For Big Pharma, Charity Begins at Home - and at Taxpayer Expense

Martin Shkreli

According to an article in the British Medical Journal, from 2011 to 2014 drug companies have increased the prices of four of the top 10 drugs sold in the United States by more than 100%, and the prices of the remaining six by more than 50%. 

Most people are familiar with the story of Martin Shkreli, former chief executive of Turing Pharmaceuticals. In August 2015, he purchased a generic drug called Daraprim that treats toxoplasmosis—a life-threatening parasitic infection that many AIDS patients contract—and immediately raised its price by more than 5,000 percent. He has not been alone. The price of many generic as well as brand-named drugs has skyrocketed. In psychiatry, an old antidepressant named Parnate, available since the early 1960's, can cost over $250 per month. It probably ought to be one of those five dollar generics.

What a lot of people may not know is that these price increases are part of what seems to be a scam to bleed tax dollars from Medicare. According to a recent article in Bloomberg News, within days of increasing the cost of Darapin, Turing contacted Patient Services Inc., or PSI - a charity that helps people pay for the insurance copayments on costly drugs. Turing wanted PSI to create a fund for patients who had the AIDS complication that could be treated with Daraprim.

PSI, as it turns out, is one of seven patient-assistance charitable organizations commonly known as a copay charities. There are also many smaller ones. They offer assistance to some of the 40 million Americans covered through the government-funded Medicare Part D drug program.

Having just made Daraprim much more costly, Turing was now seemingly offering to make it more affordable. But that is hardly the whole story. It is also a story about how U.S. taxpayers support a billion-dollar system in which charitable giving is, in effect, a very profitable form of investment for drug companies—one that may also be tax-deductible!

Drug companies know that, all other things being equal, the more expensive they make a drug, the fewer people will purchase it. However, if insurance pays for the drug, then this is is no longer much of an issue. The kicker is that when the Part D Medicare drug law was passed, it included a provision that Medicare, with its leverage on negotiating drug prices created by the size of its insured population, cannot bargain with drug companies for lower prices. If the insurance company uses a "charity" which covers patient co-pays and the so-called donut hole, patients will fill their prescriptions and taxpayers end up paying the huge price increases.

As the Bloomberg article points out, "A million-dollar contribution from a pharmaceutical company to a copay charity can keep hundreds of patients from abandoning a newly pricey drug, enabling the donor to collect many millions from Medicare. The contributions also provide public-relations cover for drug companies when they face criticism for price hikes."

The article added, "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 is 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.

According to a recent article in USA Today, charity-run funds are now facing new scrutiny by prosecutors in two states and by The Department of Health and Human Services' office of the inspector general. But the focus is only on whether or not co-pay charities favor donor companies' drugs over those sold by other companies. No one is challenging the whole scheme.

Those who are concerned that the government spends too much money and that the national debt is too large should ask themselves why politicians prohibited Medicare from negotiating volume discounts with Pharma companies, thusly creating these lucrative opportunities for them at taxpayer expense.