Drug Valuation Impact on Ratings

February 14, 2012

As previously discussed, the valuation of donated medication has been coming under intense scrutiny of late, with Food for the Hungry landing in the news and garnering a hefty federal penalty in the process. It should be noted that at this time, Food for the Hungry maintains it has done nothing wrong. At issue is the method by which nonprofits ascribe worth to donated drugs – some of which may have a “donative intent” in the form of steep discounts on purchase price.

Many nonprofits are re-assessing their valuations with the results being a drastic change, in some cases what was previously valued at $10.64 per pill adjusted down to $1.54 per pill. The impact of decreasing the value of the donation is a significant drop in income. The watchdog group, Charity Navigator is taking a closer look at the potential fall-out for organizations in this position.

Charity Navigator gives rankings to charitable organizations based on their financial health, accountability, and transparency. Typically, an organization with sizeable decreases in revenue get points taken off but in this case, the group is trying to determine if that’s a fair assessment or if these organizations deserve special consideration. The group is soliciting feedback from humanitarian membership groups, gauging the interest in giving the organizations a chance to file restated financials for the past four years, using the reassessed pill values, thereby not having to show a sudden drop in income for the current year.

Arguments are being made for and against allowing the amended reporting. One argument against it being that it would be difficult for an auditor to reassess the fair value four years back. Others note that it wouldn’t be fair to organizations that hadn’t hyper-inflated their medical donation values in the first place. Those arguing in favor are likely the same parties that have needed to make the valuation adjustments.

See Charity Navigator here.