Three questions for valuing donated medicine plus a bonus question

There is a big issue in the NPO community now about how to value donated pharmaceuticals. To help the discussion along, I have three questions to help charities and their auditors process through what is the appropriate methodology.

I will pose three questions and ponder them for a moment. Each of the questions is really worth a long, extended conversation.

Should the medicine be valued at what was paid in the course of acquiring it or is there a bargain purchase?

Seems to me that if some amount of money was paid to the provider of a medicine, there should be a comparison to what list prices or other transactions might be. Does the provider make this med available to all interested parties at comparable prices? Is there a price list for this and a host of other medicines? Do the amounts on the provider’s price list roughly correspond to the amounts actually paid?

Are national level health agencies paying roughly the same price?

Do the prices paid or shown on the price list have a rough correlation to the underlying economic value of the items? Or do the prices correspond to the bulk, weight, or difficulty of handling them?  Do the amounts across the price list more closely correspond to the number of containers, boxes, or pallets handled than the nature of the item?

In other words, do the fees/prices paid correspond to the effort to process the item or the economic value?  If there is a set price per bottle/box/package regardless of the number of pills or type of med, seems to me that would suggest there may be some sort of handling fee. If the price for a complex HIV antiviral med is a large multiple of common aspirin that suggests a different answer.

Does the provider have a complete product line that is normally in stock and readily available or is the product availability limited to what was recently donated to them? 

If there is a bargain purchase, what is the appropriate indicator of value for medicine that is illegal to distribute in the U.S.? Phrased differently, is it appropriate to use any indicator of value from inside the U.S. if the med isn’t approved for use here?

If it is not lawful to use a medicine in the United States, is it appropriate to use any indicator of value in the U.S.?  If the nature of a medicine is such that there is an inherent restriction on how it could be used, does that affect where one looks for indicators of fair value?

For example, a very large portion of the GIK revenue  in the NPO community is from one medicine, 500 mg mebendazole. I understand that specific dosage is not approved by the FDA for distribution in the United States. In other words it is illegal to use that med here. Why then would it be appropriate to make any reference to pricing in the U.S.?

When looking at fair value of medicine approved for distribution in the U.S., does AWP have any relevance as an indicator?

There appears to be a widespread understanding that the values listed for AWP in the Red Book do not have a correlation to actual market prices in the United States. It seems that is common knowledge.

If a resource has minimal correlation to market values, does it then have any value in determining fair value?  Are there a variety of other pricing models that would provide a better indication of fair value?

Here is the bonus question:

To what extent are the answers to those questions dependent on when SFAS #157 went into effect?

The transition of fair value to a concept of exit price in the principal market under SFAS #157 is a substantive change at the conceptual level.

How does that affect the valuation of mebendazole? Is there any impact?

I don’t see how the timing of SFAS 157 has an impact on any of the above three questions.

What do you think about my three questions? Any thoughts?

Any more major questions I should add?

One Response to Three questions for valuing donated medicine plus a bonus question

  1. […] accounting is problematic for donated pharmaceuticals that you have been auditing for the last few […]

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