President Donald Trump’s One Big Beautiful Bill, signed into law last week, reintroduces broader exemptions for orphan drugs from the IRA’s drug price negotiation program—a move welcomed by the biopharma industry. The new tax law also cuts Medicaid funding, posing a minimal risk to pharma’s bottomlines and potentially jeopardizing hospitals’ 340B status. It does not, however, include new rules for pharmacy benefit managers that had been in an earlier draft.
After initially being excluded from a previous version, key exemptions for orphan drugs from Medicare drug negotiations were reinstated in the iteration of the bill that President Trump signed into law on July 4. The policy package also includes steep cuts to Medicaid that could hamstring drug discounts under the 340B program but excludes once-included provisions targeting pharmacy benefits managers (PBMs).
The legislation, formally named the One Big Beautiful Bill, passed narrowly through the Senate last week, by a vote of 51-50, with Vice President JD Vance casting a tie-breaking vote. The House of Representatives then passed the Senate’s version early on July 3, advancing the bill to the president’s desk.
Among its provisions that are most relevant for pharma are certain exclusions that would spare orphan drugs from the Inflation Reduction Act’s (IRA) drug price negotiation program.
Before the new law, the IRA only excluded orphan drugs that have a single indication. This protection is lost after winning a second orphan drug designation. Now, the policy package precludes pricing negotiations for orphan drugs even with multiple such designations. The countdown for when an orphan drug is opened up for negotiations starts only after it is approved for a non-rare indication.
These changes to the orphan drug protections come as good news to the industry, which has long expressed concerns about the potential “chilling effect” of the IRA on rare disease drug development. In an interview with BioSpace last month, Eva Temkin, partner at the law firm Arnold & Porter, said that not only are the IRA’s orphan exemptions “insufficient to continue incentivizing” drug development in this space, but they also “go against decades of Congress trying to catalyze orphan drug development.”
In a July 6 note, analysts at Truist Securities applauded the orphan drug exemptions, writing that they provide “further incentive for rare disease companies to continue investing in multiple indications for rare disease products.”
Also included in Trump’s tax law are steep cuts to Medicaid. The package imposes new work requirements to qualify for the program, while also tightening the overall Medicaid budget, which could curtail health services particularly in rural communities. The cuts could also mean higher out-of-pocket costs for Medicaid beneficiaries.
In a July 7 note to investors, Leerink Partners noted that around 17 million people could lose health coverage by 2034 because of these cuts, as per data from the Congressional Budget Office. From the point of view of the biopharma industry, these Medicaid cuts will eat into their earnings though the impact will be largely minimal, as per the analysts.
“Although Medicaid drug reimbursement is at low prices, future loss of revenue is a marginal negative for drug companies,” Leerink noted.
Medicaid cuts could also endanger the 340B status of several hospitals. The program, which allows providers to dispense drugs at a discount to certain outpatients, requires hospitals to treat a minimum number of Medicaid patients.
This inadvertent downsizing of the 340B program “would be a windfall for the pharmaceutical industry,” Maureen Testoni, CEO for 340B Health, told Endpoints News, noting that having fewer 340B hospitals will mean that companies will no longer need to provide such steep discounts for many of their products.
As for PBMs, which Big Pharma has long blamed for high drug prices, the final tax law does not include rules from an earlier version of the bill that would have threatened their profits, according to SeekingAlpha. One such provision would have prevented the so-called “drug middlemen” from linking their compensation to drugs’ list prices, while another would have banned spread pricing, when a PBM upcharges for prescription drugs, from Medicaid managed care plans.
Correction (July 8): This story has been updated to correct one mention of Medicare cuts that meant to refer to decreases in the Medicaid budget. BioSpace regrets the error.
