Where Most Needed

Why are there so many charities and why are corporate contributions on the rise?  Medical reporter Reed Abelson of the New York Times gives us part of the answer: doctors are creating charities to receive funds from drug and medical equipement companies. 

The report follows the funding of the Midwest Heart Foundation (EIN 36-3602197 Form 990), which lists all of its contributors because of its status as a private foundation rather than a public charity.  The foundation conducts clinical trials for medical devices and drugs.  But its Form 990 shows that it leases staff from the for-profit Midwest Heart Associates, whose web site acknowledges the close link with the foundation.  The foundation reports contribution income of nearly $1.7 million and pays executive director Wendy Landow $138,333. 

A few other examples in the article:

• Arizona Orthopedic Education Foundation (EIN 36-3602197 Form 990) received $200,000 from orthopedic devise manufacturer Stryker in 2003.  From the Form 990, the foundation had only about $50,000 revenue in 2004, mostly fee income from medical services and pays its president Thomas Zackaj $50,000.    Its main expenses are $16,267 in professional development seminars and $114,406 in rental expenses. 

• Blue Ridge Bone and Joint Research Foundation (EIN 20-0193668 Form 990) received $75,000 from DePuy Orthopaedics, which then paid Roanoke Orthopaedic Center $30,000 for a fellowship program.  The foundation is run by Dr. Joseph Moskal (for no pay), who practices at the center. 

• Vascular Specialists Education Foundation (EIN 11-3645252 Form 990) shows $100,000 in contribution from two device manufacturers, Guidant and Medtronic.  Dr. Marc Glickman directs the foundation, which provides medical education for the other doctors in his practice.

In these three cases, the foundations are very small and have little in income other than the large contributions from manufacturers, which raises the question whether they are just acting as conduits for illegal kickbacks from manufacturers to doctors.

For some perspective, the Kaiser Family Foundation reports that promotional spending just for prescription drugs in 2004 included $15.9 billion in drug samples (retail value) and $7.3 billion in detailing.  The Chronicle of Philanthropy reports that Giving USA tracked all corporate contributions in 2005 at $13.8 billion, including in-kind giving. 

This is part of a more general practice of businesses that set up closely affiliated charities that handle certain activities (like training) that are recognized by the IRS as qualifying for 501(c)(3) status.  They take advantage of their tax benefits of charities and use them as convenient conduits for funds when direct payment would be illegal or unethical.  However, not all the activity is legitimate charity and there are huge opportunities for personal benefit and conflict of interest. 

Still, there are just too many of these operations for the IRS or state charity regulators to examine closely.