OBJECTIVES: Cystic fibrosis (CF) is one of 7,000 rare diseases as defined by the Food and Drug Administration. Since the Orphan Drug Act of 1983, CF has evolved into a successfully treated chronic disease through the development of new therapies. The purpose of this analysis was to estimate the potential budget impact of a novel CF therapy, ivacaftor, on hypothetical managed care plans of varying size.  METHODS: A literature search was conducted in MEDLINE to identify the current prevalence and adherence estimates of G551D mutation CF patients treated with pharmaceuticals. Additionally, Medi-Span drug knowledge data was used to estimate wholesale acquisition cost for ivacaftor. A probabilistic Monte-Carlo simulation model was constructed in Microsoft Excel using literature supported CF disease prevalence, G551D mutation, patient adherence, and ivacaftor cost estimates. The model evaluated iterations of three hypothetical managed care plans made up of 500,000 (plan A); 2,000,000 (plan B); and 4,000,000 (plan C) patient lives and captured annual projected ivacaftor patients and treatment expenditures. Simulations were conducted a 1000 times to derive confidence intervals under each scenario. RESULTS: The model estimated that for health Plan A there would be approximately 1.67 treated patients (95% confidence interval (CI): 1.55-1.80) with annual expenditures of $334,476 (95% CI: $306,817-$362,136); Plan B treated 6.52 patients (95% CI: 6.05-6.99) with annual expenditures of  $1,270,713 (95% CI: 1,169,781-1,371,645); Plan C treated 13.37 patients (95% CI: 12.39-14.36) with annual expenditures of $2,631,001 (CI: $2,419,785-$2,842,217). The per member per month increase in premiums to cover this new expense was estimated to be $0.05. CONCLUSIONS: New therapies for rare conditions, such as ivacaftor, can have a substantial impact on the overall budget of a health plan even though only a small number of patients are treated. The high annual cost of ivacaftor translates to a sizeable increase in the pharmacy PMPM.