The US health care system is increasingly focusing on value as a basis for reimbursement of pharmacotherapies and devices, and as a result the use of “value frameworks” for measuring and comparing treatment value has grown in recent years. However, the therapies assessed by most frameworks frequently apply to modest-to-large disease populations, rather than the smaller populations affected by rare diseases, where the factors driving value may differ.

Rare diseases are different from diseases affecting larger populations in several fundamental ways. In the United States, a rare disease is defined as one that affects fewer than 200,000 people a year, or one that affects more than 200,000 people per year but for which the costs of drug development are expected to exceed revenues for the product. Because rare diseases are frequently characterized by their high complexity, small patient populations that limit the speed of clinical trial enrollment, and limited availability of clinical experts, the development of therapies for rare diseases is particularly challenging.

Within a small market of patients for which the per-patient costs of research and development may be sizable, higher per-patient prices are needed to generate sufficient investment returns on successful innovations. The difficulty of justifying much higher prices may result is an “unmet need trap” that impedes innovation and leaves behind a significant number of people who do not have adequate treatments available. Even after a product is developed, access and reimbursement hurdles often remain, because the prices of these products tend to be high and the ability to present favorable cost-effectiveness evidence is frequently low.

Attempting to surmount some of these challenges, the Orphan Drug Act, introduced in 1983, has provided manufacturers with incentives including federal funding for drug development, tax credits for clinical trials, and market exclusivity rights. Despite increases in rare disease treatments attributable to the Orphan Drug Act, the economic value of rare disease treatments has come under increasing scrutiny given high prices for many rare disease treatments and difficulty demonstrating clinical and societal value. While value assessments for rare disease treatments are needed, in this piece we argue that assessing the value of treatments for rare diseases presents several unique challenges that should be considered.

The ‘Insurance Value’ Of Innovation Is Disproportionately Higher For Rare Diseases

Payers often estimate the value of rare disease therapy by calculating the gains to treated patients alone. However, the value of a rare disease therapy does not only accrue to patients who consume therapy but to all premium-paying beneficiaries who are at risk, albeit low, of developing a given rare disease. The intuition behind this argument is that individuals without a rare disease may still value a rare disease therapy in the same way that individuals without an illness still value health insurance.

Health insurance offers financial protection against the possibility that an individual will experience an adverse health event in the future. Similarly, all premium-paying beneficiaries of a health plan derive “insurance value” from the availability of a rare disease therapy because that treatment will be available in the low probability event that they themselves develop the rare disease. While no estimates currently exist of the size of insurance value in rare diseases specifically, insurance value has been estimated among a large set of medical therapies to be roughly equal to the conventional economic value of treatment based on quality-adjusted life-years (QALYs) gained alone.

Why is insurance value particularly valuable in rare diseases? The share of total value accounted for by insurance value goes up with two characteristics of a disease: its severity and its rarity. More severe diseases represent greater risks to healthy consumers because they involve bigger reductions in well-being in the event of illness. On average, disease severity and quality-of-life losses are greater among patients with rare diseases than other diseases, although exceptions exist.

Second, insurance value is disproportionately more important for rare diseases. Insurance value accrues to all consumers—even those who do not suffer from the relevant disease—while conventional value measures only confer benefits on those who are sick. Since the proportion of “non-sick” consumers is higher for rare diseases, insurance value ends up being disproportionately important for these conditions.

The Value Of Health Equity May Be Particularly Important For Rare Diseases

Existing value frameworks also do not account for the fact that individuals may feel significantly greater altruism toward patients suffering from uncommon diseases with limited treatment options than they do toward those suffering from more common diseases. For example, imagine two alternative treatments, each of which generates 100,000 additional QALYs in aggregate in the population. Innovation A addresses a fairly small unmet need for a large number of people, providing 0.25 additional QALYs to 400,000 people. Innovation B, in contrast, provides 50 additional QALYs to 2,000 people and thus addresses a very large unmet need for a small number of people.

Conventional health economic analysis would assert that at the same cost per person, these two innovations would be equally valuable to society, since both create aggregate improvements of 100,000 QALYs. Yet, a wealth of survey evidence suggests that when holding the total health gain constant, the average person actually prefers to allocate resources toward the treatment of more severe uncommon diseases than milder common diseases, an idea frequently referred to as the “fair innings” hypothesis.

Put differently, individuals demonstrate egalitarian tendencies when it comes to health; that is, they value ensuring that treatments are distributed equitably across patients and diseases, rather than ensuring that total health within society is maximized. This preference for health equity also implies that for two diseases of equal severity but unequal prevalence, society may value improvements in the less common disease more highly to address the health inequality that would otherwise result if the larger disease population were instead treated. Moreover, economic incentives imply that rare diseases will attract less innovation spending and thus fewer treatment options, because market size is too small to support many treatments. This magnifies the potential for unmet need.

Rare Diseases, Which Are Often Severe, Have Large Spillover Effects To Loved Ones

Today’s value frameworks are designed to capture traditional cost-effectiveness components, but other important components of value may be undervalued or excluded from these assessments, with particular implications for rare diseases. For example, reductions in caregiver burden are poorly measured but are highly relevant for rare, severe diseases such as cystic fibrosis and lysosomal storage disorders (such as Fabry disease and Pompe disease). Each of these diseases is associated with significant, long-term financial costs and declines in well-being among caregivers, exemplified by a nearly 30 percent rate of clinical depression and increased likelihood of job turnover and forgone career opportunities among parents caring for children with cystic fibrosis in one study.

Improvements in caregiver well-being associated with effective rare disease therapies are important to consider but are infrequently measured and incorporated into value assessments generally and in rare disease, in particular. Declines in emotional well-being attributable to caregiving are particularly difficult to quantify and value, but a wealth of literature has established that caregiver burden is significant. Models currently exist for how reductions in disutility to caregivers associated with a therapy may be factored into standard cost-effectiveness assessments, but the use of these models in actual value assessments by payers has been limited.

Importantly, the fact that poor health of individuals has substantive spillovers for loved ones is not unique to rare diseases. In a recent Health Affairs Blog post, we discussed how family spillovers are generally underappreciated in assessing the value of improving health. However, the issue is arguably more relevant for rare diseases that affect individuals early in life (for example, cystic fibrosis, Duchenne muscular dystrophy, inherited retinal blindness) compared to diseases at large. For instance, diseases such as Alzheimer’s dementia and lung cancer have large spillover effects on families both in terms of caregiver economic burden and declines in well-being. However, these diseases typically affect individuals after decades of life, which means that the negative spillover effects to loved ones also do not occur until much later in life. Meanwhile, severe rare diseases affecting children have immediate spillover effects on loved ones and may, for some diseases, span three to five decades.

Valuing Cures In Rare Disease

The emergence of gene therapy as a potential cure for genetically based rare diseases—such as hemophilia, sickle cell disease, and Leber congenital amaurosis, an uncommon cause of childhood blindness—has the potential to create large value for those who are cured of disease, but at high cost. Estimates of the cost of gene therapy frequently exceed $1 million. Rare diseases are more likely than more common conditions such as heart disease to be targets of curative therapies such as gene therapy; this is primarily because rare diseases often stem from isolated genetic abnormalities rather than a combination of environmental and other factors.

In assessing the value of curative therapies, standard cost-effectiveness analysis would compare the lifetime benefits of eliminating disease to the lifetime costs of treatment (which would occur up-front for gene therapy). Under this approach, even highly costly but curative therapies could be cost-effective. However, payers may struggle to finance the large up-front costs of gene therapy, not only because the immediate budget impacts may be large but also because the value that accrues to patients over time may not be realized by a single payer as patients change insurers over time. This puts assessments of value in conflict with budgetary criteria. Long-term thinking that aims toward promoting high-value health care requires that value frameworks separate value assessment from budgetary assessments.

What’s Next?

To date, more than 1,000 rare diseases have been described, a number that we should expect to grow as developments in precision medicine improve our understanding of the genetic determinants of disease and the role of targeted therapies in these increasingly more specified patient populations. Put differently, at some point, could every disease be a rare disease?

The Orphan Drug Act exists to encourage innovation into rare diseases and implicitly reflects the priority that society has placed on improving the health of those affected by a rare disease. Nevertheless, as we work to ensure that prices of new therapies are better aligned to their value, our understanding of what constitutes value in rare disease treatment is limited. In a value-based reimbursement and coverage environment, it is essential that value frameworks consider the potentially unique aspects of value that rare disease treatments provide.

We recommend that creators of value frameworks recognize the unique issues associated with valuing treatments for rare diseases by adopting societal, as well payer-oriented, perspectives in valuing rare disease treatments, and by distinguishing important budgetary and financing issues from value assessments. A societal perspective of rare disease treatments should incorporate the important roles of treatment spillovers, societal preferences about health equity, and the insurance value of innovation.

Authors’ Note

Financial support provided by Vertex Pharmaceuticals to Precision Health Economics. In addition to their academic positions, Drs. Jena and Lakdawalla hold the positions of consultant and chief scientific officer, respectively, at PHE.