SACRAMENTO — A California state senator has formally asked state Attorney General Xavier Becerra to investigate whether the powerhouse AIDS Healthcare Foundation is fraudulently misusing savings from a federal drug-discount program designed to help poor patients.
The request comes from state Sen. Ben Hueso (D-Chula Vista), who has urged an investigation into the politically powerful organization that has dumped upwards of $60 million into state ballot drives since 2012, according to Hueso’s letter obtained by POLITICO.
The senator’s concerns center on a somewhat obscure federal drug discount program known as 340B, which requires pharmaceutical companies to sell their drugs at steep discounts to participating hospitals and other providers that serve a significant percentage of indigent patients.
The providers, including the AIDS Healthcare Foundation, which operates more than 50 pharmacies nationwide, are then allowed to turn around and charge public programs like Medicaid and Medicare for the standard amount. The providers then use the difference to enhance staffing and provide services to help low-income patients.
But none of the savings reaped from 340B — or virtually any federal grant or funding program — can be used for lobbyingor any kind of political expenses.
“In 2006, AHF’s revenue was about $72 million, and in the organization’s most recent audited financial statement, AHF reported pharmacy revenue in excess of $1 billion,’’ according to Hueso’s letter dated June 13. “What is unknown is how much revenue comes from the 340B program.”
AHF spokesperson Ged Kenslea, who was unaware of the senator’s letter, said the 340B savings is used for patient care, HIV and other sexually-transmitted disease prevention efforts.
“We use the 340B funds for their intended purposes,” he said.
Kenslea noted that even with nonprofit restrictions, the organization is “legally permitted to spend a certain percentage” of its overall budget on lobbying, ballot measures and other political activities. “With a $1.6 billion budget, we do not come close to exceeding the threshold that is a legally permitted amount on that regard,” he said.
The organization, whose website says it currently provides services to 1 million individuals in 43 countries, claims to be the largest provider of HIV care in the world. It is headed by Michael Weinstein, who has since become known as the “CEO of HIV” — and whose critics have cited the organization’s aggressive political activism in dubbing him “the Koch Brothers of public health,’’ as a New York Times 2017 profile once noted.
The organization in June dropped $400,000 on an effort to put a rent control measure on the 2020 ballot that would affect residential properties over 15 years old, according to the California Secretary of State’s website. That effort will come before voters two years after AHF spent nearly $24 million on Prop. 10, another unsuccessful rent control effort.
Hueso said that an investigation by Becerra is warranted based on AHF’s own statements that the 340B program generates “impressive revenue” for the organization, and that its pharmacy division is “the overwhelming breadwinner” among AHF businesses, allowing AIDS to “advocate in any way we want, and say what needs to be said.”
Hueso in his letter complains that the organization has dumped tens of millions of dollars into measures that have fueled high-priced California ballot wars on a range of issues, a number of them unconnected with health care. Many clearly do not relate to Congress’ intent that 340B revenue be used “to stretch (scarce) federal resources as far as possible, reaching more eligible patients and providing more comprehensive services,’’ Hueso wrote.
He said the expenditures demand an investigation by the AG as to whether 340B benefits “are being properly applied to California’s most vulnerable populations.”
The measures backed by AHF in recent years have covered issues ranging from use of condoms in adult films to rent control and affordable housing development.
Hueso’s communications director Eric Hickey, reached by POLITICO, confirmed the letter, but said the Senator’s statements “speak for themselves” and that he would have no additional comment at this time.
A spokesperson for Becerra’s office said as a matter of policy, it could not confirm or deny an investigation.
It’s far from clear whether AHF, which has thrift stores, additional contracts and other funding sources, uses the 340B money to fund any political activities. But there’s some evidence that AHF may have been less than transparent about how the funds are used.
The foundation lost its ability to participate in Baton Rouge’s 340B program after the city asked for detailed financial documentation. AHF, which declined to provide it and cited federal patient-protection laws, sued for being dropped, but a federal judge recently sided with the city-parish.
The 340B program has become a hot-button issue in recent years because of its growth and size. The pharmaceutical industry has been calling for greater accountability for how the savings are being used.
Gov. Gavin Newsom has proposed a dramatic change in the way California purchases prescription drugs for Medi-Cal patients by having the state take over administration of that benefit to save hundreds of millions of dollars. But health clinics have sounded the alarm because the move could threaten their California-based 340B funding.
AHF has spent $76,000 in the first half of the year on lobbying various issues in Sacramento, including the governor and Legislature on “drug pricing,” according to state records.
Todd Nova, an attorney who specializes in 340B program and drug supply-chain issues for hospitals and safety-net providers, said it’s difficult for providers to show exactly how the money is being directed because the program is based on savings rather than revenue, and the money is fungible.
“But even if you can’t tie it dollar to dollar, you do still have to have appropriate documentation to demonstrate appropriate utilization of program income in the aggregate,” said Nova, who has no ties to AHF. “If it’s program income, it still has to be used appropriately.”
Under the leadership of Weinstein, AHF has morphed over more than three decades into not only a massive health care enterprise but a controversial political player that has raised eyebrows with its unusual “social enterprise” model. Weinstein was paid $432,828 in 2017, according to the organization’s tax form.
The nonprofit AIDS foundation’s main businesses include a network of clinics and a chain of 52 pharmacies in the U.S., as well as Out of the Closet thrift stores which generate about $1.5 billion a year in revenues. Those revenues help fuel the organization’s political activities, AHS has said.
But elected officials say its political efforts may cross the line, since many of the organization’s poor, elderly and indigent patients are reliant on government health care programs like Medicaid.
The Times profile reported that under Weinstein, “AHF has been the subject of near-constant litigation and complaints for questionable business practices, including union-busting, giving kickbacks to patients, overbilling government insurers and bullying funders into denying grants to institutional rivals,’’ accusations the organization has denied.
Among recent AHF political expenditures, campaign records show:
— $23.2 million backing Yes on 10, a failed rent control expansion measure on the 2018 ballot.
— $5 million on a failed 2017 Los Angeles ballot measure that would have restricted the building of apartment towers.
— $19.5 million in a failed effort to push Prop. 61, which only mustered 47 percent support. The 2016 ballot war prompted pharmaceutical manufacturers to drop $110 million on the matter, making the issue the focus of more spending than for any candidate for governor or Senate that cycle.
— $4.6 million on Prop. 60, a 2016 failed effort to require the use of condoms by adult film actors.
— $2.3 million for Yes on B in 2012, a Los Angeles-area effort to require the use of condoms for adult film actors.
— $17.9 million for the failed 2017 Ohio Issue 2, a drug price standards initiative that was almost identical the California’s Prop. 61.