How big is the world of donated medicine?

September 25, 2019, 7:09 am

Pharmaceutical products and medicine on shelves. Image courtesy of Adobe Stock.

All this attention on donated medicine got me wondering just how big the sector is.

There is a small number of charities receiving big volumes of medicine donated by the pharmaceutical companies. Those charities then get all those meds distributed to charity clinics and hospitals around the world. That is incredible work which is improving the lives of millions upon millions of poor people around the world.

So, how large is that sector?  Here is a bit of research.

For the charities I’m aware of, plus those that have been in the news over the last eight years or so, plus those on the record as being opposed to AB 1181, I looked up their most recent 990 on their website. For a few of the charities there wasn’t a 990 visible (or at least I couldn’t find it) so I pulled the most recent 990 from the California Registry of Charitable Trusts.

Data tabulated below is:

  • total revenue from 990 Part I line 12,
  • non-cash donations from 990 Part VIII line 1g (referred to as gifts-in-kind or GIK), and
  • disclosed amount of drugs and medical supplies on Schedule M line 20.

Amounts are converted to millions, then rounded.

Last column in the table is the dollar amount of drugs & medical supplies divided by total revenue. A higher percentage shows larger portion of income from donated meds, and thus a higher likelihood AB 1181 will have a bigger impact on the financials.

Only charities with over $20 million of donated meds and supplies are listed; charities below that level are excluded.

Summary of results

Table below includes 17 charities. Another 17 whose volume of donated meds is below $20M each are not listed.

I think there may be another dozen charities with donated meds in this sector. As I come across additional names and look up their 990s, this table will be updated.

For the not-for-profit organizations (NFP) listed, total revenue is about $8.9 billion, total donated items are about $8.1 billion, and donated drugs and supplies are about $7.5 billion.

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Final decision from California AG for cease and desist orders against three charities.

September 23, 2019, 12:29 pm

Image courtesy of Adobe Stock.

On Friday 9/20/19, the California AG issued final decisions regarding the cease and desist orders against MAP International, Food for the Poor, and Catholic Medical Mission Board.

Those C&DOs have been discussed at length on this blog. See tag California AG.

If I understand the process correctly, this means the C&DO are now in effect. The fines are due soon and the clock is running on the several required actions. In addition, the various statements made by the charities regarding overhead efficiency must be changed.

I have asked the AG’s press office for copies of the actual final decisions. When I receive them, I see what new information they contain, such as appeal options.

My not-so-wild guess is the charities will follow whatever appeal options exist. (Since one of the three charities has told me they will appeal, I guess that isn’t actually a guess at all.)

Press release says fines total $1,490,175. Based on the preliminary decisions, the breakout by charity is:

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AB 1181 still sitting on governor’s desk

September 22, 2019, 1:57 pm

Image courtesy of Adobe Stock.

From what can be seen on the ol’ internet, we are still waiting to see whether and when the governor will sign AB 1181. That is the law which will create “California GAAP” for charities receiving donated medicine which the donor has specified may not be distributed in the US.

Here is what I can find about recent signing of legislation.

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California Assembly concurs with changes to AB 1181 by California Senate.

September 12, 2019, 3:35 pm

California state capitol building. Image courtesy of Adobe Stock.

AB 1181 was approved by California Assembly on a 56 to 0 vote.  Their vote concurs with changes by the Senate yesterday, which means the bill has been passed by the legislature.

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Effective date of proposed AB 1181 set at January 1, 2021

September 7, 2019, 11:01 pm

Image courtesy of Adobe Stock.

An amendment to AB 1181 establishes an effective date of January 1, 2021 for the revised reporting requirement to go into effect.

My understanding (for whatever that may be worth!) is that bills passed by the California legislature go into effect on January 1 of the following year unless there is an urgency clause, in which case the bill goes into effect immediately.

This means the new reporting requirement to value donated medicine restricted by donors for distribution overseas at the overseas values would be effective on January 1, 2020. This further means (if my thought process is correct) that reports filed with the Registry of Charitable Trusts in 2020 would have to be compliant. This finally means that financial statements for years ending 12/31/19 would have to reflect the new valuations.

That is a really, reaaaaaally short time to implement.

A revision to AB 1181 posted on September 6, 2019 sets the effective date at January 1, 2021.

It does two other things.

First, retains the AICPA as an official source of GAAP. Um, this might be a surprise to those of us who have read the ASC, but that is topic for another day. Might also be a surprise to FASB and FAF.

That definition of the AICPA as an official source of GAAP expires on January 1, 2021.

Second, the AG is authorized to “adopt rules and regulations” needed to carry out the new valuation requirement.

Second reading

Now that the bill has been amended again, it has to go back to the Senate floor for second read. That is scheduled for Monday 9/9/19. Having watched the Senate action a bit over the last two weeks, it will take a few moments at the start of the session to do a second read of every bill in that status. (That’s a few moments as in “the bills listed for second read are deemed read.”)

After that official step the bill may be called up for third reading and voted on during that reading.

At least that is my newly found understanding. If I’m missing something, let me know.

Amendments made on 9/6/19

I will quote the changes made on September 6, 2019 so you may see the change for yourself and assess whether my description is accurate.

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No GAAP violation but charitable solicitations are misleading – – Preliminary Decision issued for appeal of California AG’s Cease & Desist Order against MAP International, Food for the Poor, and Catholic Medical Mission Board.

August 30, 2019, 8:13 am

Image courtesy of Adobe Stock.

A Preliminary Decision has been written by the administrative law judge (ALJ) hearing the appeal over the California Attorney General’s cease and desist order (C&DO) against MAP International (MAP), Food for the Poor (FFP), and Catholic Medical Mission Board (CMMB).

I have obtained and read a copy of the Preliminary Decision for each of the charities.

 

Top line summary:  The ALJ concluded the charities did not violate GAAP in their accounting but did find their charitable solicitations were misleading and deceptive.

This will be a long read at over 3,400 words so you might want to get a fresh cup of coffee.

Two other notes. References to “Complainant” mean the California Attorney General.  This post will focus on the content of the decisions with lots of quotations and minimal interpretation. Several longer posts are needed to interpret, explain, and describe the implication of this case. I may add more discussion later. As I see others discuss this case, I’ll try to link to those discussions.

After describing the decisions, responses from each charity are listed.

Next steps?

I’m a bit fuzzy on the where this goes from here. It is seems obvious to me that the ruling is not yet effective.  I will string together a bunch of guesses on the next steps. Anyone bold enough to correct my wildly aimed guesses is welcome to do so.

So here go my guesses – – I think the decision will not go into effect until it is accepted or modified by the Attorney General.  So my guess is the AG will issue a letter declaring the Preliminary Decision in effect or reissue a modified C&DO or take some other specified action to make the decision effective. I’ll guess some sort of additional communication is also necessary to address a variety of technical issues not covered in the decision, such as address to send the check, contact point for future communications, consequences of violating the C&DO, and notice of appeal options.

The Preliminary Decisions say the charities must pay the penalty 30 days after the effective date. There is a separate requirement to provide a copy of the decision to all officers, directors, and employees within 15 days of the effective date.

Since one charity (MAP) indicates in their response to me that they will appeal, I’ll guess their appeal will be filed soon after the effective date, well before that 15 day time frame expires. I’ll also make an even bigger guess that given the strength of the proposed sanction on how to refer to program ratios, the other charities will also file an appeal.

 

Background on timing

In December 2018, the ALJ gave verbal explanation that he would rule in favor of the charities on the issue of whether the their financial statements complied with GAAP.

In January and February 2019 additional written briefs were submitted by the Attorney General (AG) and charities on whether the written appeals sent to citizens of the state were accurate or misleading.

On April 24, 2019 additional oral arguments were heard.

Then on May 24, 2019 the administrative law judge (ALJ) issued his preliminary ruling for each of the cease and desist orders.

 

Food for the Poor

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World Vision withdraws opposition to AB 1181. Other changes in list of those opposed.

August 22, 2019, 6:00 pm

Image courtesy of Adobe Stock.

World Vision is now neutral on AB 1181.

Three of the five analyses prepared for AB 1181 contain a list of the organizations supporting and opposing the legislation. A comparison of the lists shows key changes.

Two items that jump out at me: first, growth and change in composition of charities opposed; second, the number of accounting groups opposed.

Charities in opposition

Forty-eight charities opposed the bill according to the 6/28/19 analysis (posted 7/8/19) prepared for the Senate Judiciary Committee.

On the 8/19/19 analysis (posted 8/21/19) prepared for the Senate floor vote, the count of opposed charities was again 48.

New to the list is Habitat for Humanity.

Dropped from the list in opposition is World Vision.

Of particular note is that a representative of World Vision had previously testified in opposition to the bill.

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