The Internal Revenue Service Challenges Tax Exemption of a Charity
There are others who claim that pharmaceutical companies use contributions to these charities to keep patients taking costly drugs, enabling the company to continue to collect millions of dollars from Medicare.
Background
The Chronic Disease Fund (“CDF”), a Texas based charity, doing business as Good Days, currently has its 2011 tax filings and tax-exempt status under investigation by the IRS. The mission of Good Days, as outlined on its website, is to ensure no one has to choose between getting the treatment they need and affording the necessities of everyday living. Good Days is a patient-assistance charity that is funded predominantly by drug makers. According to Federal court filings, the IRS is exploring whether Good Days gave “impermissible benefits to its corporate donors”. The court papers also stated that “95 percent of the $129.3 million the charity spent on co-payment support in its public programs in 2011 went to patients taking drugs made by the very companies that had donated the money”. In addition, according to a 2011 study by the IRS, the amount of money Good Days ultimately spent on assistance directly correlates with the percentage spent on donor drugs.
There are strict anti-kickback rules in place to forbid pharmaceutical companies from directly giving money to those enrolled in Medicare. Alternatively, they are permitted to donate to independent charities who are, in turn, permitted to assist Medicare patients with payment of out-of-pocket medication costs, provided the companies do not have influence over how the nonprofit organization operates. Good Days insists its board maintains full independence from its donors and that no company would be able to influence the specifics of the program, as to what diseases or medicines are covered through the fund. Legal counsel for the charity, stated that “the charitable organization has provided more than $1 billion in co-pay assistance to patients since 2003, which wouldn’t be possible without drug company donations. A donation in no way influences which drug is prescribed.”
Seemingly, as drug prices increase, donations could be construed as a profitable source of marketing. The court documents use the word “conduit” several times to suggest that the IRS is looking into whether Good Days was serving as a ‘marketing arm’ for drug companies or as a charity. Good Days is disputing these accusations stating that they have always operated in accordance with regulations issued by Health and Human Services and do not act as a conduit for pharmaceutical company donors.
There are also government regulation disclosure rules which prohibit the co-pay charities from providing details about their operations because the drug companies could potentially use the information to calculate the impact on their profits. Despite these rules, the IRS has conducted a study that concludes that narrow funds were set up to target specific diseases; the majority of funds coming from just one corporate donor. “In 19 of 24 disease-specific funds managed by CDF that received drug company funding in 2011, 90 percent of the spending ended up going to patients taking the primary donor companies’ drugs”, according to an IRS agent’s analysis contained in the court filings.”
Charity Navigator, an evaluator of charities, has issued an advisory for moderate concern relative to Good Days citing that it is the subject of an investigation by the IRS. The advisory was issued to provide donors with content that they may find useful when making charitable giving decisions.
Conclusion
As the IRS continues its’ audit of Good Days and the potential for revocation of its tax-exempt status, the organization continues to defend its position. The IRS has issued summonses to many pharmaceutical companies in various states seeking information relative to donations from drug companies that the IRS believes are mostly all returned to them as payments for the drugs they make. As drug prices increase and gain attention from politicians and the healthcare industry, there is concern that pharmaceutical company donations to patient-assistance organizations may be a contributing factor.
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