PROPOSITION 34

Restricts Spending of Prescription Drug Revenues by Certain Health Care Providers. 

A YES vote on this measure means: Certain health care entities would have to follow new rules about how they spend revenue they earn from a federal drug discount program. Breaking these rules would result in penalties (such as not being able to operate as a health care entity), generally for a ten-year period.

A NO vote on this measure means: These new rules would not go into effect.

Health care providers who serve low income and at risk patients have been getting a discount on pharmaceuticals which in turn they sell at retail prices. The profits made from the sale of the  pharmaceuticals can be used to expand their health care services. Prop 34 Requires certain providers to spend 98% of revenues from federal discount prescription drug program on direct patient care. Authorizes statewide negotiation of Medi-Cal drug prices.

Federal Drug Discount Program

Federal Program Provides Discounts on Drugs to Certain Health Care Providers. Under a federal program, drug makers provide discounts on their drugs to hospitals, clinics, and other providers. To qualify for these discounts, providers must meet certain rules. Eligible providers are public or private nonprofits that focus on serving low-income people. (These public and private nonprofits generally are exempt from paying taxes on their revenue.)

Providers Tend to Earn Revenue From Federal Discounts. Providers tend to earn net revenue from the federal drug discount program. They do so by charging payors of health care (such as private health plans and government programs) more than the cost to provide the drugs. However, providers generally do not earn net revenue on these drugs in Medi-Cal. This is because state law bans providers from charging Medi-Cal more than the discounted price of the drug.

Providers Decide How to Spend Revenue. According to the federal government, the intent of the federal drug discount program is to allow eligible providers to increase services and serve more low-income patients. Providers can do so by spending their net revenue on services to patients. Federal and state law, however, does not directly restrict how providers spend their revenue from federal drug discounts.