WASHINGTON--(BUSINESS WIRE)--At a time when over 8,800 vulnerable American AIDS patients are on waiting lists to access lifesaving drug treatment through the nation’s hard-hit network of AIDS Drug Assistance Programs (ADAPs) the AIDS Healthcare Foundation (AHF) today is blowing the whistle on a little known, ethically questionable, but apparently legally-permissible tax break employed by major AIDS drug companies. Under the guise of ‘charity’ dispensed via their drug donation ‘patient assistance programs’ (PAPs), the pharmaceutical companies perpetrate what AHF officials are calling ‘PAP Scams’ –running cumbersome, largely ineffectual drug giveaway programs that make it extremely difficult for patients in need to enroll and get medications, while at the same time, the companies take millions in tax breaks via enormous deductions for the drugs they do give away.
Nearly all of major AIDS drug companies have some form of patient assistance program to provide medications to patients in need who for whatever reason—lack of insurance coverage, lack of money to directly pay for medications, or ineligibility for government or other care programs—cannot access them. For HIV/AIDS patients, ADAP—a network of federal and state-funded, state-run assistance programs that help provide lifesaving AIDS drugs to low-income Americans—offers one lifeline to those in need. Unfortunately, over the past year-and-a-half, ADAPs, which serve over 165,000 people nationwide (accounting for one third of people on AIDS treatment in the U.S.), have been battered by state budget deficits while seeing increases in program enrollment due to increased unemployment. As of July 28, there were 8,871 people in twelve states on ADAP waiting lists—the largest the ADAP waiting list has ever been. As a result, thousands of wait-listed AIDS patients have turned to the industry’s patient assistance programs, many with maddening and fruitless results.
“These private drug company patient assistance programs are not ‘charity’ in any real sense of the word. In operating these programs, drug companies can claim tax deductions up to twice the cost basis, or production cost, of the donated medicines. Based on this, companies are generating millions each year in tax breaks for their donated drugs,” said Michael Weinstein, President of AIDS Healthcare Foundation. “At the same time, rather than simply lower prices to ensure a fully-funded ADAP, drug companies actually have a financial incentive to maintain the status quo: Keep drug prices high, drain all available ADAP funds—which also guarantees waiting lists will remain and grow—resulting in even more revenue through the lucrative tax breaks on the industry’s ineffective, but profitable, patient assistance programs.”
Breakdown of the ‘PAP Scam’ Tax Break on One AIDS Drug: Gilead’s Atripla
Under IRS guidelines, each drug company can claim tax deductions up to twice the cost basis, or production cost, of their donated medicines. Each company keeps specific production costs for each drug secret; however, the value is estimated to be roughly 25% of the retail price of the drug, including overhead. With this formula, AHF officials have approximated the annual tax savings for Gilead Sciences for its blockbuster HIV/AIDS treatment, Atripla (efavirenz + tenofovir + emtricitabine) in the following chart:
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Example of Gilead's PAP Tax Break For Atripla |
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| Retail Price (per patient per year): | $ | 23,400 | ||
| Cost Basis (equal to five percent of Retail Price): | $ | 5,850 | ||
| Tax Deduction (equal to twice the Cost Basis): | $ | 11,700 | ||
| Corporate Tax Rate: | 35 | % | ||
| Tax Break To Gilead For One Patient | $ | 4,095 | ||
| Tax Break To Gilead For One Thousand Patients | $ | 4,095,000 | ||
Background on AIDS Drug Pricing, the ADAP Crisis and the Drug Industry Response
High drug prices are widely considered to be a primary contributor to the ADAP crisis. To deflect attention from this fact, drug companies often tout their own patient assistance programs as their ‘contribution’ to fixing the problem. However, not only are these programs inadequate to meet the need, they actually profit the drug companies—in the form of generous tax breaks—which is money that could be used to fully fund ADAP. These patient assistance programs and Welvista, a pharmaceutical company-supported nonprofit organization committed to improving health and wellness for the uninsured and underinsured by providing access to prescription medications, are not substitutes for a fully functioning ADAP.
These programs simply cannot, and were never designed to, provide help for everyone who needs it. PAPs and Welvista are failing to get medications to clients in a timely manner. AHF has documented cases of these issues, as reported by its medical staff in Florida and elsewhere:
- Clients who should be eligible for Welvista are not being served, as was the expectation.
- Clients who are able to enroll in Welvista and PAP are reporting that they must wait weeks before receiving their medication. Others have reported that, when they finally do receive their meds, they are missing part of their prescription or the shipment has been sent to the wrong address.
- Clients eligible for PAP have reported difficulty in getting their application approved. The most common complaint is that the application is sent back without any communication as to why it was rejected.
These medication interruptions have devastating consequences for the health of people with HIV/AIDS. When clients are unable to take their meds, even for a few days, it can lead to drug resistance and the onset of deadly opportunistic infections. Effective treatment is also the key to controlling the spread of HIV, as it has been shown to reduce HIV transmission by 96 percent.1
As rising drug prices have eaten away at ADAP budgets limiting the number of people who can be served using existing funds, drug spending by ADAPs has increased more than nine-fold—898%—since 1996, almost three times the rate of client growth in the programs over this same period. In essence, massive tax breaks for drug companies keep PAPs operating while price increases are eroding ADAP funding.
“Attacking the problem of high drug prices is the best way to ensure ADAP can serve all those who rely on it,” said Michael Kahane, Southern Bureau Chief for AIDS Healthcare Foundation from Florida, the state with a severe ADAP crisis and the largest waiting list with 3,558 patients on it. “A 20% price cut, or rebate in applicable states, would provide over $200 million in cost savings for ADAP, enough to clear the waiting lists. Moreover, given that the actual cost of producing these drugs is minimal compared to the selling price, companies can significantly reduce prices for ADAP and still make a huge profit. The longer we allow people to fall to patient assistance programs, the more lives will be put at risk.”
Drug Companies also Tightening PAP Enrollment
As more AIDS patients try to access lifesaving antiretroviral treatment today through drug company PAPs due to the growing ADAP waiting list crisis and changes in overall eligibility for some ADAPs, many drug companies have stepped up already cumbersome and complicated PAP enrollment procedures.
- In Florida, Gilead is now faxing an ADAP Waitlist Update for each and every patient, and the State of Florida’s ADAP is now informing patients that it may take a month before they are able to be seen or issued an ADAP Waitlist Document. This may result in patients being dropped from Gilead’s assistance program.
- The Florida distributor of Johnson & Johnson’s Prezista (darunavir) and Intelence (etravirine), is now requiring each physician to fill out a Florida Pedigree Certification Letter. The distributor requires the physician's signature and a copy of her/his Florida License to be faxed.
“This may create an even bigger problem if the manufacturers begin to require proof of ADAP Waitlist before authorizing PAPs,” said AHF’s Kahane. “As the need for PAPs keep growing, I believe we will see more restrictions and requirements to come.”
AHF Targets Four AIDS Drug Companies with ‘PAP Scam’ Postcards in Bay Area & NJ
As part of its advocacy on this drug access issue, AHF also recently created four ‘PAP Scam!’ informational postcards targeting the AIDS drug companies Gilead Sciences, Bristol-Myers Squibb, Johnson & Johnson (Tibotec) and Merck over their patient assistance programs and tax breaks. The postcards, which explain and expose the huge tax breaks the companies receive for their ‘charity’ drug donations, were mailed to select zip codes surrounding the headquarters of each company (Northern California for Gilead; Central New Jersey for BMS, J&J and Merck) in an effort to reach the employees and executives of each company in an innovative manner—and in their own homes.
AIDS Healthcare Foundation (AHF), the largest global AIDS organization, currently provides medical care and services to more than 169,000 individuals in 27 countries worldwide in the US, Africa, Latin America/Caribbean, the Asia/Pacific region and Eastern Europe. www.aidshealth.org.
1 Early H.I.V. Therapy Sharply Curbs Transmission. New York Times, May 12, 2011. http://www.nytimes.com/2011/05/13/health/research/13hiv.html