How Big Pharma Uses Charity Programs To Cover Drug Price Hikes

Looking for another reason to dislike drug companies? Good news: Some companies systematically use charitable giving as a way to raise their drug prices with minimal public awareness.

Bloomberg’s Benjamin Elgin and Robert Langreth reported on a number of cases in which drug companies seem to be using charities as a means to milk U.S. taxpayers for all they’re worth.

Drug companies donate to charities that help patients who are unable to afford the insurance co-payments on expensive drugs.

The drug companies donate to the co-pay charities so that Americans can afford the out-of-pocket costs of staying on extremely expensive drugs, while the taxpayer-funded Medicare program shoulders the largest part of the total cost.

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The seven largest co-pay charities in the country received $1.1 billion in total contributions from drug companies in 2014.

While the law strictly forbids drug companies from giving direct help to Medicare patients, there is no law forbidding them from donating to co-pay charities, which themselves directly help Medicare patients.

Former Turing Pharmaceuticals CEO Martin Shkreli is reportedly one of many to take advantage of the system. When Turing purchased the drug Daraprim last year, Shkreli immediately raised the drug’s price by more than 5,000 percent. Turing then turned around and donated more than a million dollars to co-pay charity Patient Services Inc to ensure that all of its patients would continue to be able to afford their out-of-pocket costs and Turing could gouge Medicare for the majority of the price hike.

Notable Names

The authors specifically mentioned the following as companies that have made significant donations to co-pay charities:

• Valeant Pharmaceuticals Intl Inc VRX
• Jazz Pharmaceuticals plc – Ordinary Shares JAZZ
• Novartis AG (ADR) NVS
• Mallinckrodt PLC MNK-owned Questcor Pharmaceuticals

Bloomberg concludes that the current co-pay charity donation system has likely played a large role in the explosion in drug prices in recent years.

Disclosure: The author holds no position in the stocks mentioned.