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Drug Companies: Turning Charitable Giving Into Excessive Profits

Wednesday, June 8, 2016 15:05
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When drug companies wish to perform a public service by helping those who cannot afford access to their products, they have two options.  The first is to donate the medicines to those in need, often through a charitable foundation.  This provides good public relations for the firm, but given the desire for ever-higher prices for their products, it provides only a charitable tax deduction.  There is a second path to helping patients gain access to their medicines that can be extremely profitable, presumably also tax deductable, and allows them to raise prices without suffering any loss of business.
Ben Elgin and Robert Langreth provided a lead article for Bloomberg Businesweek, How Big Pharma Uses Charity Programs to Cover for Drug Price Hikes.  They provided this lede.
“A billion-dollar system in which charitable giving is profitable.”
There are organizations commonly called “copay charities” whose goal is to provide assistance to those who are financially unable to gain access to needed drugs.  These outfits provide the funds necessary to keep private insurers and Medicare purchasing the drugs and providing them to the patient.  If the drug company can contribute the copay, which may be only a few percent of the cost of the drug, then they receive the revenue for the majority of the price.  This provides them an excellent return on a “charitable investment.”
These copay charities were often funded with the best of intentions, but the wealth of the drug companies seems to have converted them to service organizations for the pharmaceutical industry.
“’It looks great for pharmaceutical companies to say they are helping patients get the drugs,’ says Adriane Fugh-Berman, a doctor who’s studied pharma marketing practices for three decades and is an associate professor of pharmacology and physiology at Georgetown University. The intent of these donations, she says, is to ‘deflect criticism of high drug prices. Meanwhile, they’re bankrupting the health-care system’.”
“Fueled almost entirely by drugmakers’ contributions, the seven biggest copay charities, which cover scores of diseases, had combined contributions of $1.1 billion in 2014. That’s more than twice the figure in 2010, mirroring the surge in drug prices. For that $1 billion in aid, drug companies “get many billions back” from insurers, says Fugh-Berman.”
The federal government set the rules for this activity in 2003 when Medicare Part D was initiated.  It recognized that for drug companies to directly help Medicare patients buy their drugs would be equivalent to an illegal kickback, but legislators conveniently provided another mechanism for the drug companies to accomplish the same thing.
“….an act of Congress in 2003 allowed such charities to dramatically expand in scale. That year, lawmakers expanded Medicare, creating Medicare Part D to cover prescription drugs. This big, taxpayer-funded market came with a catch for drugmakers: They’re allowed to give direct help to patients covered by commercial insurers—and discount cards covering drug copays have become ubiquitous—but they can’t do the same for Medicare patients. Direct gifts to these people can be considered illegal kickbacks, improperly steering patients to a particular company’s drug instead of cheaper alternatives.”
“However, government policy does allow “bona fide, independent” charities to help Medicare patients with drug costs. Pharma companies can contribute to charities for specific diseases, provided they don’t exert any sway over how the nonprofits operate or allocate their funds.”
In principle, the drug companies exert no control over how their charitable contributions are distributed, but practice can be something quite different.
“The largest copay charity, the PAN Foundation, grew even faster, soaring from about $36 million in contributions in 2010 to more than $800 million last year. About 95 percent of PAN’s contributions come from the pharma industry, the charity says; in 2014, five unnamed drug companies kicked in more than $70 million apiece, according to PAN’s tax filing. With this eager stable of donors, PAN spent just $597,000 on fundraising in 2014. That’s less than 1 percent of the fundraising expense for similar-sized charities, like the American Cancer Society and the American Heart Association.”
“To ensure that charities and drug companies operate independently, federal regulators prohibit the charities from disclosing detailed information about their operations, which drug companies could use to calculate the impact of their donations to their bottom lines. However, data obtained through the Freedom of Information Act shows that pharma companies are able to sponsor funds that mostly support their own drugs. Over a 16-month period in 2013 and 2014, PAN Foundation had 51 disease funds, 41 of which got most of their money from single drug-company donors, according to data PAN provided to regulators. Of those 41, 24 funds paid most of their copay assistance claims for patients using drugs made and sold by their dominant donor.”
The drug companies and the copay charities seem to have arrived at a process that just barely escapes the designation “ illegal.”  The charities can rightfully claim that they are providing a much needed service, but they understand what makes the system work.  The authors quote Dana Kuhn, one of the originators of the charity model.
“If the government forced charities to expand their funds to include multiple diseases and more drugs, pharma companies might pull their support, he said. ‘Some foundations might have to close programs because they become so broad’.”
“Is that because drug companies won’t support charities if they can’t be sure they’re also helping themselves?”
“‘Of course,’ Kuhn said. ‘We live in a capitalistic society. Everyone needs to make a little bit of money’.”
What is insidious about this process is that drug companies can raise their prices as much as they want and use the charities to help maintain their profit margin on the much larger flow of revenue.
It has become another mechanism by which drug companies get rich at the expense of everyone else.
Should we be surprised?
The interested reader might find these articles informative:

You can learn a little about a lot of things or you can learn a lot about a very few things. Guess which is the most fun.


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