Senate Standing Committee on Health

Good afternoon. The Assembly and Senate Committees on Health will come to order. My name is Richard Roth. I'm privileged to serve as chair of the Senate Health Committee. Assembly chair Mia Bonta is not able to join us this afternoon, so we will proceed. Obviously, thank you all for being here.

All panelists this afternoon will be testifying in person for today's hearing. We will be hearing all of the panels of witnesses on the agenda prior to taking any public comment. Once we have heard all of the witnesses, we will have public comment period.

For those who wish to make a statement or comment on the topics of today's agenda, we are going to allow a total of 30 minutes for public testimony with a time limit of 1 minute per witness. Testimony will need to focus on the initiative before us.

Obviously, as the chair, I will not permit conduct that disrupts, disturbs, or otherwise impedes the orderly conduct of legislative proceedings. I'm confident that we will not have any of that today. With that said, welcome again.

Our goal is to have a fair and impartial presentation of the relevant facts about this initiative, specifically Proposition 35, which provides permanent funding for Medi Cal healthcare services to aid all of us and the electorate in reaching an informed judgment regarding the particular measure involved.

For our first panel to provide us with an overview of the proposition and fiscal analysis, we've asked the Legislative Analyst Office to join us, and once you are in place, please introduce yourselves for the record. I was going to say to my left, your right, so we'll see how you all line up. And that's finance.

Okay, LAO, introduce yourselves for the record and you may proceed when ready.

Great. And is everyone able to hear me?

Great. My name is Jason Constantouros. I'm with the Legislative Analyst Office. I'm going to be speaking from this handout that should be in your materials. The handout is organized into four key sections. The first provides a brief overview of our role in the ballot measure process.

Perfectly.

It then provides background on the MCO tax, which is the major part of Proposition 35. It'll then describe the Proposition and provide our fiscal analysis. If you turn to page one, your handout. Again, this describes our role in the ballot measure process. I just want to highlight three key points on this page.

The first is that our office is tasked with providing analyses of ballot measures for initiative measures. Specifically, we do it twice. The first is when, right before the measure goes to collect signatures, we provide an analysis jointly with the Department of Finance, and then we do it a second time.

If the measure qualifies for the ballot independently. And then the third point I want to emphasize is that our office's role here is a bit different than what you might be used to in budget committees in that we do not weigh in on the policy merits of ballot measures.

We're tasked with strictly providing an independent fiscal analysis of the measure. Turning to page two, we'll provide some quick background on the MCO tax, and there are three key points we want to emphasize in terms of background. The first key point is around what the MCO tax is.

So the MCO tax is a tax on health plans such as Kaiser Permanente. That would be an example of a plan in California, and it specifically a tax on the number of people that plans enroll, including those that they enroll in Medi Cal.

The tax rate is much higher for those in Medi Cal compared for those who have other kinds of health coverage. And by charging the MCO tax, the state is able to draw down more federal funding. Second key background point is, what is the purpose of the tax? Well, the tax has two key purposes.

The first purpose is kind of the historical purpose of the tax, and that is to help support the existing Medi Cal program.

When the state uses the tax in this way, it means that it doesn't have to spend as much money from the General Fund to cover this cost, and so therefore, it helps reduce cost to the state. The second key purpose is to increase funding for Medi Cal and other health programs. This is a relatively new use.

The state started to do this in 2024 and has adopted a series of increases for Medi Cal and other programs, most of which are scheduled to begin in 2025 or 2026. The third background point I want to emphasize, and if you turn to page three, it's listed there. And that is that this is not a permanent tax.

So the state has had the MCO tax for a number of years, but has never permanently authorized it in state law. Instead, the Legislature has authorized it for limited periods of time. The tax also must be approved by the Federal Government, and that federal approval is also for limited periods of time.

The current tax is approved through 2026, at which point it would expire at the end of 2026, unless if it's approved again. If you turn to page four, we provide an overview of Proposition 30, and there are two key points I want to emphasize. The first is that the measure makes the MCO tax permanent in state law.

So this, you know, because the tax already is in place, this would really begin in 2027.

The Federal Government would still need to approve the MCO tax, and so this the state would still need to seek periodic approval from the Federal Government, - would be continued to be based on the number of people that health plans enroll, and would have a similar structure to how the structure that is currently in place.

The Proposition does allow the state to change the tax if needed for federal approval. It does have certain limits to this.

We're alive.

The second key aspect of the proposal I want to emphasize is it also changes how the state would use the MCO tax revenue. Generally, these rules would require the state to spend more on augmentations on Medi Cal and other health programs than it is currently. The rules are quite extensive and complex.

There are a set of rules in the short term in 2025 and 2026, and then another set beginning in 2027. It also would change which kind of services get augmentations under the package and for your reference, we summarized some of these key changes on the bottom of page four in that figure.

And again, as you can see here, there is a lot of similarity between current law and Proposition 35 in terms of which services get augmentations, but there are some differences. For example, there are certain long term services and supports that would get augmentations under current law, but would not receive augmentations under Proposition 35.

Alternatively, under Proposition 35, there would be certain hospital services that would receive augmentations that don't currently do so under current law. Turn to page five.

We summarize our fiscal analysis and we think of the fiscal effect here as really being different in the short term, in 25 and 26, which is over the current term of the existing tax, and then in the long term and beginning in 2027, when there would be a new tax.

In the short term, there are three fiscal effects. First, there would not be an effect on state tax revenue, and this is because the measure does not change the existing MCO tax structure.

Second, the measure would result in more funding for Medi Cal and other health programs, and this is because the state would be required to use more MCO tax revenue for this purpose than it does currently. These increases would also come with additional federal funding, too.

So when you factor in both the state and federal funding, we estimate that this increase would be between roughly two to $5 billion annually, and again, about half of this would come from the MCO tax. The third key effect is that there would be an increase in state costs.

This is because there would be less funding available to help pay for existing services in Medi Cal. Instead, the General Fund would have to cover this cost. We estimate this cost to be between roughly one to $2 billion annually in 2025 and 2026.

Our analysis assumes that there are two sets of rules or in the measure again, one in the short term and one in the long term. And this means that there would still be additional funding available in the MCO tax to help offset General Fund spending. In the long term.

The effects are unknown, and this is for many reasons. One key reason is that it's unknown whether the state would otherwise renew the tax in the future without the measure in place. This has been the traditional practice. The state has renewed the tax periodically, but it's not a requirement in law that the state do so.

Also, it is uncertain how large of a tax the Federal Government would approve in the future, and that has key implications for how money is allocated. And then third, we also want to emphasize that the measure does have an impact on the state appropriations limit. This is as allowed under the California Constitution.

Proposition 35 temporarily increases the state appropriations limit by the size of the MCO tax for four years. After that temporary increase ends, the long term effect of the measure on the state spending limit is uncertain, and this again is because the long term impact of the measure is unknown. Thank you.

Thank you, sir. Department of Finance comments.

Good afternoon, chair Roth and Members of the Committee, Nick Mills, Department of Finance. We understand that the LAO's estimated General Fund shortfall differs from the administration's, and we're taking time to further evaluate their analysis. However, both the Administration and the LAO anticipate a General Fund shortfall to the extent Proposition 35 is approved by the voters.

The Administration estimates the General Fund shortfall of approximately $11.9 billion associated with the term of the tax, $2.6 billion in 24-25, 4.9 billion in 25-26, and 4.3 billion in 26-27.

Based on the administration's estimate starting January 1, 2025 the initiative would not allow for nearly all net revenue from the tax, including additional revenue from the two MCO tax amendments, of about $6.7 billion to be used to support the Medi Cal program.

The initiative specifies that in calendar years 2025 and 2026, only $2 billion annually may be used for this purpose. Any remaining funding would be redirected towards new expenditures or deposited in newly created subaccounts.

In contrast, the 2024 Budget Act MCO tax package included $6.9 billion in fiscal year 24-25, 6.6 billion in 25-26, and 5 billion in 26-27 in MCO tax funding to support Medi Cal.

We'd also note that the General Fund shortfall could be greater by hundreds of millions if the timing of MCO tax revenue collection and federal approval of the two MCO amendments are delayed.

Finally, per the 2024 Budget act, to the extent that voters adopt Proposition 35, the $133 million in 24-25, $728 million in 25-26 and 1.2 billion in 26-27 for new targeted Medi Cal provider rate increases and investments that would take effect either on January 1, 2025 or January 1, 2026 would become inoperable as both the initiative and these rate investments cannot fiscally be sustained.

Thank you again for providing finance with the opportunity to speak on the fiscal impact of Proposition 35 and available to answer any questions.

Thank you, Members. Questions, comments, concerns? Senator Menjivar.

Thank you, Nick. My question's for you. The last part you mentioned, inoperative. That language is put in on the request of the Administration during the budget negotiations, really rendering us with the inability to further investments or further the investments we fought so hard, those additional investments.

Can you tell me, was there a possibility to have excluded that sentence meaning, let me rephrase. If that sentence wasn't in the budget plan and this Proposition were to have passed, would the Administration, would we have been, had the ability to sustain both of them?

Laura Ayala, Department of Finance. Based on the administration's estimate, estimated costs, and the General Fund shortfall that we were facing at 2024 Budget Act, the decision was made to add that language. So it's. I think that our interpretation at that time was that they could not be both fiscally sustained.

Is there maybe a question for both of you? Do you see any room for finding, I guess, room for those investments to, to get support in the upcoming years?

The Administration will put forth a proposal in January to budget, to balance the budget as constitutionally required.

If this were to. Because this year legislators were told, hey, you gotta do hard decisions because we're gonna balance two years worth of budgets. This Proposition passes. Does that really negate all the hard work we did this year? And next year we're going to start with a really, with another huge deficit?

Laura Ayala, Department of Finance. I don't think we could speak to that yet. We will begin our budget development in this fall and come out with the Governor's Budget in January.

Thank you, Senator. Doctor Weber.

Thank you, Senator Roth. I want to thank our panelists for kicking off this very important conversation. I want to go back, if I may, and just ask again, what exactly is the intended purpose of the MCO tax?

Well, I think historically the MCO tax has existed to, you know, provide additional funding to the Medi Cal program. It's served different functions over time depending on what version of the taxure we're looking at. In many years it's exist.

It supported the sort of existing program in Medi Cal, but that the Legislature expanded that purpose when it set aside some of the funding for augmentations. So the purpose has evolved over time.

You know, I think one of my concerns is we talk a lot about how much it will cost, you know, to have something like, you know, Prop 35 or before when we were talking about the original MCO tax, which really was to ensure that the patients within our Medi Cal system have access to providers. Right.

We've done a great job in this State of ensuring that pretty much everyone is covered. But like I've said many times on the Assembly side, you can have everyone covered, but you don't have, if you don't have providers that you can actually see, then we've really done nothing. So my question is to finance.

Have you all looked at what would be the estimated cost to ensure that all Californians actually have access to care? Because we know that that's clearly not the case at this point.

Have we looked at those numbers to say, what would it cost us to ensure that all of these patients that we are now giving insurance to have actually physicians and providers that they can actually see in a timely manner?

I think as the Administration spoke during all of the budget hearings, we have not done that analysis. I don't know if that's something that's possible to put a number on, but no, we don't. We haven't done that analysis.

All right. Well, let's look at it from a different angle. What is the purpose of allowing someone to have access to their primary care provider, whether it's a family practice Doctor, pediatrician, internal medicine, I guess even OBGYNs at time. What's the purpose of that from a healthcare standpoint? It's to prevent chronic conditions.

It's to prevent long term illnesses. It's to prevent hospitalizations, surgeries, chronic medications.

So have you all looked at it from the stance of if we don't provide access and these individuals are unable to get that preventative care, what the cost within the Medi Cal system, what the cost of the state would be to care for these people once they have these chronic conditions, chronic hospitalizations, chronic medication surgeries?

Have we looked at that?

Again? No, we have not. And the budget that we, that the Legislature and the Administration agreed upon was to balance the budget according to the large General Fund deficit we've been facing. So those are the budgets that the Legislature and the Administration have agreed to.

Do we believe that Medi Cal patients today have the same access to healthcare services as patients in commercial insurance?

I don't know that we could speak to the access in commercial versus Medi Cal.

Yeah, I think. I think if we're doing work within the healthcare space, even from a finance standpoint, we should have a basic understanding of the landscape of what we're dealing with.

And I know from a legislative standpoint, we're constantly hearing about issues of access, the inability for patients to either have or see doctors or be able to see them in a timely fashion, which ultimately, like I said, if you can't see your Doctor or your provider, we're not really doing much.

So outside of that, can you all provide me with a detailed list of provider rate increases that have been proposed by any Administration in the last 20 years? We can work on that and get back to you.

Okay, so essentially, you don't have that information to say when the last time an Administration or DOF supported rate augmentation for our providers in the Medi Cal system.

I don't want to speak off the top of my head, and I don't want to give incorrect information, but we have proposed those, and we will provide you with the information.

Okay. I'm going to turn it back over. Senator Manjibar, you have a question?

Thank you. I think you brought up a point that reminded me, we're talking about investing in preventative measures, entities and so forth. The whole goal is to, like the good Doctor mentioned, is to get people out of ERs.

And that's what I thought we did with the big wins that we got this year, where we invested in preventative nature and preventative entities.

We want to make sure that we invest in cvases, the senior adult centers, because we get those seniors out of ers, out of having bed stores and so forth, get them active so they're living longer and not having to go to acute hospitals. Pediatric day centers are the same thing.

I saw the ad for Prop 35 about helping kids in Medi Cal. But in California, we have kids who are falling out of Medi Cal. Ages zero to five, because there's no money for us to get them to stay in Medi Cal.

So, yes, we can further invest, and we should invest in provider rate reform or provider rate increases. I'm 100% for that, but we're going to do that and still have kids who aren't even able to maintain access to Medi Cal because they're falling off of Medi Cal.

So I don't understand how we're talking about preventative investments where we're going to undo the huge wins that we had this year that are actually going to help in preventative nature.

Kids who are in hospitals right now who can't go home were paying hundreds and hundreds of thousands of dollars to keep them in hospitals when they could be at home. But we're going to undo those investments. And I'm wondering, DoF LAO, how common is it? Cause this is my second year here.

How common is it for elected officials who were voted into this body to pass policy, to go through a whole process, to pass a budget and have non elected officials then undo their work? How common is that?

Yeah, I don't know if I have a complete answer. I don't have all the complete information. I will say that there are a number of ballot measures every year that can have interactions with the sort of state budget and policymaking.

I would also emphasize that you may have an opportunity to explore some of the questions you have in the following panels.

Thank you. I just want to not lose focus that the Legislature and the Administration and the 2024 Budget Act did include significant investments on preventative care and for primary care doctors. And it also includes the continuous coverage.

So it's a good mix, in my opinion.

The language and the funding included in the 2024 Budget Act was an agreement between the Legislature and the Administration.

Which will be undone.

And we can't speak to what is or what is not included in the initiative.

Senator Limon.

Thank you. You know, I hear a theme among so far my colleagues on the Assembly and here in the Senate in terms of some of the things that we're asking. And I've oftentimes, you know, we all think of healthcare as a statewide issue, but certainly also a regional issue.

You think about the district you represent, and I think of the fact that in my district, I have rural, very rural areas of our state, but I also have, you know, the coast. I have an urban, you know, center as well. And I think of what it will take to have to increase access.

And we can't have a conversation about access without the providers. And the more that I work with our communities and our healthcare providers, the piece that keeps coming up here has to do with our medical reimbursement and also augmentation. And I think that those are both really important issues.

And so when we talk about what's happened here and whether, regardless of what direction we are going, I think it continues to present a challenge for us to see an absence or a very low frequency.

I actually hope that you will also share, maybe with the whole committee, the numbers as well, when we don't see some of the rate augmentations. And I feel like that is a true obstacle to care.

When I think of this conversation and how it gets translated to the district and when you go out and you're a representative and you meet people who tell you that they have to drive 40 miles to see someone, and then you meet providers who are like, we're trying to see as many people as we can, but you need to understand, like, without the rates going up, without reimbursement, we don't have the capacity because they are already working as much as possible.

I've said this very publicly. I've been to the Doctor because I have a toddler more than I've been probably my whole life. There are waits and waits and lines of people like, it's hard to get in. And this is part of the overall care.

And so I share these comments as a way to echo an issue that's really important to, I think, several members. And, you know, I appreciate that you all have a perspective and a knowledge to add to this.

But I want to underscore that when we continuously bring up augmentation, medical reimbursement rate, MediCal reimbursement rates, it's because this is what we're hearing from constituents in our district. This is a problem to accessing care.

And I don't want that to be dismissed because this is a hearing and I don't want it to be dismissed in a sense of like, look, they're in a particular place. We are articulating the issues that we see every day that are very real, that block access to care. That is what I think we're trying to deliver.

And so I want to be a voice to echo on that because it's very important. And it is also an issue that in a lot of communities, regional communities, like it is even worse in rural areas.

And I cannot begin to tell you how difficult it is to see families, to see individuals who need care, who, best case scenario, have to drive miles and miles away to see a provider. And I'm talking about general care. Don't even get me caught up on specialty care.

So I think that, you know, I hope that these comments aren't dismissed in any way and that the questions we ask, we're able to engage at some point about what it will take to get there, to be able to do better Medi Cal reimbursement rates and to ensure that we're also looking at augmentation.

And that is something that I think is very real because it has an impact. And I will tell you that just seeing the lines of people that are trying to see a Doctor, any kind of Doctor, is really important, and it's really difficult. So I hope that that's shared here. I think it's a common theme.

I know you're only in positions to give us very short, succinct answers, but I hope that that will be some part of what you take to deliberate on how we can work together to better address this.

Thank you, Senator. Assemblymember Jones Sawyer.

Thank you. And I know this is the initiative overview and fiscal impact. And, you know, this is my last year, and I also served in local government.

And one of the things that has always bothered me, disturbed me or pissed me off has been the fact that budget analysts, when you talk about cost benefit analysis, they never look at cost avoidance. Cost avoidance is like, you know, it happens. It happens somewhere, but we will never calculate that.

But we will calculate what it will cost every day in every way. And I say this in this context, I am a diabetic. I was pre diabetic, and I was diabetic. And then I was on metformin, insulin and a whole bunch of other pills.

A nurse sat down with me and said she was tired of seeing African American males coming into the office, that immediately they were told that they were diabetic. Immediately they were put on metformin, immediately they were put on insulin.

And she said to me at the time, if you lose a little weight, brother, you get off the sweets you eat, right, walk a little bit more diet. I lost 40 pounds. Start walking around this place, even at 150 degree, 15 degree heat, and I'm no longer on insulin. I'm no longer on metformin.

And my numbers now say that I am no longer a diabetic. I have insurance with the state, luckily. But how much would we be paying for me as an individual to continue to pay insulin and medication costs for the rest of my life? Let me say that again.

How come we can't calculate the cost avoidance that you can now calculate on me alone, how much we've saved taxpayers because I'm being paid by. But we can't. Absolutely. You can with me. Absolutely. You can at least estimate, because you estimate every day when we come up with new bills, you estimate what it will cost the system.

Sometimes it's really extravagant numbers. You're real easy at making those estimates. But when it comes to this, where we can save taxpayers taxpayer money, I don't know why we don't do it.

Is it something that we should, maybe with the Senate and Assembly that becomes part of the budget process, that we add in cost avoidance in the calculations that we get from the budget? LAO from Department of Finance?

Is that something we should actually demand so that we can get a full cost benefit analysis of what it actually costs or what we can do to bring down costs? Because right now it's almost as if let's just keep spending and spending and spending and spending, and we're really not trying to solve the problem.

We just want to continue paying for this industry and bloating that dollar amount. And so is that something? And I'm just going to make a suggestion, is that something?

And this is my last year, so that would leave it with some people here that maybe, is that something we can legislate that you're able to do and put in the budget analysis that you give to us so that we have a full understanding of what we're voting on or even what we can do to help bring down costs?

So, you know, our office is always.

People getting up now. All right.

Our office is always available to work with the Legislature on thinking of new legislation or assisting the Legislature on fiscal matters. So we're always available to have that conversation. I would emphasize that our analyses generally try to consider costs from many different angles. There are costs and revenue impacts that are often very certain and direct from measures.

As you note, we often have a more direct way of getting at those. There also are more indirect impacts, and sometimes those are hard to quantify.

This is a perennial challenge in the healthcare area because, you know, when you increase funding for healthcare, that can have many different impacts on utilization, on outcomes, that can have, you know, very uncertain impacts. It could increase spending in some cases. In some cases, it could decrease spending.

It would depend on not just how often services are utilized, but the long term effects of that. So, you know, it is just a perennial challenge that we face in this area is how to get at these more indirect impacts. And also, were there a lot more uncertain?

I think my costs are not uncertain. I know you should know what you pay or what you've been paying for me when I was on insulin, metformin and how much you're saving for me not to be. So I wouldn't consider that.

Or if you took us other people off and got better care and preventative care, you could estimate what that could be, and I don't understand why we can't do that.

Carolyn Chu with the Legislative Analyst Office very much appreciate the point that you're making, sir.

I think what we would offer is that when our office, particularly in the budget context, maybe speaking outside of our analysis for the fiscal effects of this measure specifically, but talking about budget analysis in the budget context, we often get questions from you and your colleagues about the possible long term savings from reducing utilization, utilization of a particular service, or improving the health of Californians overall.

And we do try to look, of course, at the research and what the studies can tell us about what the potential long term savings can be. Sometimes those savings don't actually accrue to the state. They accrue to other components of society, either just through general social benefit or folks living longer or different things like that.

But we very much appreciate the point that you're making.

It's one that's come up in the budget context quite frequently. In the specific ballot analysis before us, as my colleague Mister Constantoros was referencing, we're focused on really the direct effects of the measure in terms of how the tax revenues can be spent or not spent relative to the current law distribution of those revenues.

Go ahead.

No. And so, my member, does that answer your question?

Not really, but I, that, because you, you will, I mean, I've seen the LAO and Department of Finance when I've had bills go through and all of a sudden you pull a rabbit out of a hat and says it's more expensive, all of a sudden it's $6 billion, it's $2 billion, when I know for a fact is $100,000 and all of a sudden there's these new mitigating circumstances of why it costs so much.

And it seems to be really easy to put a lot of cost on things when I'm saying is there is an opportunity to show that, like right now, if this bill doesn't go to any kind of preventative, or this initiative doesn't even look at preventative, where there could be benefits, not only just the health benefits, which we all want that, but financial benefits, that, my question was, how do we include that?

Is that something I can ask for right now? I know you just said you can ask, so I'm asking for it right now to be able to get that kind of cost benefit analysis. Maybe that is the best way. So we're not sitting here all afternoon going back and forth on whether or not we can do that.

And so I would like to request that even if you just use me as a microcosm of what you could possibly get.

We certainly can follow up with your staff to make sure we're answering the. Question that you're posing to us.

Thank you.

Thank you, sir. Assemblymember Schiavo.

My colleague got to a lot of what I was wanting to ask about, so I also look forward to some analysis in that space because I think healthcare especially is one of the areas in which there is a lot of cost benefit when you provide care, preventative care, early care, and proactive care.

And we all know horror stories of people on Medi-Cal with long waits and long lines and struggles to get care when they need it. And, you know, at the end of the day, I think there's broad agreement that the cost of care is not reimbursed at Medi-Cal rates.

Medi-Cal does not cover the cost of care. And that's why we are not getting the providers that we need. That's why we are not able to hire and keep the staff that we need.

And until we, as a state, decide that we are going to truly address this issue, this is going to continue to be a problem. And so I think we were really attempting to get at that and there's clearly a lot more work to be done.

But I think we know that these investments, when we make these investments, that it will come back to us in terms of savings to prevent the kind of long term and chronic health issues that Assemblymember Jones Sawyer is discussing and has experienced himself. So agree that that needs to be kind of calculated in.

But I think we also really have to get serious about long term thinking of Medi-Cal rates and Medi-Cal reimbursement levels, because it's not sustainable as it is right now.

And, you know, and I think that's why there's lots of kind of grasping for solutions because we have to figure it out and we have to make sure that we're able to reimburse the cost of care. Simply reimburse the cost of care would just be a nice starting point.

So, you know, I think that's where we'd all like to get to and look forward to being able to work together to get there. Thank you.

Thank you, Senator Menjivar.

I have a technical question. Either one of you. So the current MCO tax expires in 2026, and Prop 35 was started in 2027. If the Prop starts in 2027, why can't we maintain the MCO up in the current MCO as is until this kicks.

Sorry, the MC. The Proposition 35 begins in 2025. I think what you're looking at is on page two. You're looking on page two.

Yes. As Prop 35 makes. It makes existing health plan tax permanent beginning in 2027.

I think it's a different page on my handout, but, yeah. So what we're saying there is that it doesn't change the structure of the current tax, but it does impose new rules on how the existing MCO tax would be spent from the get go. Yeah. Starting in 2025.

Okay. So new rules start in 2025, but the new structure starts in 2027.

So under current law, the existing MCO tax ends at the end of 2026. And so without the measure, under current law, there would be no MCO tax beginning in 2027 unless if it's extended. So under the measure, it would become permanent. So there would be a.

There would be under state law and a permanent MCO tax in 2027. Okay. Okay. Thank you.

I'm just curious.

Under this, Prop 35 and pay on page four of at least my version of the LAO report lists services that are going to receive funding increases, starting with doctors and related providers and going down the list in the future, if the Federal Government approves an MCO tax, but at a lower tax level or tax rate, what happens to the list?

Is the funding reduced pro rata? Is there an opportunity under the initiative to revisit what was funded and not funded, make adjustments, or somewhere in between?

Yeah. Now, I want to emphasize that the table you're looking at on page four is in the short term. So 2025 and 2026. In the long term, it's a lot of the same services. There are some additional services that could qualify.

And generally, in the long term, the rules are a little complicated, but much of the funding would be allocated on a proportional basis. If the tax were larger and small, depending on the size of the tax, those could be prorated up or downward.

If the tax reaches a certain threshold, above just over 4 billion, then there are additional programs that also could. Services that also could receive funding, too. So it just depends. It is a complicated formula.

It depends on how much funding is raised, but depending on how much funding is raised, it does determine how much funding goes to each of the services.

And I was more concerned not about getting more, but about getting less. So if you have a 50% reduction to the amount of money generated by the MCO tax based on the federal approval, is there an opportunity to readjust what gets funded and at what level? Or is it simply applied on a pro rated basis?

Everybody gets a 50% haircut.

The measure, in the long run, does have a formula in place for allocating money. So that would sort of be the operative part of the measure. There is a part of the measure that does allow the legislature to make amendments with a 34 vote in each house.

It would have to further the purposes and the intent of the measure. But generally speaking, in the long run, there are. There is sort of a formula in place to determine how to allocate funding.

So, limited adjustment authority on the part. On our part as a legislature.

Correct.

Which is somewhat concerning, given the fact that if, for example, I'm not. Probably never would happen. But who knows if the Federal Government approved a dramatically reduced MCO tax. Looking at this list of services, a legislature might have prefer to fund five of ten items as opposed to seven at a reduced rate.

In other words, triaging what we do based on the absolute need in the population. Right? Am I making sense?

Yeah, I understand the question.

I mean, we went through this whole thing in the budget process, and that was triaging at its best. Right. We got to determine and say what we preferred to be funded.

The administration had its view, and then we put the two together and it worked out sort of difficult to have an initiative that tells us what to do when we don't know what the future circumstances are going to be. Right.

I think you raise a key issue that you could explore further in the subsequent panels.

Yeah, I didn't mean for you to, but I appreciate your information, Alex. Any other questions? Doctor Weber?

Thank you. So, along the line of what Senator Roth was referring to, when you actually read the initiative, and they break down in each calendar year, like 22% into the primary care account, 22% into specialty care, 2 and 12% into the emergency department.

So when they list that, is that how the funds will be distributed, regardless of how much is ultimately given or is.

Yeah. You're looking at the language that determines how funding is allocated in the measure.

Yeah. Okay. Thank you.

Okay. Anything else? If not, I want to thank you all for staying around and giving us some valuable information and answering our responding to our questions. Let's now bring up the second panel. And this is the panel of supporters of Proposition 35. There are a lot of you, but that's good.

But just to remind you, this support panel will have a total of 20 minutes, and the opposition and other stakeholder groups that follow you will also have a total of 20 minutes. We'll try to keep track of the time, but I would ask that you do so as well so we can move forward with this agenda.

And after you all have taken your seats, let's have you. Let's just start out with introductions. To my left, your right. That's you, sir. And a nice tie, and we'll move down the line. You're on.

Good afternoon, Mr. Chair. My name is Donaldo Hernandez. I am a physician from Santa Cruz, California.

Thank you for joining us.

Jodi Hicks, CEO and President of Planned Parenthood Affiliates in California.

Good to have you, Ms. Hicks. Next.

Good afternoon. Erin Kelly, with the Children's Specialty Care Coalition. I'm the executive director.

Thank you, sir, not on.

Oh hi. Rakesh Patel, CEO of Neighborhood Healthcare.

Thank you. We're just building a record here, so folks are watching. They want to know who you are.

Thank you. Good afternoon. Chair and members of the committee, Paul Lorenz, chief executive officer for Santa Clara Valley Healthcare.

Good to have you, sir. Ma'am.

Yes. Jennifer Kent. And I'm an advisor to the coalition and here for technical questions.

Okay, perfect. Who wants to start?

I will, Mr. Chair. Thank you again. Thank you for this opportunity. California has made significant improvements in our healthcare system in recent years. The state has dramatically increased the number of people eligible for health care and the services covered by Medi-Cal.

And I want to thank you, the legislature, and Governor Newsom, for that nation leading work. And yet this has happened without an investment in our Medi-Cal system that would help make those aspirations a reality.

Because of the underinvestment, we have seen and will continue to see crowded emergency rooms, hospital closing their door to keep key services like labor and delivery, and patients waiting for months to see a doctor. And that's what Proposition 35 aims to fix. Prop 35 secures resources needed to assure access to provide care to all California patients.

There are almost 15 million Californians covered by Medi-Cal, including one half of the children born in this state. These are often Low income families, the elderly on marginal Orlando, limited incomes and fixed incomes, and immigrants. These are the patients I take care of every day. Again, I am Doctor Donald Hernandez.

I'm an internist based in Santa Cruz County and the immediate past President of the California Medi-Cal Association. Many of my patients are on Medi-Cal. They're poor. They suffer from substance use disorders. They are the essential agriculture workers that Fed us during the pandemic. Many are indigenous people who speak English as a second language, like my father.

They are our neighbors. They're our friends. They're our parents. And the sad reality is too many doctors and hospitals are unable to accept and cover these Medi-Cal covered patients. And we don't check their insurance when they come through the front door. But the reality is, this is the way the system works.

And for me, the overriding principle, simple access equals equity, and equity equals access. That must be the foundational compass that guides us forward. We must have honest reform so that we can expand and protect access to healthcare for all Californians.

Proposition 35 would achieve that goal and make meaningful change in our healthcare system by providing dedicated resources to improving patient care, reducing emergency room wait times for all Californians, making prescription drugs more affordable, and growing our physician and non physician workforce.

Prop 35 represents the most important investment in California healthcare in our state's history and will increase the access to care well into the future. Our system is complicated enough. Prop 13 will make it easier for California, seeking help and support doctors like me who want to provide equitable care for our communities.

I want to thank you for your time, and I want to take one more minute and thank you, assemblymember, for your becoming empowered to take over your care with respect to your diabetes. It's a very inspiring story, and thank you for sharing that. Thank you.

Thank you, Doctor. That's three minutes. We're right on track, Ms. Hicks.

Great. Thank you. Thank you for having me. And as I stated, I'm Jodi Hicks, President and CEO of Planned Parenthood Affiliates of California, representing seven affiliates that run over 100 healthcare centers throughout California.

But I'm also the co chair of this coalition, and I just want to talk a little bit about that effort, which is getting this group of folks together that normally don't always get along.

We normally kind of fight with each other and we normally do business, how we all do it, how you're all used to us doing it, which is everybody advocating for our own organization and what we want and the things that we want and need.

And what we did is get together and really have a conversation that took over a year. And it was quite, had a lot of tensions, to put it nicely on, having a conversation of what it would look like if we actually made this historic investment and really have a transformational opportunity for patients on Medi Cal.

And what that meant is we all had to put the patient as a north star and really look at, if we're talking about the safety net, what was needed, what could be an investment, and that's really what we did and how we came to what this initiative is today.

We also came together very quickly, and it was very close to the pandemic ending, and that was really fresh in all of our minds. It certainly was for me, which is a time when we really all witnessed how certain communities were disproportionately affected throughout the State of California. And we saw those inequities.

And I think it's impossible to step away from the fact that if we're talking about equity in a healthcare delivery system, we have to admit that if you have an economic incentive to take a certain type of patient over another, then we are creating inequities that we witnessed during the pandemic.

We saw the data and those investments, and what we decide to do after the after the fact is really how we speak to our values and our priorities in California, to healthcare. It was important as a coalition, and that's what we're asking voters to look at in this initiative.

The other thing I just want to say is talk a little bit about what this initiative does and what it doesn't do now for Planned Parenthood. I want to say thank you. We were included and invested in this budget.

We have continued to be, and I appreciate everyone up here for faith and investments that have happened for Planned Parenthood. And we had with my board a very robust conversation about what that meant for this initiative, this big investment that we're trying to do.

And my folks, those seven CEO's that are operating health centers in the most vulnerable to the most vulnerable patients in communities throughout California, were very clear that while we know that at Planned Parenthood we provide reproductive health care, many of our health centers also provide primary care, we've been able to do things like prenatal care and have a warm handoff.

We also need the entirety of the healthcare delivery system to work. So as we provide more mammograms, we need to be able to send, when we find something wrong, send those patients to someone who can further that care. The entirety of the healthcare delivery system has to work in order to treat the whole patient.

And in order for all of us to be able to do the jobs that everybody up here, all the providers and representing provider groups are up here intended to do is really fulfill the promise that you all have made when you've expanded eligibility and given people access to a Medi-Cal Card, that they actually have access to see providers all the way through, not just in one aspect, but for every part of their healthcare needs.

And that was very, very important to our folks. But then I also say, just for Planned Parenthood, having predictable and sustainable funding year after year. So not just in this budget, but in the budget after and the year after, having that predictable and sustainable funding is transformational.

And just speaking for us in a climate that is certainly unpredictable right now, it couldn't be more unpredictable than what we are living through right now. And I think about that with patients. We had a patient that came to us after having visited four states, four states trying to get care. They started in one state.

The law changed. Literally went to another state. The law changed the day that they got there. By the time they could get an appointment in another state, they were past 15 weeks. By the time they got to California, we were the state that could provide them care.

And the reason that we were able to do that is because we have investments such that we can stay open now on a Saturday when somebody's able to travel, that we can stay open a couple hours longer during the evening, that we can do innovative things in communities, like have school based health centers where people in vulnerable communities, our youth, are able to go right at their school and get care.

All of those things change people's lives and change the trajectory and the outcome of what they can experience and who they can become. That person getting care in California, we should all applaud that. But that changed the outcome of her very future. And that's because we prioritized and invested.

What this initiative doesn't do is it doesn't fix everything. It really cannot. What we try to do is also leave an amount, flexible funding in for the General Fund, for you as legislators, to also. There's $2 billion a year for the first couple of years. Then it moves to 700 million plus.

That can plus up, depending on the MCO tax and how much it expands. But that was intended for some other things that we know are also important. Nothing in the initiative says you cannot Fund other things that we all agree are important that we will commit to also advocating for.

And those can be done in the next budget year and the budget year after that. And I'll close. Thank you.

Thank you very much, ma'am. We are now at the 10 minute mark, so we have three of you left. Do your best. Thank you, ma'am.

All right, so Erin Kelly, executive director of the Children's Specialty Care Coalition, which is a nonprofit advocacy Association that represents 19 pediatric specialty medical groups that are closely aligned with children's hospitals in the state. CSC's mission is to ensure that children and youth with complex Healthcare needs have timely access to equitable Healthcare.

Pediatric subspecialists are critical safety net providers who see upwards of 75% Medi-Cal volume. The demand for complex care is on the rise given the tremendous advances in pediatric care that have resulted in an increased number of children living longer.

However, access to care has been rapidly deteriorating in this state, with one third of children with special health care needs in California waiting over three months for a new specialty care appointment, and for certain specialties, families are waiting over a year.

As you know, Medi-Cal serves nearly 50% of the children and 50% of all the life births in the state. However, reimbursement for pediatric services is notably less than Medicare, and fee for service rates have largely remained stagnant for nearly 20 years.

The effect of this sustained low reimbursement is jeopardizing access and creating inequitable care for the children in our state. At the same time, there are equally concerning trends as it relates to the pipeline entering this workforce.

With a significant decline in medical students choosing pediatrics year to year and even greater declines with the number of medical students pursuing pediatric specialization. A growing number of pediatric subspecialties have less than 50% fill rates for fellowships nationally.

The economics of being a pediatrician, let alone of being a pediatric subspecialist who undergo three to five years more years of training, simply don't add up anymore. In 2023, a study was commissioned by the National Academies of Sciences, engineering and Medicine on the pediatric specialty care workforce, which culminated in a comprehensive report.

One of the key recommendations was to bring Medicaid rates at or above Medicare rates across all pediatric codes, and the report also underscored the need for critical investments in graduate medical education and loan repayment programs to incentivize medical students to pursue pediatrics and pediatric specialization.

Prop 35 represents a historic opportunity to bring stability to this ailing network that serves the state's most medically fragile population.

We fear that without the passage of Prop 35, Medi-Cal provider rates will remain vulnerable to cuts each year and medical groups will not have the certainty and the predictability to make meaningful and sustainable investments needed to improve access within the Medi Cal program for children in need of specialty care.

Additionally, Prop 35 provides needed investments to address the workforce pipeline with dedicated funding for graduate medical education and loan repayment I want to close with a couple final points.

One is to draw a distinction that the 230 million in total funds allocated in the Governor's Budget for the not for profit standalone children's hospitals will provide much needed investments for the facility side of those hospitals, but those funds will not provide support to the physician network that serves these critically ill children and is experiencing its own acute crisis.

Secondly, I want to acknowledge up front that CSCC and other members of Prop 35 have been supportive of the zero to five continuous coverage, and we've been urging the department to seek federal approval. Children need continuous coverage, but they also need the stability and predictability of meaningful access to healthcare services.

Thank you for the opportunity to speak today.

Thank you. We're at about 14 minutes, so we've got about six left. Try to do your best, but I appreciate you being here and look forward to the testimony. Please proceed.

Thank you. Good afternoon, chairs and members. My name is Doctor Rakesh Patel. I'm a practicing family physician and CEO of Neighborhood Healthcare, a community health center that serves 100,000 patients in San Diego and Riverside County. We also are a pace organization as well. I've been in this space for over 22 years.

I did my residency at training at a community health center and moonlit at the health center that I am at, and I've been there ever since. So this space is near and dear to my heart. community health centers provide care to one in three Medi-Cal beneficiaries, one in five Californians.

88% of our patients are covered by publicly health funded care, and the rest are uninsured. The most important part is we never turn a patient away. Since 2015, health centers have experienced a 27% decline in per patient spending.

And just this year, with expansion of health for all, which was an amazing program, we saw massive increases in the number of patients we serve. All of these things combined have led to a healthcare crisis within our health centers.

Our ability to timely serve our patients is being stretched to the breaking point, and we increasingly run into issues connecting our patients with the specialty care they so desperately need. Recently, I experienced a health issue myself. One morning, I woke up after moving some boxes with some severe back pain, and I realized I can't even stand.

I was kind of stuck. Yes, doctors do get sick. It was terrible, and I knew immediately that I needed to get taken care of, and I went to an urgent care.

From there, I was able to see a specialist get an MRI, and within a few days, I kind of knew what was going on and had a treatment plan. As I reflected on my journey and thought about what would happen with my patients, the disparities were quite paramount for me.

For our patients, just getting that first visit could have been two to four weeks at best. You know, they could have tried to walk in. Many have no access to an urgent care. Most likely, the patient would have gone to an emergency room unnecessarily.

And then the specialty care that we keep talking about, it's so hard to access that it would have been months. Just recently, we were trying to refer a young woman for guidance gynecological services at a specialty center. They said the next appointment's next year and we can't book that date right now.

When it comes to radiology, it was easy for me to get an MRI with my commercial insurance. Getting an MRI on Medi Cal right now is extremely difficult. We are seeing providers no longer accepting our patients because of the reimbursement rates. Part of why I choose to work in health centers is to try to address these disparities.

My patients should not have to spend months in pain while they wait to see specialists that they need and they need to get the treatment they deserve. That's why I strongly support Proposition 35. It's a crucial tool in addressing these issues and sustaining and supplementing existing resources.

That means that our patients will receive treatments sooner, have improved access to treatments, and result in better outcomes. Thank you for your time.

Thank you very much, Doctor. Next please, sir.

Chair Roth, members of the committee it's a privilege to be here again. My name is Paul Lorenz. I'm the Chief Executive Officer for Santa Clara Valley Healthcare. I do want to point out that our county Board of Supervisors in Santa Clara voted to support the initiative. Santa Clara Valley Healthcare is the largest public health care system in Northern California.

We serve a diverse population of 1.9 million residents in the regional Bay Area. We do so through a robust network of primary care and specialty clinics, offer behavioral health services, and operate three hospitals. 86% of our patient population is on a government sponsored program. 58% of our patients are on Medi-Cal.

The legislature is quite familiar with the current financial struggles of hospitals around the state, especially for rural and community hospitals. Over the past several years, California has experienced an unprecedented number of hospitals closing or reducing services or limiting access to care.

You may be less familiar with the specific financial struggles of the state's public health care systems, such as Santa Clara Valley Healthcare. Last fiscal year, the county faced a $250 million deficit. Collectively, the state's 21 public hospital systems are facing a three to $4 billion structural deficit.

We are grateful for the legislature's recent efforts to support hospitals financially, such as via the distressed hospital loan program. We're also grateful to the state for supporting our efforts to increase our federal funding. However, unfortunately, these efforts are simply not sufficient given the magnitude of the problem we face.

Together, Proposition 35 funding will provide a dedicated, ongoing stream of money to stabilize hospital financing and provider reimbursement and support public healthcare systems like mine and yours, which care for the most vulnerable residents in the State of California. Public healthcare systems, including Santa Clara, are experiencing significant growth in demand for services and are highly impacted.

While there are many factors, it is primarily due to fewer community healthcare providers willing to accept Medi-Cal as a payer. This is not only leading to financial and operational distress for public systems as well as those providers willing to enable to serve the Medi-Cal population. But there is further problems ahead of us.

We know that this is contributing to healthcare inequity and disparities in healthcare. Proposition 35 will help maintain and expand access to care beyond the hospital walls, ensuring that doctors, clinics and other community providers can continue to provide vital outpatient care. The Medi-Cal network of care must be stabilized.

It's not just about public hospital systems and healthcare system. It is about hospitals and healthcare providers providing care to all of our residents in the State of California. We believe the increase in provider payments under Proposition 35 will go a long way towards ensuring accessible health care for all residents. For all California residents. Thank you.

Thank you very much. I have to say this, in addition to some exceptional testimony, you all get the gold star for time. 20 minutes. Questions, colleagues. Questions. Comments Senator Menjivar, you're up first.

I just want to clarify, because if I would have just walked into this informational hearing, I would assume that the State of California is not investing in any kind of Medi-Cal rate increases. I would also assume that if Prop 35 didn't pass, we wouldn't have anything in place to provide these provider rates.

But I just want to make it clear we do. I mean, we passed in the budget the MCO tax to provide Medi-Cal reimbursement rates to increase for providers and so forth. I just want to make clear, because it just sounds like we're not doing that. I think it's very important that we continue to do that.

It's phenomenal. You know, if Prop 35 didn't pass to fight to ensure that the MCO tax still goes to provider rates all across and so forth. So I just wanted to make that clear.

My actual question is, I'd like to hear from someone, maybe Jodi, you spoke about coalition, who made up this coalition, who came to the table to determine how this was going to be spent.

Well, I don't think there was any one person that said anybody couldn't be part of the coalition. I think this is a coalition of folks that generally work together on different aspects of how we do budget.

So it was hospitals, physicians, specialty groups, Planned Parenthood was at the table, actually a very similar coalition when we did Prop 56 and we went to the ballot for Medi-Cal rates? I do. So I don't think there was an exclusion in terms of this initiative. It was very similar.

We sort of got the same core group of folks together that we worked on with Prop 56.

I do want to just address your first statement just a little bit and say, I know this has gotten a little bit contentious over the years we've been working on in terms of it's not something that's against the legislature or against budgeting.

I think if you look at actually how it's written, it's written exactly like the budget that was passed in the 23-24 budget in an attempt, as we worked that out, to sort of have that landing into how it would be implemented.

That budget changed in this last year, so it doesn't mirror it exactly anymore, but it did in that first budget.

And I think the attempt would be that this become sustainable funding into the future, regardless of the makeup of the legislature, the priorities of the legislature, and that part of it was important for organizations to be able to count year after year that they'll be able to make changes to expand services regardless of a future budgeting process.

Yeah. Thank you. Can I get clarification in LAO's document and the chart on page two for community health workers? And then I read the proposition. I just want to make sure I'm not reading this incorrectly.

The chart has community health workers with a little footnote that says that the funding is depending on how much money is raised by the health plan tax. But in the proposition, it says about 32 million, I believe is going to be used for community health workers.

So is the funding in the proposition dependent or is it a guaranteed.

Jason Constantouros, LAO, can you hear me?

Great. So, the measure does provide funding for community health workers, but there is a set amount of funding. But before that amount is triggered, that has to raise a certain amount of funding. So, I don't have the exact amount. I think it's 4.3 billion.

Yes.

That's, and those are those amounts within that 4.3 billion are allocated based on a proportion. If that amount is then exceeded in the tax, then there are additional allocations, and depending on how much, that could trigger that amount for community health workers.

So, it's not automatically guaranteed from the get-go. It's, we have to meet the 4.2 billion, and then additional investments like community health workers are going to get the $32 million.

It's sort of triggered depending on how much money is raised, not just a straight proportion.

What are the chances that we would meet that threshold?

That's not something that we included in our analysis. It's really hard to project the MCO tax. It's changed a lot over the years. This year's MCO tax is much larger than it has been in previous years. So, I think there's a lot of uncertainty about whether the same size tax would exist in perpetuity.

It also depends a lot on federal rules, which can change over time. So.

Is that the only item that has a trigger clause?

What other items?

No.

I apologize. I don't have the list in front of me. I can circle back with you if you think that would be helpful, but there are other triggers in there.

Thank you.

Thank you, Senator. Doctor Weber.

Thank you, Senator Roth, really want to also thank this panel for coming and adding your expertise in this area and your life experiences for the providers who are on the panel as well. Also want to thank the coalition for getting together and really putting patients first.

I think, as you mentioned, sometimes you always are, you're at opposite ends of the room, but we're able to come together and create this very important, kind of like once-in-a-lifetime agreement by putting patients first.

And one of the things that you mentioned, Jody, that really stuck out to me is fulfilling the promise, because as I said with the previous panel, and I said many, many times, providing insurance to everyone but not providing access to care, we're not doing anything. And actually, we are not fulfilling that promise.

And so, what we're discussing today, what we were trying to figure out with the MCO tax, is a way in which we can fulfill that promise. I also want to thank those who came to the table to realize that when thinking of the patient first.

You can't be selfish, because you have to recognize that you may get something, but like you said, if you can't refer your patient to the proper radiologist or the breast oncologist or the medical oncologist, once you've found something, then we're not really doing anything.

I remember when I came back, and I was looking to see where I was going to practice in San Diego. I was talking with a group out of Chula Vista that pretty much dealt with Medi-Cal patients, and they could not find gynecologic oncologists to refer the patients to because nobody would come down in that area.

If the patients couldn't go to La Jolla, they would not see them. And so they literally had patients walking around with uterine cancer because they could not access the gyne onc because of their kind of insurance. So, thank you so much.

My first question is, you know, Jodi, you mentioned something, and it's in the initiative, but if you could just elaborate when you talked about the ability to fund other things, that the Legislature would have the ability to fund other things, everyone may not have read the initiative.

So, if you can just elaborate on that a little bit, please.

Yeah. So, it was important to look at the safety net and ensure that there was a portion that was getting funded with predictability and stability, as we talked about.

We also wanted to ensure that, especially as I mentioned, coming out from a pandemic, things happen year after year that might be new, might need funding, and so having an allotted amount that was also predictable and stable for the Legislature. So, there have been lapses where the MCO tax has not been extended.

This ensures that it's extended automatically. And with that, there's a dedicated amount that goes into the General Fund. And just to address the community health worker and some of that third tranche. Part of that was because, as we were writing it at the time, that we were.

And again, I'm going to acknowledge that this isn't a fix of an entire healthcare delivery system that, quite frankly, has been underfunded historically, as I think we all can admit. But it was trying to ensure that there's a dedicated amount, and we had to shuffle things around a little bit in order to do that. So, for the first couple of years, there's 2 billion that.

And, Jen, please jump in if I'm getting technical things wrong, but there's 2 billion that goes in.

That was to match the budget at that time, at that snapshot that we were writing it, 2 billion dedicated to go into what is the General Fund, there's some 700 million after that that gets plussed up depending on the size of the MCO tax.

And that's included some of those additional things to get funded like community health care workers and some workforce dollars, things like that, not because they weren't as important. Part of it is we voters, coalition members, don't control the amount of that tax.

It is done by the administration and so wanted to have some sort of incentive pieces in there or way to grow that like it is this year. If we continue to do that tax as we did this year, all of those things would be funded.

If it's tax, you know, if the MCO tax is much smaller, some of those things wouldn't get funded. There's an additional amount that will go back into the General Fund after that 700 million is sort of, you know, an incentive of how we can grow and invest at the largest extent possible.

The community healthcare worker piece was really interesting because again, this doesn't prevent the Legislature from doing other things and other things that are priorities.

One of the things that we found with the community healthcare workers, that was a really important piece for Planned Parenthood and the clinics also the health plans were advocating for that piece quite a bit because it does keep costs down. The way that we have tried to invest in community health workers is under a Medi-Cal benefit.

And then this year's budget proposes to increase that amount quite a bit to Medicare rates. Might be good for some clinics. We don't discourage that from happening. What we did in this initiative, though, and what we have found is the way we use community healthcare workers.

It's not a Medi-Cal benefit in traditional sense because we send them out into the community to try and get all of the patients and bring back. And they're not all Medi-Cal patients oftentimes. Some of them are young people on their parents' insurance that are afraid to use it.

So, we might have to help them with how to file the paperwork so their parents don't find out or they might be somebody that is a cash-paying patient. But the point is to go out in the community and sort of help everyone in the community. And some of those are Medi-Cal beneficiaries.

But if we're only using them as a Medi-Cal benefit, then we can't use those dollar amounts. And as Planned Parenthood, we haven't been able to take advantage of that.

So, this is really trying to have a different, more innovative sort of pot of dollars that clinics can use that maybe for CBOs in the community to be able to utilize those dollars. But it's really, if we.

And that was part of this coalition, if you take a step back, you knew you were having a dedicated, sustainable funding. What would you imagine that you would use dollars for to really expand access? So, for some primary care, it might be taking more patients.

For clinics like ours that were 85% Medi-Cal already, how can we expand what we're already doing in the community? And what would we use? And some of those, like, you know, loan repayment for allied health professionals was one way. It was sort of all things on the table.

We had this big whiteboard that week after week, we wrote on and scratched things off, and that was how we came to what we have today.

So, it essentially allows for flexibility depending on what that particular system or area would need.

And I was actually impressed when I was reading through it and it was saying, okay, well, if it exceeds.

Exactly.

If this fund exceeds this amount, then we're automatically going to deposit into, you know, give more to another fund like the Emergency Department and Hospital Services Account. So that it was, you know, very, very creative.

And I do also want to point out, as you mentioned, this plan is different than what we have in our MCO tax because it is permanent. It's not something that is scheduled to end in a couple of years.

It's not something where people have to wonder, will we have the funding come back to the Legislature and fight for more funding, depending on who's here and who's in the governor's seat? So, it is long term, because we know that people will need health long term. It's not like health care will end in a couple of years.

Wanted to ask a question to Erin Kelly. You all did a study or published a study dealing with pediatric specialty wait times, which I thought was quite interesting. And so if a child with diabetes needs to see their endocrinologist, their wait time, the median wait time is like about 40 days, but could be as long as 180.

Or if someone needs to see a medical, a pediatric geneticist, the average is around 140 days.

But I think what was the striking to me was also you did a correlation between 2019 and 2022, and what you saw is for something like children or pediatric developmental behavior, pediatrics, in 2019, the average wait time was 60 days, and then it jumped to over 100 days in 2022. So essentially, we're getting worse.

How do you think that this proposition would help with some of these wait time numbers? Because I asked the first panel, and they had no idea how long someone on the Medi-Cal system would have to wait.

How do you think that this proposition would assist with some of those, with our most vulnerable patients, our pediatric patients that are required to see some of these subspecialists?

Yeah. So, thank you for highlighting those concerning trends. Yeah. So, it's going to bring kind of more meaningful investments into these specialty medical groups so they will better be able to recruit and retain their physician workforce and so be able to potentially hire an additional specialist.

It is very hard to recruit pediatric subspecialists here to California because of the cost of living, because of the low Medi-Cal rates. And so, bringing those rates to parity with Medicare will obviously be an incentive to come here.

And another thing I echoed in my remarks, which is also part of Prop 35, is some significant investments in graduate medical education as well as loan repayment, which I think will help incentivize medical students to pursue pediatric sub-specialization here in California and then stay here and practice here in California. So.

Thank you.

Thank you, Doctor Weber. Senator Smallwood-Cuevas.

Thank you, Mister Chair, and thank you to the panel for this informative discussion. And I want to just mention to Doctor Patel, I understand that you are still working in the community that you initially went to serve, focusing on underserved communities. I want to appreciate and congratulate you on that.

Not to plug my own bill, but I have a bill to really accelerate licensure for healthcare providers who come back to underserved communities. So, I just want to say how important that was. And also, the information shared that 86% of Santa Clara County residents are on some sort of subsidized support care, Medi-Cal.

Can you give me that stat again?

If I may clarify? So, of the patients the Santa Clara Valley healthcare system serves, 86% are in government subsidized program, of which 58% are on Medi-Cal.

So, you know, I say that to say this conversation is about a system that is broken. And we are continuing to work to, to address the harm, to address the lack of care. Thank God for Obamacare.

But we have so much further to go, and I really appreciate this conversation and this unusual group of suspects who are coming together to help us think through solutions. My question has more to do about two things. Within the initiative, is there a tracking and evaluative element to it?

Because at the end of the day, what we're trying to do is address our healthcare crisis and we want to see how many more families are getting care.

And also, kind of the ripple effects in terms of the support services, the training, all of the, all of the different aspects of care that are listed in this initiative on page two of the LAO report that my good colleague from Santa San Fernando Valley mentioned.

How do we know this is working and how do we know if enough is enough? It seems as every time we get to a point where we think we have enough, we realize that we don't. Right? There's a deeper crisis. And I'm just curious, just what is that?

Is there anything embedded in this to evaluate and measure how this program will work in kind of long-term forecasts? And then the second thing I think it was touched on, and I might have missed it in the earlier panel, is this issue of the federal implications.

So, let's say the State of California, as our voters often do the right thing to ensure that our communities are taken care of and supported. And certainly, health care is one of those issues that touch so many of our families.

You know, what is the way that we can make sure we don't get undermined by the federal process? So just curious, you know, what are our thoughts on those two points? One on the panel, I'll give it to Jodi, and anyone can answer that.

Yeah, I'll take the first one and then I'll let you talk about the audit piece because I don't want to get that wrong likely.

I mean, one of the things that I say just in general, and then, Jen, please pick this up on the, from the federal aspect is, you know, Planned Parenthood, if we sort of paused based on what we were worried about at the federal level, we certainly wouldn't still be doing services in the way that we are.

We did, though, have and build in an off-ramp for, if something happens at the federal level that we have an off-ramp that we're not leaving California on the hook for what is a, you know, has to be sort of how we work together at the federal level to get the matching funds and get approval from CMS. So, we did build that in for some assurances.

But also, we're in this very strange time in history where our, the two outcomes at the federal level are so vastly different on what can happen. Our Medi-Cal system is most definitely at risk depending on outcomes at the federal level for various pieces, various positions in various times. Right?

I believe that any day, and I say this from a Planned Parenthood hat, that any day that we can give somebody care is a day to be celebrated. And the more that we invest and entwine and do everything we can do in our Medi-Cal System, the harder it is to unwind, for someone else to unwind.

So, the harder it is for a different Legislature to unwind those investments, the harder it is for somebody at the federal level to unwind. And the harder it is to unwind is another day that someone's able to get care, and that's a good day.

So, I think we have to build in those off-ramps because we can't be irresponsible, but we also have to invest, and we also have to do everything that we can do today so, somebody's getting care today so that it's harder for someone to take that away. And I think we saw that with the Affordable Care Act.

Now that it's in everybody's mindset, it's very hard to unwind. And I think people underestimated that fact. I think that's true for our Medi-Cal system as well.

And if we can show that we're moving the needle here in California because of the investments that we've made for half of the children born for a third or more, I think it's more now of our patients, the harder that is to roll back, and that's what we're trying to do with this initiative.

Yes. And so, thank you for the question. There's three kind of different ways in which the initiative has some accountability and transparency into the spending. So, the first is the controller is required to do an audit of the actual kind of dollars in dollars out every four years, and we provide for that controller cost.

The Department of Healthcare Services has a annual report that they have to issue and publicly post and share to demonstrate that all of the different sub accounts and funding methodologies are both being met and in the way in which they're being met.

And then lastly, there's a statutorily created stakeholder group in which the department needs to be working as they are developing and or changing any kind of funding methodology.

And that was really to kind of create a more kind of collaborative and input body that you're talking about, which is if something changes in a delivery system or there's a, a change in a provider pattern or behavior, can we change those methodologies? And so, there's really kind of three ways. One is a very hard fiscal amount.

One is a combination of a fiscal and programmatic amount. And then one is the stakeholder process, which is a very much more on-the-ground programmatic element.

Okay, thank you. Thank you all very much. Appreciate your testimony. We still have two more panels, plus public comment. And this is hearing number one for those of you sitting on the dais. And then we have hearing number two. So, let's take our third panel. These are the opponents to Proposition 35.

This panel we're going to allow about five minutes since I think there's one person, plus questions. So come on down, identify yourself for the record, please, and proceed when ready.

We are a statewide advocacy organization focused on advancing child health equity, and we're representing the interests of children and families here today as an organization committed to strengthening California's healthcare system as an essential part of advancing child health equity.

The children's partnership has historically worked alongside many of the proponents that spoke today, and we are proud to have supported and advocated for the MCO tax funding as well as for directing that funding for Medi-Cal provider rate increases. There is no question that California pays far too little to providers participating in Medi-Cal.

It hinders access for the millions of Californians who rely on the program, and it disproportionately impacts children of color who are more likely to depend on the program for coverage.

The difference driving our opposition to Proposition 35 is the restriction imposed by the Proposition on how the funds can be used, the caps on the tax, and who the decision makers are in making those determinations. First, Prop.

35 redirects billions of dollars that currently support Medi Cal and the state's General Fund to a handful of specific provider rate increases. Doing so threatens future program eligibility, expansions and optional benefits.

The state likely would have to use more money from the General Fund to cover core medical expenses expenses in future years as we anticipate difficult budget years ahead. This hit to the General Fund to the tune of billions will be painful. Second, Prop.

35 establishes an upper limit on the tax rate for commercial health plans, instead relying on revenue from Medi-Cal health plans, risking a dramatic reduction in revenue.

The Federal Government has indicated an intention to change the rules such that California, as well as other states, would be required to evenly distribute the tax between Medi-Cal and commercial plans. If this occurs, as expected, the Proposition's commercial tax cap will leave our state no choice but to dramatically lower its Medi-Cal tax rate over time.

Again, this would lead to significant decrease in revenue from the MCO tax, further undermining the state's your ability to support efforts to improve children's health and health equity more broadly.

Third, the allocation of funding under Proposition 35 is decided by a group of selected provider organizations with little voice from the community, from the Legislature, from Medi Cal Enrollees or other essential provider groups, including community health workers.

Overall, while intended to increase Medi Cal access, Proposition 35 instead severely jeopardizes funding for the program by restricting state funding sources for Medi Cal.

This is especially apparent in programs and investments on the line this year, our organization and many, many partners are grateful that the final 2024 to 25 budget included funding to implement multiyear, continuous Medi-Cal coverage for the 1.2 million young children zero to five that depend on Medi Cal.

Stable coverage is especially paramount during these first few years of major brain development so that kids get their well child visits and developmental screenings. Streamlining enrollment chips away at those systemic barriers. The current Medi-Cal unwinding process, even with DHCS's incredible efforts, show us what happens.

350,000 children in our state have lost coverage, including 90,000 of them children zero to five. The policy is long overdue, and unfortunately, it would be rendered inoperative if Proposition 35 passes this November. Again, the children's partnership strongly supports the MCO tax and investments in provider rates.

However, for the reasons outlined today, we oppose Prop 35 and urge supporters of children's health equity to vote no in November.

Thank you very much for your presentation, colleagues. Any questions, comments, concerns? Senator Menjivar, I knew I could count on you.

Well, Mister chair, it's because I worked so hard the past year and a half on this topic. You certainly did. I have a lot of opinions on this that I think are nothing coming from left field.

I've said this various times, and I agree with the person here who was standing alone, who was bold enough to come up against a very tight knit coalition. And the question I asked in the previous panel was, who was made up of that coalition? Because you're right, I didn't see anyone who was a patient.

I didn't see anyone who was an advocate. All I saw were providers, representatives of hospitals or clinics, and I wanted to hear from people who are going to benefit from these programs. And I made the comment before about elected officials being part of this process.

That's we were placed here and we were placed to represent people who don't have the juice, perhaps, to be part of those big coalitions. And it was our responsibility throughout the past eight months or so, or seven, to include those voices in the budget process.

And that's what we did, because they weren't able to be part of that tight knit group. And I'm disappointed, and I think every Legislator should be disappointed, that they put their hard working sweat and blood and tears into this budget process just so it can be undone come November.

And I agree with this advocate in asking how we vote later on, because I know it's not a magic pill. I know it's not going to solve everything, the MCO tax or Prop 35. It's not going to solve everything. But what we did on the budget process was inclusive of so many more people.

And what Prop 35 is doing is being exclusive. They're excluding people versus inviting more people to benefit from an amazing ability to pull down funds that don't affect the General Fund.

Thank you, Senator. Any other Doctor Weber.

Thank you, Senator Roth, thank you so much for coming up and providing your perspective of this Proposition. It is a challenging issue. And, you know, I, as health budget chair on the Assembly side, was, you know, working to help push this initiative forward, the MCO tax. And then things changed and we had to redirect.

But I think maybe I look at it differently because I'm a provider and I'm on the ground and I see what is happening, maybe because I have people coming to talk with me about the fact that they just don't have access.

So my question to you, in your opposition, understanding that what we passed was nice, but there is, we did not keep our promise to increase the provider rates as initially discussed in the January 2024 budget or the governor's proposal, and there is an end date of 2026.

It is your stance that it's better to have a deadline rather than to have something that is permanent and ongoing for our California residents. But more specifically, you know, you're with the children's partnership, so you focus on children. I'm a pediatric adolescent gynecologist, so I'm at the children's hospital as well.

That is your stance, that we should just scrap that and just focus on what the Legislature passed? I'm a little confused. If you can help me understand.

Absolutely. I think regardless of the passage of Proposition 35, the MCO tax has to have federal approval, so it's permanent until we get approval by the Federal Government. That's still a process that has to continue regardless of the passage of the Proposition.

As far as utilization of the MCO tax to generate additional revenue, that is up to the Legislature, the Governor, the public to decide together. Right. I think this Proposition says the importance of keeping it permanent, actually support that. In General, the children's partnership wants this tax revenue source.

It's important to ensure that health plans are participating in providing their fair share for a healthcare system that we all participate in. So, I don't disagree about the specificity of making this permanent. What we are concerned with is what is at stake.

What are the billions of dollars that will be lost as a result of locking in these rates, of losing that flexibility of deciding how the revenue will be used in the future given the uncertainties that are in front of us.

Again, we are partners with many of the, actually, many of the organizations that are proponents, and we will continue to be because this is not the only challenge in our healthcare system. Again, the Medi-Cal payment rate is one of the lowest in the country for the fourth largest economy in the world. It's unacceptable.

And we will continue to be at the table in the future if those opportunities are available to the children's partnership to identify what those solutions could look like. But for now, we do not believe Proposition 35 is it.

So, you just brought something out that I think is even more alarming that we haven't heard. Our Medi-Cal rates are the fourth lowest in the country. Medi.

No, we're in the bottom half. It ranges. We've been 47th. We've been 23rd. I just said for a fourth largest economy in the world to be bottom, we're at the bottom.

We're at the bottom even though we are the fourth largest economy and our cost of living here is extremely high. So, what is your response to a couple of things? One, the studies will look at the children's hospitals for children's specialists that show that as time has gone on, provider access has worsened. Right.

Which is probably a result of the inability of us to recruit and retain children's specialist. And how do you, you know, and so clearly, we need an increase in our rates.

But how do you respond to the notion that was discussed, that talked about the fact that there is flexibility in this particular Proposition for the Legislature to determine what they're going to do with funds, you know, later on, that it's not necessarily all of the money is going here or there, but there is significant flexibility, which I believe Jody Hicks discussed, and I asked her to elaborate on.

How do you respond to that?

I think what I respond. How do I respond to the flexibility question?

Yes. And that there will be funding that the Legislature will be able to appropriate, you know, based on how much money is coming in? And then she also discussed about the flexibility that people will be able to determine.

Okay, in our area, in our hospital, we need to do this with the funds that we get, or we need to do that, or planned parenthood could determine that they're going to do this or do that. So, I mean, because you are talking about fixed. It's fixed, and the lack of flexibility. And that's one of your concerns.

So how do your arguments square with what we just heard in the previous panel?

Sure. Absolutely. To the first point about the trends, the disturbing trends in access. We are right there with you. Incredibly concerned about the trends in access, particularly for pediatric specialists, but more broadly, even for general pediatrician care. And all of the challenges in accessing care more broadly.

One is we're encouraged by the State of California's leadership in trying to improve its Medi-Cal delivery system through CalAIM, through community health workers, through doulas, you name it. There's a number of initiatives that our state can be proud of and point to that we want to give credit to.

Additionally, we support provider rate increases, the MCO tax. We absolutely do that. I want to emphasize that's not what's getting debated here from the children's partnership perspective. It's the lack of flexibility in the future. Yes, there is that trigger point above 4.9 billion, certain amount of money that's not guaranteed.

We're making assumptions based on how much revenue will be generated when we actually don't know if that's the amount of revenue that will be generated. Again, as was stated earlier, the amount of revenue this year is actually higher than it's ever been before. Again in the future, that may change.

So what is on the line is that uncertainty, and that's never comfortable when we're dealing with people's lives. What is certain is that we will be at the table next year and the year after and any other year that our provider groups want to collaborate to identify a shared solution. That's not uncertainty.

We just do not believe that as Proposition 35 is allocated, we should move it forward.

Thank you. And I do want to point out that one of the unfortunate things about our MCO tax is the uncertainty, because it does end. Right.

And so even though we have to go back to the Federal Government to get more money, the fact that our current MCO tax ends, not only do we have to go back to the Federal Government, but we have to have those conversations again. Right.

And I think one of the issues is that for 20 plus years there has been that conversation about provider rate increase, and we have not seen provider rate increases, which is why the original MCO tax was such a monumental thing.

But, you know, I agree with you about uncertainty, and that's one of the things that I see with our version of the MCO tax, although better than what we've had, is that in 2026, what is going to happen at that point? We have to start all over once again.

But I really appreciate you coming up and speaking, and I am sure that there are more but didn't come. But I really want to appreciate you and hearing your opinion it's extremely important. Thank you.

Thank you, Doctor Weber, and thank you for your testimony. Thank you. We're going to move on to our fourth panel, and the fourth panel consists of some other stakeholders who will be providing their perspectives. Have three.

We're going to limit this to 15 minutes or less, plus some questions, I'm sure, because we still have public comment to get through about 30 minutes of that.

Mister chair, you're not enjoying the Weber-Menjivar show here?

I'm enjoying every second of it. And then we have hearing number two. So let's do this. Let me ask you to identify yourselves. To my left, your right, ma'am, that would be you. And then you can flip a coin and proceed when ready.

Thank you. My name is Kay Lee with the California Association for Adult Day Services.

Good to have you here.

Thank you so much for having me. Kiran Savage Sungwon, Executive Director of the California Pan Ethnic Health Network.

Thank you Mister chair. And Members, Rand Martin here on behalf of Aviana Healthcare.

Good to see you. Okay, who's first?

I have the honor of starting here.

Thank you so much again for having us. Excuse me, I have toddlers and they bring home germs every week. We at CPEN, we represent consumers with a focus on the underserved communities and families with Low incomes who rely upon Medi-Cal. We have always supported MCO taxes and investments in the Medi-Cal program.

We have no financial stake in the outcome of Proposition 35. And while we currently have no position on the initiative, we do want to highlight some serious concerns about its impact on communities already impacted by health disparities. I do want to say that we respect many of the proponents that spoke today.

All of the proponents that spoke today, our community clinics, Planned Parenthood and others, are critical participants in Medi-Cal. They are key to serving our most vulnerable Californians, and the state has yet to invest in them as we must. We agree that provider participation in Medi-Cal is a significant barrier to adequate access to care.

We are concerned, however, that Proposition 35 will make this problem worse, not better, by jeopardizing billions of dollars in federal funding, restricting flexibility the Legislature needs to make Medi Cal most effective, and implementing arbitrary funding formulas that favor multibillion dollar corporations over community based care.

First, and most importantly, the Proposition caps the commercial tax rate in law, which is likely to dramatically reduce the revenue California can generate through this tax in the future when the Federal Government changes the regulations, as they have promised in writing to the state to do.

Currently, California taxes, Medi-Cal plans at a rate that is over 100 times higher than the rate for non-Medi Cal plans.

While this has been advantageous to California, the Federal Government under administrations of both political parties has stated that California's approach is inconsistent with the intent of the law, which requires that the tax be redistributive in nature, which means shifting money from the commercial insurance market to support Medicaid.

In their approval of the current tax, CMS wrote that they, quote, intend to develop and propose new regulatory requirements through the notice and comment rulemaking process to address this issue. Proposition 35 eliminates your ability to adjust California's tax to comply with these future changes. Instead, we would forfeit billions of dollars in federal funding.

It is no surprise, therefore, that one of the country's largest health insurers is a funder of this initiative. After raking in over $2 billion in profits in just the first half of this year, the Legislature should retain your ability to set an appropriate and permissible tax rate for all health plans.

Second, the Proposition creates significant risk to Medi Cal eligibility and benefits, as well as other safety net programs. By permanently locking up the vast majority of tax revenue in provider rate increases, the Legislature must have the ability to analyze and balance the evolving needs of the Medi-cal program and to fund other safety net programs appropriately.

Health equity is not only about access to health care. Without state investment in housing, income support and food assistance, Medi-Cal members can't be healthy, no matter how many doctors they can see.

Proposition 35 would limit the dollars available for Medi Cal and other purposes not specified in the initiative to a fraction of what was available to the Legislature to balance the budget this year.

It is important to note that revenue from the current tax is much higher than previous versions of the tax and cannot be assumed to represent the future.

If Proposition 35 had been in effect for the previous MCO tax, for example, you would have had less than $140 million to make budget decisions this year, rather than the $7.5 billion that you did have. Third, and finally, the allocations in the Proposition appear to be arbitrary and do not correspond to the areas of most acute need.

For example, the budget that you approved earlier this year invests in non-specialty mental health provider rates for the duration of the approved tax because we all see the dire lack of mental health care around us.

Proposition 35, on the other hand, does not invest in these rates beyond 2026, with the exception of psychiatrists and targets funds in what they call the improving mental health account primarily to facilities without any reference to community based providers.

Less than 10% of the funding in the initiative would go to community clinics who need far more, given the number of Medi-Cal patients that they serve. And the funding for designated public hospitals who see a disproportionate share of Medi-Cal patients is arbitrarily capped.

Unlike the vast majority of the allocations, including those for private providers, such as private ambulance providers, the single largest funder currently of Proposition 35 is global medical response, which is owned by the private equity giant KKR and is infamous for price gouging and surprise medical billing.

How California spends our Medi-Cal dollars should be determined solely by the needs of patients, not influenced by the profit motivations of out of state billionaires. In conclusion, we support a truly permanent MCO tax and we support investments in areas like clinic payments, reproductive health, primary care and specialty care.

But we cannot support Proposition 35, and we urge voters to carefully consider whether it does more harm than good. Thank you.

Thank you very much. Next, please.

Thank you. Many thanks to the chair and the Committee Members and your staff for the opportunity to speak today. Again, my name is Kay Lee, President for the California Association of Adult Day Services. CADS is a membership Association representing providers of community Community Based Adult Services, or CBAS.

CBAS is a Medi Cal benefit serving high risk populations under contract with Medi Cal managed care plans.

While the CADS board does not officially have a position on Proposition 35, we appreciate the opportunity today to help illustrate the complexities and trade offs of the Proposition and the budget package as it impacts our provider community and the people that we serve.

In addition to serving as the CADS President, I'm also a provider with locations through throughout the state in Orange County, Los Angeles County as well as San Mateo county. Statewide, around 40,000 Californians with chronic health or behavioral health conditions representing the full cultural diversity of our state, receive care from CBAS programs each year.

We therefore consider ourselves to be important partners with the primary care providers and managed care plans as we serve within the communities with the most vulnerable populations.

We therefore understand and fully support the need for a well funded primary care system and we understand that the Proposition is structured to benefit providers as they serve as a backbone of our healthcare system, especially physicians, hospitals and clinics.

However, we do want to bring to attention and to light the fact that the providers, CBAs providers who were initially included in the final budget package are currently affected. With the way the Proposition is currently structured, the rate increase that was included in the budget would be eliminated if Proposition 35 is to be approved.

We are grateful to all of you for the inclusion of CBAS in the final budget and especially for the support of Senator Menjivar and her understanding for the dire need for rate relief and her support as chair for Senate sub three. CBAs centers help Medi Cal avoid unnecessary and very costly services.

However, many CBAS providers are paid the DHCS published daily rate of $76.27 for a robust package of professional and social services, including transportation, nutrition, nursing and social services. This base rate has not been meaningfully increased in more than 15 years and fallen far below the rate of inflation.

CADS has calculated that just to catch up with inflation to help support providers from continuing to run severe deficits would require a 122 per day rate, which is close to which currently stands at $50 behind the daily rate. We have seen alarmingly, CBAS providers close throughout the state.

In just the past five years, 18 centers have closed out of the 300 centers statewide, and many of these closures have been in rural areas where centers are few and far in between, if existing at all. But the need continues to be high and growing.

As a provider, I can share firsthand how many of my colleagues struggle to maintain services at the current rate.

We were excited and relieved to learn that the rate increase in the budget package was included, and although it's a small step toward the goal to reach the rates of inflation that have been experienced over the past two decades, it was critically needed.

And for many PCbas providers, it would mean the difference between closing the doors and continuing to remain open in the coming years. However, with the rate as it currently stands being tied to Proposition 35, our network is having a difficult time knowing what to think and how to plantain for the future in the coming months and years.

We are a system in limbo as well as jeopardy. I worry that providers like myself and my colleagues will have to reduce services or continue to close at the rate that we are in the past few years.

As we await the results of Proposition 35, and assuming the Proposition does pass, we will then have to start over again and continue to advocate for a rate increase so that our providers can continue to provide services for these vulnerable communities.

Regardless of what happens with the Proposition, we will continue to serve the communities that we have done so historically and continue to open the doors, and we invite all of your colleagues and yourselves to come visit our centers and to see firsthand the services that we provide for our participants, as we call them, and for their families.

Seabass is a small but very critical component of the system of care for our chronically ill adults on medi Cal and every closure that we see is a true loss for the community. And thank you again for the opportunity to speak on this, and I'm happy to answer any questions.

Thank you ma'am. Mister Martin, you're going to close it out here.

General Roth thank you Rand Martin again, on behalf of Aviana Healthcare Aviana is one of the largest providers of private duty nursing in the State of California.

Private duty nursing, or PDN, is a Medi-Cal benefit for children with complex medical conditions and their families that helps ensure that those children are medically cared for in their home and in their community, which is more effective and far more desirable for the families and for the child than long term institutional care.

Moreover, it saves the state money because nursing care at home is less expensive than hospital care.

PDN has been threatened not only by ongoing nursing shortages, but also by the wholly inadequate Medi Cal rates that have made it nearly impossible for PDN providers to secure and retain enough nurses to meet the demands for continuous skilled nursing in the home.

The consequence of this PDN nursing shortage have been the inability to provide the hours of authorized skilled nursing care necessary to keep a child at home or to move children from waiting lists into PDN. As a result, they experience unnecessary hospital discharge delays, much longer hospital stays, and more frequent hospital admissions and readmissions.

Earlier this year, Annalicia, the Sacramento mom of Mila, a child with cerebral palsy and epilepsy, told her poignant story to the Legislature about her and her husband's commitment to ensure that their daughter that the way the daughter was born, they would make sure that she lived a full and happy life regardless of what she could or could not do.

She also spoke about the profound difficulties she and her husband have had in living up to that promise.

She talked of their ongoing wait for PDN services, none of which have been fulfilled as of this date of the nursing level care that she, not a nurse, must provide every day for her daughter with a tracheostomy, a ventilator, and feeding tubes. She talked of Mila's regressive and regression and frequent readmissions to the hospital.

She spoke candidly about the system failing Mila and her family. Experiences like those of Annalicia and Mila, contributed to the eventual decision by the Legislature and the Governor to approve a medi Cal rate increase for PDN services beginning in 2026.

While we had hoped for immediate relief for our families and caregivers, we are deeply grateful that the state recognized the need and the value of PDN and look forward to additional resources in 2026. However, our families and caregivers are not looking forward to navigating a post Proposition 35 world.

Not only does this initiative not include private duty nursing as a funding recipient under the MCO tax, it would also eliminate the 2026 Medi Cal increase beginning in 2027. Moms like Alicia are deeply concerned that after years of waiting, they finally will get services in 2026, only to find those services are no longer available in 2027.

We and our families and our caregivers are committed to working to ensure that the promise of 2026 is sustained next year. Unfortunately, we and our families and caregivers have no choice but to find a way to ensure that the services the children receive in 2026 are not taken away in 2027.

That is an unfortunate and unnecessary challenge that awaits us under Proposition 35. We appreciate your time today. Thank you.

Thank you, Mister Martin. Colleagues, any questions before we proceed with public comment? I see no hands sliding up in the air. Thank you all very much for coming and presenting. Thank you. We're now going to proceed to the public comment portion of the hearing.

As I indicated at the beginning, we've allocated total of 30 minutes for this public testimony. I'm looking at the number of folks in the room. We'll see how many line up. We'll probably limit each to 1 minute. If I can give you more, I will. Please proceed.

Good afternoon. Linda Wei with Western Center on Law and Poverty. Although we have no official position on Prop 35, we did want to provide comments. As an anti-poverty racial justice organization that works across different issue areas, we appreciate that Prop 35 rightly makes investments in Medi-Cal but have serious concerns that the ballot box budgeting ties the hands of future budgets and will result in cuts to safety net programs in difficult budget years.

Recalling that it took years to restore some of the 2008 cuts. We appreciate that this year's budget protected the safety net, in large part due to the redirection of the MCO tax funds to the General Fund.

Whether using the Lao or finance's larger multibillion dollar General Fund estimate, we do worry that Prop 35 takes away a funding source that not only impacts future budget, but also the current budget, including preventing continuous coverage from Medi-Cal children. Thank you.

Thank you, ma'am. Next, please, sir. Good afternoon. Charlie Donlin with Stone Advocacy on behalf of the California Orthopaedic Association. We support Prop 35.

Thank you, sir. Next, please.

Good afternoon. Cory Ayala, representing the Pediatric Day Healthcare Coalition, consisting of 22 centers throughout California who take care of severely disabled and medically fragile children PDHCs are a recipient of a rate increase in the recently passed budget which will enable us to hire more nurses to care for the children that are eligible for our services. Our service.

Our centers are severely impacted with wait lists which mean that these children need to be cared for at home or in skilled nursing facilities. We don't yet have a position on Proposition 35, but felt you needed to know that these children will be severely impacted should the Proposition pass.

Thank you very much, ma'am. Next, please.

Good afternoon, Mister chair and Members. Connie Delgado, on behalf of the District Hospital Leadership Forum. These are the 33 district and municipal hospitals. 18 of them are critical access hospitals and two thirds are rural. And the latest information that we had, these hospitals saw over 900,000 emergency Department visits. They operate on the most narrowest of margins.

And we appreciate all of your efforts in the past. We do support Prop 35 and its efforts to increase funding to providers so that they can continue to provide services when and where California patients need it. Thank you.

Thank you, ma'am. Next, please.

Good afternoon. Rebecca Alcantar, on behalf of Altamed health services, in strong support of Proposition 35. We are, community health centers are the safety net. We have backbone of the safety net system here in California, and we really need that secure funding stream to make help for all a reality. So really look forward to continuing to work with all the stakeholders.

Thank you, ma'am. Thanks for joining us. Yes. Next, please.

Good afternoon. Brianna Pittman Spencer with the California Dental Association, who is a supporter of Proposition 35, part of the coalition.

The reason that we're part of that coalition is, as Jody talked about, the need to invest, and I know it's been said here, we need to make sure that patients have access, and there's just as much of an access problem in dental as there is everywhere else in the medi Cal System.

Less than 50% of all Medi Cal kids saw a dentist in the last year, and that's actually up. That's the good news. We've actually made progress. So that's a, you know, we need to keep building on that. We know that provider rates increases work. That's what we saw in Proposition 56.

That's why we have a growing number of kids who have seen a dentist in Medi Cal. The Proposition 56 calaim investments, they've worked, they've brought more dentists into the program. We now have 40% of dentists in California taking Medi Cal, which is, again, a huge high watermark.

The places that the Proposition 56 and Calaim have not focused on they did a really good job on prevention and kid services. We haven't seen that same type of investment for adults, patients with special needs, and particularly specialty services. I know that was talked about earlier.

Those are the places that we really need to make sure people have access to get your teeth cleaned. It's great to do prevention, but you need to be able to get that restoration. And so that's in Proposition 35. That's where those rates would be focused.

Again, there is some flexibility there, and that's why CDA is supportive of Proposition 35. Thank you.

Thank you, ma'am. Next, please. Good afternoon. My name is Hector. I'm speaking on behalf of the Inland Coalition for Immigrant justice.

While we don't have an official position on the Proposition, we are pleased to know that the Governor and Legislature are reviewing California's benchmark plan and commend the efforts to ensure equitable access to healthcare services for all Californians. Here to propose that the. Sorry.

Here to propose that health insurance cover the cost of immigration physicals, federally mandated step in the naturalization process that can pose a significant financial burden on many immigrants seeking to adjust their status. These immigration physicals can range from dollar 200 to over $1,000 per exam, which is a significant expense.

And the rates vary throughout the state because they're not regulated by USCIS. And the rate for these immigration physicals can increase depending on whether applicants require vaccines, lab tests, or treatments in order to meet eligibility requirements.

And while the state has taken significant efforts and victories in expanding medical access to undocumented residents here, all income eligible residents and the Biden Administration has expanded ACA coverage for Dreamers.

This expanded coverage does not cover these physicals because they have a bureaucratic purpose instead of a medical purpose, and they go through a special process with designated civil surgeons.

And we believe that an emphasis on this, while it's not completely related to the Proposition, emphasis on this further builds on this Committee's efforts and the legislators efforts to expand equitable access to healthcare and take preventative steps for all California. Thank you.

Thank you. You all are, good evening.

My name is Tiyesha Watts. Here on behalf of the California Academy of Family Physicians, representing 10,000 family physicians, residents, and medical students, we are in support of Proposition 35.

As you all know, the primary care has historically been underfunded, and it's time that we continue to make investments so that we can continue to provide whole person care to the entire family and take preventative measures rather than waiting for people to be sick.

So we want to ensure that we are investing and continuing to invest in Medi-Cal and primary care provider rates. So we are in support of Prop 35. Thank you.

Thank you. You may get the record. Yes, ma'am.

Taneicia Herring, on behalf of the California Hawaiian NAACP, is in strong support of Proposition 35.

Thank you. oh wow. You got the record. Yes, ma'am.

Cher Gonzalez, on behalf of the Association of Northern California Oncologists, otherwise known as ANCO, as well as the Medical Oncology Association of Southern California, otherwise known as MOASC, we are in strong support of Prop 35. Thank you.

Thank you for joining us. Yes, sir.

This Chairman and Members, John Valencia, representing the Latinx Physicians of California, an organization of frontline providers in the safety net arena taking care of Medi Cal patients. They're in strong support of Proposition 35. How do you do?

You did great. Thank you for joining us. Appreciate your testimony. Yes, ma'am.

Good afternoon. Lindsey Freitas with the California Primary Care Association. We represent 186 community clinics throughout California and every single county. We serve one third of the Medi Cal population. They've asked me to list every single one of those, but I'm not going to do that for you guys.

But everyone's very supportive of this because we know that this is going to impact our patients and this is going to improve care for our patients, and. That's why we're here. Nothing that has been mentioned here today is not possible for us to continue to fight for in future ballots, and we're excited to do that. Thank you.

Thank you. Any other public comments? Yes, Mister chair.

Members of the Committee, Randall Hagar, representing the Psychiatric Physicians Alliance of California. We're in strong support.

Thank you. Any other public comment? Seeing none, I'm going to go ahead and close today's hearing. I certainly want to thank the LAO staff and the Department of Finance for coming down and presenting their analysis.

And I also want to thank all of the other witnesses who were kind enough to join us on our panels to provide information on this very, very important Proposition. With that, this first hearing on Proposition 35 is adjourned. We're going to take about three minutes and change out the team here, and we'll start hearing number two. Thank you so much. Oh, you're great. Thank you.

Well, good afternoon. The Senate and Assembly committees on health will come to order with regard to the hearing on Proposition 34, spending of prescription drug revenues by certain healthcare providers.

We're going to have three panels, but since we have three panelists, I've asked them to all join us up at the front and we will all take testimony in order. But as we go forward, LAO, perhaps you could provide some oversight on Proposition 34.

Good afternoon, Committee. Jason Constantouros, LAO, I'll be working from this handout. That should be in your packet. Materials on Proposition 34. Similar to the handout I had on Proposition 35. It has the same format. It touches on our role on the initiative process and also provides background, describes Proposition 34 and provides our fiscal analysis.

If you turn to page one, page one summarizes our role in the ballot measure process. You just heard our role for Proposition 35. It's the same page. Just again, want to emphasize that our role here is to provide an independent fiscal analysis, but not to weigh in on the policy merits of ballot measures.

Turning to page two, we provide some background, and there are three key, key background aspects we want to touch on. The first is how Medi Cal pays for prescription drugs.

So, as many of the committee know, Medi Cal is a program that covers the cost of healthcare for low-income people, and that includes the cost of prescription drugs. Prior to 2019, Medi Cal had a couple of different ways of paying for prescription drugs.

In 2019, the state adopted a single approach that's now called Medi CalRX, and this approach likely saves the state money because Medi Cal is paying for drugs at more discounted prices. Medi CalRX is currently not enacted in state law, but it is the approach that Medi Cal uses to pay for prescription drugs.

Second key background issue I want to touch on is the federal drug Discount program. It's also known as the 340 B program, and under this program, drug makers provide discounts on their drugs to qualifying providers, eligible providers, and they tend to be hospitals or clinics. They are public or private nonprofits that focus on serving low income people.

Providers tend to earn net revenue as a result of this program, and they do so by charging payers of healthcare, such as private insurance or government payers, more than the cost of drugs. There are some exceptions to this.

For example, this tends not to happen in the Medi Cal program because state law bans providers from charging medi Cal more than the cost of acquiring the drug.

This program is intended to allow eligible providers to expand services and serve more low-income people using their net revenue federal and state law, however, do not directly restrict how providers spend their revenue from the program. Then the third key background point I want to emphasize is that is around licensing in California.

So California law requires healthcare entities to be licensed to provide services. And to remain licensed, they have to follow certain rules, and when they do not follow these rules, they can face penalties. These penalties can range from facing fines all the way to losing or losing licensure. Turning to page three, we provide an overview of Proposition 34.

There are three key parts of Proposition 34 I want to touch on. The first part is that it would restrict how certain entities spend their revenue from federal discounts. So under this requirement, affected entities would need to spend at least 98% of their net federal discount revenue earned in California on healthcare services provided directly to patients.

Now, as the figure on the bottom of page three shows, this doesn't apply to every provider. It applies to providers that meet certain conditions. These conditions are summarized here.

They include, in addition to being licensed and participating in the federal drug discount program, also having also spending certain amounts on purposes other than direct patient care and owning or operating housing units with a certain number of violations. To enforce these requirements, the entities would be required to report information to the state.

The state would charge fees to affected entities to help cover its enforcement costs. Turning to page four, the second key part of the proposal I'd like to touch on is what happens if an affected entity violates the new rules.

Under the measure, there would be four penalties, and these penalties range from losing licensure and also losing tax exempt status, just as two examples and all four penalties would apply for violating the measures requirements. These penalties also would apply if affected entities engage in conduct that is unprofessional, dishonest or harmful to public health or safety.

The third key aspect I want to touch on in the proposal is it also adds Medi CalRX to state law because Medi CalRX is already in effect. This doesn't change how things currently work in the medi Cal program, but adds is provisioned to state law. Turning to page five, we provide our fiscal analysis.

The first point we want to emphasize is when thinking about the fiscal effects of this measure, the effects would be limited and they would be limited because likely few entities would meet the conditions described in the figure on page three.

The exact number of entities is not known because the state has not undergone the process to determine eligibility. That would sort of happen after were the measure to be enacted, but because few entities likely would be affected by this, the impact would surround on a statewide basis would be limited.

The measure would result in cost to the state to enforce the new requirements, likely in the millions of dollars annually. These costs would be covered by the state by charging fees on affected entities, and then the measure could have other fiscal effects. These effects are uncertain and depend in part on how it would change provider behavior.

For example, some providers to comply with the new rules might increase spending on direct patient care. If that results in more spending to Medi Cal patients, it could result in savings to the Medi Cal program, but it would depend on what services are provided. Affected entities would also have to pay fees and report to the state annually.

Some entities might change their operations to avoid these new requirements. For example, they could stop participating in the federal discount program. If that results in less federal discounts to the Medi Cal program, then there could be state costs. And then some entities that are affected by the measure could violate the restrictions.

And if that were to happen, there could be a number of effects. They could affect state tax revenue, state spending on the Medi Cal program, or spending in other programs. This fiscal effect would depend on which affected entities face penalties. Thank you.

Let me start off direct patient care. How is that defined? Is it defined broadly? Does it include cost of facilities, cost of equipment, administrative costs? If you're required to put 98% of your net federal drug discount toward direct patient care and it's not defined broadly, that doesn't seem to allow a lot for administrative costs and other.

I don't have the statutory definition right in front of me. It is, you know, the text of the language isn't as specific as you describe. It describes medical care and other types of care, but it isn't as direct as you, as you specify in terms of facilities. That's not sort of specified in the measure.

For example, if you can't use some of the net, the gap that you've spread that, you know, achieved by participating in the federal drug discount program to support the facilities in which the patient care is provided sort of could be problematic if it's not defined with specificity. Would you agree.

The measure doesn't. The language doesn't sort of have that specificity in the text, so that would be something that would sort of need to be determined. Once the measure is sort of enacted.

Can the Legislature then clarify that through our actions, or is the initiative restrictive in that regard? I'm just. You don't know? That's fine. This is not. Know your bible? I'm just trying to.

Yeah, that's something that would need to be sort of worked out once the measure's enacted. The measure does task state agencies with sort of enforcing the measure. So again, this would sort of need to be worked out once the sort of measure is enacted.

Can you tell me on the restrictions, the four restrictions, how did the multifamily housing unit language get inserted in an initiative that deals with patient care?

Yeah, that would be a good question for other panelists.

Okay, well, that would be helpful. They can tee that up when we get to them. And then.

So, county hospitals, my recollection is they participate in this federal drug discount program and use the difference between what they pay for the discounted drugs and what they can charge to commercial payers, for example, to help support Medi Cal services that they provide.

This statement on page five where it says state would recover costs by charging fees on affected entities. The recovery, the cost recovery, and the fees charged, are those only charged to entities that violate the rules, or does everybody have to pay to play?

It would be charged on entities that are affected by the measure. So the measure is not on all 340 b providers. It is on those that sort of meet the conditions on the figure three.

So they'd have to run multifamily housing units in order to have to pay a fee.

They'd have to meet the conditions.

And then lastly, this initiative has some, rather strange, to me anyway, enforcement provisions. We could start with the controller and the controller's ability to hire independent counsel. That seems odd to me. Can you provide any insight as to how that got into this particular initiative?

That also be a good question for other panelists.

Okay, good. Well, let me turn it over to my colleagues then. Colleagues, any questions? I'm not seeing any hands fly up in the air. So, sir, let's talk to you, Mister Onito. Did I pronounce that correctly?

Microphone working?

There we go. Perfect. You heard some of my questions, but I'll let you go through your presentation first.

Sure, I'll go quickly and be happy to help with those questions. Good afternoon, Mister Chair and members. My name is Kurt Oneto, and I'm counsel to Protect Patients Now, which is a broad coalition in support of Proposition 34.

Our coalition counts among its Members the ALS Association, the California Chronic Care Coalition, California Professional Firefighters, California Senior Alliance, the Defeating Epilepsy Foundation, Hep B Free San Francisco support, Fibromyalgia Network, and several others. The very simple purpose of Proposition 34 is to inform how the 340 b program operates in California.

The 340 p program has been widely criticized for poor state and federal oversight. This includes the Government Accountability Office, the New York Times, Wall Street Journal, Atlantic, the Atlanta Journal Constitution, and others have all documented the large amount of self dealing and abuse in the program. Manipulation of the program also increases costs for California.

This is as Elio mentioned, this is one of the main reasons for the enactment of Governor Newsom's Executive order creating Medi CalRX. Of course, that is, that program saves California billions of dollars annually. However, that executive order was strongly opposed by some 340 B providers, and it could be reversed by a Future Administration.

Related to this, the first reform that Prop.34 contains is to make permanent the governor's Executive order to make sure that those multibillion dollars in savings can be achieved in perpetuity. Next, Proposition 34 addresses some of the most egregious abuses of the 340 B program.

Proposition 34 seeks to ensure that California 340 B revenues are not used in a manner that actually harms public health and safety. The connection between housing and health outcomes is well known and has been well documented that inadequate shelter or housing can result in adverse health outcomes.

Even opponents of Proposition 34 have acknowledged that secure and stable housing is vital to positive health outcomes. Therefore, Proposition 34 targets instances where significant 340 B revenues have been diverted into substandard housing projects.

Specifically, Proposition 34 imposes additional requirements on California 340 B providers that have diverted very large sums of 340 B revenues, over $100 million in any 10-year period towards purposes unrelated to direct patient care, and have devoted revenues to operating residential housing in a manner that actually jeopardizes public health and safety, as demonstrated through having been cited for at least 500 highly severe health and safety violations.

Under Proposition 34, providers that meet these requirements would be required to spend 98% of their net revenues on direct patient care. So long as they meet that standard, there are no punishments or penalties imposed upon them. The rationale for Proposition 34 is simple.

The 340 B program is a public program supported by public dollars, and those dollars should be spent on improving public health as intended by Congress, rather than being diverted to two purposes that are not only unrelated to patient care, but actually jeopardize public health.

And before I end my remarks, it is important to set the record straight in my view, on one specific issue raised by opponents, specifically that Proposition 34 is a threat to women's reproductive health. Planned Parenthood has opined that Proposition 34 simply has no effect in this regard.

As proof of this, I have here a May 2024 email from Planned Parenthood to the California Democratic Party Executive Board, in which Planned Parenthood states, and I quote, Planned Parenthood affiliates of California is not opposed to the measure in fact, PPAC is neutral on this initiative because it does not impact our affiliates ability to provide sexual and reproductive health care or interfere with our mission to expand access to care in California.

The email continues that the furthermore, and I'm quoting, the premise made by opponents that the Democratic Party should oppose the protect patients now measure based upon the effect it will have on Planned Parenthood use of the 340 program to administer reproductive health in California is simply false and offensive.

PPAC remains neutral to the California Protect Patients Now act. Finally, I'll point out that opponents of Proposition 34 have filed six separate lawsuits attempting to prevent the measure from appearing on the ballot. Two lawsuits in the Superior Court, two lawsuits in the court of Appeal, and two lawsuits in the California Supreme Court.

And all six times the court's rejected opponents arguments. So these false allegations from opponents about the merits of Proposition 34 have been considered and rejected by every level of our state judiciary. Thank you, and I'd be happy to answer any questions.

So the only time these restrictions, which specifically or the 98% rule apply will be if you have a health care provider that's providing health care in the context of a residential setting.

That there are participants in the 340 B program and they're providing rental housing, and they've diverted over $100 million in a 10 year period. So sort of all three requirements, it's reserved for sort of the most egregious type of conduct that we've seen in the 340 B program, as documented by many sources.

Sort of narrows the field.

Yes. It's not. It is. It's likely to be a small group. We don't know that. And I can say, I can answer it as part of that question. The Attorney General, the Department of Pharmacy, the Department of managed healthcare, and the Department of Public Health would be tasked with implementing the measure through regulations and other implementing guidance.

They would flesh out definitions, and they would also be in charge of determining who is covered by the measure.

How do they do they flip a coin? How do they decide who does what?

Well, 340 B providers can be licensed by any one of those three entities, and the measure calls for them to set up cooperative guidelines among the three of them. So it'd be unified.

But since each of those departments has a specific license authority and then the Attorney General has overall law enforcement authority, it calls for them to, to properly adopt guidelines and guidance.

And since you mentioned the Attorney General and the Department of Justice, talk to me about the controller and the independent counsel, and how did we get there? So the controller, not being a lawyer, I'm not quite sure, I think.

Are you referring to the part I mentioned where the Auditor can be involved in?

I thought I read in your initiative that there's a section that if the controller doesn't field legal defense. Here we go. In order. So here we go. It's on the last page. 15 of 15 or. Yes.

Yeah, in section. This is section four of the major legal defense section.

How did we get to that? And why pick the controller? I would think the controller is pretty busy.

So the way this works, this provision is not really related to the substance of the measure.

This grows out of a concern that came up about 12 years ago that if an initiative measure is passed by the voters and the State Attorney General decides not to defend the measure, that it can be invalidated on a technicality for lack of defense.

Oh, I see. This is, this is to defend the initiative, correct. Be challenged? Yes, sir. Not to enforce the 98? Not at all. That's right. I'll read better next time. Thank you, Alex. Any questions? Senator Menjivar? Fire away.

Thank you, Mister chair. And I think maybe you were answering this question. I apologize if I didn't get it. Regarding the who would meet the conditions to fall under this? And I guess I just want to clarify that. I just want to confirm that this measure isn't directed at just one entity.

If you have a list of entities that would meet, I guess these two conditions, has spent over 100 million in any 10 year period, and has operated multifamily housing, reported to have at least 500 high severity health.

Happy to answer that question. On the face of the measures, you can see it's a generally applicable statute. The material is in the ballot guide, obviously explain it and frame it as a measure of general applicability. We don't know at this point exactly which entities would apply to the measures have to be passed.

The implementing guidelines would have to be adopted by the regulating agencies and they would have to make those investigations. So we don't know what we can tell from sort of public reporting that obviously is not determinative or wouldn't be relied upon by the regulating agencies.

But there are multiple entities that are engaged in housing in California that have spent large sums of money on that housing and large sums of money on other things unrelated to patient care, like lobbying. One paid its CEO in one year, $35 million.

So in that one year, that one expenditure, they got very, they got a third of the way there to hitting the threshold. So we don't know exactly, but there are multiple entities that are 340 b providers that are engaged in housing in California.

And this has all been publicly reported and there is some evidence that they're spending large sums of money on things that don't count as patient care. And circling back to that definition, the chair asset question, again, there is a broad definition.

It's flexible in the measure, but that is specifically left open for further clarification, refinement by the regulating agencies. They can adopt regulations and guidance to clarify what counts as direct patient care facility.

You must have a certain list because the proponents must have seen an issue, right? That's the whole point of this Proposition. You see an issue and you must have a list of the targets, who you think are the problem. Sure.

Yeah. Those entities have been identified in litigation. There's, I think in that and there's five or six that are identified in the litigation just from public reports. Again, that is unsubstantiated and unknown. But there is a small population of multiple entities that are out there.

Doctor Weber.

I'm actually going to piggyback on what has been said because I'm really confused now because it, you know, in the measure, I mean you, it specifically states out that unfortunately some safety, safety net healthcare providers have manipulated the program to receive enormous markups on the discounted prescription drugs they receive and then stick taxpayers with the cost.

Instead of using this massive windfall to help patients, the worst offenders have used their fortunes to purchase luxury coastal condominiums, wasted hundreds of millions of dollars on failed political campaigns, put elected politicians and payrolls. So who are we referring to? Sure.

So I can get into some of those examples. For a prime example, frankly, is CVS. They are a major contract pharmacy agreement provider. They make agreements with nonprofits to sort of also profit from the program in a way that seems to be outside of congressional intent.

They have invested hundreds of millions of dollars in building housing in California. They put a, there's a Rhode Island, you know, state Legislator was convicted for taking payments from them and they have spent hundreds of millions of dollars on campaigns and lobbying. Also Bon Secours is another healthcare provider that invests in housing in California.

They have spent money on naming rights or professional sports stadiums and have been accused by the New York Times of diverting 340 B dollars out of minority neighborhoods into other unrelated projects. Those are two.

Obviously there is a lot of press has been assumed on press coverage of the AIDS Healthcare Foundation and similar kind of stories about their use of 340 B dollars. Those are probably three of the biggest. And there's several other smaller providers.

Based upon public reporting, we don't really know, in terms of the amount of money they've diverted, but they are involved in housing, and we could provide that information to the Legislature. It's been provided twice to the Superior Court, twice to the court of Appeal, twice to the California Supreme Court in the lawsuits against the measure.

And so all of these that you have basically stated are substantiated facts. Cause usually from a legislative standpoint, there's been a state audit that's revealed that there's an issue or something that we're hearing about on a more frequent, occurring basis.

But I think the fact that all of us are asking basically the same thing, who are these people that have prompted you all to do this large ballot initiative? These are substantiated claims.

These are claims that are, you can find in the court documents, and they're all based upon publicly available sources. New York Times, Wall Street Journal.

They are substantiated claims.

Well, they are publicly reported in reputable news. News by news media.

Okay.

I mean, how it can be substantiated.

If someone has actually gone out, investigated, and reported that these findings are correct. They've looked through books, they've, they've, they have actually stated that these individuals have taken this source of money and used it for housing. Like, that's what I'm talking about. The data, it's true, is substantiated. It's not something that is speculated. We know this.

It was true enough to get put in the New York Times.

No, I mean, there's a lot of, there's a lot of things that are written these days, but. Thank you.

Thank you, Doctor Weber. Okay, Mister Martin, it must be up to you to bring us home.

I'm back, Mister chair again, Rand Martin here on behalf of the AIDS Healthcare Foundation. For those who don't know, AHF is the largest nonprofit provider of care and treatment to people with HIV and AIDS in the world. They have more than 2 million lives in care in 46 countries around the globe.

California, which is their home, AHF is actually the largest, again, nonprofit provider of care and treatment to people with HIV and AIDS, as well as the largest STD provider of care and treatment in the State of California.

AHF created its Healthy Housing Foundation in 2018 because they recognized that comprehensive healthcare must include decent housing for their patients to ensure that treatment is as effective as possible. Given that the critical part of their mission, they embarked on side-by-side paths to create more truly affordable housing for extremely low-income Californians.

Currently 1500 units in the City of Los Angeles, and to advocate for robust tenant protections central to their renters rights mission has been their effort to repeal the state's rent control law, the Costa Hawkins Rental Housing act, leading to lower rents across the state. AHF is attempting the reforms again with Proposition 33 on the November 2024 ballot.

California Apartment Association has spent tens of millions of dollars on trying to protect Costa Hawkins so that their ability to continue to impose exorbitant rents on their tenants is not diminished.

So apparently, from our perspective, tired of spending all this money to resist changes to Costa Hawkins, they have qualified Prop 34 in order to go after AHF, punish AHF and only AHF, and distract them from Prop 33 and force them to spend resources against Prop 34.

No one says it better than the San Jose Mercury news just last Friday when they stated Prop 34 is an abusive use of the state's initiative system to silence a political opponent. It would set a horrible precedent if it passes and survives legal challenge. AHF does participate in the federal 340 B program.

It allows us to, as an eligible healthcare provider, to get lower drug prices and use the delta between what we receive in reimbursement and the lower drug costs to pay for additional medical care for indigent Californians. We've been very effective in providing that care because we have those resources that the 340 B program allows us to have.

Be assured that that program is also audited by the Federal Government. So we have been through audits. We have come out glowing in those audits. And so this does not happen in a vacuum. It does not happen without the oversight of the Federal Government.

For years, unfortunately, CAA has promoted the lie that we are using those 340 B funds to Fund our political activities, a charge that cannot withstand scrutiny because of that federal audit requirement. But that has not stopped CMA from perpetuating this canard.

They have crafted Prop 34 to try to punish AHF for exercising its right to free speech and to engage in political discourse. CAA even owned up to this in their press release announcing this initiative, in which they explicitly state that it was aimed at AHF.

Excuse me, regardless of the truth, CAA defines the target of the initiative in a way that is intended to identify AHF alone, and then defines patient services so narrowly that many healthcare services are prohibited, including administrative costs, as the chair has rightly pointed out.

It then requires that 98% of all those funds have to be spent on the initiatives narrow definition of what direct services are, not only an impossible threshold to meet, but a huge disservice to our patients because we are so effective at using those funds to provide services that are not typically provided under existing programs.

And it states that 98%. That the 98% applies to all revenues generated nationwide, seeking to regulate and potentially punish medical services conducted outside the State of California. It is yet another way that CAA trumpets that Proposition 34 applies only to AHF.

The consequences for AHF if they spend one penny less than 98% include losing their tax exempt nonprofit status, losing all their clinic, pharmacy, healthcare service plan licenses, losing all of their state and local contracts, and prohibiting AHF and its officers from securing any such licenses again for the next 20 years.

All of which would put AHF out of business, leaving its 16,000 patients and clients in the State of California suddenly scrambling for services. If this initiative is not stopped, the essential question to the universe beyond AHF is who's next?

ACLU? Planned Parented? Is some moneyed interest, some moneyed adversary to those organizations going to see this as a roadmap forward to allow them to go after those organizations through the initiative process? Any such advocate, regardless of the type of services they provide, is at risk of a similar initiative attacking that organization and threatening its very existence.

This initiative will set a very dangerous precedent if it goes forward, whether it passes or not. There is no question that another principled and progressive organization will come under a comparable attack. We appreciate your time today. Thank you.

Mister Martin, I think you made a point that I was trying to ask questions about. I think this definition of direct patient care and the consequences of failing to meet it can be pretty catastrophic.

I would hope that with four agencies having a authority over various players in this sandbox, that they can get it together and can coordinate one definition.

But in the absence of that, or if the definition is lack specificity, individuals, entities that are attempting to provide services in this sandbox are going to have a difficult time navigating that process. And again, consequences are pretty, pretty severe. Mister Martin, let me ask one question. I mean, given this is a foundation, isn't it?

Given your status or its status, and the fact that there's an audit. Are these audits made public?