Biotech and pharmaceutical companies are lobbying the Trump administration to exclude treatments for rare, or "orphan," diseases from two new Medicare pilot programs designed to lower drug prices, known as GLOBE and GUARD. Their argument leans on a sympathetic premise: rare-disease drugs serve tiny patient populations, the economics are already marginal, and squeezing their prices could choke off the innovation that produces them. But a new analysis by a Harvard researcher, highlighted in STAT's coverage this week, lands an inconvenient finding on that argument. Exempting orphan drugs from the pilots, the study concludes, would wipe out much of the savings the programs could generate.
That result can seem paradoxical. How can carving out drugs for rare diseases, by definition a small slice of the market, erase most of the savings? The answer is the whole story, and it turns on a definition that no longer describes the thing it was written to protect.
The original logic was sound, and still is
Start with why an orphan-drug exemption exists at all, because the reasoning is legitimate and worth defending. The Orphan Drug Act of 1983 was built to solve a real market failure: drugs for diseases affecting fewer than 200,000 Americans often would never be developed, because the patient population is too small for a company to recoup its research costs. The Act created incentives to pull investment toward those neglected conditions, and it worked, producing treatments that would not otherwise exist.
Exempting orphan drugs from aggressive price negotiation extends that same logic. If a drug serves a genuinely tiny market, driving its price down can make an already marginal business unviable and discourage development for small populations who have no alternatives at all. This concern is not a pharmaceutical-industry invention; it is a real structural problem, the same one that makes ultra-rare diseases commercially unattractive in the first place. So the impulse to shield genuinely small-market rare-disease drugs from price controls is defensible on its own terms, and any honest analysis has to grant it.
The definition came apart from its target
The trouble is that the exemption is triggered not by a drug's actual market size but by its orphan designation, and those two things have drifted far apart. A drug earns orphan status when it is approved for a rare indication, but nothing stops it from later expanding into large, common markets while keeping the label that first attached to it.
The clearest example is Keytruda, Merck's immunotherapy, which was first approved as an orphan drug for melanoma in 2014 and then, within a year, approved for non-small-cell lung cancer, followed by dozens of additional indications. It is now one of the highest-spending drugs in the entire Medicare program. Opdivo followed a similar path. These are not small-market medicines by any meaningful measure, yet they carry the orphan pedigree that can trigger an exemption. The label has become a surrogate for "small-market drug in need of protection," and the surrogate has come unmoored from the substance, because a large share of orphan-designated drugs are, in commercial terms, the opposite of small.
Why exempting orphan drugs guts the savings
Once you see that, the study's paradoxical-seeming result becomes obvious. Savings from a drug-pricing program are concentrated in the highest-spending drugs, since those are where the dollars are. And because so many of the highest-spending drugs carry an orphan designation somewhere in their history, exempting orphan drugs removes precisely the medicines where the savings live. The carve-out is not a modest exception for a handful of tiny products; it is a large hole cut through the middle of the program, and its size is a direct consequence of the label attaching to blockbusters.
This is not hypothetical. The same dynamic is already visible in Medicare's separate drug-price negotiation program, where a provision of the 2025 budget law broadened the orphan exclusion and, in doing so, delayed the negotiation of drugs like Keytruda and Opdivo. Analyses have found that the broadened exclusion exempts or delays close to a third of high-spending drugs, and academic work estimates the cost to taxpayers runs into the billions of dollars a year. The pilots would simply reproduce that leakage if the same exemption were extended to them.
The perverse incentive hiding inside it
There is a further twist that makes the exemption more than a passive loophole. Because orphan status confers valuable, lasting price protection, it creates an incentive to pursue an orphan indication first, secure the designation and the exemption it unlocks, and only then expand into larger markets. The rare-disease on-ramp becomes a gateway to a protected pricing status that carries forward into the mass market.
That inverts the Orphan Drug Act's purpose in a subtle but real way. The Act was meant to pull investment toward neglected rare diseases as an end in itself. Used as a pricing strategy, the orphan pathway instead becomes a means of shielding what will eventually be mass-market revenue from future price controls, with the rare-disease approval functioning as the entry ticket rather than the destination. The incentive still moves money toward rare diseases, but partly for reasons that have nothing to do with the patients it was designed to help.
The real fight is about targeting, not principle
None of this should be read as a case that the industry is simply acting in bad faith, because the underlying concern it invokes is genuine, and a fair account has to hold both truths at once. Drugs for truly ultra-rare diseases do need protection, and a price-control regime blunt enough to crush them would do real harm to patients with no other options. The problem is not that an orphan exemption exists; it is that a single, binary "orphan designation" trigger is far too crude an instrument to tell apart the two very different things it now covers, the genuinely small-market medicine that needs shelter and the blockbuster that merely passed through a rare indication on its way to scale.
So the honest framing of the dispute is not exemption versus no exemption, which caricatures both sides. Industry's position contains a legitimate core, protecting rare-disease innovation, wrapped around a self-interested overreach, shielding blockbusters. The critics' position contains a legitimate core, capturing the savings and closing the loophole, alongside a real risk, harming genuine small-market drugs if the line is drawn too bluntly. Both have a point, and the entire substance of the debate lives in where and how the line gets drawn, not in whether some line should exist. A well-targeted exemption, keyed to actual market size or to whether a drug has expanded beyond its orphan indications, could protect what the Orphan Drug Act meant to protect without functioning as a shield for the biggest sellers. A crude one cannot.
An administration pulling in two directions
It is worth noting, neutrally, that this is unfolding inside a genuine tension in federal policy. The same administration running pilots like GLOBE and GUARD to push drug prices down also signed the 2025 law that broadened the orphan exclusion in the negotiation program, undercutting some of those very savings, and it is now being lobbied to extend the carve-out to the pilots as well. Those two impulses, lowering prices and expanding the exemption, work against each other, and how the administration resolves the friction will determine how much the pilots actually save. The broader question of how aggressively the government should control drug prices is genuinely contested, with real arguments on both sides about savings for beneficiaries versus effects on innovation, and this analysis takes no position on it. The narrower point stands regardless of where one lands on that larger debate: an exemption keyed to a label rather than to market reality will leak, and the leak is large.
How to read it
The useful way to understand this fight is that it is about a definition, not a principle. Almost everyone agrees that genuinely small-market rare-disease drugs deserve some protection; almost no one openly argues that blockbusters should be shielded simply because they once had an orphan indication. Yet the current, designation-based trigger delivers the second outcome in the name of the first, which is why a study can find that exempting orphan drugs erases most of the savings and why that finding, surprising at first, is really just arithmetic. The exemption's size is set by how many big sellers wear the orphan label, not by how many small drugs it protects.
That reframes the exemption from a modest technical carve-out into a central design choice that determines whether these pilots save much of anything at all. The thing to watch is not the yes-or-no of whether orphan drugs are exempted, but how any exemption is defined, because a line drawn by market size or by expansion beyond the original rare indication protects the intended patients, while a line drawn by designation alone protects the intended companies. Getting the definition right is the difference between honoring the Orphan Drug Act and quietly turning it into a loophole.
Primary sources
- STAT News, including John Wilkerson's D.C. Diagnosis reporting and Ed Silverman's Pharmalot column, for the report that biotech companies are lobbying the Trump administration to exclude rare-disease drugs from the GLOBE and GUARD pilot programs, and for the Harvard researcher's finding that excluding orphan drugs would wipe out much of the potential savings from retail drugs.
- KFF for the mechanics of the orphan-drug exclusion in the Medicare Drug Price Negotiation Program, the 2025 reconciliation law's broadening of that exclusion, and the resulting delays in negotiating high-spending drugs including Keytruda, first approved as an orphan melanoma treatment in 2014 before expanding to lung cancer and other indications, and Opdivo.
- Managed Healthcare Executive for the framing of the broadened orphan exclusion as a loophole shielding blockbuster drugs, the estimate that nearly a third of high-spending drugs would be exempt or delayed, and the incentive for manufacturers to pursue rare-disease indications first.
- JAMA and academic analysis, via PubMed Central, for the estimate that exempting sole-orphan drugs from Medicare negotiation costs taxpayers billions of dollars per year.
- The Commonwealth Fund and CMS for the structure of the negotiation program, the $200 million spending threshold, the categories of excluded drugs, and the third negotiation cycle's selection of 15 drugs, including first-ever Part B drugs, accounting for roughly $27 billion in spending.