The California Chamber of Commerce Board of Directors has taken a support position on Proposition 34, a November ballot measure that would require health care providers to spend 98% of revenues from federal discount prescription drug programs on direct patient care.
This requirement would apply to health care providers that spent more than $100 million in any 10-year period on anything other than direct patient care and operated multifamily housing with more than 500 high-severity health and safety violations.
Background
Drug manufacturers provide certain health care providers drugs at discounted prices under a federal program known as the 340B drug price discount program. Drug manufacturers are required to provide drugs at these discounted prices as a condition of participating in Medicaid. However, providers can prescribe these discounted-price drugs to patients regardless of whether the patient is enrolled in Medicaid, Medicare, or private insurance.
Providers can dispense drugs either by operating their own pharmacies or by contracting with external pharmacies. Health care providers and pharmacies tend to earn revenues as a result of the 340B program. These revenues are generated by charging external payors, such as Medicare and private insurance, more than the discounted price of the drug. As an exception, providers and pharmacies tend not to earn revenues on drugs with 340B discounts when the drugs are provided to patients in Medi-Cal. This is because state law requires Medi-Cal Rx to pay for drugs with 340B discounts at their discounted price. Federal and state law do not place restrictions on how providers use their 340B revenues.
Audits by the Health Resources Services Administration (HRSA) have revealed high noncompliance rates among covered entities, indicating a systemic issue with adherence to program requirements. Reports highlight instances of recordkeeping errors, diversion of discounted drugs to non-eligible patients, and duplicate discounting practices. These abuses have prompted scrutiny, especially given that some hospitals benefiting from the 340B program rank poorly in providing uncompensated care. Investigative articles have illustrated how certain hospital chains have misused their charity status to divert funds away from intended patient care toward profit-driven ventures.
Yes on Prop 34
The CalChamber supports Proposition 34 because the measure will make the Medi-Cal Rx program permanent, preventing the worst abusers of the federal drug discount program from misusing money intended to help patients by requiring they spend at least 98% of their revenue on direct patient care.
This stands to result in tens of millions of dollars being redirected toward direct patient care for the neediest Californians.
Further, it would prohibit these worst offenders from continuing to participate in prescription drug price-gouging schemes that result in big drug price mark-ups. Violators that fail to comply with these accountability requirements will lose their state-provided privileges and benefits, including any pharmacy licenses, health care service plan licenses, clinic licenses, and their exemption from state taxation. Violators will also be ineligible for state and local government grants and contracts.
Enforcement will be given to the California Attorney General and other regulatory agencies to ensure prescription drug price manipulators are complying with these accountability requirements.
