Olivia Allen-Price: Quite often there’s a prop or two on California’s ballot that seems like it’s about one thing, but it’s mostly about something else.
Ericka Cruz Guevarra: Meet Proposition 34. The healthcare prop that’s drawing big spending from landlord groups.
Olivia Allen-Price: Behind it all is a proxy war over rent control, and likely how one organization is spending money made through a federal drug pricing program.
Ericka Cruz Guevarra: I’m Ericka Cruz Guevarra. Host of The Bay.
Olivia Allen-Price: And I’m Olivia Allen-Price, Host of Bay Curious. This is Prop Fest, our 10 part series that goes in deep on the propositions you’ll be voting on this November.
Ericka Cruz Guevarra: All so you can vote smart. Today we’re getting into the weeds on what is going on in Proposition 34 – about prescription drug spending.
Olivia Allen-Price: But also about rent control. We’ll explain why, right after this.
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Olivia Allen-Price: Proposition 34 is one of the trickier measures California voters must consider this year. Here’s about how it will read on your ballot…
VO: Proposition 34 is a statute that restricts spending of prescription drug revenues by certain health care providers. It also authorizes statewide negotiation of Medi-Cal drug prices.
Olivia Allen-Price: Joining me today is Reporter Aaron Schrank, who has been covering Prop 34 for NPR member station KCRW in Los Angeles. Welcome Aaron.
Aaron Shrank: Happy to be here!
Olivia Allen-Price: Before we get too far into the weeds on this one, broadly, what is Prop 34 aiming to do?
Aaron Schrank: Well it is hard to avoid weeds on this particular proposition but broadly, Prop 34 would place new restrictions on how certain healthcare providers can use the revenue they earn through a federal drug discount program.
But more to the point: the measure is aiming to limit the political spending of one particular health care provider called the AIDS Healthcare Foundation. That foundation (as listeners of the previous Propfest episode may recall) is the primary backer of another measure on this year’s ballot which would expand rent control in California.
There’s also another minor provision in Prop 34 that would permanently authorize a program called Medi-Cal Rx, which is already in place, and allows California to negotiate Medi-Cal drug prices on a statewide basis.
Olivia Allen-Price: At the heart of this is how funding is used that comes from a specific federal program. It’s called the 340B Drug Pricing Program. Can you explain what that is and how it works?
Aaron Schrank: Yes. 340B is a piece of federal legislation passed in the early 90s requiring pharmaceutical drug manufacturers to give significant discounts on the price of drugs to health care providers that focus on serving low-income and at-risk patients. Those discounts can be between 25 percent and about 50 percent off the retail price of the drugs.
Then, if the health providers give the drugs to a patient who has insurance, those providers can bill the insurance company for reimbursement based on the full cost of the drug. This, in turn, creates a stream of revenue for these social safety net health providers, allowing them to basically make money which they can use to further their operations.
Now, the intention of 340B was to help these providers stretch their resources in order to serve more patients and to provide more comprehensive services to disadvantaged communities. We’re talking about things like offering free care for uninsured patients or offering free vaccines. However, Congress didn’t actually specify any of that in the law, so there is currently no legal requirement for how this 340B revenue must be used.
Olivia Allen-Price: And what are the proponents of Prop 34 looking to change about that?
Aaron Schrank: Well, they’re looking to establish a legal requirement for how that revenue can be used within the state of California –– or at least how some providers can use it. If approved, Prop 34 would require certain providers to spend 98 percent of those 340B revenues on “direct patient care.”
Here’s Yes on 34 spokesperson Nathan Click:
Nathan Click: We need real transparency on 340b dollars. And we need real guardrails on this program. Fundamentally our entire message is that uh, dollars meant for patients, should be spent on patients.
Aaron Schrank: The measure’s definition of “direct patient care” includes medical, dental, pharmaceutical or behavioral health services directly administered to individual patients. It also specifies that they must be health care services that are regularly provided by other health providers in the community.
Prop 34 also establishes penalties. A provider that doesn’t comply with that 98 percent rule would have their healthcare license and tax exempt status permanently revoked.
Olivia Allen-Price: But it’s not all health care providers who would have to meet these new requirements, right?
Aaron Schrank: That’s right, and that’s where this takes a bit of a turn. The law would only apply to 340B providers who meet some very specific conditions. First, they must have spent at least $100 million over a decade on purposes that do not qualify as direct patient care. Next, they must own –– or have previously owned –– one or more apartment buildings. And finally, the apartment buildings they own have to have been collectively cited for at least 500 health and safety violations.
So that narrows things down a bit. Now, I should say the backers of this proposal do claim to believe that their measure would apply to more than one health care provider, but there’s really only one entity that we can be fairly certain would be impacted by the passage of Prop 34, and that is the AIDS Healthcare Foundation.
Olivia Allen-Price: Okay, so what is the AIDS Healthcare Foundation and why are they seemingly being singled out with this Proposition?
Aaron Schrank: The AIDS Healthcare Foundation, or AHF, is the largest AIDS organization in the world. It was founded in Los Angeles in 1987, initially to provide hospice care to people dying of AIDS. As treatments and life expectancy for AIDS patients improved, AHF began opening clinics and then expanded nationally and internationally over the years. Today, they serve 2 million patients across 17 states and 47 countries.
The organization has more recently also gotten into housing. Back in 2017, they launched the Healthy Housing Foundation, which purchases and renovates existing buildings, primarily here in Los Angeles, where it has about 1,400 apartment units. CEO Michael Weinstein told me he sees housing as an extension of the organization’s existing mission.
Michael Weinstein: Our mission is both medicine and advocacy. And under medicine, we consider housing to be a component of that.
Aaron Schrank: He says that housing is the number one determinant of health, and that being unhoused is a huge health risk.
It’s worth mentioning that AHF has an annual budget of about 2.5 billion dollars. The vast majority of their revenue comes from their network of 62 pharmacies, which is largely a result of its participation in that 340B program.
Now, as to why they seem to be in the cross-hairs of this ballot measure. The backers of Prop 34 don’t like how AHF uses that revenue, particularly when the organization spends money on political activity. Between 2015 and 2020, AHF spent more than $110 million on ballot measure campaigns in California, including two previous attempts to expand rent control. The California Apartment Association, which is a lobbying group that represents apartment landlords, spent many millions to help defeat those two previous rent control measures.
And, again, this year, the AHF is the main sponsor of another rent control proposition – Prop 33. And the same landlord lobbying groups that have spent millions campaigning against AHF’s rent control measures are the ones sponsoring Proposition 34.
Olivia Allen-Price: So, is Prop 34 really about housing, and not that much about health care at all?
Aaron Schrank: Well, if you look at who is spending money to convince voters to approve this measure, it’s clear that this does have a lot to do with housing, and with the politics of housing and rent control specifically. The measure’s impact on health care is mostly limited to the question of how this one healthcare provider can spend its money. And backers of the proposition would argue that AIDS Healthcare Foundation’s spending on things like apartment buildings and rent control campaigns comes at the expense of patient care.
Olivia Allen-Price: Now, the AIDS Healthcare Foundation has positioned themselves as a pro-tenant group, and a group trying to help people experiencing homelessness, but to further complicate things, they’ve been criticized for the conditions in some of their low-incoming housing facilities. Can you elaborate on that?
Aaron Schrank: Sure, as I mentioned, AHF has purchased several old hotels and small apartment complexes, mostly in the Skid Row area of downtown Los Angeles. There have been lots of complaints and reports of squalid conditions at those sites. The Los Angeles Times reported that the rate of code enforcement and public health complaints at AHF buildings is three times higher than those at other Skid Row nonprofits.
AHF has also been criticized for evicting tenants for unpaid rent, while simultaneously publicly advocating against evictions. Many tenants have filed lawsuits against the organization, citing substandard living conditions.
So, despite the controversy and criticism, CEO Michael Weinstein defends the organization’s approach to housing. He says many of the buildings AHF has purchased are a century-old and that previous owners are in some cases partly liable for their condition. He says his organization has spent millions on renovations, and he stresses that his tenants have some of the cheapest rents available in the city. The tenants I’ve spoken with were paying between $400 and $650 a month. Which is obviously well below the market average.
But that certainly all contributes to the controversy around AIDS Healthcare Foundation.
Olivia Allen-Price: Hm, if Prop 34 passes, what will happen to the AIDS Healthcare Foundation, if they don’t meet the spending requirements?
Aaron Schrank: I’ll note that it’s unclear exactly how much AHF spends on direct patient care right now, but it’s safe to say that it is certainly under that 98 percent threshold. So, if Prop 34 passes, it would likely mean that AHF would have to stop operating as a healthcare provider in California.
I asked CEO Michael Weinstein what would happen to his organization if voters approve Prop 34…
Michael Weinstein: That’s 16, 000 patients that we serve across California who would have to look for another provider and retaining people with HIV in care is extremely important both in terms of breaking the chain of infection, but also for their health. There’s tens of thousands of more patients who go to our STD services, our free STD services. Yeah, so I mean, it would be very deleterious, and it would put an extra burden on the county and state who have to care for those patients.
Aaron Schrank: It’s also worth mentioning that, if voters do approve Prop 34, the AIDS Healthcare Foundation will still have some legal recourse to challenge the law. The organization believes that the measure is unconstitutional, based on the Constitution’s Bill of Attainder Clauses, which prohibit state legislatures from passing targeted statutes imposing punishment on specific actors without trial. So, if passed, this is almost certain to end up before a judge.
Olivia Allen-Price: This prop also has implications for Medi-Cal drug prices. Can you walk us through that?
Aaron Schrank: Sure, so Medi-Cal is the state’s Medicaid program; it’s a public insurance program that provides coverage to low-income Californians, including coverage for prescription drugs.
In 2019, Governor Gavin Newsom signed an executive order to save the state money on prescription drug purchases made through Medi-Cal. It did this basically by authorizing state agencies to negotiate with drug manufacturers together as a single entity for lower prices — and by requiring Medi-Cal to pay pharmacies directly for prescription drugs. This is known as the Medi-Cal Rx program. If passed, Prop 34 would enshrine that program into permanent law.
The campaign for Prop. 34 has been running a barrage of ads claiming that this particular provision would “drastically cut the costs of prescription drugs for Medi-Cal patients.” While that certainly sounds good, that claim is misleading, because again this is already happening and the measure is not proposing anything new in this regard, just more of an administrative update to keep it going.
I asked Yes on 34 spokesperson Nathan Click about this…
Nathan Click: The next governor, whoever that might be, could take this executive order off the books. The next governor will be able to do that with a stroke of a pen. It’s not in statute. It’s only by executive order. This would codify that executive order and make those important savings permanent.
Olivia Allen-Price: If this prop fails, what would happen to Medi-cal Rx?
Aaron Schrank: Nothing. Newsom’s executive order is in place. But as Click points out, it would remain open to potentially being undone by a future governor.
Olivia Allen-Price: Who’s supporting prop 34 and why?
Aaron Schrank: The primary supporter and financial backer of Proposition 34 is the California Apartment Association, which is a lobbying group that represents corporate rental property landlords. The top donors to the campaign for prop 34 are Equity Residential, which is the fifth largest owner of apartments in the country, and Essex Property Trust, which is the 11th largest. The Yes on 34 campaign has also been endorsed by the Republican Party of California, the ALS Association, the San Francisco Women’s Cancer Network, as well State Assemblyman Evan Low, a Democrat who represents Silicon Valley. These supporters all have issues with how the AIDS Healthcare Foundation has been operating, in one domain or another.
Olivia Allen-Price: Alright, and I can probably guess but, who opposes Prop 34 and why?
Aaron Schrank: The main opposition to Prop 34, unsurprisingly, is the AIDS Healthcare Foundation. They are saying they are being targeted and that the landlord lobby is using the guise of representing patients when this is really about stifling the movement for rent control. Here’s AIDS Healthcare Foundation CEO Michael Weinstein:
Michael Weinstein: What you’ve seen this year that you’ve never seen before is, um, a moneyed interest putting an initiative on the ballot with the specific purpose of silencing and exacting revenge against their opponent. And that’s what 34 is. It seeks revenge. I mean, pure and simple. It does not pass the laugh test that the California Apartment Association is so concerned about patient care and access. I don’t know of any time they’ve ever taken any interest in that before.
Aaron Schrank: Other groups opposing Prop 34 include Consumer Watchdog, the National Organization for Women, the Dolores Huerta Foundation and the League of Women Voters.
Olivia Allen-Price: It sounds like there are, king of, a few ways voters could approach voting on Prop 34.
Aaron Schrank: Yeah. There’s a lot to consider. If you have strong feelings one way or the other about the AIDS Healthcare Foundation’s rent control measure, Prop 33, you might also vote for or against 34 based on that. Or you might vote depending on how you think that 340B money should be spent. But there is also a question of: Do you think propositions should be used in this way? Essentially weaponized in disputes between various interest groups. We’ve seen a lot of this before when labor unions and companies are hashing things out, most recently on the ballot with dialysis clinics. I think some voters will be overwhelmed and frustrated being dragged into this one, and will vote accordingly.
Olivia Allen-Price: What does funding look like on this prop?
Aaron Schrank: As of late last month, the California Apartment Association and its supporters had spent $30 million in support of Proposition 34. Meanwhile, the AIDS Healthcare Foundation had spent just over $1 million fighting it.
Olivia Allen-Price: Lot’s to consider on this one. Reporter Aaron Shrank, thank you so much for walking us through it.
Aaron Schrank: Thank you so much, Olivia.
Olivia Allen-Price: In review, a vote yes on prop 34 would limit how a small number of healthcare providers – potentially only one, the AIDS Healthcare Foundation – can spend their revenues from the 340B Drug Price Discount Program. It would also permanently authorize Medi-cal Rx. A vote no means these new rules would not go into effect.
Ericka Cruz Guevarra: We really hope you’ve been getting what you need out of Prop Fest so far. You can find transcripts for this episode, and past ones at KQED.org/propfest.
Olivia Allen-Price: If you value the work we’re doing here, please consider donating to KQED to support it! We’re a public media station that runs on listener donations to survive, and every contribution makes a difference. Learn more at KQED.org/donate.
Ericka Cruz Guevarra: Prop Fest is a collaboration between The Bay and Bay Curious. It’s made by Alan Montecillo, Jessica Kariisa, Olivia Allen-Price, Amanda Font, Christopher Beale, Ana De Almeida Amaral, and me, Ericka Cruz Guevarra.
Olivia Allen-Price: We get extra support from Katie Sprenger, Jen Chien, Maha Sanad, Holly Kernan, and the whole KQED family
Ericka Cruz Guevarra: Tomorrow we will get into Prop 35, which could change how we fund Medical – a lifeline for low income, disabled Californians.
