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Speaker 1: The i r S has opened an investigation into the

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Speaker 1: tax exempt status of a charity funded by pharmaceutical companies.

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Speaker 1: The agency is exploring whether the patient assistance charity called

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Speaker 1: the Chronic Disease Fund is a conduit for its corporate donors.

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Speaker 1: In court papers, the i r S said that donations

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Speaker 1: from drug companies are nearly all returned to those same

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Speaker 1: companies as payments for the drugs that patients take. Joining

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Speaker 1: us to help unravel this is Robert Langreth Bloomberg News

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Speaker 1: Farmer reporter Robert explain how these patient assistance charities work.

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Speaker 1: So it turns out, if you're on Medicare, it's a

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Speaker 1: patient on Medicare and other government programs, drug makers are

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Speaker 1: not allowed to directly pay for that patient's co payment

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Speaker 1: if they can't afford it. That's viewed at potentially in

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Speaker 1: legal kickback. So it's happened as these a group of

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Speaker 1: charities that have sprung up to help patients can't afford it,

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Speaker 1: pay for their their portion their co payment of very

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Speaker 1: expensive drugs hundred thousand dollar drugs for can't are multiple grosses,

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Speaker 1: and the controversy is over whether some of these charities

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Speaker 1: maybe too close in some way to their donors as

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Speaker 1: and it turns out they've created very narrow disease funds

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Speaker 1: where most of the money ends up going back UH.

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Speaker 1: And these disease funds may be funded by just one

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Speaker 1: or two drug companies and most of the money ends

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Speaker 1: up going back to patients taking those drug companies drugs.

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Speaker 1: And now it turns out the I R S is

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Speaker 1: looking into one of these charities, the Chronic Disease Fund UH,

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Speaker 1: and looking to see whether, you know, does it deserve

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Speaker 1: tax accept status? And the I R S has done

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Speaker 1: an analysis and as we found it in court papers

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Speaker 1: showing that of a nine point three million the charities

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Speaker 1: spent on co payment support in two thousand eleven went

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Speaker 1: back to patients taking drugs made by its donors. So, um,

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Speaker 1: what is it that would be potentially illegal here? What

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Speaker 1: is the I R S looking for? Are those numbers

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Speaker 1: you're talking about enough to make a case or do

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Speaker 1: they have to find something more? Well, it's not clear

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Speaker 1: exactly what the IRS is going to do, but they

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Speaker 1: do sometimes you know, declare have findings that you know,

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Speaker 1: a charity is no longer entitled to tax exempt status.

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Speaker 1: We talked to some tax experts who said, you know,

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Speaker 1: what the I R S appears to be looking at

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Speaker 1: is whether this charity was effectively really operating as a

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Speaker 1: marketing arm essentially of drug companies and therefore doesn't deserve

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Speaker 1: its charitable status. And uh, you know, in addition, totally

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Speaker 1: separate from this, uh, the U S. Attorney's office in

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Speaker 1: Boston has been sitting out subpoenas to a whole bunch

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Speaker 1: of drugmakers looking at their donations to a variety of

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Speaker 1: these charities, and that appears to be a whole separate

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Speaker 1: investigation that's going on. In court filings, the charity, the

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Speaker 1: Chronic Disease Fund, said its board is fully independent of

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Speaker 1: its donors and no company has the ability to select

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Speaker 1: or influence the diseases or medicine covered by its co

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Speaker 1: pay assistance program. If it can prove that, will it

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Speaker 1: be able to keep its tax exempt status. I mean, yeah,

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Speaker 1: that that's definitely what they say, and they they have

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Speaker 1: a very strong position on that, you know in the papers.

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Speaker 1: But they went to court to try to block the

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Speaker 1: RS from getting access to records of six of its

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Speaker 1: drug company donors, saying it's overly broad because I R

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Speaker 1: S wanted like all the records from these drug companies,

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Speaker 1: including emails of them talking about donations, and they went

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Speaker 1: to court. The fun went to court to try to

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Speaker 1: block this UM and so but if what happened to

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Speaker 1: did they block it in any respect? So that's still

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Speaker 1: going on. It's still unresolved. What I've been told is,

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Speaker 1: you know, the eight percent of the time of these

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Speaker 1: efforts to block it or are unsuccessful because i RS

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Speaker 1: is basically entitled to that records to do is due

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Speaker 1: diligence and inspections UM. But if you look, you know

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Speaker 1: it was one of the very interesting things we found

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Speaker 1: in some of these court papers. Charities are very secretive.

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Speaker 1: They're not allowed to reveal you know, who their donors

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Speaker 1: are and where the money's, where the moneys go. In

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Speaker 1: these court papers, the i RS did an analysis and

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Speaker 1: for example, there was a at this chronic disease fund.

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Speaker 1: There was a multiple of miloma fund to help multiple

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Speaker 1: miloma patients, and cell Gene, a maker of a hundred

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Speaker 1: thousand dollar plus multiple miloma drug, was like the main

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Speaker 1: donor to that fund, and point four percent of the

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Speaker 1: copas support went back to patients taking cell Gene drugs.

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Speaker 1: And I went on and on down the list like

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Speaker 1: that where there's one or maybe two donors uh to

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Speaker 1: a fund at the charity and almost all the money

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Speaker 1: that went back to patients taking that company's drugs. So so, Bob,

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Speaker 1: is that because either with that example or some other,

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Speaker 1: is that because there's only one good or or or

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Speaker 1: you know, there's only a couple of good multiple Milomma

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Speaker 1: drugs and and sell gene happens to make all of them.

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Speaker 1: Why could it be that all the money from a

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Speaker 1: fund for a particular disease ends up going back to

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Speaker 1: just one com you know what appears to be the

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Speaker 1: case and is what these you know, when these funds

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Speaker 1: are set up in the kind of a very narrow

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Speaker 1: way there earmarked very specific diseases and exactly just said,

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Speaker 1: it just turns out there's only one or two main

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Speaker 1: drugs in those diseases, and that happens to be the

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Speaker 1: donors drugs. But they're setting you know, they're set up

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Speaker 1: in the in this very narrow way. And like a

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Speaker 1: question that i r S maybe looking at as well

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Speaker 1: as a question separately that the DJ and its own investigation,

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Speaker 1: which is much broader and unrelated maybe looking at, is

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Speaker 1: you know, you know was it a was it any

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Speaker 1: kind of wink wink? Were they looking at you know,

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Speaker 1: where they set up in a way that hey, everyone

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Speaker 1: knew there's only you know, one or two possible companies

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Speaker 1: in here. So it's kind of a loophole in a

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Speaker 1: way around the rules. And that may be a question

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Speaker 1: that's being looked at. Without these drug company donations and

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Speaker 1: what maybe a loophole, would a lot of people be

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Speaker 1: unable to buy these incredibly expensive drugs for cancer, multiple sclerosis,

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Speaker 1: and other diseases. Well, you know what, what could happen?

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Speaker 1: And this is the reason. Uh, you know, if if

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Speaker 1: donations dry up some of these funds because drug makers

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Speaker 1: are worried, you know that that you know, there could

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Speaker 1: be legal questions about them. Uh if they dry up,

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Speaker 1: what drugmakers may have to do and they don't want

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Speaker 1: to do this, they may have to put more people

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Speaker 1: on their free drug programs, give it away. See what's what?

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Speaker 1: What drug makers or what everyone thinks the critics say

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Speaker 1: drug makers love about these programs as they raised the

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Speaker 1: price of a drug to a hundred thousand, hundred fifty

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Speaker 1: thousand a year, and then they know, pay ten thousand

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Speaker 1: or five thousands just on the pur patients and these

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Speaker 1: charities that helps keep people on the drug and then

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Speaker 1: they can charge Medicare the other you know, other hundred forty,

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Speaker 1: So it's a great deal for them. At what stage

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Speaker 1: about thirty seconds? Do you know what stage the investigation

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Speaker 1: is at? Is it just beginning? No, we don't know.

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Speaker 1: We do have a sense that it's been going on

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Speaker 1: for some time now. This is the i R S

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Speaker 1: probe because they started looking at the two thousand and

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Speaker 1: eleven year and so, and there was in two thousand

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Speaker 1: and thirteen a big controversy with the chronic disease and

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Speaker 1: where they had to replace their board. So we think

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Speaker 1: it's been going on for wow, but maybe because of

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Speaker 1: this legal activity, it maybe have been intensified recently. And

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Speaker 1: we've been told that, you know, at some point because

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Speaker 1: with the Irish Irish declares them, you know, say that

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Speaker 1: don't get taxes up status, there could not only years

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Speaker 1: of back taxes plus penalties at some point it could

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Speaker 1: become very expensive. If the RS is a good case

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Speaker 1: for the chrome disease, I'm not to try to settle it.

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Speaker 1: Thanks so much, Bobb, but I admire you going through

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Speaker 1: all these i RS statements and these kinds is a

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Speaker 1: very tricky, tricky investigation. That's Robert Langrith and he is

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Speaker 1: a Bloomberg News Farmer reporter coming up on Bloomberg Law

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Speaker 1: with the headlines about President Trump. Attorney General Jeff Sessions

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Speaker 1: has been operating under the radar, and he's dismantling large

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Speaker 1: parts of President Obama's legacy and law enforcement