Yet Another Unintended Consequence of Health Care Reform

Childrens' hospitals wont be able to deliver certain low cost medications to patients in need because the 2010 health care reform package eliminates orphan drug status eligibility for those hospitals. Drug manufacturers were required to provide orphan drug discounts to hospitals, including childrens' hospitals. Orphan drugs, which are categorized by the FDA, are for treatments that affect 200,000 or fewer people a year, and while some of the drugs might have other uses, the use for these conditions could be quite expensive. It's yet another unintended consequence of the health care reform package signed into law earlier this year. As the Times reports:

In an unintended consequence of the new health care law, drug companies have begun notifying children’s hospitals around the country that they no longer qualify for large discounts on drugs used to treat rare medical conditions.

As a result, prices are going up for these specialized “orphan drugs,” some of which are also used to treat more common conditions.

Over the last 18 years, Congress has required drug manufacturers to provide discounts to a variety of health care providers, including community health centers, AIDS clinics and hospitals that care for large numbers of low-income people.

Several years ago, Congress broadened the program to include children’s hospitals. But this year Congress, in revising the drug discount program as part of the new health care law, blocked these hospitals from continuing to receive price cuts on orphan drugs intended for treatment of diseases affecting fewer than 200,000 people in the United States.

The reason behind the change is murky, though some drug makers had opposed expansion of the drug discount program. The discounts typically range from 30 percent to 50 percent, and children’s hospitals say the change is costing them hundreds of millions of dollars.

Under the new law, hundreds of rural hospitals became eligible for discounts for the first time, but the discounts are not available on orphan drugs, which account for a surprisingly large share of their outpatient pharmacy costs. At the same time, children’s hospitals lost access to discounts on the drugs.

Once again, the cost for medications will rise as a result of the health care legislation. The orphan drug discounts were anywhere from 30-50% of the cost of the medication normally. Drug companies have gone along with this because they receive tax credits to conduct research on these diseases.

This follows a move to all but eliminate OTC drug purchases with flexible spending accounts, which allow consumers to buy their OTC drug needs with pre-tax income. Requiring a doctor's prescription/note to become eligible for the FSA reimbursement adds time and cost, but which also is meant to deter people from using FSAs and diverting income to pre-tax accounts (reducing taxable income). That move is essentially an accounting trick, but one that makes the cost of medication more expensive.

Here, the rationale for the switch isn't apparent. No one quite knows why the law was drafted that way, and an unidentified House Democrat staffer says that it was an honest drafting error.

I'm not totally buying that because the drug manufacturers benefit on their bottom line by eliminating one reduced revenue source (they will now expect full compensation on those drugs). Some drug companies may take an altruistic approach and continue the orphan drug status to curry favor, but others, like Allergan and Genentech said that they would stop providing certain medications under the program as the new law is currently construed.

In the end, this hurts the kids who are suffering from diseases that were formerly treated with drugs on the orphan drug list. It can significantly increase the health care costs - and potentially complicate treatment options for children suffering from diseases that fall into this classification.

Here's hoping that the new Congress can get together to fix this particular mess. Far from improving health care, this particular issue is a big step backwards.