Background: A common narrative is that high prices are necessary for "orphan drugs" because of the fewer patients. In the context of state health insurance systems, the high prices create significant challenges because of limited budgets.

Results: This study carefully examines both costs and revenues of two drugs for cystic fibrosis (ivacaftor and lumacaftor), showing that, for this important example, prices are not high because of fewer patients. The study then explores the justifications usually given for high orphan drug prices, including the need to support research and development for new drugs. Each of these standard justifications is shown to be inadequate; instead, it appears that the exercise of market power in the presence of insurance is the dominant driver of high prices.

Interpretation: Insurers need to re-examine how they address high-priced drugs.