CBO Projects Nearly $9 Billion Hit to Medicare from Orphan Drug Loophole
A new report from the Congressional Budget Office (CBO) projects that expanded exemptions for orphan drugs under the One Big Beautiful Bill Act could cost Medicare an estimated $8.8 billion over 10 years. The revised analysis, released on October 20, 2025, updates the CBO’s earlier $5.1 billion projection after factoring in three blockbuster cancer therapies—Darzalex (daratumumab), Keytruda (pembrolizumab), and Opdivo (nivolumab)—now considered eligible for exemption from price negotiations.
The revision was requested by Democratic lawmakers after outside experts flagged omissions in the CBO’s summer analysis. The CBO’s estimate hinges on how the Centers for Medicare & Medicaid Services (CMS) classifies drug formulations for negotiation. If all formulations are treated together, the cost impact could rise to $10.9 billion, but if CMS views some as distinct products, the total may fall to $6.7 billion. The office noted that its calculations do not yet account for CMS’s final 2028 negotiation guidance, which incorporates Medicare Advantage spending into the formula determining which drugs qualify for negotiation.
Under the Inflation Reduction Act of 2022 (IRA), CMS gained the authority to negotiate prices for high-expenditure drugs, but the law exempted products that hold a single orphan drug designation—typically treatments for rare diseases with limited approved indications. The exemption period spans 9 years for small-molecule drugs and 13 years for biologics. The pharmaceutical industry argued that the narrow exemption discouraged companies from exploring new indications for rare disease drugs, prompting lawmakers to broaden these protections in the One Big Beautiful Bill Act.
CMS has defended the expanded exemptions, stating they “preserve critical incentives for rare disease research while maintaining negotiation eligibility when appropriate.” However, Democrats and patient advocacy groups have sharply criticized the policy shift. Merith Basey, of Patients for Affordable Drugs Now, called the change “a wildly expensive handout to Big Pharma,” while Mark Miller of Arnold Ventures urged Congress to repeal the exemption, labeling it a “giveaway that protects pharmaceutical monopolies.”
Conversely, PhRMA spokesperson Brianna Allen argued that the exemptions reflect the bipartisan intent of the Orphan Drug Act, emphasizing the need to sustain innovation for the 90% of rare diseases still lacking approved therapies.
For managed care organizations and pharmacy benefit managers, the CBO’s revised projection underscores the budgetary and policy ripple effects of shifting drug price negotiation frameworks. Orphan drugs, while representing a small segment of total prescriptions, account for a growing share of overall drug spending due to their high costs and expanding indications. Understanding how these exemptions interact with Medicare’s pricing authority will be critical for forecasting reimbursement trends, formulary strategy, and value-based contracting. As CMS refines its guidance and political debates continue, managed care professionals will need to closely monitor how these evolving rules shape drug affordability, access, and sustainability within the Medicare and commercial markets alike.
References
Muoio D. Expanded price negotiation exemption for orphan drugs to cost Medicare $8.8B over 10 years: CBO. Fierce Healthcare. Published October 21, 2025. Accessed October 23, 2025. https://www.fiercehealthcare.com/regulatory/expanded-price-negotiation-exemption-orphan-drugs-cost-medicare-88b-over-10-years-cbo
Swagel PL. Revised Estimate of Changes Under the 2025 Reconciliation Act for Exemptions From Medicare Price Negotiations for Orphan Drugs. Congressional Budget Office, US Congress. October 20, 2025. Accessed October 23, 2025. https://www.cbo.gov/system/files/2025-10/61818-Pallone-etal-orphan-drugs-letter-10-20-25.pdf
