California voters deliver accountability to health care providers exploiting 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.

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 program was intended to facilitate drug discounts for entities like nonprofit hospitals and clinics so they could then pass on the savings to patients. The concept is simple enough: Hospitals are in a position to leverage discounts on behalf of medically underserved populations, and the cost of the medicine should be lower for patients — but that’s not happening. In fact, these bad actors buy deeply discounted prescription drugs and then turn around and charge both patients and insurance companies higher prices while pocketing the difference.

Even though the Prop. 34 arguments provided to California voters in the state’s ballot guide were not as detailed — it simply said revenues should not be used to name stadiums and pay exorbitant CEO salaries — it was enough to convince voters to support it.

The 340B program lacks adequate transparency and oversight, and the data reveals a large and rapidly escalating problem. In a 2020 audit, the United States Government Accountability Office found more than 1,500 violations of the 340B statute. Investigative reports show that hospitals across the country, including in California, were billing patients who qualified for charity care and misled patients about their treatment coverage.

This has become an ongoing practice in the Golden State, with monopolistic health care systems in hospital deserts getting away with charging patients exorbitant prices for basic medical care. These hospitals purchase drugs at a discounted price and then charge patients 200-700% more to earn a profit.

To be clear, a small administrative fee to cover the cost of procurement and dispensing is reasonable, but this is price gouging that targets vulnerable patients who are in desperate need of the medicine they’ve been prescribed. Prop. 34 permits a fee of 2%, but the remaining 98% must be spent directly on patient care.

There are urgent calls for Congress to reform the 340B program, with some manufacturers proposing a rebate that would ensure patients are on the receiving end of the lower costs. Unsurprisingly, the hospital industry has fought vociferously. Since Prop. 34 passed, perhaps they are now playing Monday morning quarterback and wishing they had already agreed to reasonable safeguards and transparency.

We can only hope that 340B providers have received the wake-up call issued by California voters and will come to the table with solutions that work.

When revenues are not directed towards patients, their quality of life is impacted. Now, under Prop. 34, these bad actors are the ones with their corporate quality of life impacted. What an ironic, bitter pill to swallow.