The official name for Proposition 35 is “Restricts Spending of
Prescription Drug Revenues by Certain Health Care Providers.”

Background

Currently, Federal law requires drug makers to give price discounts to
hospitals, clinics and other providers, who must meet certain
requirements. Among the beneficiaries are public or private nonprofit
organizations that focus on serving low-income individuals.

In California, Medi-Cal pays for the prescription drugs for low-income
people. In 2019, the State developed a program (not a state law),
“Medi-Cal Rx,” which grants Medi-Cal an even greater discount.

The purpose of these discounts, according to the California Legislative
Analyst’s Office, is to “. . . allow eligible providers to increase
services and serve more low-income patients.” However, there is no
oversight on how providers actually use the discount revenue.

Prop 34

Prop 34 enacts “Medi-Cal Rx” as a state law.

It also imposes rules on how providers may spend this revenue. At least
98 % of the discount revenue would have to be spent on direct patient
health care services. If these providers fail to meet the rule,
penalties could be imposed. For example, they could lose their state tax
exempt status or license.

The penalties apply to providers that meet certain conditions. They must
participate in the federal discount drug program and have a California
license to operate as a health plan, pharmacy, or license or have had
contracts with Medi-Cal or Medicare.

Two other critical criteria limit the number of potential providers
subject to the penalties.

First, the entity must have had a 10-year period where it spent at least
$100 million on expenses other than direct care. Secondly, the health
care entity also owns and operates “multifamily housing units” (i.e.,
apartment buildings) and incurred, at least, 500 severe health and
safety violations.

The LAO and other analysts agree that these two criteria severely limit
the number health care organizations that would be subject to the
penalties. Consequently, the LAO concluded, “likely few entities would
meet the conditions described . . . The exact number of affected
entities, however, is not known. Because few entities would be affected,
the proposition’s statewide fiscal effect would be limited.”

Proponents

Those in favor of Prop 34 argue that it will reduce “drastically the
cost of prescription drugs for Medi-Cal patients by permanently
authorizing the State of California to negotiate lower Medi-Cal
prescription drug costs.”

They also state, “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.

“Prop. 34 stops egregious financial abuse of the taxpayer funded drug
discount program in California,” wrote Assemblymember Evan Low.

Opponents

As noted, few organizations will meet the requirements of Prop 34. Cal
Matters in its analysis of Prop 34 wrote, “As far as anyone can tell,
that only applies to one organization: The AIDS Healthcare Foundation.”

In the fact, the opponents of this proposition call it the “Revenge
Initiative.” Since Prop 34 is largely financed by the California
Apartment Association, they argue that it is intended to “prevent AIDS
Healthcare Foundation from supporting rent control.”

Prop 33, which grants local governments more ability to enact rent
controls, is largely supported and funded by the AIDS Healthcare
Foundation.

In July, Consumer Watchdog wrote a letter to the State Supreme Court
supporting AHF’s request that the Court review Prop 34.

“Under the guise of protecting patients, the California Apartment
Association’s so-called Protect Patients Now Act of 2024, designated as
Proposition 34 is designed to silence AHF’s rent control advocacy once
and for all,” wrote Jerry Flanagan, litigation director for Consumer
Watchdog.

“. . . This Court should not allow Proposition 34 to appear on the
November 2024 ballot. While Proposition 34 is cleverly worded as to
never explicitly name AHF, its description of entities falling under its
purview is intended to target a class of one.5 No other individuals or
corporations meet the definitions contained in the Initiative “

Financial support

Prior to 2024, the California Apartment Association gave the “Yes on 34”
Committee, $7.7 million. Between Jan. 1 and June 30, “Yes on 34”
received another $7.25 million in contributions. Since July 1,
contributions have totaled $3.6 million. As of June 30, their cash was $
4.1 million and the only identified contributor was the California
Apartment Association.

As of July 31, “No on 34, Stop the Revenge Initiative” had received
$120,000 and had $71,000 in cash remaining. The sole donor was the AIDS
Healthcare Foundation, which has contributed another $300,000 since Aug.
1.