November 5, 2024 Ballot Prop. 34

Proposition 34: Restricts Spending of Prescription Drug Revenues by Certain Health Care Providers. Initiative Statute.

Protect Patients Now Act of 2024

Summary

Proposition 34 (Prop. 34) is a citizen-initiated ballot measure. There are two key components to this proposed law.  

Prop. 34 will make Governor Newsom’s Executive Order N-01-19​  a state law that requires all state agencies to negotiate for lower drug prices as a single entity, also known as the Medi-Cal RX Law.  This law authorizes the state to negotiate Medi-Cal drug prices on a statewide basis. Prior to 2019, Medi-Cal paid for the cost of prescription drugs in different ways. In 2019 when the governor issued the executive order, the state adopted a single approach called “Medi-Cal Rx.” 

The other aspect of Prop. 34 is to regulate how certain health care providers in California spend their revenue from a 1992 federal drug discount program (i.e. the 340B Drug Pricing Program).

“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.” (LAO, Prop. 34 2024)

This aspect of Prop. 34 would apply only to health care providers that 1) participate in the federal drug discount program; 2) have (or has ever had) a license in California to operate a  pharmacy, health care service plan, clinic, or has had certain contracts with Medi-Cal or Medicare; 3) spent over $100,000,000 in any ten-year period on anything other than direct patient care; and 4) operated multifamily housing reported to have at least 500 high-severity health and safety violations. Prop. 34 categorizes these health care providers as “prescription drug price manipulators”.

Prop. 34 will require this category of healthcare providers to spend 98% of their revenues from the federal discount prescription drug program on direct patient care.(Cal. Code of Regulations, Title. 22, § 97700.17 defines “direct patient care” as the provision of health care services directly to individuals being treated for, or suspected of having, physical or mental illnesses. Direct patient care includes preventive care. The first line supervision of direct patient care shall also be considered "direct patient care.")

If this category of healthcare providers violate the provisions, Prop. 34 imposes the following four penalties for a period of ten years:  1) they will lose their tax-exempt status; 2) they lose their licenses to operate health insurance plans, pharmacies, and clinics in the state; 3) the cannot receive state and local government contracts or grants; 4) the leaders of these healthcare providers cannot serve in leadership roles in a California health plan, pharmacy, or clinic.

Fiscal Impact

The California Legislative Analyst estimates that there will be few entities that meet the conditions of Prop. 34; thus most likely resulting in limited statewide fiscal effects. 

One potential increase would be for state enforcement of the new restrictions, that could be in the millions of dollars. These costs would be covered by charging fees on the healthcare providers who violate the requirements.

Medi-Cal Rx likely saves the state money because Medi-Cal pays for drugs at more discounted prices.

What your vote means

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.

Non-partisan Voter Information

Ballotpedia

CalMatters

California Prop. 34 Explained

Explicación de la Proposición 34 en las elecciones de California de 2024 (video)

League of Women Voters Easy Voter Guide, p. 9

KQED

Project for an Informed Electorate Sacramento State, Prop. 34 PIE Initiative Explainer (video)

Public Opinion Polls

Berkeley IGS Poll - Public Policy Institute of California Statewide Survey, Sept. 2024

Public Policy Institute of California Statewide Survey, Oct. 2024

Pro/Con Statements