Charitable fraud

The Office of Inspector General just issued a Special Advisory Bulletin on how drug-company funded charities (patient assistance programs or PAPs) might violate fraud & abuse laws (h/t to Jim Shehan, writing at FDA Law Blog).  A related type of charity are patient advocacy groups (PAGs). Take a look at any condition with high-priced drugs and you will find PAPs and PAGs.

These charities are a perfect illustration of many things that are wrong with our health care sector.

Who can fault these charities? They help patients pay for drugs they can’t afford and give patients (and their families) a forum to share experiences and support each other. When legislators threaten to cut funds, these groups give vulnerable people a voice with policymakers. This sounds like the best of democracy, with large doses of human compassion thrown in.

But some of these charities have drug companies as strategic partners. Drug companies hire well-dressed professionals with titles like “Director of Community Engagement” to build relationships and steer funds to disease-specific groups. With their customers. To drive sales.

In normal capitalism, this is fine. But when someone else is paying the bills (a public or private insurer), these relationships begin to look like fraud. Walmart famously does not allow any financial relationships between Walmart corporate buyers and the suppliers who sell to the chain. Even the smallest gift is treated as a serious violation. The OIG is concerned about precisely this agency problem because it is illegal to give someone money in order to induce them to buy something covered by Medicare:

… in some cases, charities might define their disease funds so narrowly that the earmarking effectively results in a donor’s subsidization of its own products. Over the past several years, we have become aware that some Independent Charity PAPs are, in fact, establishing narrowly defined disease funds and covering a limited number of drugs within those funds… We reiterate here that an Independent Charity PAP must not function as a conduit for payments or other benefits from the pharmaceutical manufacturer to patients and must not impermissibly influence beneficiaries’ drug choices.

That is the law, and yet it seems likely that many of these programs are in fact operated as an extension of marketing, to drive sales. Targeted charities funded by companies doing business with Medicare may amount to fraud if they intend to boost sales.


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