The i r S has opened an investigation into the tax exempt status of a charity funded by pharmaceutical companies. The agency is exploring whether the patient assistance charity called the Chronic Disease Fund is a conduit for its corporate donors. In court papers, the i r S said that donations from drug companies are nearly all returned to those same
companies as payments for the drugs that patients take. Joining us to help unravel this is Robert Langreth Bloomberg News Farmer reporter Robert explain how these patient assistance charities work. So it turns out, if you're on Medicare, it's a patient on Medicare and other government programs, drug makers are not allowed to directly pay for that patient's co payment if they can't afford it. That's viewed at potentially in
legal kickback. So it's happened as these a group of charities that have sprung up to help patients can't afford it, pay for their their portion their co payment of very expensive drugs hundred thousand dollar drugs for can't are multiple grosses, and the controversy is over whether some of these charities maybe too close in some way to their donors as and it turns out they've created very narrow disease funds where most of the money ends up going back UH.
And these disease funds may be funded by just one or two drug companies and most of the money ends up going back to patients taking those drug companies drugs. And now it turns out the I R S is looking into one of these charities, the Chronic Disease Fund UH, and looking to see whether, you know, does it deserve
tax accept status? And the I R S has done an analysis and as we found it in court papers showing that of a nine point three million the charities spent on co payment support in two thousand eleven went back to patients taking drugs made by its donors. So, um, what is it that would be potentially illegal here? What is the I R S looking for? Are those numbers you're talking about enough to make a case or do
they have to find something more? Well, it's not clear exactly what the IRS is going to do, but they do sometimes you know, declare have findings that you know, a charity is no longer entitled to tax exempt status. We talked to some tax experts who said, you know, what the I R S appears to be looking at is whether this charity was effectively really operating as a marketing arm essentially of drug companies and therefore doesn't deserve
its charitable status. And uh, you know, in addition, totally separate from this, uh, the U S. Attorney's office in Boston has been sitting out subpoenas to a whole bunch of drugmakers looking at their donations to a variety of these charities, and that appears to be a whole separate
investigation that's going on. In court filings, the charity, the Chronic Disease Fund, said its board is fully independent of its donors and no company has the ability to select or influence the diseases or medicine covered by its co pay assistance program. If it can prove that, will it be able to keep its tax exempt status. I mean, yeah, that that's definitely what they say, and they they have a very strong position on that, you know in the papers.
But they went to court to try to block the RS from getting access to records of six of its drug company donors, saying it's overly broad because I R S wanted like all the records from these drug companies, including emails of them talking about donations, and they went to court. The fun went to court to try to block this UM and so but if what happened to did they block it in any respect? So that's still
going on. It's still unresolved. What I've been told is, you know, the eight percent of the time of these efforts to block it or are unsuccessful because i RS is basically entitled to that records to do is due diligence and inspections UM. But if you look, you know it was one of the very interesting things we found in some of these court papers. Charities are very secretive. They're not allowed to reveal you know, who their donors
are and where the money's, where the moneys go. In these court papers, the i RS did an analysis and for example, there was a at this chronic disease fund. There was a multiple of miloma fund to help multiple miloma patients, and cell Gene, a maker of a hundred thousand dollar plus multiple miloma drug, was like the main donor to that fund, and point four percent of the copas support went back to patients taking cell Gene drugs.
And I went on and on down the list like that where there's one or maybe two donors uh to a fund at the charity and almost all the money that went back to patients taking that company's drugs. So so, Bob, is that because either with that example or some other, is that because there's only one good or or or you know, there's only a couple of good multiple Milomma drugs and and sell gene happens to make all of them.
Why could it be that all the money from a fund for a particular disease ends up going back to just one com you know what appears to be the case and is what these you know, when these funds are set up in the kind of a very narrow way there earmarked very specific diseases and exactly just said, it just turns out there's only one or two main drugs in those diseases, and that happens to be the donors drugs. But they're setting you know, they're set up
in the in this very narrow way. And like a question that i r S maybe looking at as well as a question separately that the DJ and its own investigation, which is much broader and unrelated maybe looking at, is you know, you know was it a was it any kind of wink wink? Were they looking at you know, where they set up in a way that hey, everyone knew there's only you know, one or two possible companies in here. So it's kind of a loophole in a way around the rules. And that may be a question
that's being looked at. Without these drug company donations and what maybe a loophole, would a lot of people be unable to buy these incredibly expensive drugs for cancer, multiple sclerosis, and other diseases. Well, you know what, what could happen? And this is the reason. Uh, you know, if if donations dry up some of these funds because drug makers are worried, you know that that you know, there could
be legal questions about them. Uh if they dry up, what drugmakers may have to do and they don't want to do this, they may have to put more people on their free drug programs, give it away. See what's what?
What drug makers or what everyone thinks the critics say drug makers love about these programs as they raised the price of a drug to a hundred thousand, hundred fifty thousand a year, and then they know, pay ten thousand or five thousands just on the pur patients and these charities that helps keep people on the drug and then they can charge Medicare the other you know, other hundred forty, So it's a great deal for them. At what stage
about thirty seconds? Do you know what stage the investigation is at? Is it just beginning? No, we don't know. We do have a sense that it's been going on for some time now. This is the i R S probe because they started looking at the two thousand and eleven year and so, and there was in two thousand and thirteen a big controversy with the chronic disease and where they had to replace their board. So we think it's been going on for wow, but maybe because of
this legal activity, it maybe have been intensified recently. And we've been told that, you know, at some point because with the Irish Irish declares them, you know, say that don't get taxes up status, there could not only years of back taxes plus penalties at some point it could become very expensive. If the RS is a good case for the chrome disease, I'm not to try to settle it. Thanks so much, Bobb, but I admire you going through all these i RS statements and these kinds is a
very tricky, tricky investigation. That's Robert Langrith and he is a Bloomberg News Farmer reporter coming up on Bloomberg Law with the headlines about President Trump. Attorney General Jeff Sessions has been operating under the radar, and he's dismantling large parts of President Obama's legacy and law enforcement