Of all the measures on the California ballot this election season, there is perhaps none more confusing than Proposition 34. The “Protect Patients Now Act” appears to be a health care reform measure, but it’s really a proxy battle over the state’s rent control laws.
The initiative is less about regulating drug prices and more about limiting one particular health care provider’s spending on political advocacy. The primary sponsor of the measure is the California Apartment Association, a lobbying group that represents the state’s rental property landlords.
Prop 34 would require certain health care providers to spend 98% of the revenue they earn through a federal drug discount program on direct patient care. If found out of compliance with the new rules, those providers would have their health care license and nonprofit status revoked.
“Fundamentally, our entire message is that dollars meant for patients should be spent on patients,” says Nathan Click, a spokesman for the “Yes on 34” campaign.
The federal drug discount program Prop 34 would regulate is called 340B. Set up by Congress in the early 90s, it allows pharmacy providers who serve low-income and at-risk patients to essentially buy drugs at a significant discount, bill insurance companies at full price, and use the profits to expand their mission.
“We need more checks on how this program operates, and that's what Prop 34 would do,” says Click.
But Prop 34’s proposed spending requirements would not apply to all 340B providers in the state. Crucially, the new rules would only apply to 340B health care providers who have spent at $100 million on things other than patient care in the past decade – and who also own apartment buildings that have been cited for at least 500 health and safety violations.
These criteria seem to be true of only one provider: the Los Angeles-based AIDS Healthcare Foundation, or AHF.
In recent years, AHF has spent more than $150 million on ballot initiatives – including rent control measures in 2018 and 2020. The nonprofit’s annual budget is about $2.5 billion. The vast majority of the nonprofit’s revenue comes from its network of 62 pharmacies – largely a result of that 340B drug discount program.
This year, AHF is bankrolling another ballot initiative that is not popular with the California Apartment Association: Prop 33, which would remove state limits on rent control and allow cities and counties more leeway to enact stricter local rent control laws.
The California Apartment Association’s new prop would effectively stop the AIDS Healthcare Foundation from ever backing another one.
“What you've seen this year that you've never seen before is a monied interest putting an initiative on the ballot with the specific purpose of silencing and exacting revenge against their opponent,” says AHF CEO Michael Weinstein. “It seeks revenge, pure and simple. It does not pass the laugh test that the California Apartment Association is so concerned about patient care and access.”
Nathan Click claims Prop 34 is not targeting AHF.
“It absolutely will apply for others,” says Click. “There are other people who could potentially be impacted, and it would make sure that no one is going to follow in the footsteps of anyone who has taken this path.”
Specifically, Click claims the criteria might also apply to California-based Dignity Health and Maryland-based Bon Secours. Neither of those nonprofit providers responded to KCRW’s requests for comment.
AIDS Healthcare Foundation CEO Michael Weinstein poses at his office in Hollywood. Photo credit: Aaron Schrank/KCRW.
AHF is the world’s largest AIDS organization, serving 2 million patients in 17 states and 47 countries. Founded in Los Angeles in 1987 to provide hospice care to people dying of AIDS, it has since expanded into clinics, pharmacies and housing.
In 2017, AHF launched the Healthy Housing Foundation to purchase and renovate existing apartment buildings, primarily in LA, where it owns about 1,400 apartment units.
Backers of Prop 34 argue that AHF’s spending on housing and rent control ballot measures comes at the expense of patient care.
But AHF CEO Michael Weinstein says the nonprofit sees housing as an extension of the organization’s health care mission.
“Just from looking out the window of my office, I could see tent cities and the same outrage that I felt in the 80s for the negligence around HIV, the same outrage I felt seeing those tents, seeing people living on the sidewalk,” Weinstein says.
Weinstein says that housing is the number one determinant of health, and that being unhoused is a huge health risk.
While AHF contends its political advocacy equates with roughly 1% of its annual revenues, the organization sees Prop 34’s proposed spending requirements as unworkable.
“No health care provider can survive on 2% overhead, right? I mean, we live in a country with an incredibly complicated system and administration of health care,” he says.
Still, many voters wonder about an AIDS group using any percentage of its revenues to push rent control, especially when renters at buildings it operates in LA’s Skid Row routinely complain of squalid conditions.
Many tenants have filed lawsuits against the organization, citing substandard living conditions. Last month, AHF settled a lawsuit with tenants at one of those properties for $575,000.
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.
Nash Stabolito is a tenant and tenants’ union organizer living at an AHF-owned apartment building in LA’s Skid Row. Photo credit: Aaron Schrank/KCRW.
“Right now, as a matter of fact, I have mold in my bathroom right here, up in the ceiling, and I’ve told them,” says Nash Stabolito, a tenant and tenant organizer at an AHF-owned building in LA’s Skid Row. “This is like the third request and nothing’s happened yet.”
Stabolito is currently organizing tenants to launch a rent strike until repairs are made. Like backers of Prop 34, he’s not happy with his landlord spending on ballot campaigns.
“The AIDS Healthcare Foundation needs to stay out of it right now, because they can’t even take care of their own,” says Stabolito. “I mean look, we’re having all these problems with them, and they can’t even take care of our own building.”
Most of the Skid Row buildings are more than a century old. AHF claims it has spent millions on repairs and that previous owners are partially liable for some of the maintenance problems. They also point out tenants have some of the cheapest rents in town, as low as $400 a month.
Prop 34 spokesman Nathan Click says the California Apartment Association believes AHF is giving landlords a bad name.
“The worst-acting 340B providers have tried to parlay revenue meant for patients into investments in real estate, often times running apartment complexes like slums,” says Click. “Prop 34 is really tackling the worst offenders and ensuring that no 340B provider can do that.”
While Congress established the 340B program to help social safety net providers like AHF provide more comprehensive services to more patients, the law does not specify any rules for how the savings must be spent.
“There is no legal structure right now that says you have to use it in certain ways or report it,” says Anil Shankar, a health care lawyer with Foley & Lardner and lecturer at UCLA School of Law. “If you're a covered entity, legally, your argument is going to be, ‘That's my money. I was entitled to it by federal law and there's no requirement on how I spend it.’”
Despite claims made in Prop 34 campaign ads, 340B revenues earned by providers like AHF are not taxpayer dollars.
“There’s no federal money in the 340B program,” says Shankar. “It’s a discount that comes straight from private companies – pharmaceutical manufacturers.”
To make things even more confusing, the campaign for Prop 34 is running a barrage of ads claiming that the measure would “drastically cut the costs of prescription drugs for Medi-Cal patients.”
The misleading claim is based on another minor provision in Prop 34 that would authorize an existing state policy called Medi-Cal Rx, which allows state agencies to negotiate together with drug manufacturers for lower prices – and requires Medi-Cal to pay pharmacies directly for prescription drugs. Medi-Cal Rx does save the state money, but the policy – and its cost savings – have been in place for the past five years through an executive order by Gavin Newsom.
Overall, health care lawyer Anil Shankar says the impact of Prop 34 on voters would be minimal.
“You're going to see a very small amount of change from this bill,” says Shankar. “That’s because on the 340B side, it's very specific about who it's targeting and the conditions that have to meet in order to be affected. And then on the Medi-Cal Rx side, it’s just an administrative change to continue the status quo. So, I wouldn't say prop 34 is going to impact most Californians.”
If approved by voters, the impact would be mostly limited to the AIDS Healthcare Foundation, which would have to stop providing health care in California.
“That’s 16,000 patients that we serve across California who would have to look for another provider,” says CEO Michael Weinstein.
Critics of Prop 34 also worry that the measure’s passage would provide a roadmap for any interest groups looking to silence nonprofit organizations who do political advocacy.
AIDS Healthcare Foundation signage advertising free HIV tests and condoms on a pharmacy building in Los Angeles. Photo credit: Aaron Schrank/KCRW.
As of this week, the California Apartment Association and its supporters have spent more than $45 million in support of Prop 34. The top donors to the California Apartment Association committee in support of 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.
Meanwhile, the AIDS Healthcare Foundation and its allies have spent nearly $8 million opposing the measure.
The measure is polling well. In a late August and early September poll by the Public Policy Institute of California, 53% of likely voters indicated that they would vote yes on Proposition 34, while 43% indicated they would vote no.
If passed, the law is almost certain to end up before a judge. The AIDS Healthcare Foundation has already argued in court that Prop 34 is unconstitutional, based on a prohibition against Congress or state legislatures passing targeted punishment on specific actors without trial.
“We would sue immediately and then we would fight it really vigorously,” Weinstein says.