Proposition 34 requires certain California healthcare providers to spend at least 98% of their net drug sale revenue on direct patient care. The measure targets certain providers who benefit from a federal drug discount program known as the 340B Program.

The 340B Program allows qualifying safety net healthcare providers who serve a disproportionate share of low-income and uninsured patients to purchase outpatient drugs at a significant discount. The intent of the 340B Program is to allow providers that participate in the program to offer more comprehensive services to patients and their communities.

The 340B Program does not dictate how eligible providers use revenue generated from sales of the discounted drugs. Proposition 34 imposes such restrictions.

Who Does It Affect?

Not all providers who participate in the 340B Program are affected by Proposition 34. It only applies to 340B providers that:

• Spend more than $100 million on non-direct-care expenses.
• Own and operate apartment buildings.
• Have accumulated at least 500 severe health and safety violations in the past decade.

Currently, the AIDS Healthcare Foundation (AHF) is believed to be the only organization that meets these criteria.

Background and Controversy

Proposition 34 is one of the first state-level efforts to restrict use of savings generated from participation in the 340B Program. Opponents of Proposition 34 believe that it was on the ballot largely due to political and housing interest groups’ opposition to the president of AHF and certain spending by AHF under his leadership. AHF has become a significant player in housing politics, investing heavily in rent control measures and opposing legislation for denser housing development. The California Apartment Association, a major landlord lobby and opponent of rent control, was the sponsor of Proposition 34.

Nadine Tejadilla, law clerk in McDermott’s Los Angeles office, also contributed to this blog post.