Steve Holland jokes that he and his wife avoid Las Vegas because of the bad genetic luck they've had with their three young children, each of whom is afflicted with an extremely rare and potentially deadly disease.

But the River Oaks, Texas, couple could really use a windfall since last month's approval by federal regulators of the drug Aldurazyme, which has dramatically improved and prolonged the Holland children's lives. Keeping Spencer, Madison and Laynie on the drug, which they had received for free during trials run by biotechnology companies, would cost the family $450,000 a year.

The Hollands' predicament underscores a growing debate among drugmakers, federal regulators, insurance companies and patients over who should pay for expensive drugs developed for a very few very sick people.

Advances in biotechnology and a pivotal federal law are fueling an explosion of specialty-drug development. Companies that once wrote off such drugs as unprofitable are now attacking obscure diseases with gusto.

As a result, once-overlooked sick people are getting treated. But the cost of their new drugs has contributed to the skyrocketing cost of filling prescriptions, Medco Health Solutions, a pharmacy-benefits management firm, concluded in a study released last week.

The report reads, in part: 'Given their rapidly escalating costs, it is not surprising that these drugs are appearing with increasing frequency on plans' radar screens.''

In the past five years, the prices of specialty drugs have risen 40 percent per year while nonspecialty drugs' costs have gone up 15 percent annually.

''I hate the prices they charge,'' said Dianne Dorman of the National Organization of Rare Disorders in Washington, D.C. ``But I don't want anything to discourage the companies from developing these drugs.''

The Holland kids suffer from Hurler Schie Syndrome, which damages their organs and joints. The bodies of the afflicted are simply unable to dispose of dead cells. The children, ages 13, 11 and 9, have been getting free Aldurazyme while serving as subjects in experiments run by the biotechnology companies developing the drug.

Thanks to Aldurazyme, the Holland kids have been leading fairly typical lives of late. They have been able, for example, to visit the zoo without wheelchairs.

It took years and millions of research dollars to develop Aldurazyme, which will be used by only about 1,000 Americans. Its makers say the only way to profit from such a low number of patients is to charge some of the highest rates ever for a single drug -- more than $2,800 per weekly injection.

''We have to make a profit to make this drug,'' said Dr. David Meeker of Genzyme General, which is co-marketing Aldurazyme with BioMarin Pharmaceutical Inc. ``It's not enough just to recoup our costs.''

Congress passed the Orphan Drug Act in 1983 to prompt drugmakers to address rare diseases that they would otherwise ignore. The law guarantees tax breaks, funding help and a seven-year monopoly to companies developing drugs for diseases that afflict fewer than 200,000 people. The FDA has approved 240 orphan drugs since.

Making orphan drugs has proven a profitable niche for Genzyme. Its best-selling medicine is Cerezyme, which treats Gaucher's disease, a potentially deadly genetic disorder that causes anemia and enlarged organs. Only 3,500 people take Genzyme's Cerezyme, yet the drug generated $619 million for the company in 2002, costing about $170,000 per patient per year.

Some federal officials, though, believe that the government has been overcharged for some of these medicines. In January, the Centers for Medicare and Medicaid Services slashed what it pays hospitals and doctors for most of the orphan drugs used to treat Medicare patients.

The Biotechnology Industry Organization and patient groups are protesting.

Medicare now reimburses only four orphan drugs, including Genzyme's Gaucher drug, at ''reasonable cost.'' All others are lumped in with most outpatient drug treatments, which are paid at 95 percent of wholesale cost.

Medicare administrator Tom Scully said in an interview that many of the orphan drugs now serve much larger patient populations than originally envisioned.

Take the drug commonly referred to as EPO. It is the world's best-selling orphan medicine, ringing up $8 billion in worldwide sales. Why? Because it's been found to work on many patients other than the drug's original target: kidney patients stricken with anemia.