The Question

Should certain healthcare providers be required to spend 98% of revenues from a federal discount prescription drug program on direct patient care and should the state be permanently authorized to negotiate Medi-Cal drug prices?

The Situation 

Medi-Cal is a joint federal-state program that provides health coverage for low-income people. This coverage includes the cost of prescription drugs. In 2019, the state adopted a single approach called “Medi-Cal Rx.” Medi-Cal Rx is not reflected in state law, but it is the approach used to pay for drugs in the Medi-Cal system.

The Federal Drug Discount Program provides discounts on drugs to certain healthcare 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.

According to the federal government, the federal drug discount program intends to allow eligible providers to increase services and serve more low-income patients. Federal and state law, however, does not directly restrict how providers spend their revenue from federal drug discounts.

The Proposal

If passed, Prop 34 would add Medi-Cal Rx to state law.

• Restricts How Certain Entities Spend Revenue From Federal Discounts. Health care providers that participate in Medi-Cal Rx may be restricted if they (a) spend over $100 million in any 10 years on things besides direct patient care and (b) own and operate multifamily housing units with at least 500 have serious health violations in their properties. Affected healthcare providers would have to spend at least 98 percent of their net revenue earned in California on healthcare services provided directly to patients. They would also have to submit timely and accurate reports detailing the revenue received and the expenditures of that revenue.
• Establishes Penalties for Violating Rules. The four penalties that would apply to violators of these provisions would include loss of state tax-exempt status, loss of license, loss of state contracts or grants, and loss of eligibility to serve in leadership roles in state health plans, pharmacies, or clinics.

Fiscal Effects

According to the Legislative Analyst, there would be increased state costs, likely in the millions of dollars annually, to enforce new rules on affected healthcare entities. Affected entities would pay fees to cover these costs.

Supporters Say

• 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.
• Prop 34 requires abusers of the new rules to provide healthcare to low-income patients according to their original mission.
• Prop 34 will require the designated healthcare providers to spend 98% of their taxpayer-generated revenues on direct patient care, which should be their main mission.

Opponents Say

• Prop 34 is an attempt by the California Apartment Association to harm a specific healthcare provider, the AIDS Healthcare Foundation, that supports rent control.
• Prop 34 weaponizes the initiative process so no organization in the future will be safe from retribution by wealthy opponents.
• Prop 34 is not necessary because Medi-Cal already has a discount drug program.

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