46 | Title and Summar y / Analysis
PROPOSITION RESTRICTS SPENDING OF PRESCRIPTION DRUG REVENUES BY CERTAIN HEALTH CARE PROVIDERS. INITIATIVE STATUTE.
34 OFFICIAL TITLE AND SUMMARY PREPARED BY THE ATTORNEY GENERAL
BACKGROUND
DRUG COVERAGE IN MEDI-CAL
Medi-Cal Pays for Prescription Drugs
for Low-Income People. Medi-Cal is a
federal-state program that provides health
coverage for low-income people. This
coverage includes the cost of prescription
drugs.
Medi-Cal Has a New Approach to Pay
for Drugs. Before 2019, Medi-Cal paid
for the cost of prescription drugs in
different ways. In 2019, the state adopted
a single approach called “Medi-Cal Rx. ”
Medi-Cal Rx likely saves the state money
because Medi-Cal pays for drugs at more
discounted prices.
New Approach Is Not in State Law. Medi-
Cal Rx is not reflected in state law, but it
is the approach used to pay for drugs in
Medi-Cal.
FEDERAL DRUG DISCOUNT PROGRAM
Federal Program Provides Discounts on
Drugs to Certain Health Care Providers.
Under a federal program, drug makers
provide discounts on their drugs to
hospitals, clinics, and other providers.
To qualify for these discounts, providers
must meet certain rules. Eligible providers
are public or private nonprofits that focus
on serving low-income people. (These
public and private nonprofits generally
are exempt from paying taxes on their
revenue.)
Providers Tend to Earn Revenue From
Federal Discounts. Providers tend to
earn net revenue from the federal drug
discount program. They do so by charging
•
Requires health care providers
meeting specified criteria to spend
98% of revenues from federal discount
prescription drug program on direct
patient care.
•
Applies only to health care providers
that: (1) spent over $100,000,000
in any ten-year period on anything
other than direct patient care; and (2)
operated multifamily housing reported
to have at least 500 high-severity health
and safety violations.
•
Penalizes noncompliance with spending
restrictions by revoking health care
licenses and tax
-exempt status.
• Permanently authorizes state to
negotiate Medi-Cal drug prices on
statewide basis.
SUMMARY OF LEGISLATIVE ANALYST’S
ESTIMATE OF NET STATE AND LOCAL
GOVERNMENT FISCAL IMPACT:
• Increased state costs, likely in the
millions of dollars annually, to enforce
new rules on cer
tain health care entities.
Affected entities would pay fees to cover
these costs.
ANALYSIS BY THE LEGISLATIVE ANALYST
The text of this measure can be found on page 103 and the Secretary of State’s website at voterguide.sos.ca.gov.
34 Attachment 10
For the full text of Proposition 34, see page 103. Analysis | 47
ANALYSIS BY THE LEGISLATIVE ANALYST CONTINUED
payors of health care (such as private
health plans and government programs)
more than the cost to provide the drugs.
However, providers generally do not earn
net revenue on these drugs in Medi-Cal.
This is because state law bans providers
from charging Medi-Cal more than the
discounted price of the drug.
Providers Decide How to Spend Revenue.
According to the federal government,
the intent of the federal drug discount
program is to allow eligible providers to
increase services and serve more low-
income patients. Providers can do so by
spending their net revenue on services to
patients. Federal and state law, however,
does not directly restrict how providers
spend their revenue from federal drug
discounts.
STATE LICENSING
Health Care Entities Must Be Licensed.
Health care entities must be licensed
to provide services in the state. Several
departments license health care entities,
such as the Department of Managed
Health Care (for most health plans) and
the Department of Public Health (for
hospitals, clinics, and certain other kinds
of facilities).
Licensed Entities Must Follow Certain
Rules. Licensed entities must follow
certain rules. For example, they cannot
engage in conduct that is unprofessional,
dishonest, or harmful to public health or
safety. An entity that violates these rules
can face penalties, including losing its
license (which means the entity can no
longer operate as a health care entity).
PROPOSAL
Restricts How Certain Entities Spend
Revenue From Federal Discounts.
Proposition 34 creates new rules about
how certain health care entities spend
revenue from the federal drug discount
program. Specifically, the entities would
have to spend at least 98 percent of their
net revenue earned in California on health
care services provided directly to patients
(“direct patient care”). As Figure 1 shows,
RESTRICTS SPENDING OF PRESCRIPTION DRUG REVENUES BY
CERTAIN HEALTH CARE PROVIDERS. INITIATIVE STATUTE.
PROPOSITION
34 34
48 | Analysis
ANALYSIS BY THE LEGISLATIVE ANALYST CONTINUED
these rules apply only to entities that meet
certain conditions (“affected entities”).
Requires Affected Entities to Report
Annually to the State. Proposition 34
requires affected entities to report
certain information to the state each
year (annually). The affected entities
would have to report how much revenue
they earned in California and nationwide
from the federal drug discount program
and how they spent this revenue. The
state would use this information to help
determine compliance with the new
rules. The proposition allows the state to
charge fees on affected entities to cover
its enforcement costs. Under Proposition
34, affected entities that do not submit
timely and accurate information
would be engaging in conduct that is
unprofessional, dishonest, or harmful to
public health or safety.
Establishes Penalties for Violating
Rules. As Figure 2 shows, Proposition 34
establishes four penalties for violating
the new rules. All four penalties would
apply if affected entities spend less
than 98 percent of their net federal
discount revenue on direct patient care.
The penalties also would apply if the
affected entities engage in conduct that is
unprofessional, dishonest, or harmful to
public health or safety.
Adds Medi-Cal’s Approach to Pay for
Drugs to State Law. Proposition 34 adds
Medi-Cal Rx to state law. Because Medi-
Cal Rx already is in effect, the proposition
does not change the current approach
Medi-Cal uses to pay for drugs.
FISCAL EFFECTS
Has Limited Statewide Fiscal Effects.
Under Proposition 34, likely few entities
would meet the conditions described in
Figure 1. The exact number of affected
entities, however, is not known. Because
few entities would be affected, the
proposition’s statewide fiscal effect
(described below) would be limited.
Increases State Enforcement Costs,
Paid by New Fees. Proposition 34 would
increase state costs to enforce the new
restrictions. These costs likely would be in
the millions of dollars annually. The state
PROPOSITION RESTRICTS SPENDING OF PRESCRIPTION DRUG REVENUES BY CERTAIN HEALTH CARE PROVIDERS. INITIATIVE STATUTE.
34 34
For the full text of Proposition 34, see page 103 Analysis | 49
ANALYSIS BY THE LEGISLATIVE ANALYST CONTINUED
would cover this cost by charging fees on
affected entities.
Could Have Other Fiscal Effects.
Proposition 34 could have other uncertain
fiscal effects, such as:
• Savings From Increased Spending on
Direct Patient Care. Some affected
entities could increase spending
on direct patient care to comply
with Proposition 34. If this increase
results in more spending on Medi-Cal
patients, there could be savings to
the state. This would depend on what
health care services are provided.
• Costs From Fewer Federal Drug
Discounts. Affected entities would
have to pay fees and report to the
state annually. Some entities might
change their operations to avoid these
requirements. For example, they
could stop participating in the federal
discount program. To the extent this
results in fewer federal discounts to
the Medi-Cal program, there would be
state costs.
• Fiscal Effects From Violating Rules.
Were an affected entity to violate
Proposition 34’s restrictions or
engage in bad conduct, it would
face penalties (such as the loss
of its tax-exempt status and its
health care licenses for ten years).
These penalties could put it out of
business. This could affect state tax
revenue, state spending on Medi-
Cal, or spending on other state and
local government programs. The
fiscal effect would depend on which
affected entities face penalties.
Visit sos.ca.gov/campaign-lobbying/cal-access-
resources/measure-contributions/2024-
ballot-measure-contribution-totals for a list
of committees primarily formed to support or
oppose this measure.
Visit fppc.ca.gov/transparency/
top-contributors.html
to access the committee’s top 10 contributors.
34 RESTRICTS SPENDING OF PRESCRIPTION DRUG REVENUES BY
CERTAIN HEALTH CARE PROVIDERS. INITIATIVE STATUTE.
PROPOSITION
34 34
50 | Arguments Arguments printed on this page are the opinions of the authors and have not been checked for accuracy by any official agency.
PROPOSITION RESTRICTS SPENDING OF PRESCRIPTION DRUG REVENUES BY CERTAIN HEALTH CARE PROVIDERS. INITIATIVE STATUTE.
34 ★ ARGUMENT IN FAVOR OF PROPOSITION 34 ★
★ REBUTTAL TO ARGUMENT IN FAVOR OF PROPOSITION 34 ★
Vote No on 34—The Revenge Initiative. The California
Apartment Association, representing the billionaire
landlords, is lying through its teeth. Prop. 34 has one and only one purpose: to prevent AIDS Healthcare Foundation (AHF) from supporting rent control.
Do you believe that these billionaire landlords are
suddenly so concerned about access to healthcare for
poor Californians? And it is a lie that it will lower drug costs since Medi-Cal has already implemented a low-cost drug
program.
AHF is the sponsor of Prop. 33—the rent control initiative.
Landlords are spending tens of millions to protect their obscene corporate profits while more than 50% of
California’s 17 million renters are paying more than 30% of their income on rent.
You might notice that they don’t even mention AHF by
name because they don’t want you to know that they want to harm the largest AIDS organization in the world.
They are lying when they call the federal 340B drug
discount program government money. 100% of the funds
derived from 340B come from discounts that come right
out of the pockets of drug companies. Don’t be fooled—
big pharma has contributed to many of the supporting
organizations for Prop. 34. A strong 340B program is good for California, bad for big pharma.
As they themselves admit, non-profits are permitted
by federal law to use these drug company discounts in
accordance with their non-profit mission—advocating for rent control, women’s reproductive rights, and a healthy environment.
Vote No on The Revenge Initiative.
Jerilyn Stapleton, Board Member
National Organization for Women
Jamie Court, President
Consumer Watchdog
Larry Gross, Executive Director
Coalition for Economic Survival
Rising healthcare costs are squeezing millions of
Californians. Prop. 34 will give California patients and taxpayers much needed relief, and lowers state drug
costs, while saving California taxpayers billions.
CUT PRESCRIPTION DRUG PRICES
Prop. 34 will drastically cut the cost of prescription drugs for Medi-Cal patients by permanently authorizing the
State of California to negotiate lower Medi-Cal prescription drug costs.
PROTECT PATIENTS AND TAXPAYERS
Prop. 34 stands to save taxpayers millions of dollars
more every year by requiring the greediest healthcare
corporations to spend at least 98% of the taxpayer
funds they receive through the drug discount program in California on directly treating patients.
STOP HEALTHCARE CORPORATION FINANCIAL ABUSE
IN CALIFORNIA
Prop. 34 stops egregious financial abuse of the taxpayer- funded drug discount program in California.
Over 30 years ago, the federal government began offering discounted prescription drugs and other treatments to
uninsured and low-income patients. However, healthcare
corporations across the country have used a legal
loophole to game the system and divert money from the
drug discount program to pet projects that have done
nothing to benefit patients: wasting money on renting out football stadiums to put on private concerts, giving their executives multimillion dollar salaries, paying for naming rights on sports stadiums, spending millions on lobbying, and dumping millions more into political campaigns.
Worse yet, these same corporations that get billions
in taxpayer dollars have spent hundreds of millions of
dollars on housing projects that are often run like slums.
An LA Times investigation found that residents at several of these housing projects were forced to live in squalid conditions, exposed to roach and bedbug infestations,
putting the health and safety of tenants at risk.
Prop. 34 will prevent this abuse from occurring in
California and requires drug discount program dollars
generated in California to be used for their intended
purpose: helping patients.
HOLD ABUSERS ACCOUNTABLE
Prop. 34 holds violators accountable. Healthcare
organizations that break the rules and misuse these
taxpayer dollars must either recommit to spending on
direct patient care or risk losing their California tax- exempt status and professional licenses.
Prop. 34 is targeted at those bad actors who have
continually abused the system to pocket billions of
taxpayer dollars for their own use. That’s why it is
supported by a wide coalition, including organizations
that advocate to help patients and leaders in the LGBTQ community. Those supporting Prop. 34 include the
California Chronic Care Coalition, the ALS Association, the Defeating Epilepsy Foundation, California Senior Alliance, AiArthritis, Support Fibromyalgia Network, Lupus and
Allied Diseases Association, Inc., and the Community
Access National Network.
It’s time to close the corporate loophole that allows
wealthy pharmacy corporations to divert money meant to
help patients. Protect Patients Now. Vote Yes on Prop. 34.
Learn more at YesOnProp34.com.
Assemblymember Evan Low, Former Chair
Legislative LGBT Caucus
Kelly Goss, Managing Director
The ALS Association
Nilza Serrano, Founder
Latino Heritage Los Angeles
34 Arguments printed on this page are the opinions of the authors and have not been checked for accuracy by any official agency. Arguments | 51
RESTRICTS SPENDING OF PRESCRIPTION DRUG REVENUES BY
CERTAIN HEALTH CARE PROVIDERS. INITIATIVE STATUTE.
PROPOSITION
34 ★ ARGUMENT AGAINST PROPOSITION 34 ★
★ REBUTTAL TO ARGUMENT AGAINST PROPOSITION 34 ★
When we have bad corporate actors that profit off public programs, the services our families rely upon take the
hit, including schools, public safety, and emergency
responders. The current system is being abused by
corporations that are wasting billions of dollars intended for patient care every year and making our communities
less safe, endangering the public’s health and safety.
Instead of helping patients, those funds are being used to:
Finance slums that are unsafe and violate health codes:
https://www.latimes.com/homeless-housing/
story/2023-11-16/aids-healthcare -foundation-low-income- housing-landlords
Sue low-income tenants and throw them out on the street:
https://www.poz.com/article/aids-healthcare-foundation- reportedly-houses -tenants-squalid-conditions
Buy stadium naming rights:
https://www.nytimes.com/2022/09/24/health/bon -
secours-mercy-health-profit-poor-neighborhood.html
And pay corporate CEOs millions:
https://lowninstitute.org/projects/2023-shkreli-awards/ Prop. 34 would stop the worst corporate abuses of
the federal low-cost prescription drug program and
ensure that money meant for patients is not wasted on
corporations’ pet projects, political crusades, or misused in ways that risk the public’s health and safety. Prop. 34 will ensure corporations that are misusing public funds are held accountable. It’s time to stop the rip-off. We must make sure that money meant for patients is spent
on taking care of those who need help, not risking public safety. Vote Yes on 34.
Brian K. Rice, President
California Professional Firefighters
Stuart Fong, Chair
San Francisco Hep B Free
Rev. Dwight Williams, Chair
California Senior Alliance
Proposition 34 is sponsored by the billionaire landlords who control the California Apartment Association (CAA).
This initiative is a wolf in sheep’s clothing. It has only one purpose: to prevent AIDS Healthcare Foundation (AHF)
from promoting rent control. It claims to protect patients, but its real intent is to stop AHF from putting tenant
protections on the ballot.
On this same ballot is Proposition 33, the rent control initiative which is simply 23 words:
“The state may not limit the right of any city, county, or city and county to maintain, enact or expand residential rent control. ” AHF is the principal funder of this rent control initiative. Proposition 33 restores the ability of localities to stabilize rents and give some relief to California’s 17 million struggling renters.
CAA and the billionaire supporters who have been
gouging renters want to stop rent control at all costs.
Can anyone believe that these corporate landlords are
suddenly interested in healthcare? And guess who’s
behind the endless ads you will see for Prop. 34—the big drug companies through their bought and paid for front
groups. These two rogue industries are united in wanting to destroy AHF, which is the most powerful voice for lower rents and lower drug prices.
AHF is the largest AIDS organization in the world with
2 million lives in care in 47 countries across the globe.
Our mission is: Cutting Edge Medicine and Advocacy
Regardless of Ability to Pay.
AHF was born out of outrage that AIDS patients were often dying in the hallways of the county hospital. AIDS patients needed a home to die in. Fortunately, HIV treatment
has drastically improved so that today housing is the #1 problem facing our patients.
Proposition 34 is a grave danger to democracy. It seeks to weaponize the initiative process by allowing powerful interests to target a single organization to punish and shut them up. If passed, this proposition would threaten the ability of organizations to advocate for reproductive rights, renter needs, and environmental protections. The Los Angeles Times even described it as a “self-serving” ballot initiative that reached a “new low. ”
If this becomes the law, where will it stop? For this reason, it is opposed by The National Organization for Women,
Consumer Watchdog, The Coalition for Economic Survival, UNITE HERE Local 11, Dolores Huerta, and many others.
We trust that you, the voters, will see through this
corporate landlord scam and vote NO on Proposition 34.
Visit www.votenoon34.org for more information.
Jerilyn Stapleton, Board Member
National Organization for Women
Larry Gross, Executive Director
Coalition for Economic Survival
Condessa M. Curley, M.D. /MPH, Board Member
AIDS Healthcare Foundation