Date of Hearing: May 18, 2020

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

ABPCA Bill Id:AB 1938

Author:(Low) – As Amended Ver:May 4, 2020

SUBJECT: Prescription drugs: 340B discount drug purchasing program.

SUMMARY: Prohibits a designated entity defined to describe AIDS Healthcare Foundation (AHF) from using any revenue from a contract with the Department of Health Care Services (DHCS), a contract with the Centers for Medicare and Medicaid Services (CMS), and from the federal 340B drug discount program to fund litigation under the California Environmental Quality Act (CEQA), to influence any ballot measure action relating to housing, or to fund any efforts to influence any ballot measure action relating to housing. Specifically, this bill:

1. Prohibits a designated entity (defined to describe AHF) from using any revenue from a contract with DHCS, a contract with CMS, and from the 340B program to do any of the following:
2. Fund litigation under CEQA;
3. Influence any ballot measure action relating to housing; or,
4. Fund any efforts to influence any ballot measure action relating to housing.
   
5. Prohibits the revenue described in 1) above from being diverted through any means to any person for use for any of the purposes specified in 1) a) through c) above.
   
6. Requires a designated entity, and any subsidiary of that entity, to annually report on its internet website, in a publicly accessible manner, both of the following:
7. The amount of gross revenue from the designated entity’s contract with DHCS and CMS and from the 340B program that was generated for the previous year; and,
8. A description on how that revenue was spent during that year.
   
9. Requires any unspent revenues to be reflected in the reports for subsequent years until expended.
   
10. Requires the DHCS Director to seek any necessary federal approvals to implement this bill.
    
11. Prohibits this bill from being implemented until the necessary federal approval is obtained, and only to the extent federal financial participation is available.
    
12. Defines a “designated entity” (defined to describe AHF) as a nonprofit organization, including any subsidiary of that organization, that individually or collectively with one or more of its subsidiaries meets all of the following requirements:
13. Is a managed care organization licensed under the Knox-Keene Health Care Service Plan Act that has previously contracted with DHCS as a primary care case management organization;
14. Contracts with the federal CMS to provide services in the Medicare Program as a Medicare special needs plan;
15. Participates in the 340B program; and,
16. Has one or more licenses to operate a pharmacy pursuant to under the Pharmacy Law in the state Business and Professions Code.
    
17. Defines revenue from the 340B program to include, but is not limited to, any savings generated from that program.
    
18. Defines “influence any ballot measure action” to mean promoting, supporting, influencing, modifying, opposing, or delaying any ballot measure by any means, including, but not limited to, the provision or use of information, statistics, studies, or analyses. Excludes from this definition of testifying or making other appropriate communication if that activity is performed under either of the following circumstances:
19. Upon the formal request of a legislative body, committee, or a member thereof; or,
20. In connection with any ballot measure action that directly affects the activities of the designated entity.
    
21. Defines “ballot measure action” as the drafting, introduction, consideration, modification, enactment, or defeat of any state or local ballot measure.
    
22. Defines a “person” means any natural person, partnership, corporation, limited liability company, trust, association, or other entity, however organized.
    
23. Makes legislative findings and declarations that:
24. California’s health care system faces several challenges, including, but not limited to, rising health care costs, workforce shortages, and policy changes at the federal level, and as a result of those challenges, the state needs to be very smart on how public health care dollars are used within its borders;
25. The COVID-19 pandemic has stretched the state’s health care system to its limits, making it even more imperative for public health care dollars in the state to be spent on health care and not on unrelated lobbying efforts or unrelated litigation;
26. Unfortunately, there are entities that are using those funds for reasons unrelated to health care and in ways that are completely counterproductive to improved health care;
27. According to the legislative history of the 340B program, revenue from the 340B program should be used to reach more patients and provide more comprehensive coverage, but there is evidence that funds from that program are not expended for that purpose; and,
28. In addition to the strain on the health care system, there is a widely acknowledged housing shortage in the state, and some entities have been using their public health care dollars to exacerbate that shortage.
    
29. States legislative intent to apply limitations on the use of state health care dollars to entities with a unique role in the state’s health care system that are more likely to abuse that role and spend precious public dollars on lobbying and litigation unrelated to health care.

EXISTING LAW:

1. Establishes the Medi-Cal program, administered by the DHCS, under which low-income individuals are eligible for medical coverage.
   
2. Authorizes the Director of DHCS to contract, on a bid or nonbid basis, with any qualified individual, organization, or entity to provide services to, arrange for, or case manage the care of Medi-Cal beneficiaries.
   
3. Requires, under federal Medicaid regulation, states to ensure that each Medicaid managed care calculates and reports a medical loss ratio (MLR). Requires, if a state elects to mandate a minimum MLR, that minimum MLR must be equal to or higher than 85%.
   
4. Requires, commencing July 1, 2019, a Medi-Cal managed care (MCMC) plan to comply with a minimum 85% MLR consistent with federal Medicaid managed care regulations.
   
5. Requires, under the federal 340B drug program, the Secretary of the federal Department of Health and Human Services to enter into an agreement with each manufacturer of covered outpatient drugs under which the amount required to be paid (taking into account any rebate or discount), as provided by the Secretary to the manufacturer for covered outpatient drugs by a covered entity does not exceed an amount equal to the average manufacturer price for the drug under federal Medicaid law, reduced by a rebate percentage described in federal law.
6. Requires, under the federal 340B program, each such agreement to require that the manufacturer furnish the Secretary with reports, on a quarterly basis, of the price for each covered outpatient drug that is subject to the agreement that represents the maximum price that covered entities may permissibly be required to pay for the drug (referred to as the “ceiling price”), and to require that the manufacturer offer each covered entity covered outpatient drugs for purchase at or below the applicable ceiling price if such drug is made available to any other purchaser at any price.
7. Defines, under the state Political Reform Act, “influencing legislative or administrative action” to mean promoting, supporting, influencing, modifying, opposing or delaying any legislative or administrative action by any means, including but not limited to the provision or use of information, statistics, studies or analyses.
8. Requires, under CEQA, lead agencies with the principal responsibility for carrying out or approving a proposed discretionary project to prepare a negative declaration, mitigated declaration, or environmental impact report for this action, unless the project is exempt from CEQA (CEQA includes various statutory exemptions, as well as categorical exemptions in the CEQA guidelines).
9. Sets requirements relating to preparation, review, comment, approval and certification of environmental documents, as well as procedures relating to an action or proceeding to attack, review, set aside, void, or annul various actions of a public agency on the grounds of noncompliance with CEQA.

FISCAL EFFECT: This bill has not been analyzed by a fiscal committee.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, adequate housing and health care are two very important components in our today’s society. Unfortunately, there have been documented cases where public money was used in an attempt to affect public policy unrelated to the health arena, thereby slowing the production of new housing in California. At a time when the state is facing unprecedented crises in health care and housing, it is important to ensure that public resources are spent wisely and for the purposes for which they are intended. The author concludes that this bill would only apply to limited entities in order to deter the most flagrant abuses.
2. BACKGROUND. California’s Medi-Cal law does not prohibit MCMC plans from funding litigation under CEQA, influencing any ballot measure action relating to housing or, funding any efforts to influence any ballot measure action relating to housing. State and federal law establish requirements on Medicaid managed care plans (including AHF) for minimum spending on health care-related activities (known as a MLR). Federal Medicaid managed care regulations establish an MLR for Medicaid managed care plans that requires states to ensure that each managed care plan calculate and report a MLR. In general terms, an MLR is the percentage of each dollar the plan receives in premiums that the plan spends on health care (such as health care claims incurred and activities that improve health care). For example, a plan that spent $850 million of every $1 billion in revenue it received on eligible health care expenditures would have an MLR of 85%. However, the MLR does not restrict the types of spending plans make on non-health care activities (the 15% in the previous example).
   
   Federal regulation permits states to require Medicaid managed care plans to meet a minimum MLR, provided the minimum MLR is equal to or higher than 85% (the standard used for projecting soundness). In addition, federal regulations rule give states the option of requiring a remittance if plans do not meet the MLR. In SB 171 (Hernandez), Chapter 768, Statutes of 2016, requires, commencing July 1, 2019, a MCMC to comply with a minimum 85% MLR consistent with federal regulations. In addition, SB 171 adopted the federal option to require a remittance from MCMC plans beginning with plan contract year in July 1, 2023.
   
3. 340B. This bill would prohibit AHF from using any revenue from the federal 340B drug discount program to fund litigation under CEQA, to influence any ballot measure action relating to housing, or to fund any efforts to influence any ballot measure action relating to housing. State Medi-Cal fee-for-service law establishes billing limits for 340B entities to the actual acquisition cost of the drug plus a dispensing fee, but does not limit the use of revenue from the program.
   
   Enacted in 1992, the federal 340B Program was intended to provide discounted drugs to covered entities such as hospitals and clinics to permit these entities “to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” In the Legislative Analyst’s Office (LAO) March 21 2018 “Analysis of the 340B Medi-Cal Proposal” the LAO stated federal 340B Program entitles eligible health care providers (mainly hospitals and clinics that serve large numbers of low-income patients) to discounts on outpatient prescription drugs. These discounts result in savings that benefit participating health care providers and their health care partners. Federal Medicaid law establishes a separate federal Medicaid prescription drug rebate program that results in prescription drug savings for Medi-Cal (savings are shared between the state and federal government). Currently, either of the two federal prescription drug discount programs could apply when drugs are dispensed to Medi-Cal enrollees. However, federal law requires that only one of the drug discount programs be used for a given drug dispensed to a Medi-Cal enrollee. The LAO indicates the 340B Program does not place restrictions on how covered entities may use any retained savings.
4. AHF. According to its Audited Consolidated Financial Statements and Supplementary Information for the Years Ended December 31, 2019 and 2018” AHF is headquartered in Los Angeles, California and is a not-for-profit health care organization incorporated in 1987. AHF provides medical care for those affected by Human Immunodeficiency Virus (HIV) or living with the Acquired Immune Deficiency Syndrome (AIDS). In addition, AHF participates in patient advocacy, housing and scientific research for those in need. The Mission of AHF is to provide “Cutting edge medicine and advocacy regardless of the ability to pay.” AHF has a network of 67 outpatient health care centers and 55 pharmacies that are located in 16 states including California, Florida, Texas, Washington, New York, New Jersey, Pennsylvania, Georgia, Nevada, Louisiana, South Carolina, Mississippi, Maryland, Illinois, Indiana and Ohio as well as Washington, DC and Puerto Rico. AHF operates 20 Out of the Closet Thrift Stores in seven states. AHF also operates in 45 countries including 13 in Africa, 13 in the Americas, 10 in Asia, and nine in Europe. During 2019 and 2018, AHF purchased properties in Los Angeles, California and Hollywood, Florida to provide very low income and transitional housing.
   
   Since April 1995, AHF has contracted with DHCS, initially as a primary care management plan known as Positive Healthcare, and then in July 2019 as a managed care plan licensed under the Knox-Keene Health Care Service Plan Act. Under its contract with DHCS, AHF enrolls individuals with a diagnosis of AIDS who reside in Los Angeles County who are in certain aid codes. In January 2006, AHF contracted with CMS to provide a Medicare Advantage Part D Special Needs Plan to Medicare beneficiaries living with a diagnosis of HIV/AIDS in Los Angeles County.
   
   AHF has sponsored state ballot initiatives on prescription drugs prices (Proposition 61 in 2016), requiring condoms in pornographic films (Proposition 61 in 2016), rent control (Proposition 10 in 2018), and a local measure in Los Angeles placing a two year moratorium on development projects that required a height change, zone change, or change to the General Plan and reduced the city’s ability to change city planning rules for a single project (Measure S). AHF has also filed CEQA development-related lawsuits in Los Angeles. In February 2020, the California Secretary of State announced that an initiative is eligible for the November 3, 2020 General Election ballot that would expand local governments’ authority to enact rent control on residential property over 15 years old. On June 25, 2020, the Secretary of State will certify the initiative as qualified for the November 3, 2020 General Election ballot, unless it is withdrawn by the proponents prior to certification.
5. LOBBYING RESTRICTIONS. According to the National Conference of State Legislatures (NCSL), a handful of states have statutes that prohibit agencies from using public funds to retain a lobbyist. In a February 2020 table describing each state’s laws, NCSL indicated it found California is one of 30 states with no statute forbidding the use of public funds for lobbying. Restrictions in other states vary in scope. For example, Florida prohibits state funds from being used for lobbying purposes, while Connecticut prohibits a quasi-public agency or state agency from retaining a lobbyist. In addition to the previously-described state law lobbying restrictions, in some instances, federal law places restrictions on lobbying, and place restrictions on lobbying-related expenditures for tax code purposes. For example:
   
   1. The federal Patient Protection and Affordable Care Act established health benefit exchanges (such as Covered California) and prohibited those entities from promoting federal or state legislative and regulatory modifications.
      
   2. A tax exempt nonprofit organization organized and operated under Section 501(c)(3) of the Internal Revenue Code (commonly referred to as charitable organization or a private foundation), may not attempt to influence legislation as a substantial part of its activities and it may not participate in any campaign activity for or against political candidates. In 1983, the US Supreme Court held this restriction does not violate the First Amendment in Regan v. Taxation with Representation of Washington.
      
   3. Section 162(e) of the federal Internal Revenue disallows the deductibility of lobbying and political expenditures incurred as a business expense. These include expenditures paid or incurred in connection with influencing legislation; participating or intervening in any political campaign on behalf of (or in opposition to) any candidate for public office; attempting to influence the general public with respect to elections, legislative matters, or referendums; and any direct communication with a covered executive branch official in an attempt to influence the person’s official actions or positions. In 1959, the US Supreme Court issued a decision Cammarano Et. Ux v. United States upholding a Treasury Department regulation that provided in pertinent part that no business deduction shall be allowed to "sums of money expended for lobbying purposes.”
      
   4. Federal law requires the Legal Services Corporation to ensure that no funds made available to recipients by the Corporation are used at any time, directly or indirectly, to influence the issuance, amendment, or revocation of any executive order or similar promulgation by any federal, State, or local agency, or to undertake to influence the passage or defeat of any legislation by the Congress or by any State or local legislative bodies, or State proposals by initiative petition. Exceptions to this prohibition include where representation by an employee of a recipient for any eligible client is necessary to the provision of legal advice and representation with respect to such client’s legal rights and responsibilities; or where a governmental agency, legislative body, a committee, or a member thereof requests personnel of the recipient to testify, draft, or review measures or to make representations to such agency, body, committee, or member, or is considering a measure directly affecting the activities of the recipient or the Legal Services Corporation.
      
6. SUPPORT. This bill is supported by the California Apartment Association, California Chamber of Commerce, California Council for Affordable Housing, California Association of Realtors, and other business-related groups to prohibit a designated entity, as defined in the bill, from using revenue from the 340B drug pricing program and other designated programs on ballot measures and other types of actions that are not directly related to health care. The supporters state that California has a statewide housing shortage of nearly 3.5 million homes. Adequate housing and health care are two very important components in our society. The COVID-19 pandemic has stretched the state’s health care system to its limits, making it even more imperative for public health care dollars in the state to be spent on health care. The supporters believe these dollars should not be misused to influence or fund local state ballot measures or unrelated litigation that exacerbates the state’s continuing housing crisis. Unfortunately, the supporters argue there have been documented cases over the past several years where tens of millions of dollars have been inappropriately spent to negatively affect efforts to build more affordable housing units in California – making a bad problem worse. The supporters conclude that this bill ensures that public resources are spent for the purposes for which they are intended in order to deter the most flagrant abuses. Any entity that uses dollars from publicly funded programs to stop housing production is harmful to the state’s on-going housing crises.
7. OPPOSITION. AHF writes in opposition to this bill that this bill would impose extraordinary and unlawful state restrictions on the use of federal funds and proceeds attributable to federal programs on just a single nonprofit, namely AHF. AHF argues this bill is aimed at legitimate AHF policy interests that do not intersect with these programs as a matter of policy or practice. AHF argues these are federally designed and created programs, and federal law alone defines the purpose of the 340B program and the only role played by California in the 340B program is with respect to DHCS’ limiting the state’s Medi-Cal fee-for-service reimbursement to the 340B purchase price and the pharmacy dispensing fee. AHF also objects to the legislative findings and declarations in this bill that it has inappropriately used monies from the federal programs for purposes that are not consistent with its mission and that there is “evidence” to that effect, which AHF states is factually incorrect, citing the services it provides regardless of ability of the patient to pay. AHF argues it has expanded its services to people with or at risk of HIV, its success in reducing viral amounts to an undetectable rate in 85% of its patients, and its success passing federal audits of its 340B and Medicare SNP as a testament to the success of AHF’s services and its integrity with respect to these federal programs. AHF points to four provisions in this bill that it argues raises questions about the intent of this bill as a matter of policy in that: a) the bill only applies to one entity despite their being thousands of 340B covered entities; b) the bill prohibits the use of 340B funds in only two matters (litigation under CEQA and funding or influencing ballot measures on housing); c) the bill contradicts the mission of the 340B program, and, d) the bill fails to recognize that “health care” in a broad public health mission like that of AHF includes a range of services that directly impact a patient’s health care, which includes affordable housing. AHF states that housing is health, and this bill would enjoin AHF from participating in two subject (CEQA and housing ballot measures) that align with AHF’s mission to expand low-income housing opportunity, which raises questions as to whether the actual beneficiaries of this bill are not HIV patients but those who have opposed AHF’s efforts to reduce the cost of housing to millions of low-income Californians. AHF states that this bill raises questions as to whether, in the pursuit of its mission, its First Amendment rights are at risk of being abridged.

REGISTERED SUPPORT / OPPOSITION:

Support

Building Owners and Managers Association of California

California Apartment Association

California Association of Realtors©

California Building Industry Association

California Business Properties Association

California Chamber of Commerce

California Council for Affordable Housing

Central City Association of Los Angeles

Commercial Real Estate Development Association

International Council of Shopping Centers

Valley Industry & Commerce Association

Opposition

AIDS Healthcare Foundation

Analysis Prepared by: Scott Bain / HEALTH / (916) 319-2097