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


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.
Garret Kent
GK
Fellows
Department of Economics, The University of Calgary, 2500 University Dr, N,W, Calgary, AB T2N 1 N4, Canada. ahollis@ucalgary.ca.
Aidan
A
Hollis
D016527:Drug Costs / Q000592:standards; D006801:Humans; D009965:Orphan Drug Production / Q000191:economics*; D035583:Rare Diseases / Q000188:drug therapy*