22 United States The EconomistAugust 17th 2019
W
hen a patientin need of a drug in
America goes to fulfil their prescrip-
tion, the price they have to pay can vary
wildly. For generic off-patent drugs, prices
are usually low for the uninsured and free
for those with insurance. But for newer,
patent-protected therapies prices can be as
high as several thousand dollars per
month. Those without insurance may end
up facing these lofty list prices. Even those
with coverage will often have to fork out
some of the cost, called a co-payment,
while their insurance covers the rest.
These co-payments, which for the most
expensive drugs can themselves be prohib-
itively high, can act as a deterrent to col-
lecting a prescription. Into this gap a new
type of charity has emerged, one that offers
to make your co-payment for you. They
come in two main types: independent
ones, like the Patient Advocate Founda-
tion, which spent $380m on co-payments
in 2016, and co-pay charities affiliated with
drugmakers themselves.
According to public tax filings for 2016,
the last year for which data are available,
total spending across 13 of the largest phar-
maceutical companies operating in Ameri-
ca was $7.4bn. The charity run by AbbVie, a
drugmaker that manufactures Humira, a
widely taken immuno-suppressant, is the
third-largest charity in America. Its com-
petitors are not far behind. Bristol-Myers
Squibb, which makes cancer drugs, runs
the fourth-largest. Johnson & Johnson, an
American health conglomerate, runs the
fifth-largest. Half of America’s 20 largest
charities are affiliated with pharmaceuti-
cal companies.
Not everyone qualifies for their help.
Unsurprisingly, pharma-affiliated chari-
ties fund co-payments only on prescrip-
tions for drugs that they manufacture.
There is often an income threshold, too,
which excludes the richest Americans—
though it is usually set quite high, at
around five times the household poverty
line. They are prohibited from funding co-
payments for those on Medicaid (which
helps the poor) and Medicare (which helps
the elderly) by the anti-kickback statute,
which prevents private companies from
inducing people to use government ser-
vices. Those patients can accept co-pay
support from independent charities, such
as the Patient Advocate Foundation.
The impact of these charities is large
and growing. Most of them are less than 15years old. In 2001 just five drugmakers op-
erated charities, spending a total of $370m.
That had risen 20-fold, to $7.4bn, by 2016.
According to Ronny Gal, an analyst at Ber-
stein, a research firm, the co-payment on
the price of a drug is usually just 10% of the
cost the pharmaceutical company ulti-
mately charges to the insurance provider.
This would mean that $7.4bn, if it were all
spent on co-payments, could earn drug-
makers $74bn in revenues—which would
account for nearly a quarter of total drug
spending in America.
Pharmaceutical companies will often
claim that helping patients with their co-
payments is a way of making costly drugs
more accessible. But it has the fortunate
consequence of making their customers
price-insensitive, because insurance com-
panies will often use high co-payments to
nudge their customers into opting for ge-
nerics over costlier branded drugs: no co-
pay, no incentive to save money.
Say a patient is prescribed a statin, a
type of drug to lower cholesterol which has
proved useful in reducing heart disease.
They could take Lipitor, a branded drug
manufactured by Pfizer, with a list price of
around $165 per month. But a generic, Ator-
vastatin, has also recently become avail-
able for just $10 per month. In the absence
of help from a charity, a patient with priv-
ate insurance would probably be able to get
Atorvastatin free, but would have to paysome of the cost for Lipitor. With help from
Pfizer’s co-pay charity, both are free. “It is
entirely to their advantage because con-
sumers only care about what it costs them,”
says Adriane Fugh-Berman of Georgetown
University. “It’s not charity, it’s cheating.”
There is also evidence that pharmaceu-
tical companies bump up the scope of their
co-payment programmes shortly after they
increase drug prices. When Martin Shkreli,
the former boss of Turing Pharmaceuticals
(who has since been imprisoned for securi-
ties fraud), increased the price of Daraprim
50-fold in 2015, he also donated to a fund to
cover co-pays for patients with toxoplas-
mosis, a disease treated using Daraprim.
The ability of insurance companies to push
these price increases back onto drugmak-
ers, by raising co-payments, is limited.
American authorities are trying to curb
the effects these charities may be having on
prices. In California in 2017 a bill was
passed banning companies from providing
co-pay assistance in some situations, such
as if a patient’s insurance company offered
a drug on a lower cost that the Food and
Drug Administration, America’s drug regu-
lator, had deemed therapeutically identi-
cal, or when the active ingredient is avail-
able over-the-counter at a lower cost.A patented formula for itchy backs
The Securities and Exchange Commission
(sec) is also looking more closely at inde-
pendent charities that are sometimes
sponsored by pharmaceutical firms. One
independent charity offered co-pay sup-
port only for a specific type of “break-
through pain” for cancer patients, a condi-
tion its sponsor had a 40% market share in
treating. An secprobe has already settled
claims with some pharmaceutical firms,
though none has admitted wrongdoing.
United Therapeutics has settled the biggest
claim, worth $210m, with the Department
of Justice. Lundbeck, a Danish drugmaker,
and Pfizer have settled smaller claims.
“Pfizer knew that the third-party founda-
tion was using Pfizer’s money to cover the
co-pays of patients taking Pfizer drugs,” ac-
cording to Andrew Lelling, a us attorney,
“masking the effect of Pfizer’s price in-
creases.” Johnson & Johnson, Astellas, Gil-
ead Sciences, Celgene, Biogen and others
face investigations.
Using co-pay charities to support high
prices is good for business, but charitable
contributions foster healthy profits in an-
other way, too: they are tax-deductible. The
corporate tax codes of most countries al-
low companies to deduct the cost of any
charitable giving from pre-tax profits. But
in America the system is more generous,
says Jason Factor, a tax lawyer at Cleary
Gottlieb Steen and Hamilton. Companies
that give products for the benefit of the
“needy or ill” can deduct up to twice the
cost of donated goods. How convenient! 7NEW YORK
Why are America’s biggest charities owned by pharmaceutical companies?Co-pay charitiesGenerous to a fault