Gilead, Biogen, Jazz Pharma Subpoenaed as Feds Investigate Drugmaker-Charity Connections

Published: May 27, 2016

Gilead, Biogen, Jazz Pharma Subpoenaed as Feds Investigate Drugmaker-Charity Connections May 27, 2016
By Mark Terry, BioSpace.com Breaking News Staff

Biogen , Gilead Sciences , and Jazz Pharmaceuticals are the latest drug companies to disclose that they have received federal subpoenas related to their relationships with charitable nonprofits. Although there are few details, both Gilead and Jazz did say that the subpoenas were issued by the U.S. Attorney for the District of Massachusetts.

In October 2015, Valeant Pharmaceuticals International received subpoenas regarding its patient-assistance programs from the Massachusetts U.S. Attorney’s office and from the Southern District of New York.

The subpoenas appear to be related to charities that help patients pay for expensive drugs. Drug pricing has been a hot-button topic last year and this year, partly due to the U.S. presidential election cycle. Its fire was sparked by Turing Pharmaceuticals and its former chief executive, Martin Shkreli, when the company acquired Daraprim and then increased its price more than 5,000 percent. This caused a media firestorm helped along by Shrkeli’s smug responses and demeanor.

According to a May 19 Bloomberg article, “Within days, Turing contacted Patient Services Inc., or PSI, a charity that helps people meet the insurance copayments on costly drugs. Turing wanted PSI to create a fund for patients with toxoplasmosis, a parasitic infection that is most often treated with Daraprim.”

PSI has similar programs for more than 20 diseases, and enthusiastically went along with Turing’s offer, suggesting the company donate $22 million to the charity, including $1.6 million to cover the charity’s costs. Ultimately, Turing agreed to donate $1 million to the fund and $800,000 for costs.

PSI is one of seven large charities that offer assistance to 40 million people in the U.S. that are covered through Medicare’s drug program. There are other smaller charities that provide similar supports and services.

The Turing case is illustrative. Patients who meet the charities’ guidelines are provided most and sometimes all of their out-of-pocket prescription costs from the charity. As Bloomberg wrote, “A large initial copay for a prescription, another sum known as the coverage gap or the donut hole, and more-modest ongoing costs. It adds up fast. After Turing raised Daraprim’s price, some toxoplasmosis patients on Medicare had initial out-of-pocket costs of as much as $3,000.”

Which is only a tiny amount of the total costs, since after Turing bought Daraprim and jacked up the price, a six-week course of the drug ran $60,000 to $90,000. Because these were covered by Medicare, it’s U.S. taxpayers who ultimately pay for it. Bloomberg went on to say, “Medicare doesn’t release complete data on what it pays pharmaceutical companies each year, but this much is clear: 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.”

“It looks great for pharmaceutical companies to say they are helping patients get the drugs,” said Adriane Fugh-Berman, a physician and associate professor of pharmacology and physiology at Georgetown University, to Bloomberg. But the reason the companies donate to these charities is to “deflect criticism of high drug prices. Meanwhile, they’re bankrupting the health-care system.”

The seven largest charities reported they had $1.1 billion in combined contributions from pharmaceutical companies in 2014. That’s more than double the amount reported in 2010, which reflects the increase in drug prices. “Drug companies aren’t contributing hundreds of millions of dollars for altruistic reasons,” says Joel Hay, a professor and founding chair in the department of pharmaceutical economics and policy at the University of Southern California, to Bloomberg. The charities “don’t ever have to scrounge for money. It falls right to them.”

Aside from messy ethical issues, what is possibly being investigated is that, according to Bloomberg, “Under federal law, drug companies can’t give direct co-pay help to patients covered by Medicare—such aid would be considered an illegal kickback. Instead, drugmakers are permitted to donate to independent charities that help Medicare patients, provided the companies don’t exert sway over how the nonprofits operate.”

Criminal penalties can hit $25,000 and five years in prison per kickback. Civil penalties go as high as $50,000 per violation.

Essentially, the drug companies not only use the donations as good public relations, but also help keep more patients on the expensive drugs, while they collect revenue from Medicare.

At this point, there’s no information regarding which charities Gilead, Biogen and Jazz were being subpoenaed about, if indeed, that was the specific focus of the subpoenas. On April 21, Biogen disclosed that its March 4 subpoenas was “for documents relating to our relationship with non-profit organizations that provide assistance to patients taking drugs sold by Biogen.”

Gilead filings on May 6 say essentially the same thing, probably for its hepatitis C drugs Sovaldi and Harvoni, which run about $1,000 per pill. Jazz’s disclosures indicate that the subpoenas specifically mention its drug Xyrem, for narcolepsy, which can run up to $90,000 per year. At this point it is unknown if subpoenas have been issued to any of the patient assistance charities.

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