AHF: California Sued for Singling Out Safety Net Providers for Drastic Cuts while Favoring Rite Aid, CVS Chains

http://www.businesswire.com/news/home/20091109006726/en

Department of Health Care Services Breaks Federal and State Laws by Slashing
Medi-Cal Reimbursement Rates for Drugs Dispensed by AHF and Other Safety Net
Providers While Rates for CVS, Rite Aid and Other Giant National Pharmacy Chains
Go Untouched-and Remain Much Higher

As California Shifts Financial Burden to State`s Most Vulnerable Citizens,
Federal Court Action Seeks Injunction to Prevent State Bureaucrats from Using
Illegal Methods to Control Costs
LOS ANGELES--(Business Wire)--
AIDS Healthcare Foundation (AHF) has filed a federal lawsuit against David
Maxwell-Jolly, Director of the California Department of Health Care Services
(DHCS)seeking an injunctionto prevent implementation of a new state law singling
out nonprofit safety net providers-including AHF-forcing drastic Medi-Cal
(Medicaid) reimbursements cuts for drugs purchased by AHF clinics and other
safety net providers while favoring giant national for-profit pharmacy chains
including Rite Aid, CVS, Walgreens and others. The lawsuit was filed today,
Monday, November 9th, in United States District Court, Central District of
California, Western Division (case # CV-09-08199-R-PLAx). As California
continues to try and resolve its budget crisis while also meeting its state and
federally-mandated obligation to provide lifesaving health care services to its
most vulnerable citizens, AHF will host a press teleconference Tuesday, November
10th at 10:30am Pacific to discuss its lawsuit.

In its legal complaint, AHF asserts that, "the State of California
unfortunately, and illegally, has tried to address its budget woes by reducing
Medi-Cal payment rates to nonprofit, safety net medical providers, paying less
to these providers than it pays to for-profit businesses for the very same
services." The suit adds, "…the State has enacted a statute that (1) violates
both federal and State constitutional guarantees of equal protection, (2)
impermissibly intrudes on and is preempted by federal law specifically intended
to provide a financial benefit to nonprofit safety net providers like AHF, and
(3) violates federal law covering the Medicaid program."

What: Press Teleconference Call
California Sued Over Illegal Cuts to Medi-Cal Reimbursement Rates for Non-profit Pharmacies for Lifesaving AIDS & Other Drugs

When: Tuesday, November 10th 10:30am Pacific Time

Who: Michael Weinstein, President, AIDS Healthcare Foundation
Tom Myers, General Counsel, AIDS Healthcare Foundation
Brian Chase, Associate General Counsel, AIDS Healthcare Foundation

How: Dial in information +1.877.411.9748 participant code #7931503

Contact: Ged Kenslea, Communications Director, AHF: 323.791.5526 m 323.308-1833 w
Lori Yeghiayan, Associate Director of Communications, AHF: 323.277.4312 m

"The rate cuts that California has forced on Medi-Cal safety net providers will
cut lifesaving pharmacy services down to the bone for AIDS patients who depend
on us and other nonprofit providers for their lifeblood. At the same time, giant
for-profit pharmacy chains remain untouched, receiving much higher drug
reimbursement rates from California," said Michael Weinstein, AIDS Healthcare
Foundation President. "It is clear that like many states, California faces a
financial crisis of vast proportions. But trying to balance the budget on the
backs of some of our poorest and most vulnerable citizens by squeezing safety
net providers like AHF is not only illegal under state and federal law, it also
threatens the very existence of such nonprofit providers. A rate cut that
targets only 340B providers and rewards for-profit pharmacies threatens the
survival of critically important safety net providers such as AHF and similar
providers statewide."

California Assembly Bill X4-5: How the Reimbursement Cut for Safety Net
Providers Came About

California`s rate cut targeting nonprofit safety net providers like AHF was
signed into law on July 28, 2009, when, after the conclusion of the Fourth
Extraordinary Session of the Legislature (to address the state`s budget crisis),
Governor Schwarzenegger signed the Special Session Budget Bill and Assembly Bill
X4-5 (the Special Session healthcare trailer bill). The bill requires all 340B
participants such as AHF, "…to dispense only drugs purchased through the 340B
program to Medi-Cal beneficiaries," and "…requires 340B participants to bill
Medi-Cal only the participant`s actual acquisition cost for the drug as charged
by the manufacturer at a price consistent with the 340B program, plus a
professional fee set pursuant to Welfare and Institutions Code."

Due to recent statewide cutbacks and statutory changes, healthcare providers
have been steadily leaving the Medi-Cal program, making it progressively more
difficult for patients with Medi-Cal to find appropriate care and services.
Despite the exodus of health care providers from the program, the California
legislature has continued to enact laws that are likely to further reduce
provider participation in Medi-Cal. Assembly Bill X4-5 joins the ranks of such
laws.

"By enacting this law, the State has instituted a rate reduction in its
reimbursement for pharmacy services for service providers like AHF that
participate in the 340B program," said Brian Chase, Associate General Counsel
for AIDS Healthcare Foundation. "In a nutshell, the State is imposing price
discrimination on vendors for services. For one set of vendors, the State will
pay one price for drugs, and for another set of vendors, it will pay a different
price. The price discrimination resulting from this law harms nonprofits and
social safety net providers like AHF. For-profit pharmacies actually receive a
higher reimbursement rate, and thus receive higher revenues, than do 340B
participants. This violates the equal protection clauses of both the California
and United States Constitutions."

Background on the Federal 340B Program:

Reducing Drug Prices for Safety Net Providers in Order to Advance their Missions

The Veterans Health Care Act of 1992 created what is now commonly known as the
340B Program. A component of this Act requires drug manufacturers to provide
outpatient drugs to specific entities at a reduced price. For participating
entities, the reduced price affords an average savings of approximately 20% on
prescription drug purchases.

The entities eligible to participate in the 340B program are all, by and large,
nonprofit and governmental safety net medical providers, who primarily provide
medical care to low income and indigent people. AHF is able to participate in
the 340B program because it provides medical care to people with HIV/AIDS under
the Ryan White CARE Act, a federal program designed to provide care to indigent
Americans with HIV/AIDS.

Savings from the 340B program work in two ways. First, for entities that
directly pay for and distribute drugs, they are able to buy these drugs at a
lower price, and thus can either purchase more drugs to provide more services,
or utilize the savings to provide other services. Second, for entities that
purchase the drugs but are reimbursed by a third party (such as an insurance
plan), the 340B program allows for a larger difference between the purchase cost
and the reimbursement fee, which creates additional revenue for the nonprofit
entity.

340B participating entities are able to utilize the savings from drug purchases
in numerous ways that further their nonprofit and governmental missions as
safety net providers. Entities that participate in the 340B program most
commonly use the savings to:

* Increase the number of patients served;
* Offset losses from providing pharmacy services for less than full
compensation;
* Reduce prescription prices to patients; and
* Increase the services provided.

Medicaid, Drug Company Rebates and the 340B Program

Medicaid, the federally-funded, state administered program to deliver quality
health care services to low income participants currently serves more than 60
million enrollees nationwide, with over 6 million participants in California.
Given the size of the entire Medicaid program, most drug manufacturers want to
participate in the program and sell their drugs to this population.

Federal law allows 340B providers to either provide drugs purchased under the
340B to Medicaid patients, or to provide Medicaid patients with drugs purchased
on the open market. Giving safety net providers that choice allows them to
choose the option that best supports their nonprofit missions.

If a nonprofit chooses to provide 340B drugs to Medicaid patients, it must pass
the savings along to the Medicaid program. But if the provider uses non-340B
drugs and bills the Medicaid program at normal reimbursement rates, just like
Rite Aid or Walgreens is allowed to, the Medicaid program can still recover
savings because federal Medicaid law requires that drug manufacturers that wish
to have their products paid for by the Medicaid program must rebate to the
individual states a portion of the price of the drugs purchased for Medicaid
purposes. California already receives substantial rebates for drugs it buys for
Medi-Cal patients, so the new law won't save the state any real money, but it
will devastate safety-net providers.

"Although a state`s participation in the Medicaid program is entirely voluntary,
once California chose to participate-which it has done since the inception of
Medicaid in the 1960s-it must carry out the requirements of Title XIX and its
regulations," said Tom Myers, General Counsel for AIDS Healthcare Foundation.
"With this new state law, California is unconstitutionally interfering with the
carefully crafted Federal 340B/Medicaid drug reimbursement mechanism, and
causing great harm to AHF, many other safety net providers and the patients we
all serve."

In addition to its state and federal equal protection claims, and violation of
federal laws to benefit nonprofit safety net providers and govern the Medicaid
program, AHF is seeking declaratory relief asserting that, "…the restriction
that law places on safety-net pharmacies is invalid and in violation of federal
statutes, regulations, and guidance." AHF is also seeking an injunction to
prevent the implementation of the new California law.

AIDS Healthcare Foundation (AHF), the largest global AIDS organization,
currently provides medical care and/or services to more than 120,000 individuals
in 22 countries worldwide in the US, Africa, Latin America/Caribbean, the Asia
Pacific Region and Eastern Europe. www.aidshealth.org

AIDS Healthcare Foundation
Brian Chase
Associate General Counsel
+1-323-860-5223 [work]
brian.chase@aidshealth.org
or
Ged Kenslea
Communications Director
Los Angeles, CA, USA
+1-323-308-1833 [work]
+1-323-791-5526 [cell]
gedk@aidshealth.org
or
Tom Myers
General Counsel & Chief of Public Affairs
+1-323-860-5259 [work]
tom.myers@aidshealth.org

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