By San Francisco Chronicle Editorial Board
On its surface, everything about Proposition 44 on California’s November ballot looks appealing.
Its title is straightforward: “Requires community health clinics spend 90% of revenue on program services.”
And the text of the measure boldly declares its intent to “ensure clinic patient service delivery and workforce stability is prioritized over management and overhead spending.”
Great. After all, these clinics, which are largely funded by taxpayers, provide low-cost or free care to uninsured and low-income residents in disadvantaged neighborhoods. Given the huge looming federal cuts to healthcare, why wouldn’t Californians vote to ensure limited dollars are spent on services for vulnerable patients, rather than administrative bloat or padding executives’ salaries?
Well, because Prop 44 will almost certainly make things worse for patient care.
The details are wonky, but you don’t have to dig deep to spot the farce.
Prop 44 would establish strict spending requirements for a subset of community health clinics known as “federally qualified health centers” run by private nonprofits that are already subject to extensive federal regulations. The measure would mandate these clinics spend at least 90% of their revenue on things related to their nonprofit “mission” — i.e., patient care — and a maximum of 10% on management and administrative expenses, including fundraising.
“We are just trying to ensure that when these federal health cuts really hit, that these clinics are ready and that they can stay open and operational for the people who need them,” rather than “spending money on extravagant fundraisers, on excessive executive pay,” Renée Saldaña, press secretary of Service Employees International Union-United Healthcare Workers West, the union that put the measure on the ballot, told the editorial board.
Yet Prop 44 creates a complex administrative and legal regime that will drain limited staff time and resources from these nonprofit clinics while distracting from patient care.
Under the measure, clinics that fail to meet the 90% ratio — which most currently don’t, according to the nonpartisan Legislative Analyst’s Office — will be fined the difference and ordered to pay the state Department of Public Health within 30 days. These fines and other fees will then be used to pay for the state’s enforcement of the measure — at a cost, the Legislative Analyst’s Office estimated, of tens of millions of dollars annually.
Clinics can lobby to get the money back by proving their compliance with the measure within five years. If they can’t comply, the state would use remaining penalty funds for programs supporting “clinical worker training, recruitment and retention.” To get a temporary waiver from Prop 44’s requirements, clinics would have to prove “unexpected or exceptional circumstances.”
That’s tens of millions siphoned from the most vulnerable patients in the state — right when they can least afford it with President Donald Trump’s healthcare cuts.
All this red tape is in service of solving a problem that arguably doesn’t exist.
Most clinics in California already appear to be using their funds responsibly. According to the Legislative Analyst’s Office, clinics report spending an average of about 80% of their revenue on healthcare services.
Where did the measure’s 90% benchmark come from? Was it born from industry best practices? Have other states used similar regulatory regimes to improve clinic outcomes?
No. Prop 44’s proponents made it up.
Declan Walsh, a senior analyst for the union, told us that Prop 44 was partially modeled on New Mexico’s medical loss ratio program, which requires insurance companies to spend 90% of their premiums on medical claims rather than administrative tasks.
That comparison, however, makes little sense. For-profit insurance companies don’t operate like nonprofit safety-net health clinics; for starters, insurers can invest premiums to boost revenue. (Those investment returns don’t count against the 90% cap in New Mexico.)
Meanwhile, administrative costs — like records management, human resource departments and office supplies — are necessary to keep clinics up and running.
Nor would Prop 44 necessarily curtail the type of spending that the union wants to limit.
Saldaña, for example, lamented the fact that AltaMed, which operates more than 60 community clinics in Southern California, “spent almost half a million dollars moving art from Europe in 2023.”
That number isn’t quite accurate — federal documents show AltaMed spent about $266,000 to purchase art from Europe in fiscal year 2022. AltaMed classified this spending as “program services” for “art as a holistic approach to healthcare.”
But that is seemingly permissible under Internal Revenue Service guidelines — which Prop 44 does not change. The IRS gives nonprofits considerable discretion in categorizing spending; it defines “program services” as “mainly those activities that further the organization’s exempt purposes” and notes this can encompass everything from lobbying governments to publishing magazines.
We agree with the union that some of those categories could be tightened to prevent abuses. Just last month, a watchdog group asked the IRS to investigate AltaMed for questionable spending that appears to disproportionately benefit the CEO and his family.
But Prop 44 wouldn’t meaningfully address those issues — that would require federal reform.
The measure does permit the California attorney general to “issue binding guidance” on how clinics can define “total program service expenses” and “total revenue,” but it’s unclear how that might interact with federal law.
And any tweaks to the IRS framework are bound to trigger legal battles, especially given the measure’s high stakes: It explicitly notes that any “director, officer or agent” of a clinic that knowingly misreports expenditures or revenues could face incarceration.
Amid this murky mess, Prop 44 could cause clinics to close.
Julia Liou, CEO of Asian Health Services, told us that she estimated Prop 44 could cost her Bay Area clinics, which serve more than 50,000 vulnerable residents, about $11 million a year — an impact even more devastating than that of the federal cuts.
Dozens of community health clinics and respected healthcare organizations — including the California Medical Association, American Academy of Pediatrics-California and the California Hospital Association — are opposed to the measure, citing its potential to irreversibly damage a critical component of the healthcare safety net.
So why is Prop 44 on the ballot, given that it will likely end up harming the very patients it claims to want to protect?
Because the measure’s sponsor, SEIU-UHW, and its leader, Dave Regan, have a long history of cynically leveraging marginalized Californians as bargaining chips.
This is the same union that sent California voters three ballot measures in six years to tighten staffing regulations at kidney dialysis clinics, all of which voters overwhelmingly rejected. The measures purported to be about protecting patient health but were transparently aimed at forcing the unionization of dialysis clinic workers.
According to reporting in Politico, Regan told Francisco Silva, head of the California Primary Care Association, which represents many community clinics, that he would drop Prop 44 if Silva agreed to let Regan unionize 25,000 clinic workers. (Regan denies this.)
Regan, who’s also behind Prop 40, the infamous billionaire wealth tax, has been shameless in trying to get his way. As the Chronicle recently reported, an independent investigation substantiated allegations from other union leaders that Regan had attempted to “extort” support for the billionaires tax and bullied and threatened those who questioned the measure’s effectiveness.
Voters should not reward Regan’s abhorrent manipulation of the ballot measure process, nor his willingness to use vulnerable patients as cannon fodder. They should reject Prop 44.