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Pharmaceutical companies using tax exempt charities { June 28 2006 }

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June 28, 2006
Charities Tied to Doctors Get Drug Industry Gifts

As she presented research results indicating that a new medical device was "an important breakthrough," the doctor's enthusiasm was clear. Less evident were some of the financial links between the researchers and the device's maker.

Dr. Maria Rosa Costanzo, making her presentation at a March conference of cardiologists, said the study found that a $14,000 blood filtering device was better than intravenous diuretic drugs at removing excess fluid from patients with heart failure.

Although outside researchers raised questions about the study's conclusions, the doctor betrayed little doubt. "We believe these results challenge current medical practice and recommendations," said Dr. Costanzo, who predicted many patients might benefit.

Dr. Costanzo did disclose to the audience that she was a paid consultant with stock in the device's maker, a Minnesota company called CHF Solutions. But she omitted another potentially important detail: CHF Solutions was also one of the largest donors to the nonprofit research foundation that had overseen the study. The company contributed about $180,000 in 2004, according to the foundation's federal filings.

Nor did she note that the nonprofit entity, the Midwest Heart Foundation, was in turn an arm of the thriving for-profit medical group outside of Chicago where Dr. Costanzo and more than 50 of her fellow doctors treat heart patients in many cases using products and drugs made by CHF Solutions and other big donors to their charity. Although the CHF Solutions device has generally been slow to catch on, physicians at Dr. Costanzo's medical group have treated many patients with the company's filtration system.

The Midwest Heart Foundation, and the way it has become quietly interwoven into its doctors' professional lives, is far from unique. Around the country, doctors in private practice have set up tax-exempt charities into which drug companies and medical device makers are, with little fanfare, pouring donations money that adds up to millions of dollars a year. And some medical experts see that as a big problem.

The charities are typically set up to engage in medical research or education, and the doctors involved defend those efforts as legitimate charitable activities that benefit the public. But because they operate mainly under the radar, the tax-exempt organizations represent what some other doctors, as well as regulators and industry consultants, say is a growing conduit for industry money. The payments, they say, can bias the treatment decisions of physicians, may lead to suspect research findings and at times may even risk running afoul of anti-kickback laws.

Federal officials are starting to take notice of such tax-exempt charities, which critics say are becoming increasingly popular as other forms of industry support to physicians like lucrative consulting agreements that involve little actual work have come under scrutiny from regulators and others worried about the potential conflicts.

The potential for abuse by these charities is clear, critics say. "It obviously sets a fertile ground for conflict of interest and misuse of funds," said Dr. Robert M. Califf, vice chancellor for clinical research at Duke University Medical Center.

The charities at issue are not philanthropies like the Bill and Melinda Gates Foundation that dispense grants for medical research but remain independent of any one group of doctors or medical practice. Instead, the charities drawing scrutiny are set up by doctors in private practice and are closely linked to those doctors' for-profit medical groups.

The Midwest Heart Foundation, which has received millions of dollars from medical industry donors, including the drug makers Amgen and AstraZeneca, and the Cordis and Scios units of Johnson & Johnson, says it stands behind its charitable work, which currently involves about 30 studies and dozens of doctor-education lectures each year.

Dr. Mark Goodwin, a managing partner for the Midwest Heart for-profit practice, said the foundation was created to help prevent potential conflicts by keeping the industry money separate from the doctors' private practice. Companies contribute to the foundation, he said, because they can rely on its research and the doctors involved can enroll large numbers of patients in studies. "We are able to deliver excellent research to our community in a timely fashion," Dr. Goodwin said, "and we are proud of it."

But some of its research has drawn criticism from federal regulators. Earlier this year, moreover, the foundation received a Justice Department subpoena as part of an investigation into the marketing activities of one of its big contributors, Scios.

Experts aware of the various doctor-run charities say that even if much of the donated money is spent on legitimate medical research or education, the funds can also go toward studies that while lending prestige to the doctors and luster to the companies, may do little to advance scientific understanding. The tax-exempt money also sometimes flows to the for-profit medical groups affiliated with the charities, sometimes covering business expenses or even paying parts of the salaries of doctors.

Too often, the critics contend, the industry donations amount to a form of "relationship funding" to use one skeptical doctor's term in which companies hope to sell more drugs and devices by currying favor with the doctors. That skeptic, Dr. John Cherf, is a knee surgeon at the Neurologic and Orthopedic Institute of Chicago who also consults for a market research firm specializing in health care topics. He says the donor arrangements are fraught with potential conflicts of interest and are likely to come under greater scrutiny as the costs of devices and drugs rise.

"There's undoubtedly corruption in the system," Dr. Cherf said. "We need healthy relationships between physicians and industry. Both parties have been too aggressive."

Number of Charities Is Unknown

No one knows precisely how many of these doctor-run charities exist. Although each one files with the federal government as a tax-exempt entity, they are hard to discern among other health-related charities. And because in many cases each has no more than a few hundred thousand dollars in annual revenue, they tend to escape the attention of the federal and state regulators who oversee charities.

"The reality of it is that these are small organizations that are off the radar screen," said Douglas M. Mancino, a lawyer at McDermott Will & Emery in Los Angeles who specializes in health care law and nonprofit groups.

As long as the activities being financed benefit the public rather than the doctors or companies involved, they are legitimate charities, according to lawyers who specialize in nonprofits.

But concerns can arise when a corporate donation appears to be helping pay the salary of an additional doctor at a for-profit medical practice through a fellowship, for example that brings in additional revenue to the practice. Another problem area, they say, would be when donations go toward expenditures that would normally be part of the practice's business cost.

Lawyers say that determining whether a charity's activities are legitimate tax-exempt activities would typically require a close look at the facts in each case.

"If they're really underwriting normal business expenses to the group, then I think you have a problem," Mr. Mancino said.

As a group, these relatively obscure charities are attracting sizable amounts of corporate money. And many of their activities focus on the companies that have made the donations or the doctors' medical groups.

Consider the Arizona Orthopedic Education Foundation, which was created by a surgeon in Phoenix and which in 2003 received a $200,000 donation from a unit of the orthopedic device company Stryker. Most of the charity's efforts are devoted to public education, according to the founder, Dr. Anthony K. Hedley. But its activities also include teaching other doctors how to use Stryker products.

Stryker said this training was "critical" for surgeons.

Dr. Hedley says the fact that he mainly uses Stryker devices with his own patients may account for Stryker's contributions. "That was probably why I was able to leverage support," Dr. Hedley said.

Another charity is the Blue Ridge Bone and Joint Research Foundation, run by Dr. Joseph T. Moskal, an orthopedic surgeon in Roanoke, Va. It received a $75,000 contribution from the DePuy Orthopaedics unit of Johnson & Johnson in the year ended July 31, 2004, according to federal filings. The Blue Ridge foundation appears to have paid $30,000 of that money to the for-profit Roanoke Orthopaedic Center, where Dr. Moskal practices, to defray the costs of a fellowship program there.

Dr. Moskal did not return repeated phone calls seeking comment. DePuy, in a brief response to questions, said in part, "Fellowships are vital to advance the education and training of orthopaedic surgeons."

Corporate donors are also major contributors to the Vascular Specialists Education Foundation, which is led by a vascular surgeon in Norfolk, Va., Dr. Marc H. Glickman. The foundation spent $30,000 in 2003 to pay for the further medical education of doctors in his for-profit practice.

Although the public filings offer few details about the charity's activities, Dr. Glickman said such expenditures are part of the foundation's mandate, which includes offering fellowships to doctors being trained and paying for continuing medical education for those doctors. One of Vascular Specialists' two big donors, the device maker Guidant, now part of Boston Scientific, said it contributed $25,000 in 2003 and $40,000 the next year, through its own foundation. The company says the money was given with the understanding that it would go to finance the group's fellowship program.

The other big donor, the device maker Medtronic, says it gave Dr. Glickman's charity $80,000 last year to help pay for the group's fellowship program. "Dr. Glickman and his colleagues have trained hundreds of physicians and fellows on life-saving procedures associated with vascular disease a notable accomplishment," Medtronic said in a written statement.

Donors have been so generous to Dr. Glickman's foundation that he says it is currently sitting on $100,000 he has not yet decided how to spend. "I'm very cautious with what I do," he said.

Whatever the issues of tax-exempt status among the various charities, federal regulators say the groups could find themselves in trouble in another way in violation of federal anti-kickback laws if donations appear to be little more than a way for companies to funnel money to doctors.

If the contributions amount to payments or gifts to doctors who then use or recommend a certain drug or device, companies could be breaking the law, said Vicki Robinson, a top lawyer in the Office of Inspector General at the federal Health and Human Services Department.

"From a legal perspective, it's really no different," Ms. Robinson said.

Patrick L. Meehan, the United States attorney in Philadelphia, whose office has a long history of prosecuting health care fraud, said the doctors' charities could warrant scrutiny. "What we would be concerned about are end runs around the system," Mr. Meehan said. "We want to be sure there is independent and fully informed medical judgment at the heart of the physician-patient relationship."

For their part, Midwest Heart officials defend the activities of their foundation. Contributions to the charity, which was created in 1988, have more than doubled in the last few years to $1.7 million in 2004, the most recent period for which federal filings are available.

In a written statement, the foundation said it had "strict internal controls and systems in place to ensure the independence and integrity of all research and education activities."

Questions About Research

Outside researchers have questioned some of the foundation's work. Some doctors say the study of the CHF Solutions filtration device that Dr. Costanzo presented in March may have been flawed, for example, because heart failure patients who were given conventional diuretic drugs may not have received enough medicine to provide meaningful comparisons.

One heart doctor critical of those findings was Dr. JoAnn Lindenfeld, who was quoted in a cardiology publication, Heartwire, in March as saying, "I wouldn't view these data as persuasive enough to use it full-scale in a million patients a year with acute decompensated heart failure." Dr. Lindenfeld did not dispute the accuracy of that quote but declined to comment further.

Through the Midwest Heart Foundation, Dr. Costanzo declined to comment. Both CHF Solutions and the foundation say she no longer has stock or stock options in the company.

CHF Solutions said that most of its contributions to the Midwest Heart Foundation covered the cost of conducting the research project that Dr. Costanzo led and the company helped design.

John L. Erb, CHF's chief executive, said "we were very careful" in designing the research, but he conceded that it was "not the perfect study where we could answer all the questions."

Dr. Goodwin, at the foundation, said the research was only a starting point. "We fully agree that further investigation is needed to validate the findings and carry them forward to a larger number of patients," he said.

Some of Midwest Heart's research has also fallen short of federal rules governing clinical studies. In August 2004, the Food and Drug Administration sent the foundation a warning letter about a study of a new carotid stent a device designed to open up a major artery in the head and neck.

The F.D.A. said Midwest Heart had failed to get necessary approval before beginning its research, which involved different types of stents and 168 patient procedures. The regulators also found that some patients were not properly informed and that the foundation was too slow in reporting serious complications. The results of the study were never published, although the foundation says they were submitted to the F.D.A.

The shortcomings were simply "record keeping" issues, said Wendy Landow, the chief executive of the Midwest Heart Foundation, who said her organization had in fact received the necessary approval to do the study but had poorly documented it. The issue has been resolved, she said, adding that the foundation had adopted tighter procedures to avoid future lapses.

A separate controversy surrounds the heart failure drug Natrecor made by Scios, which gave the Midwest Heart Foundation a total of more than $300,000 for the years 2003 and 2004, according to federal filings. The Justice Department, which is investigating whether Scios improperly marketed Natrecor, has issued a subpoena to the foundation.

Scios said that most of its Midwest Heart contributions went toward educational programs that Scios had no influence over. It said it could not comment on the Justice Department investigation. Midwest Heart said it was cooperating with federal officials and had been told it was not a target of the investigation.

Natrecor was approved by the F.D.A. in 2001 for use in hospitals for patients only in an extreme, or decompensated, stage of heart failure. But it also became heavily used by doctors who administered it intravenously in outpatient clinics for periodic patient "tune-ups," as they were sometimes known. Natrecor's enthusiasts included some Midwest Heart doctors, who participated in studies of the drug and also used it in outpatient settings.

While doctors can use federally approved drugs for any purpose they see fit, a pharmaceutical company is prohibited from actively encouraging such off-label uses.

A Debate Over Drug's Merits

In mid-2005, after researchers elsewhere published an article in a scholarly medical journal raising concerns that Natrecor could seriously impair kidney function, one of Midwest Heart's cardiologists, Dr. Mitchell T. Saltzberg, continued to staunchly defend the drug. Dr. Saltzberg, who has also been a paid Scios consultant, wrote to Medicare officials in July 2005 to argue that the drug was being "unfairly targeted."

Dr. Saltzberg's letter cited a study of Natrecor's outpatient use a study for which the foundation had provided some work saying that this research and "the body of anecdotal experience" indicated the drug posed no kidney risks.

His comments to Medicare, though, came a few days after Scios itself sent a safety alert to doctors warning against the outpatient use of Natrecor. The Scios alert, issued in consultation with the F.D.A., relied on the findings of an expert panel that the company had asked to look into issues involving the drug's safety.

The Scios alert referred to the very study Dr. Saltzberg had cited and found it lacking. That study "was not powered to adequately assess the effectiveness or safety of serial infusions of Natrecor," the alert said. "The size of the study, its design and its findings provide an inadequate basis to recommend the use of intermittent, serial or scheduled repetitive infusions of Natrecor." Through the foundation, Dr. Saltzberg declined to comment. Foundation officials, though, said they agreed with the Scios panel's findings.

Outpatient use of Natrecor around the country has fallen precipitously. Scios has said it plans to conduct further research into the drug's safety.

The Midwest Heart Foundation said that only one of its patients, who is part of a study, is still being given the drug as an outpatient. But while the foundation says it believes more research is needed, Dr. Goodwin also said that he believes that many doctors had positive results with the drug and that he had seen it keep patients out of the hospital.

"It worked great," he said.

Copyright 2006 The New York Times Company

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