Funding innovation for treatment for rare diseases: adopting a cost-based yardstick approach

Orphanet J Rare Dis. 2013 Nov 16;8:180. doi: 10.1186/1750-1172-8-180.


Background: Manufacturers justify the high prices for orphan drugs on the basis that the associated R&D costs must be spread over few patients. The proliferation of these drugs in the last three decades, combined with high prices commonly in excess of $100,000 per patient per year are placing a substantial strain on the budgets of drug plans in many countries. Do insurers spend a growing portion of their budgets on small patient populations, or leave vulnerable patients without coverage for valuable treatments? We suggest that a third option is present in the form of a cost-based regulatory mechanism.

Methods: This article explores the use of a cost-based price control mechanism for orphan drugs, adapted from the standard models applied in utilities regulation.

Results and conclusions: A rate-of-return style model, employing yardsticked cost allocations and a modified two-stage rate of return calculation could be effective in setting a new standard for orphan drugs pricing. This type of cost-based pricing would limit the costs faced by insurers while continuing to provide an efficient incentive for new drug development.

Publication types

  • Research Support, Non-U.S. Gov't

MeSH terms

  • Drug Costs / standards
  • Humans
  • Orphan Drug Production / economics*
  • Rare Diseases / drug therapy*