Medicare using Healthcare Common Procedure Coding 
System (HCPCS) codes.  In the case of prescription drugs, each HCPCS code defines the drugs name and the amount of drug 
represented by one unit of the HCPCS code but does not specify manufacturer or package size information.  Claims also 
contain diagnosis codes based on documentation in the patients medical record. 
32 42 CFR  414.900(b) and Medicare Benefit Policy Manual, ch. 15  50. 
33 Some of the orphan drugs in our sample include biological products, which are some of the most expensive drug treatments 
available.  Gene-based and cellular biologics, for example, often are at the forefront of biomedical research, and may be used 
to treat a variety of medical conditions for which no other treatments are available. 
34 One drug in our sampleEyleawas not granted orphan status until July 2019.  However, given that Eylea was the highest 
expenditure Medicare drug in both 2018 and 2019, including the drug in this part of the analysis is appropriate to show the 
large presence of orphan drugs in Part B.  In 2019, expenditures for these 16 drugs continued to account for half of all Part B 
drug spending. 
35 For Parts B and D, average spending per beneficiary for each drug is based on total spending in 2018 divided by the total 
number of beneficiaries who received the drug.  Because a beneficiary may have received a drug for only part of the year (e.g., 
he or she began treatment in November), the numbers presented here likely underestimate the actual annual cost for many 
patients. 
 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Endnotes | 31   
36 The orphan drugs in our review may also have active patent protections which prevent generic competition.  The lack of 
generic competition may be a factor contributing to higher drug prices.  In general, the term of a new patent is 20 years from 
the date on which the application for the patent was filed.   
37 This includes 1,829 beneficiaries who were treated for multiple myeloma as well as at least 1 of 4 other rare diseases 
Revlimid is approved to treat.   
38 Out-of-pocket costs vary depending on specific prescription drug plan designs, the drug being purchased, and which phase 
of Part D coverage the beneficiary is in.  Beneficiaries may also receive assistance from other payors such as the low-income 
subsidy, State Pharmaceutical Assistance Plans, group health plans, or governmental programs that reduce their out-of-pocket 
costs.  
39 Seven of the 22 drugs in our sample were originally approved for a common nonorphan disease or condition before being 
granted an orphan designation.  
40 Specifically, Prolia/Xgeva has FDA-approval to market for two orphan indications: (1) treatment of hypercalcemia in 
malignancy refractory to bisphosphonate therapy and (2) treatment of patients with giant cell tumor of bone. 
41 42 U.S.C.  256b(a)(1). 
42 GAO.  Medicare Part B Drugs: Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals. 
GAO-15-442 (2015). 
43 CMS, Medicare Part D Drug Spending Dashboard & Data.  Accessed at https://www.cms.gov/Research-Statistics-Data-and-
Systems/Statistics-Trends-and-Reports/Information-on-Prescription-Drugs/MedicarePartD on January 22, 2020. 
44 Although manufacturers are not required to provide the statutory discount on orphan drugs to these covered entities, 
manufacturers may do so at their discretion.  
 
45 CMS, Medicare Part B Drug Spending Dashboard.  Accessed at https://www.cms.gov/Research-Statistics-Data-and-
Systems/Statistics-Trends-and-Reports/Information-on-Prescription-Drugs/MedicarePartB on January 22, 2020. 
 
46 CMS, Medicare Part D Drug Spending Dashboard & Data.  Accessed at https://www.cms.gov/Research-Statistics-Data-and-
Systems/Statistics-Trends-and-Reports/Information-on-Prescription-Drugs/MedicarePartD on January 22, 2020. 
47 FDA, Search Orphan Drug Designations and Approvals.  Accessed at https://www.accessdata.fda.gov/scripts/opdlisting/oopd/ 
on January 22, 2020. 
48 FDA, Drugs@FDA: FDA-Approved Drugs.  Accessed at https://www.accessdata.fda.gov/scripts/cder/daf/ on January 22, 2020. 
49 Several drugs in our review received approval for new orphan indications during 2018 and 2019.  Because ICD-10 codes do 
not always provide the granularity for subpopulations or other specific characteristics of a disease, we did not remove any 
utilization related to these later approvals from our analysis.  As a result, any off-label use for these future orphan indications 
at any point in 2018 was considered to be orphan utilization. 
High-expenditure Medicare drugs often qualified for Orphan Drug Act incentives  
OEI-BL-20-00080  Endnotes | 32