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:
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