BOSTON (Reuters) - The U.S. Internal Revenue Service is probing whether a patient-assistance charity wrongly gave a benefit to its pharmaceutical company donors by returning most of the money they donated as payments for drugs they make, court papers show.
The inquiry focuses on Good Days, which operates a co-pay assistance program that it says since 2003 has provided more than $1 billion in assistance to patients to buy expensive drugs for chronic and terminal diseases.
The Texas-based charity, previously known as Chronic Disease Fund Inc, has since February filed several lawsuits in federal courts in three states and the District of Columbia to quash summonses the IRS served on drug companies that donated to it.
In court papers, the IRS said that in 2011, about 95 percent of the $129.3 million in assistance the charity provided patients to cover co-pays was spent on drugs made by the companies that had made donations for specific diseases.
"In other words, the vast majority of funds that are 'donated' by a pharmaceutical manufacturer are returned to it in the form of co-pay assistance," Cathy Tai, an IRS agent, said in court papers.
The IRS sent summonses to Novartis AG, Roche Holding AG's Genentech unit, Johnson & Johnson, Bayer AG, Teva Pharmaceutical Industries Ltd and Biogen Inc seeking information about donations to Good Days, court papers show.
Robert Zinkham, a lawyer for Good Days, said it has been undergoing an IRS audit for almost four years. Good Days in court papers said it is "fully independent" from its donors.
Bayer and Novartis said they are cooperating with the IRS. Genentech said it acts in accordance with the law. J&J said it has no control over such charities. Other companies did not respond to requests for comment.
Bloomberg first reported the IRS inquiry.
As drug price increases have drawn the ire of politicians and the healthcare industry, concern has grown that donations from pharmaceutical companies to patient-assistance groups may be contributing to price inflation.
Drug companies are prohibited from subsidizing co-payments for patients enrolled in government healthcare programs like Medicare.
But they may donate to non-profits that provide co-pay assistance as long as they are independent from the companies.
Several drugmakers have disclosed they received subpoenas from the U.S. Attorney's Office in Massachusetts related to their support for patient-assistance charities.
Zinkham said Good Days also received a subpoena but the probe appeared unrelated to the IRS audit.
Editing by Matthew Lewis and Nick Zieminski