Monday, August 19, 2019

Pharma Charities?

The Economist had an interesting story this past week on some of our largest charities - charities associated with drugmakers.

Perhaps you have also noticed the tendency that when you go to buy an expensive brand drug that despite the fact that you have insurance, there is still an expensive co-pay involved. However, there are sometimes charities that can help you with that co-pay depending on your circumstances. You might have wondered why they do that.

Well, the Economist has investigated. 

From the story: "According to public tax filings for 2016, the last year for which data are available, total spending across 13 of the largest pharmaceutical companies operating in America was $7.4bn. The charity run by AbbVie, a drugmaker that manufactures Humira, a widely taken immuno-suppressant, is the third-largest charity in America. Its competitors are not far behind. Bristol-Myers Squibb, which makes cancer drugs, runs the fourth-largest. Johnson & Johnson, an American health conglomerate, runs the fifth-largest. Half of America’s 20 largest charities are affiliated with pharmaceutical companies.

Not everyone qualifies for their help. Unsurprisingly, pharma-affiliated charities fund co-payments only on prescriptions for drugs that they manufacture. There is often an income threshold, too, which excludes the richest Americans—though it is usually set quite high, at around five times the household poverty line. They are prohibited from funding co-payments for those on Medicaid (which helps the poor) and Medicare (which helps the elderly) by the anti-kickback statute, which prevents private companies from inducing people to use government services. Those patients can accept co-pay support from independent charities, such as the Patient Advocate Foundation."

I am a bit troubled by the idea of the IRS granting and maintaining exemption for a charity that is associated with a for-profit that only pays for drugs that the for-profit provides. I have not investigated any of these enough to come to any conclusion. However, the fact that this is now a significant part of the charitable environment, and it is associated with a major public policy suggests to me that Congress needs to give real thought to how this system fits in with charity and with prescription drugs generally. More reasoned thought is needed. The IRS needs to do its best job in assessing whether these organizations meet the requirements of charity, but given the significant policy domains this issue crosses, it's probably not the best place to answer such questions.

As it is now, it appears that Pharma has cobbled together a financial solution to a problem they faced as a business, that happens to involve "charity," rather than that Pharma is seeking to do charitable things that deserves the moniker. 

I have not personally seen any guidance or determ letters from the IRS on this matter. If anyone has one, would love to see what the IRS has concluded on the matter.

Philip Hackney, Associate Professor of Law, University of Pittsburgh School of Law

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Thank you for bringing attention to this practice. Instead of collaborating with it, the insurance companies should insist on the pharmaceuticals bringing their egregious pries down to being in line with what they sell the exact same products for in other countries.

Posted by: Jan Masaoka | Aug 19, 2019 12:59:42 PM

Certainly we have seen any number of rulings denying or revoking exempt status where the purported (c)(3) functions as a mechanism for steering business to an insider. What we need is for Chuck Grassley and Ron Wyden jointly to demand answers reference specific pharma charities.

Posted by: Russ Willis | Aug 19, 2019 7:33:08 PM

The Nonprofit Quarterly has written on the related issue that pharma is often the lead or major sponsor of 501(c)(3) groups advocating for patients and families with particular diseases or conditions. This relationship opens the possibility that advocacy for more research, more patient care subsidies, etc., are self-interested requests that benefit pharma but are voiced through "grassroots" advocates.

Posted by: Michael L. Wyland | Aug 21, 2019 8:05:12 AM

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