IRS investigates patient charity as a possible 'conduit' for Big Pharma sales

Justice statue with sword and scales
The IRS is investigating whether the Chronic Disease Fund should get to keep its tax-exempt status due to allegations it acted as a "conduit" for the drug industry.

Federal tax investigators have set their sights on patient assistance charity Chronic Disease Fund, which now goes by the name Good Days, in order to see whether the group is acting as a “conduit” for the drug industry to boost sales.

In a court filing earlier this month, U.S. attorneys wrote that the IRS investigation centers on whether CDF “is providing pharmaceutical manufacturer ‘donors’ an impermissible private benefit by returning almost all of their ‘donated’ funds to them as payments for their own drugs.” IRS is looking at whether CDF can rightfully retain its tax-exempt status, if those claims prove true.

The IRS has summoned a half-dozen major drugmakers for documents and information, including Johnson & Johnson, Bayer, Novartis, Roche's Genentech unit and Biogen. The fund is fighting those summonses, calling them overly broad and burdensome.

RELATED: Prosecutors rope Pfizer into fast-growing copay assistance probe

Patient assistance charities have come under increasing scrutiny in recent years as critics say drugmakers use contributions to the groups in order to keep patients on their meds and sales high. Those who defend the charities say they help patients secure access.

Robert Zinkham, an attorney for Good Days, characterized the IRS requests as an audit, rather than a federal investigation. He added that copay charities play an important role in getting patients the medicines they need.

"Without copay companies, a lot of people, elderly people of not substantial means, would not get drugs to keep them alive, because the co-pays typically are thousands of dollars and the average household income is about $37,000," Zinkham told FiercePharma. "That's the reality, and until there's an alternative to that, these companies are going to help people."

In a filing from this month, however, U.S. attorneys described the review as an "investigation" on multiple occasions.

Once the largest copay assistance charity, the group previously faced scrutiny for its relationships with Questcor Pharmaceuticals, which made the pricey and controversial H.P. Acthar Gel, and Celgene.

RELATED: DOJ issues subpoena to Celgene as feds cast a wider net in assistance-program probe

Genentech, Biogen, J&J, Teva, Novartis and Bayer have all been summoned in the matter, court documents show. In statements to FiercePharma, Novartis and Bayer said they're cooperating with the investigation. Representatives for Biogen told Bloomberg they are cooperating, while J&J said it can’t control operations at copay assistance charities and Teva declined to comment.

A Genentech spokesperson told FiercePharma the company does "not comment on ongoing legal matters" but that it does make "charitable donations to a number of independent non-profit organizations that help people with serious and life-threatening diseases who are having trouble affording their co-pays for a variety of FDA-approved medicines."

"Genentech is committed to the highest standards of ethical behavior and acts in accordance with applicable laws and regulations," she added.

The investigation is separate from an ongoing look into patient assistance groups and their relationships with the drug industry being conducted out of the U.S. Attorney's Office for the District of Massachusetts. According to company filings, Pfizer, Gilead Sciences, Regeneron, Johnson & Johnson, Celgene, Valeant and others have received subpoenas in that investigation.

RELATED: Feds ask Gilead, Biogen, Jazz for info on ties to charities

U.S. anti-kickbacks laws prohibit drug companies from tying their charity contributions to patient support for their own drugs, but filings in a whistleblower lawsuit against Celgene contend that's not how it works in reality. It says Celgene worked closely with charities to which it donated funds. 

Celegene has denied the accusations, saying its donations were made with no strings attached, but the lawsuit says the biotech "routinely communicated with foundations to game the system to make donations needed to assure patients (and investors)” that copay assistance “would be available for all Celgene drug patients.”