Pharma Companies, False Charity, and High Drug Costs

by | Jun 1, 2016 | Big Pharma Business | 0 comments

Amid bad press for rising prescription drug costs, drug companies have discovered a new revenue stream that comes from an unlikely place: charity donations. Yes, drug companies can make more money by donating to charity – here’s how it works.

Step 1: Pharma Companies Raise Drug Prices

Although raising prices is an obvious way of earning more money on a given drug, in most cases there’s a breaking point where the price becomes too high for patients to afford. In that instance, the drug company starts to lose money. A drug company will find this benchmark and raise the prices of their prescriptions as high as they can without surpassing the threshold.

Step 2: Pharma Companies Give Donations to Copay Charities

Next, the pharma company makes a very large donation to a “copay charity.” Copay charities are nonprofits which can help underwrite the cost of medication for patients who face financial hardship.

Step 3: Pharma Companies Gouge Medicare

The breaking point for pricing is essentially erased if a drug is covered by Medicare Part D. That’s because Medicare Part D pays for drug costs that are higher than a patient’s copayment.

Copay charities are restricted by law from affiliating themselves with specific drugs or pharma companies – and they do help consumers with copayments which are too costly for them to afford. However, they also help pharmaceutical companies earn even bigger profits, even if they do so unwittingly.

Here’s an example from an article on Bloomberg:

Thanks to Novartis’s 83% price hike in 2010 on Gleevec (a leukemia drug), Medicare spent $996 million on Gleevec in 2014, which is an increase in 158% over its 2010 costs. What’s worse is that Gleevec only costs $200 a year to manufacture.

Step 4: Big Pharma Gains Profits Off Taxpayers by “Investing” in Charities

Since Medicare is covering major portions of these sky-high drug costs, American taxpayers are inadvertently helping pharma companies earn greater profits off these “charitable” donations. Furthermore:

  • Charities may favor the patronage of their biggest donors. If a patient has a choice between several drugs, the charity can opt to underwrite the one manufactured by its biggest donor, providing a sales boost.
  • Drug companies can also write off charitable donations, giving themselves a tax break.

Whether copay charities and drug companies are colluding to defraud Medicare remains to be seen; there are stiff financial and criminal penalties for doing so.

 

For more information about drug costs, read our coverage of prescription drug price inflation and how the election could impact American drug pricing.