Controversial AIDS Healthcare Foundation Investigated by California Attorney General Over Alleged Misuse of $1 Billion Pharmacy Proceeds
Second in a series
The controversial AIDS Healthcare Foundation, which has diverted more than $70 million of its budget to political campaigns favored by the nonprofit’s president, is the subject of an investigation by California Attorney General Xavier Becerra.
The investigation came at the request of California state Sen. Ben Hueso (D-Chula Vista), who in June 2019 asked Becerra to investigate whether AHF is fraudulently misusing savings from the 340B federal drug discount program to fund political campaigns unrelated to providing healthcare to the poor and vulnerable.
In a letter to Becerra, first reported by Politico, Hueso said the AG should determine whether the 340B cost savings “are being properly applied to California’s most vulnerable populations.”
Concerned about the new scrutiny, AHF President Michael Weinstein wrote Becerra on Sept. 3 and falsely implied that AHF does not profit from the 340B program. In reality, 340B is a cash cow that generates hundreds of millions of dollars of profit for AHF annually, money that is used to finance political projects unrelated to AIDS/HIV prevention and treatment.
For those of you unfamiliar with AHF, the group was created in the 1980s — when HIV was often a death sentence — and focused on providing comfort and dignity to those dying from AIDS. As the virus became treatable, the nonprofit transformed into a pharmacy business, selling life-saving drugs at a discount to public agencies. It was a lucrative change.
AHF makes more than $1 billion a year in sales from its global network of pharmacies. It purchases drugs through 340B, which requires pharmaceutical companies to sell drugs at a discount, on average about 35%, to providers that serve primarily poor patients. The law allows these pharmacies to be reimbursed for 100% of the usual wholesale price, creating a large profit for groups like AHF.
According to AHF’s Form 990 tax return with Internal Revenue Service, AHF recorded $1.03 billion in sales revenue through its pharmacies in 2017, on costs of $675 million. Those sales helped AHF stockpile $60 million in net income after all expenses. It finished the year with $322 million in net assets.
Money like this enables AHF to allocate tens of millions of dollars to political projects, such as rent control and other local measures. The nonprofit has pledged to spend tens of millions more to advocate for another California rent control measure in November 2020 — even though Gov. Gavin Newsom recently signed the nation’s most comprehensive rent control law last year. On June 8, AHF donated $10 million to the new campaign, bringing its total contribution to more than $15 million.
All of this begs to question, wouldn’t AHF’s wealth be better spent advocating for the prevention and treatment of HIV and AIDS instead of a personal vendetta by its owner?
The attorney general investigation comes amid increasing scrutiny of AHF in Sacramento.
Critics, including Gov. Newsom, have argued that the huge discounts in the 340B program are driving up the cost of drugs for middle-class consumers. That’s because pharma companies are forced to sell to these groups at a discount, and the companies make up for that by charging consumers higher prices.
“They’ve created a profit margin, which is only driving up the costs of prescription drugs,” Newsom said last year in an interview with Cal Matters. “So the model is faulty. So we’ve got to address that.”
As I wrote last week, California state Assemblyman Evan Low (D-Campbell) introduced a bill in Sacramento in May that would prohibit nonprofits from using revenue generated from contracts with Medicare and Medicaid and a federal drug discount program to support or oppose state or local ballot initiatives. Assembly Bill 1938 seems to have been written specifically to target organizations like AHF, which use their nonprofit status and tax benefits to their political advantage in violation of IRS regulations, according to a recent article on reason.com.
It’s clear that something needs to be done. AHF has lost its way and needs to either voluntarily shift its focus back to the healthcare needs of our most vulnerable population — or the government will do it for them.
Controversy Clouds Mission of AIDS Healthcare Foundation
Part 1: AHF Facing Scrutiny from State for Political Spending
Part 2: AHF Investigated by AG Over Alleged Misuse of $1 Billion Pharmacy Proceeds
Part 3: Coming Soon
About the author: Melvin Wood, like many in the LGBTQ community, believes the AIDS Healthcare Foundation has lost its focus under the tyrannical leadership of Michael Weinstein. Follow him on Twitter: @RealMelvinWood1
