By: Ranier Simons, ADAP Blog Guest Contributor, and Marcus J. Hopkins, ADAP Blog Guest Contributor
Judges aren’t the only ones putting guardrails on the 340B Drug Pricing Program. On November 5th, 2024, voters in the state of California passed Proposition 34 (Prop 34), enacting the Protect Patients Now Act (2024; PPNA) by a margin of 50.9% to 49.1% (California Secretary of State, 2024c). The PPNA, which goes into effect on January 1st, 2025, requires covered entities who receive revenues through the 340B drug pricing program to “…spend at least 98 percent of their net revenues generated in this state through the discount prescription drug program on direct patient care” (CSOS, 2024b).
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| Photo Source: The Real Deal |
The issue of using 340B-related revenues for purposes other than their original intent has been one that has stoked calls for reform, particularly considering ADAP Advocacy’s 2024 report highlighting how 340B-eligible covered entities—particularly hospitals—have seen significant increases in revenue accompanied by significant decreases in at-cost charity care provision. Overall, hospitals receiving 340B revenues saw average revenues increases of 217% after becoming eligible for the 340B Program while decreasing charity care provision as a percentage of annual revenues by an average of 15%. HIV organizations saw revenue increases averaging 2,095% after becoming eligible for the 340B program (Hopkins, Macsata, & Laws, 2024).
The California Chronic Care Coalition's (CCCC) President and CEO, Elizabeth Helms, explained her organization's support of Prop 34 prior to the election to The Sacramento Observer, "We are patient-centric. We care that people are able to access the care that they need, including their medications, seeing physicians. And when we see that not happening, or we start hearing it from the field that (people are) having problems, (people) can’t do this, (people) can’t afford this, (people) can’t get timely care; you know, (people are) having to choose food over medicine or all these other things. Proposition 34 is important. Especially to people who need care, who can’t get it” (Henderson, 2018).
The text of Prop 34 was very specific in its justification for passing the amendment:
...some safety net health care providers have manipulated the program to receive enormous markups on the discounted prescription drugs they receive and then stick taxpayers with the added cost. Instead of using this massive windfall to help patients, the worst offenders have used their fortunes to purchase luxury coastal condominiums, wasted hundreds of millions of dollars on failed political campaigns, put elected politicians on their payrolls, and acquired low-income multifamily housing complexes that are operated as slums (CSOS, 2024b).
Proposition 34 has many layers. It is an attempt to codify the current statewide negotiation of Medi-Cal drug prices in addition to being a roadmap to prevent potentially bad actors from abusing net revenues received from the 340B Program. In 2019, Governor Gavin Newsome issued Executive Order N-01-19, which required the California Department of Health Care Services (DHCS) to migrate all Medi-Cal pharmacy services from managed care (MC) to fee-for-service (FFS) (Dept. of Health Care Services, n.d.). In addition to strengthening the state’s negotiation buying power, the order standardizes pharmacy benefits throughout the entire state, and greatly improves access to Medi-Cal beneficiaries by creating a pharmacy network that includes approximately 94% of the state’s pharmacies (Dept. of Health Care Services, n.d.). Proposition 34 seeks to “permanently authorize the Medi-Cal Rx program so that its expanded patient access and continued access and cost-savings can be continued in perpetuity.”(Secretary of State, 2024). Executive orders are not permanent and can be revoked, legally challenged as being unlawful, or ended by a changing political guard. Codifying the order will ensure it lives even after the Governor is no longer in office.
Proposition 34 strikes against the exploitation of the 340B Program by requiring, what it describes as prescription drug price manipulators, to spend at least 98% of revenues generated from participation in the program on direct patient care. As part of the oversight to enforce this requirement, the entities must submit annual reports detailing their statewide and nationwide gross and net revenues obtained from the 340B Program, as well as details on how the program revenues were spent (Secretary of State, 2024). Non-compliance results in license revocation and a ban from obtaining operating licenses for ten years. Additionally, tax exempt status is revoked for ten years, and an entity is rendered ineligible for state and local grants and contracts for ten years (Secretary of State, 2024). Moreover the proposition grants several state departments the authority to standardize the specifics of the accounting reporting requirements (Secretary of State, 2024). This ensures that entities cannot obscure their numbers.
The controversy that has surrounded Proposition 34 is due to its very specific definition of ‘prescription price manipulator’. The proposition describes such an entity as one the fulfills all of the following requirements: it utilizes the 340B Program to obtain medication, has spent more than $100 million on non-direct patient care activities during any ten-year period, and is currently or has a history of owning and operating highly dangerous multifamily dwellings (Secretary of State, 2024). Additionally, said entity meets one of the following criteria: has had a license to provide healthcare services, has currently or formerly contracted with the Centers for Medicare and Medicaid Services (CMS) as a Medicare special needs plan, or presently or in the past has had a license to operate as a clinic or a pharmacy”(Secretary of State, 2024). While there are many entities who improperly utilize 340B funding, only one group seems to embody the proposition’s multifaceted assignment of characteristics – AIDS Healthcare Foundation (AHF).
AHF has faced significant scrutiny for its activities over the past three decades, particularly in states where voters are able to vote directly on laws, such as Prop 34. Most recently, AHF has come under fire for its 2017 purchase of the Madison in Los Angeles’ Skid Row for use as part of its venture into providing housing services for lower-income people. A 2023 investigation by The Los Angeles Times reported that tenants:
“…live[d] in squalid conditions with dozens under the threat of eviction. Roaches and bedbugs infest rooms. Electricity, heating and plumbing systems fail. Elevators malfunction. Code enforcement and public health complaints at foundation buildings are more than three times higher than those owned by other Skid Row nonprofits. Meanwhile, the foundation has evicted tenants over debts of just a few hundred dollars, eviction records show, while suing nearly 70 others for back rent in small claims court (Dillon, Smith, & Oreskes, 2023).”
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| Photo Source: The Los Angeles Times |
These incidents, which resulted in a class action suit on behalf of AHF’s tenants being filed in 2020 and settled in September of this year (Wagner, 2024), along with various other lawsuits that AHF has settled over the past six years, provide the examples specifically mentioned in the Prop 34 text, above. AHF, for its part, came out vocally against Prop 34 in language that was included in the CSOS’s Quick Reference Guide:
Prop. 34—The Revenge Initiative. California Apartment Association, representing billionaire corporate landlords, doesn't care about patients. Their sole purpose is silencing AIDS Healthcare Foundation, the sponsor of the rent control initiative. 34 weaponizes the ballot, is a threat to democracy, and opens the door to attacks on any non-profit (CSOS, 2024a).
While Prop 34’s language obliquely seems to target AHF, generally speaking any alleged misuse of 340B revenues in ways that do not directly improve patients’ access to healthcare services and medication is an issue that ADAP Advocacy has reported on for over a decade. While AHF qualifies for the 340B Drug Pricing Program as a HIV healthcare provider, other types of covered entities—providers and pharmacies that qualify to purchase medications at significant discounts, dispense them to outpatients, and receive revenues in the form of rebates for the difference between the purchase price and the list price—including major hospitals and hospital systems, are facing calls to be more forthcoming with information about the amount they receive in 340B revenues and how those revenues are spent.
Summarized ADAP Advocacy's CEO, Brandon M. Macsata, "Matthew 26:52's proverb, 'Live by the sword, die by the sword', best characterizes what happened in California on November 5th. For the last decade, AHF has routinely played Russian roulette with ballot initiatives to advance its interests in California and Ohio, even ones that had nothing to do with healthcare. Ironically, even though their ballot initiative strategy is marked by loss after loss, in the end they got beat at their own game."
It is unclear from the Prop 34 text whether or not the prop’s sponsors intended for other types of covered entities to be subject to the law, as hospitals and other types of covered entities are not required under federal law to report 340B revenues in their annual tax filings. The text of Prop 34 requires any “prescription drug price manipulators” that hold tax exempt status, a pharmacy license, a health care service plan license, or a clinic license to comply with the PPNA. In order to comply with the PPNA, covered entities must submit an annual detailed accounting of both its California statewide and nationwide gross and net 340B revenues for the prior year. If an entity falls out of compliance, they are subject to the following penalties:
(a) Any and all California pharmacy licenses, health care service plan licenses, or clinic licenses held by the prescription drug price manipulator shall be permanently revoked.
(b) The prescription drug price manipulator shall be prohibited from applying for, or obtaining or possessing, a California pharmacy license, health care service plan license, or clinic license for a period of 10 years.
(c) Any person serving as an owner, chief executive officer, chief financial officer, chief administrative officer, chief operating officer, president, or any other similar position exercising significant influence or control over the prescription drug price manipulator at the time the violation of Section 14124.44 occurred shall be prohibited from serving as an owner, officer, director, or employee of a California licensed pharmacy for a period of 10 years.
(d) The prescription drug price manipulator shall lose, and no longer be eligible for, tax-exempt status in the State of California […] and shall instead be subject to the Revenue and Taxation Code and other state laws as a taxable organization. The prescription drug price manipulator shall be prohibited from reapplying for, or again being granted, tax-exempt status in this state for a period of 10 years.
(e) The prescription drug price manipulator shall be ineligible to receive any new or renewed state or local grants or contracts for a period of 10 years (CSOS, 2024b).
The big question in all of this well be whether or not any of this can—or rather, will—be enforced. While the California proposition system provides voters with great opportunities to directly impact the laws under which they live and work, bring a proposition to the ballot is an expensive exercise that is always funded (and opposed) by large financial interests.
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| Photo Source: The Sacramento Bee |
In addition to opposition by AHF, Prop 34 was opposed by the National Organization for Women, Consumer Watchdog, Coalition for Economic Survival, CA Democratic Parry Renters Council, Dolores Huerta Foundation, Unite HERE Local 11, and the Monterey County Renters United (No on 34, 2024). In the effort of full disclosure, ADAP Advocacy was one of the organizations that came out in favor of Prop 34, as well as 25 other organizations and 12 news organizations (Yes on Prop 34, 2024).
Jen Laws, President and CEO of the Community Access National Network (CANN) reflected, "CANN supported Prop 34 because it aligned with the original intent of the 340B statute – serving patients. 340B revenues should never be used to further political initiatives or programs that leave patients behind with regard to comprehensive care."
The PPNA will, if fully enforced, be one of the broadest and strictest state-level attempts to overhaul and regulate how 340B revenues are used. ADAP Advocacy will continue to monitor the impacts of Prop 34 as it is implemented.
References:
Cadelago, C. (2023, August 30). California proposal would sideline a prolific ballot measure player. Politico: News. https://www.politico.com/news/2023/08/30/california-proposal-ballot-measure-00113475
California Secretary of State. (2024a). Quick Reference Guide, Prop 34. California Secretary of State: California General Election. https://voterguide.sos.ca.gov/quick-reference-guide/34.htm
California Secretary of State. (2024b, November 05). General Election Voter Information Guide - Proposition 34 Text of Proposed Laws. California Secretary of State: California General Election. https://vig.cdn.sos.ca.gov/2024/general/pdf/prop34-text-proposed-laws.pdf
California Secretary of State. (2024c, November 10). State Ballot Measures - Statewide Results. California Secretary of State: California General Election. https://electionresults.sos.ca.gov/returns/ballot-measures
Dillon, L., Smith, D., & Oreskes, B. (2023, November 16). Inside the world's largest AIDS charity's troubled move into homeless housing. Los Angeles Times. https://www.yahoo.com/news/inside-worlds-largest-aids-charitys-110010062.html
Department of Health Care Services. (n.d). Medi-Cal Rx. Retrieved from https://www.dhcs.ca.gov/provgovpart/pharmacy/Pages/Medi-CalRX.aspx
Henderson, Edward (2024, September 18). On Your November Ballot: Prop 34 Aims to Expand Medi-Cal Prescription Drug Funding — With Restrictions. CBM Newswire - The Sacramento Observer. https://sacobserver.com/2024/09/on-your-november-ballot-prop-34-aims-to-expand-medi-cal-prescription-drug-funding-with-restrictions/
Hopkins, M. J., Macsata, B. M., & Laws, J. (2024, July). The 340B Drug Rebate Program and its potential impacts on annual revenues, executive compensation, and charity care provision in eligible covered entities. Nags Head, NC: ADAP Advocacy. https://www.adapadvocacy.org/pdf-docs/2024_ADAP_RW_340B_Project_Asset_6_ExecComp_FInal_Report_06-05-24.pdf
Secretary of State. (2024). Text of Proposed Laws. Retrieved from https://vig.cdn.sos.ca.gov/2024/general/pdf/prop34-text-proposed-laws.pdf
Wagner, D. (2024, September 16). AIDS Healthcare settles. The Brief: News. https://laist.com/brief/news/housing-homelessness/los-angeles-aids-healthcare-foundation-michael-weinstein-madison-hotel-settlement-rent-control-proposition-prop-33
Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates.
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