Golden State Today

Two health care analysts, writing at the AIDS Drug Assistance Program blog, said that the recently-passed California Prop 34 “strikes against the exploitation” of the federal 340b drug discount program.

“Proposition 34 strikes against the exploitation of the 340B Program by requiring, what it describes as prescription drug price manipulators, to spend at least 98% of revenues generated from participation in the program on direct patient care,” wrote Rainer Simons and Marcus J. Hopkins. “As part of the oversight to enforce this requirement, the entities must submit annual reports detailing their statewide and nationwide gross and net revenues obtained from the 340B Program, as well as details on how the program revenues were spent (Secretary of State, 2024).” 

“Non-compliance results in license revocation and a ban from obtaining operating licenses for ten years,” wrote Simons and Hopkins. “Additionally, tax exempt status is revoked for ten years, and an entity is rendered ineligible for state and local grants and contracts for ten years (Secretary of State, 2024). Moreover the proposition grants several state departments the authority to standardize the specifics of the accounting reporting requirements (Secretary of State, 2024). This ensures that entities cannot obscure their numbers.”

Simons is the owner of Durham, NC-based healthcare data analysis firm Reignkey Solutions, and Hopkins is executive director of the Appalachian Learning Initiative, based in Morgantown, WVa. 

Their analysis echoes comments made last week by the head of a California health reform group, who said Proposition 34 addresses the "longtime abuse of the federal 340b prescription drug program."  

"While the official vote won't be certified until next month, the results were clear enough to declare a victory for a California ballot initiative on health care, namely Proposition 34, an effort to make sure that drug sale revenue is used solely on health care," Julie Gill Shuffield, executive director of Patients Come First-California (PCF-CA), wrote in a Nov. 27 op-ed in Cal Matters. "Prop. 34 confronts the longtime abuse of the federal 340B prescription drug program and will hold bad actors accountable if providers don't spend 98% of their revenue on patients. California voters got it right."

The 340B drug pricing program was established in 1992 to aid uninsured or low-income patients by allowing covered entities such as hospitals and healthcare organizations to purchase medications for eligible patients at reduced costs. These savings were intended to be passed on to the patients. However, since its inception, there has been minimal oversight, resulting in hospitals and healthcare institutions retaining the savings instead of reducing costs for patients.

Established in 1992, the 340b program is facilitated by the Health Resources and Services Administration (HRSA) and enables eligible hospitals and healthcare organizations to purchase outpatient medications at significantly discounted prices. Hospitals participating in the program can use the savings to fund essential services and programs, such as free or low-cost medication assistance, expanded access to healthcare, and community outreach initiatives.

At least 174 California hospitals participate in 340b, according to 340bHealth, including Palomar Medical Center in Escondido, Scripps Mercy Hospital in San Diego, and UCSD Medical Center in San Diego.

Participating hospitals, however, “often extend their 340B discounts to clinics in well-off communities, where they can charge privately insured patients more than those on Medicaid,” reported the Wall Street Journal.

“In some cases, the program appears to be bolstering profits in well-off areas more than it is underwriting services in less-privileged neighborhoods,” said the Journal article.

Proposition 34 mandates that select providers allocate 98% of their revenues from the federal 340B program towards direct patient care.

Gill Shuffield has been executive director of PCF-CA since the organization's launch in March 2024. In addition to running her own firm, Sutter Buttes Advisors, She also founded Power of 100 Sutter Buttes Basin, a charitable community women's group, and was named Woman of the Year by U.S. Rep. John Garamendi (D-Fairfield) in 2019. Gill Shuffield also previously worked as director of regulatory and government affairs at AES Corporation and in external affairs for California ISO.