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SEVEN YEARS AGO Washington solved a significant problem in the health field with a combination of tax breaks and marketing incentives. It granted these financial breaks to drug companies that developed treatments for rare diseases -- so that work would go into developing drugs for small markets without the potential for big profits.

According to the National Organization for Rare Disorders, the law has generally worked well. Forty-five so-called "orphan drugs" have won federal approval since 1983, saving many lives, with another 133 now in the final stages of testing.

But those seven years have produced an untreated legal problem as well.

Some companies have taken advantage of the federal category of protected orphan drugs, slipping in pharmaceuticals that treat thousands of patients rather than merely scores or hundreds of them, and thus can bring lavish profits.

In such instances, critics say, the developing firms benefit too much. They get the special tax breaks and, more importantly, the seven years of exclusive marketing rights under federal regulations -- all part of legitimate incentives for development of drugs "of little commercial value," as the 1983 law puts it. But they also benefit from the high prices they can charge even though they are selling their new products in large, rather than small, markets.

Cost to consumers of one new drug to combat dwarfism, for example, can run as much as $30,000 a year. The total market for this therapy, sold exclusively by two firms, approaches $200 million a year. That is more than a sliver of a market.

Such treatments enjoy the protections of the law on orphan drugs but also the profit potentials far beyond those developed for truly rare diseases.

And that's too generous. So Rep. Henry Waxman, D-Calif., wants to close the loophole and has the support of the National Organization for Rare Disorders in doing so.

Waxman would keep the special incentives of the 1983 act. But he would also allow competition for drugs that are potentially very profitable if other pharmaceutical firms are racing to create the same orphan drug at the same time.

In that case, obviously, competitors see the possibilities of new drugs and treatments with profit. That's encouragement enough, and competition might help lower the price of these drugs that their users must pay.

That makes good sense, and Washington should plug loopholes in the 1983 law now rather than waiting until later. A prompt, well-defined reform would correct the weakness quickly. A judicious solution now could prevent more drastic, overly broad correctives later.

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