NO on Weird, Deceptive, and Likely Evil Prop 34

[IN SHORT: Prop 34 is an attack by the California Apartment Association (landlords’ lobby) on the AIDS Healthcare Foundation, in revenge for that Foundation’s building of affordable housing and its support for rent control. Big NO! – Vern]

Author’s Note: I’ve put in way more time than I should trying to decipher its provenance and its impacts. But you need an answer and my answer for now is an emphatic “NO.” I didn’t like the smell of it from the first, but when I finally understood the depth of its deception, it’s one of the worst I recall. Note: I found a major flaw apparently eluded even the Legislative Analyst who deciphers ballot measures!

Prop 34 is complex even to summarize. The League of Women Voters notes that Medi-Cal (which serves low-income people) has a federal drug discount program requiring drug manufacturers to provide medications to qualified health providers that serve Medi-Cal (“Medicare” elsewhere) recipients. They have to serve these recipients at the set cost, but can also sell a portion of the drugs to pharmacies serving those with private insurance at a higher price. This is intended to allow these providers to serve more Medi-Cal recipients, but the law sets no specific requirements on types of expenses. (I’ll add this up front: a nonprofit who spends the brunt of this bonus on higher salaries and lavish parties is likely to lose the nonprofit contributions that keep them afloat, with donors choosing to support nonprofits that don’t do this, so the alleged problem this is supposedly intended to fix is possible, but more unlikely given required nonprofit disclosures.)

THE BREATHTAKING EXPLOSIVE CLAIMS!

This bill obliterates these bonus payouts from private insurers. It requires that 98% of the net funds (after legitimate costs) that entities get from the federal discount program must be spent on direct patient care. (It’s interesting to note that the drugs in question seem to be primarily or entirely HIV/AIDS medications, and the group apparently being targeted by this bill is the AIDS Healthcare Foundation (AHF), which — probably not coincidentally — was a major donor to Prop 33, which aimed at the pockets of California Apartment Association (CAA), aka the “Landlords’ Lobby.”) Hence “the Revenge Initiative.”

As the proposed law asserts without proof, leaders of the targeted groups made a bundle by taking personal advantage of the difference between the amount they paid the government for these medications and the amount for which they sold them to pharmacists, and then “used their fortunes to purchase luxury coastal condominiums, wasted hundreds of millions on failed political campaigns, put elected politicians on their payrolls, and acquired low-income multifamily apartment complexes that are operated as slums.” That italicized section looks like it would be part of the ballot argument, right? But no, these words are literally in the law itself as part of its legal statement of legislative intent!

I have no idea whether most of these breathless and explosive claims are true; I highly suspect that at a minimum they are exaggerated. (The opposition’s ballot argument against makes a good case for that, including that none of the money in question comes from the government, but directly from the pharmaceutical industry.) So if you don’t want to see those sorts of sneering accusations by the landlords group — against a group that they blame for sponsoring Prop 33, the long overdue “allowing local imposition of rent control” measure (which may explain the “wasted hundreds of millions on failed political campaigns” in bold italics in the previous paragraph) — enshrined in the State Code where they can only be removed by another election! — then please join me in kicking this measure to the curb.

THE ASSERTED PROOF OF WRONGDOING!

The Proponents’ rebuttal to the Opposition’s Argument in the Voter Guide offers four citations to support its contentions, and may god save my furry soul I am going to read them.

(1) Inside the world’s largest AIDS charity’s troubled move into homeless housing

(Note that they’ve linked to a paywalled story here, but you can get a 4-week online subscription to the LA Times for $1; just be sure to cancel it after 3 weeks if you don’t want to pay $16 for 4 weeks.)

The claim is that “these funds are being used to finance slums that are unsafe and violate health codes.” The story suggests that this is in part at least technically true — but highly misleading.

Yes, AHF tries to buy housing for homeless people and it is often run-down and sometimes people get evicted, but bear in mind not only that “The Best is the Enemy of the Good” but that NO ONE ELSE WANTS TO PROVIDE SUCH HOUSING AT ALL — LEAST OF ALL THE MEMBERS OF THE CAA! So, yeah, they have to buy 100-year-old buildings that are in disrepair, that they can’t always afford to fix, but the alternative is to let the homeless sleep in the street and the citizenry apparently does not want that to happen. So they do the best they can with the resources they have — and if the CAA members want to step in and use their vast resources to help with repairs I’m sure that honestly offered help would be most welcome! But this sleazy attack is akin to a boutique private clinic in Newport Coast slamming field medics in Gaza for not using pristine sanitation and the most current best practices. One of the nicer things one can say is: Wankers!

(2) AIDS Healthcare Foundation Reportedly Houses Tenants in Squalid Conditions

This is used to support the argument that funds are being used to “Sue low-income tenants and throw them out on the street.” So sayeth the California Apartment Association.

Now you probably expect me to say something crazy like “they have cited another article that repeats the same claims, with lots of borrowed text from the first one.” But that, of course, would be crazy — and they’d look like idiots if anyone actually read the two pieces and discovered it, so obviously that can’t be true … except that yes, that is exactly what they did. The site “Poz” an activist HIV/AIDS site, went way past fair use in quoting directly from the article, but on the bright side you can get the gist of the Times article without paying $1. Still trying to avoid profanities here, but I feel safe in saying that the people who wanted to claim a corroborating source when it’s not corroborating at all are SCUM. And the CAA complaining about the hypocrisy of doing something that its members do all of the time is disgusting.

(3) How a Hospital Chain Used a Poor Neighborhood to Turn Huge Profits

This is indeed a very disturbing story about how these types of funds were misused by a nonprofit hospital to profit off of a poor community to offer substandard care. It’s in the NY Times, so there’s a paywall (though someone with a digital sub who isn’t using up all of their NYT gift articles every month (like I do) can put a link to it in comments.)

It is being used to prove the point are being used to fund paying for stadium naming rights.

It may occur to you that not only is AHF is not a hospital, but that we don’t have an “AIDS Health Foundation” stadium anywhere in California. (Spoiler: or elsewhere.) This article is actually about Bon Secours Mercy Health, a Catholic Church chain of non-profit hospitals that recently merged with an Ohio outfit and started lusting more strongly after Mammon. The naming rights in question, fueled in an indeterminately small part by profits made by selling an expensive cancer drug to private sector actors, were for a training facility for the then-Washington Redskins. The hospital from which they bilked all sorts of money was in Richmond, Virginia. And so, yes, this establishes that this rule can be abused. It just doesn’t establish that it’s a serious problem in California itself. So let’s go to the fourth citation and see if it changes that.

(4) Nonprofit hospital pays CEO stunning salary

The fourth allegation is that these Medicaid funds are being used to “pay corporate CEOs millions.” Again, this deals with a Catholic hospital system, CommonSpirit Health, which was created in February 2019 through the alignment of Catholic Health Initiatives and Dignity Health.

The article, #2 in the countdown of medical industry “abuses” honoring “Pharma Bro” Martin Skreli, purports to show this abuse, but doesn’t actually cite any information about ties to abuse of this Medicaid program at all. It’s about another Catholic nonprofit hospital system: “What would you do with $35.5 million: Produce an independent film, undertake an affordable housing development project, or maybe wipe out the medical debt of 50,000 Americans? Well, if you’re CommonSpirit Health, the largest Catholic health system in the U.S., this is what you paid your CEO Lloyd Dean in 2021”

(Note that story #8 in the 2023 Skreli countdown, about illegal dumping of homeless patients on the streets” in violation of California law, is more pertinent to this discussion.)

It’s not an issue-based nonprofit like AHF; it’s not even in California (Lloyd Dean) was based in Chicago), and there’s no tie to them taking the bonus money they use for resales to private firms at raised prices and using the difference for any purpose: good, bad or indifferent. This literally has no information relevant to the practice being attacked. It’s completely dishonest. There’s no reason to believe, based on this evidence, that a California non-hospital nonprofit has ever done anything wrong with this money — only that AHS has done something exactly right with it.

OK, OK — blatantly dishonest, conning voters, blah blah blah. But is there an actual lie in the ballot statement rebuttal? I think it was in the very first sentence: “When we have bad corporate actors that profit off public programs, the services our families rely on take a hit” … the lie being in the word “we.”

“We,” in this context, clearly means “Californians.” And “we” do appear to have a problem with abuse of this law. I say that because the examples they choose in California involve the law being used exactly as intended, to allow a nonprofit interested in promoting a social cause to get some extra money that they could use to supplement their services. (Again: the choice for AHF was between homeless people sleeping in the street and getting attacked and arrested, both at substantial social cost, and them being able to have a room of their own, albeit in an aging building.) And the “naming rights” issue was in Virginia and the excessive salary was being paid in Illinois. And there’s no reason to think that a nonprofit in California wouldn’t run afoul of existing laws if they tries to pay their CEO $13.5MM through these funds.

In fact, I feel quite confident that there are no examples of serious abuses of this law within California, for a simple reason: the CAA has more than ample resources for outstanding researchers — and they couldn’t even find one! If they could have found one, it would presumably be included here (say, instead of “naming rights.”

All that said, there is some appeal in preventing profiteering (even if profiteering doesn’t actually exist, and even if executive salaries are too high, although nothing like those routinely made by people who snuggle up to the wealthier side of the nonprofit spectrum.) So I didn’t make up my mind about this initiative until I read its section on penalties — which from what I can tell is flatly unconstitutional but which would have a chilling effect on those within these organizations — specifically the AIDS Healthcare Foundation — and on those pharmacists who buy medication from them. The intent seems to be to put their heads on spikes in a public square as a lesson to those who may ever want to mess with Landlords.

The problems begin in Section 14124.42 “Permanent Authorization for the Medi-Cal Rx Program,” which extends Executive Orders stretching back a couple of decades. This seems probably OK — but the lack of public discussion of this permanent action and its implications — I’ve seen exactly none — is disturbing. (Cui Bono?) Maybe the scary language above is all true — and somehow, to the extent its objectionable, not covered by existing law. (I doubt it.) But what made up my mind is that it enacts various career- destroying measures for people, non-profits, other companies, and contracts with pharmacists who do business with them. That seems extremely harsh, especially compared to penalties for misfeasance by landlords. But let’s presume for a moment that these steps are justified. There’s a bigger problem: This election won’t be certified until December 5, 2024, and these provisions — some of which reach back to actions taken in the preceding full calendar year! — take effect on January 1, 2025. Not January 1, 2026, which would allow people time to adapts before the “full calendar year” penalties kick in, but fewer than 30 days after the election is certified. That seems not only punitive, but full-on insane.

I only came upon these provisions while doing our endorsements on ballot measures. But it sure looks to me that this would be an unconstitutional ex post facto law — which the Legislative Analyst seems not to have considered, because it’s pretty well camouflaged — and on that basis alone I would oppose it.

So Now What?

Policy-wise

1. If there is any abuse to be seen here, it was come from nonprofit hospitals. (Specifically Catholic ones, but I don’t think we have to distinguish based on creed.) If voters (or the legislature wanted to create some reforms and limit them to non-profit hospitals, there may be some use to it. (Or not.) I don’t think we have to worry about the Kaiser hospitals in this regard, and if they do this at all they should be excused from limitations given support of the Kaiser Family Foundation.
2. The permanent enactment of the Governor’s Executive Order is a bad idea. We don’t know what might change in the future, and this is an excellent of something where we don’t need to require another ballot measure in order to amend or repeal it. That’s just bad political hygiene.
3. The operative date would need to change in order to avoid the ex post facto punishment problems noted above.
4. There are other issues that I won’t dwell upon here, including vagueness and federal preemption. I would also note that given that the legislative history is in the bill, these examples show that it is intended to address either foreign-based nonprofit hospitals (maybe ok?) or nonprofit who are acting to further the purposes of a federal program.
5. A non-inflammatory Legislative History next time out, please! And once that details actual abuses from within the state, not speculative ones.
6. No ulterior motives next time! In fact, maybe we can make something like this retroactively actionable. (OK, not really, but: “sauce for the goose is sauce for the landlord”!)
7. I’ll likely come up with more. They’ll be here.

Activism-wise

I can see why the Republican Party endorses this. For one, it’s sucking up to a well-funded donor group; beyond that, the boldness of the distortions likely appeals to MAGA Nation. But I can’t see any substantive reason, based on the reading I’ve done so far, why the California Democratic Party (CDP) and Democratic Party of Orange County (DPOC) took a pass on it.

Maybe CDP rules have changed to prohibit counyy parties from taking a position on state initiatives where the state party abstained, but I doubt it. If not, then it took both of them to get this result: the only way a DPOC “no recommendation” could come about under DPOC rules (as I remember them) is if the CDP refused to take a position, allowing county parties to make their own choices. And unless state party rules now actually prevent the DPOC from taking a position on a statewide initiative — and maybe CDP’s leadership there has gotten that despotic — then the DPOC actively chose to do likewise.

The ballot statement opposition to the proponents makes a persuasive case that this initiative was being used to silence an anti-AIDS nonprofit. as the Legislative Analyst (whose analysis I’ve only had time to lightly skim) notes that it would apply to a limited number of entities — I can believe that it’s as little as 1. I can’t imagine a rational why the DPOC wouldn’t stand up for them. (I can imagine an irrational reason, such as that one or more of the people writing and working to oppose this are left-wing critics within the party.

The only party I’ve left off the to-do list is you, the reader. I presume that Props 33 and 34 are both being absolutely dominated by CAA money. So it’s on us, and especially you, to try to appeal to the state CDP and county DPOC to get them off the stick and take a stand on this!

You can also send this article to local newspapers, TV stations, radio stations, and influencers throughout the state. Make a joyful noise and say: “I am a definite NO on 34!“