This week’s contributor is Stacie Dusetzina, a professor of health policy at Vanderbilt University School of Medicine. Her research focuses on measuring and evaluating the costs of prescription drugs. Stacie is a member of the 2022 Research Council.

Patient assistance charities can be a lifeline for people who need expensive medications. These charities often provide patients with direct financial support through grants to help with treatment-related costs. This is especially true for elderly and disabled Americans on Medicare, who often face high out-of-pocket costs for prescription drugs.

While patients on commercial plans can use manufacturer-issued copay coupons to lower their costs, Medicare patients cannot. Federal law deems coupons and other direct attempts by drug companies to lower patients’ out-of-pocket costs to be in violation of the Anti-Kickback Statute. 

The reason: by lowering the share a patient owes for a particular drug, coupons can induce patients to choose that drug over other options. While that can be a good deal for a patient, the subsidized drug often costs the patient’s insurer more than alternatives, lining drugmakers’ pockets while potentially raising patients’ insurance premiums down the line.

Researchers and even federal officials have expressed concern that drugmakers use patient assistance charities to induce medication purchases for Medicare beneficiaries, similar to how coupons work among other insured groups. Manufacturers can direct their tax-deductible donations to patient assistance charities for specific conditions, like breast cancer, that their drugs may treat.

In a recent paper in Health Affairs, researchers Leemore Dafny, Christopher Ody, and Teresa Rokos assessed just how strong the link is between drug companies’ charity donations and their business incentives. In other words, are these donations benign or are they illegal kickbacks dressed up as charity donations? (And not just for Halloween!)

Using a variety of data sources, the researchers examined drug spending in the Medicare Advantage program and found that in 2017:

• Across the 10 conditions that drove the most overall drug spending and were covered by at least one charity, a single drugmaker accounted for an average of 89% of drug spending on each condition. This suggests that if one of those dominant companies donates to a charity for a condition they treat, that donated money will almost certainly end up helping a patient who uses a drug they make. 

• The top drug manufacturer for a given condition, on average, could increase their revenue by 36% by covering all patients’ out-of-pocket drug costs for that condition. This and other findings from the paper show that across many conditions, for many manufacturers, donating to that condition’s relevant charity program can be a profitable business decision.

This study suggests that the combination of very concentrated drug spending and vulnerable patients exposed to out-of-pocket costs is a potent one. Donations to relevant patient assistance programs by drugmakers very likely induce sales of their products, especially for conditions that only have one available treatment. This suggests the Anti-Kickback Statute isn’t working as intended.

But strengthening the statute isn’t as simple as banning drugmakers from making these donations. Patients rely on funds from charities to help pay for their high-priced drugs today. Many diseases do not have lower-cost treatment options available.

Upcoming changes in the Inflation Reduction Act could help address the root causes of this sticky situation: high drug prices and high out-of-pocket costs for patients. Until those both come down, though, patients may be best served by letting manufacturers keep up this charitable charade.