SEC. 2. FINDINGS AND PURPOSES. 
(a) FINDINGS.—Congress makes the following find-
ings: 
(1) Rare diseases and disorders are those which 
affect small patient populations, defined as fewer 
than 200,000 individuals in the United States. 
Taken together, 25,000,000 Americans suffer from 
one of the 6,000 rare diseases and disorders. 
(2) Because prescription drug manufacturers 
could not make a profit from marketing drugs for 
such small patient populations, very little ‘‘rare dis-
ease’’ research was conducted prior to 1983. Only 
10 orphan drugs existed at that time. 
(3) The Orphan Drug Act, signed into law in 
1983, created financial incentives for the research, 
development, production and distribution of such or-
phan drugs. 
(4) Since 1983, more than 240 new orphan 
drugs have been developed, approved, and marketed 
in the United States and more than 800 additional 
drugs are in the research pipeline. 
(5) The tremendous success of the Orphan 
Drug Act cannot be taken for granted because—
(A) patient access to the more expensive 
orphan drugs is a continuing problem; and
(B) there is a need to stimulate more re-
search for the millions of Americans and thou-
sands of rare diseases for which there are not 
yet effective therapies. 
(6) When Congress adopted the medicare hos-
pital 
outpatient 
prospective 
payment 
system 
(HOPPS) in 1999, it defined orphan drugs based on 
the Federal Food, Drug and Cosmetic (FFD&C) Act 
and placed such orphan drugs in a category that 
provided sufficient reimbursement to assure con-
tinuing access for rare disease patients. 
(7) Despite expressions of concern from Con-
gress, the HOPPS regulation for 2003 does not con-
tinue this policy and, instead, uses a definition of or-
phan drugs that is not supported by the history of 
the Orphan Drug Act and forces most orphan drugs 
into categories in which they are reimbursed at lev-
els significantly below hospital acquisition costs. 
(8) Unless medicare provides adequate reim-
bursement for orphan drugs, hospitals are much less 
likely to have them available for beneficiaries with 
rare diseases, such as cervical dystonia, alpha–1 
antitripsin deficiency, rare cancers, porphyria, sickle 
cell anemia, Tourette syndrome, cystic fibrosis, and 
amyotrophic lateral sclerosis (Lou Gehrig’s disease).
(b) PURPOSE.—The purpose of this Act is to assure 
that medicare beneficiaries with rare diseases have contin-
ued access to orphan drugs in the hospital outpatient set-
ting and that the FFD&C Act definition of rare diseases 
is used by the medicare program. 
SEC. 3. PAYMENT FOR ORPHAN DRUGS AND BIOLOGICALS 
UNDER THE PROSPECTIVE PAYMENT SYSTEM 
FOR HOSPITAL OUTPATIENT DEPARTMENT 
SERVICES. 
(a) 
PAYMENT
FOR
ORPHAN
DRUGS
AND 
BIOLOGICALS.—
(1) IN GENERAL.—Section 1833(t)(1)(B) of the 
Social Security Act (42 U.S.C. 1395l(t)(1)(B)) is 
amended—
(A) by striking the period at the end of 
clause (iv) and inserting a semi-colon; and 
(B) by inserting at the end the following 
new clauses: 
‘‘(v) for periods before January 1, 
2007, does not include a drug or biological 
that has been designated as an orphan 
drug under section 526 of the Federal 
Food, Drug and Cosmetic Act or a drug or 
biological which is described under the 
same Healthcare Procedure Coding System
product code (or product code under a suc-
cessor coding system designated in regula-
tions promulgated under section 1173(c)), 
has the same non-proprietary name, or is 
the ‘same drug’ as that term is defined by 
the Food and Drug Administration under 
regulations promulgated under section 527 
of the Federal, Food, Drug and Cosmetic 
Act; and 
‘‘(vi) for periods before January 1, 
2007, does not include blood clotting fac-
tors for individuals with hemophilia for 
which a biologics license application under 
subsection (a) of section 351 of the Public 
Health Service Act has been submitted on 
or before December 31, 2002.’’. 
(2) CONSIDERATIONS IN APPLYING EXEMPTION 
RULES.—
(A) IN GENERAL.—In determining whether 
a drug or biological is excluded from the pro-
spective payment system under section 1833(t) 
of the Social Security Act (42 U.S.C. 1395l(t)) 
for hospital outpatient department services by 
reason of the amendment made by paragraph 
(1), the Secretary shall not take into account
the fact that a drug or biological may have uses 
that have not been designated as an orphan 
drug under section 526 of the Federal Food, 
Drug and Cosmetic Act. 
(B) 
EXCEPTION
FOR
HIGH
VOLUME 
CLAIMS.—Notwithstanding subparagraph (A), 
for any drug or biological that would otherwise 
be covered by the amendment made by para-
graph (1), if the number of claims submitted by 
hospitals for covered OPD services (as defined 
in section 1833(t)(1)(B) of such Act (42 U.S.C. 
1395l(t)(1)(B)) without regard to clauses (v) 
and (vi) of such section) for such drug or bio-
logical administered exceeds 30,000 for the year 
from which claims are reviewed to determine 
payment rates for a given year, the exclusion 
under such amendments shall apply only to the 
indications for which the drug has been des-
ignated under section 526 of the Food, Drug 
and Cosmetic Act or which are included on the 
Rare Diseases List maintained by the Office of 
Rare Diseases of the National Institutes of 
Health. 
(C) 
TREATMENT
FOR
HIGH
VOLUME 
CLAIMS.—In the case of a drug or biological
that, with respect to which the Secretary deter-
mines that more than 30,000 claims for the 
drug or biological has been submitted in a year 
for covered OPD services as described in sub-
paragraph (B), that drug or biological shall be 
considered to exceed 30,000 claims for all suc-
ceeding years. 
(3) PAYMENT METHODOLOGY.—In the case of a 
drug or biological covered by the amendment made 
by paragraph (1), payment for the drug or biological 
shall be made under section 1842(o)(1) of the Social 
Security Act (42 U.S.C. 1395u(o)(1)). 
(4) EXEMPTION FROM INHERENT REASONABLE-
NESS
AUTHORITY.—Section 1842(b)(8)(A)(i)(I) of 
the 
Social 
Security 
Act 
(42 
U.S.C. 
1395u(b)(8)(A)(i)(I)) is amended by inserting after 
‘‘paid under section 1848’’ the following: ‘‘and other 
than drugs and biologicals and blood clotting factors 
for individuals with hemophilia excluded from the 
prospective payment system for covered OPD serv-
ices 
under 
clauses 
(v) 
or 
(vi) 
of 
section 
1833(t)(1)(B).’’. 
(b) REPORT.—Not later than July 1, 2006, the Sec-
retary shall submit to the Committees on Ways and Means 
and Energy and Commerce of the House of Representa-
tives and the Committee on Finance of the Senate a report 
on payment for orphan drugs and biologicals and blood 
clotting factors for individuals with hemophilia in the hos-
pital outpatient setting including recommendations for ei-
ther continuing or discontinuing the exclusion of such 
drugs and biologicals from payment under section 1833(t) 
of the Social Security Act (42 U.S.C. 1395l(t)). Such re-
port shall include the following: 
(1) Recommendations for methods to appro-
priately reflect the actual costs of orphan drugs and 
biologicals and blood clotting factors for individuals 
with hemophilia under such section. Such methods 
shall be designed to ensure that the payment rate 
established for each drug and biological adequately 
reimburses hospitals for the costs associated with ac-
quiring and dispensing such product, including phar-
macy service and overhead costs. 
(2) The impact of making payment for orphan 
drugs and biologicals and blood clotting factors for 
individuals with hemophilia under such section 
1833(t) on access to such drugs and biologicals by 
patients with rare diseases. 
In preparing this report, the Secretary shall consult with 
patients, physicians, providers of services and suppliers of 
orphan drugs and biologicals and blood clotting factors for
individuals with hemophilia as well as other organizations 
involved in the distribution of such drugs and biologicals 
to such patients, physicians, providers of services and sup-
pliers. 
(c) MORATORIUM
ON
DECREASES
IN
PAYMENT 
RATES.—Notwithstanding any other provision of law, ef-
fective for orphan drugs and biologicals and blood clotting 
factors for individuals with hemophilia furnished by hos-
pital outpatient departments on or after January 1, 2007, 
the Secretary may not directly or indirectly decrease the 
rates of reimbursement in effect on December 31, 2006 
for such orphan drugs and biologicals and blood clotting 
factors for individuals with hemophilia any earlier than six 
months after the date that the Secretary has submitted 
to Congress the report required under section (b). 
(d) EFFECTIVE DATE.—The amendments made by 
subsection (a) shall apply with respect to items furnished 
on or after January 1, 2004.
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