Welfare and Institutions Code section 14124.40
(a)
In 1992, the federal government established a program giving safety net health care providers access to discounted prescription drugs. The intent of the law was for safety net health care providers to use the discounted drugs to treat patients who are “medically uninsured, on marginal incomes and have no other sources to turn to for preventive and primary care services” and to “reach[] more eligible patients and provide[] more comprehensive services” to “low-income and most vulnerable patients.” (H.R. Rep. No. 102-384 (Part 2), at 12 (1992)(Conf. Rep.).) The program was not intended to be used by safety net health care providers to accumulate massive fortunes running into the hundreds of millions of dollars or more.(b)
Unfortunately, some safety net health care providers have manipulated the program to receive enormous markups on the discounted prescription drugs they receive and then stick taxpayers with the added cost. Instead of using this massive windfall to help patients, the worst offenders have used their fortunes to purchase luxury coastal condominiums, wasted hundreds of millions of dollars on failed political campaigns, put elected politicians on their payrolls, and acquired low-income multifamily housing complexes that are operated as slums. Abusing net revenues generated through the discount prescription drug program in this manner does not result in better health care for low-income patients. Instead, it cheats low-income patients out of the care they deserve and scams taxpayers who end up footing the bill.(c)
Governor Newsom has already ended this type of prescription drug scamming in the Medi-Cal program through Executive Order N-01-19, which requires the Department of Health Care Services to transition Medi-Cal pharmacy services away from arrangements that are susceptible to price scams. Known as the Medi-Cal Rx program, it achieves cost savings for prescription drug purchases made by the state, standardizes the pharmacy benefit statewide for all Medi-Cal patients, increases overall access, and eliminates the ability of prescription drug price manipulators to game the system through Medi-Cal. However, other vulnerabilities in taxpayer-funded drug programs that price manipulators still exploit have not yet been addressed.(d)
California needs to make the cost-savings achieved through the Medi-Cal Rx program permanent. Furthermore, additional reforms are necessary to protect taxpayer dollars and help the neediest patients by ensuring that prescription drug price manipulators are required to end other scams in order to continue operating in our state.
Source:
Section 14124.40, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=WIC§ionNum=14124.40. (updated Dec. 18, 2024; accessed Jul. 14, 2025).
