Taxing Question: How Did AstraZeneca Account For Pink Cupcakes Given To Patients?
5 CommentsBy Ed Silverman // May 30th, 2007 // 8:00 am
Do you remember AstraZeneca’s promotional campaign for its cancer meds? MUMS - Mothers United for Mammograms - was designed to promote awareness of the test, in part. The program was put together by the drugmaker’s oncology team and emphasized distribution of pink-frosted cupcakes, along with pink carnations and pink Arimidex bags in which info can be stuffed.
Last year’s effort was described as ‘highly successful’ by Mike Zubillaga, an oncology regional sales manager, whose remarks in a company newsletter set off a firestorm. Not only did he refer to a doctor’s office as a ‘big bucket of money,’ but he alluded to off-label marketing practices. He was fired the day after the newsletter inadvertently became public.
The cupcakes may seem innocent enough, but could they cause a legal issue for AstraZeneca? The cupcakes were distributed in doctors’ office and hospitals, by the thousands. And this raises a question - how were all those cupcakes accounted for? Did the drugmaker properly expense the cupcakes? Company policy prohibits paying for patient meals.
And meals are only supposed to be provided to health care providers and their staff, not patients. But all attendees are supposed to be listed on an expense report. List a patient by name and you run into HIPAA issues. Would writing off thousands and thousands of pink cupcakes as a general business expense leave a bad taste in an auditor’s mouth?
Then there’s Congressman Pete Stark, who has asked the HHS Office of Inspector General to investigate AstraZeneca for off-label marketing, last year introduced a bill to deny drugmakers tax breaks for giving meals, trips and the like to docs. He may want to know how all those cupcakes were handled on AstraZeneca’s books. That might be the frosting on the….cupcake.
Here’s the AstraZeneca policy:
Standards for Providing Meals in Conjunction with Product or Informational Discussions
5.2 Attendees
5.2.1 Who can attend?
Onsite: Health care providers and staff who would benefit from the educational information being provided may be invited to attend. Because of the educational focus of these programs, spouses, other family members, and/or GUESTS MAY NOT ATTEND these discussions.
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Expense Reimbursement Policy
11. Meals
Meals must be charged on the AMEX card whenever possible. Employees must use good business judgment and not incur lavish or extravagant expenses. Questions regarding this policy must be directed towards your line manager first, then, contact the Expense Reimbursement Department.
11.2 Business Meals
A business meal occurs when it takes place with clients, prospects, associates, or AstraZeneca employee(s) and a specific business discussion takes place. The most senior level AstraZeneca Employee in attendance must record the expenditure.
The IRS requires a complete list of attendees, business relationship, and the business purpose in order to demonstrate the business nature of the expense. This documentation supports both the deductibility of the expense for the Company and the non-taxability of the reimbursement to the employee. This information must be included on the expense report form. The Original, itemized transaction receipt showing all items purchased must be included with the expense report. Tear tabs are not to be used as a receipt.
Expenses incurred for program meals or meals that are served at a company-sponsored event, such as a “Lunch and Learn, are reimbursable. These meals are considered business meals, and should be recorded as such.
John Mack
Interesting. But let me add this:
About HIPAA, which many people do not understand.
Anybody, including a pharmaceutical sales rep, can go into a doctor’s office and talk to patients in the waiting room and ask their names, what medical condition they have, etc. and none of that would violate HIPAA. Why not? Because you and me and patients are completely free to identify ourselves by name and talk about our medical problems to anyone! HIPAA does not apply to us. It applies to physicians. So, only if sales reps asked physicians (or their staff) the names of patients would there be a violation of HIPAA. Still, the reps would not be violating the law, only the physician (or staff member).
Pharma companies routinely ask consumers for their names, what drugs they take, etc — you’ve undoubtedly seen the BRC cards attached to print ads in magazines. There’s no HIPAA issue there.
About Free Lunch for Patients
Regarding pharma policy about providing free lunch to patients. I don’t believe this is against AZ policy — it just would not meet the requirement of a legitimate business expense by IRS. However, I am sure that the cost of the cupcakes could easily be “hidden” under some other legitimate business expense. For example, AZ reps could give the cupcakes to physicians and suggest that they be put out for the patients to aid in the medical practice. This would then be a legitimate business expense by IRS standards and may even also comply with PhRMA and AMA guidelines regarding gifts to physicians.
The AZ policy you quote concerns “lunch and learn” sessions, which patients would not generally be invited to because it is NOT patient education. I am sure, however, that pharma companies sponsor other educational activities that ARE designed for patients such as health fairs at which food may be served. Again, this would be a legitimate business expense. The way it works is the same as the cupcape secenario I described above: give money to the hospital to support a health fair — so the recipient of the cash is a legitimate BUSINESS contact, not the patients directly.
IMHO,
John Mack
Ed Silverman
Hi John,
Thanks for writing.
And you make some interesting points. However, I believe the issue isn’t talking to patients, but accounting - in writing - for the cost of the food. Just to clarify, listing patients as itemized expenses would be an issue.
And yes, there’s a way to hide those expenses, as you suggested. But it would still appear to violate company policy if the cupcakes don’t qualify as a business meal, as described. Besides, if something doesn’t meet an IRS test, but not company policy, then perhaps the policy is out of whack.
You’re correct to suggest that there may be nuances, and one can argue there are different ways to interpret such a scenario. But there’s also the spirit of the policy - it’s worth questioning dodgy ways that may be used to circumvent standards.
Cheers
ed
JS
I am not sure this accurate, why? What goes on in a clinic is under HIPPA guidelines. Sure if a patient wants to expose themselves to a drug rep okay its your right but not inside a medical office or clinic now way no how it is an extension of the physician. Now is this a technicality probably but most hospitals and clinics take a very dim view of reps talking to patients anywhere in the hospital because of experiences such as Serono reps giving medical advice and suggesting patients ask for a particular treatment. In the case of expenses we hide everything so a few cupcakes, a few bottles of booze, a few discretely placed ball game tickets, and pretty soon it mounts up. The point that goes missing here is wrong is wrong..a little wrong usually turns into a bigger wrong with these people. Once you get away with it the easier it becomes. The expense reporting for most companies is a sham we do patient lunches with doctors and nurses in attendance we supply the food and pass it along as patient informationals. The real deal is we want to access the patients to give them a little nudge..our drug is safer..less side effects, yada yada yada….Direct to consumer is fine but not by drug reps, sorry no way no how..oh wait if you can always give the reps different titles such as community liaisons, or clinical consultants…yea that works not drug reps no sir …
John Mack
HIPAA is not concerned with “right and wrong.” Docs can ask reps to leave a waiting room or not talk to patients and pharma companies may have policies against talking to patients. Nevertheless, this is completely up to the doc and the pharma company and is not mandated by HIPAA. The doc and the patient may be afraid of violating HIPAA and use that as an excuse, but HIPAA even allows for “incidental” exposure of confidential medical information. For example, if a rep is invited into the back office and happens to see a patients chart inadvertantly left open on a desk, that could be “incidental” — bad pricay practice to be sure, but not necessarily a violation of HIPAA. Once you invite the rep in, “shit can happen,” but it’s not necessary HIPAA-violation shit.
BTW, I have consulted with many pharmaceutical companies about HIPAA and made many HIPAA privacy presentations at industry meetings — so I know a little more about this than the average person.
John Mack
Ed,
Regarding accounting for food for patients…doing what I suggested — giving the cupcakes to the docs to give to patients — probably is a stretch. I’m sure it didn’t happen that way. But that’s how the cupcakes can be expensed legitimately following the letter of AZ’s policy if not the spirit.
My other point is that AZ may not have any policy that generally forbids giving food to patients. The policy you cite is a very specific one regarding “lunch and learns” for physicians. It was drafted in repsonse to PhRMA, AMA, and OIG guidelines concerning gifts to physicians. I don’t know of any similar guidelines concerning gifts to patients!