AIDS Healthcare Foundation, one of the region's largest AIDS organizations, overbilled the government $653,641 for AIDS drugs it dispensed to clients, the Los Angeles County auditor's office has concluded.
As a participant in a state program that provides free AIDS drugs to low-income and uninsured people, the foundation purchased medications at a federal discount rate and then was reimbursed by the county.
The problem, according to county auditors, is that over six months the foundation charged the county $653,641 more than it had paid for the drugs.
The county office of AIDS programs and policy "needs to recover the $653,641 overpayment from" the foundation, Assistant Auditor-Controller J. Tyler McCauley wrote in an Oct. 8 memo.
Nancy Delgado, acting director of the AIDS programs office, said she is consulting the county counsel and does not know what action her agency may take and did not want to comment further.
Disputing the auditor's findings, foundation Director Michael Weinstein said the markup was permissible under federal regulations.
"As of this time we do not consider we owe the county anything," he said, adding that if the county demands the money back, his organization will go to court.
"There's no such thing as a profit here," Weinstein maintained, saying that the markup funds were used to cover other medical and drug costs, including such pharmaceutical services as delivery of medications to clients.
The foundation bought the drugs as part of the state AIDS Drug Assistance Program, which disburses $90 million annually.
The program, funded primarily by the state and federal governments, has funneled the money to AIDS service providers through counties.
The state's contracts with counties clearly barred the kind of markup the foundation was making, said Wayne Sauseda, director of the California AIDS office. It "was never intended to provide a profit for organizations," he added. "The legal obligation in the contract was: If you get [the discount], that's what you get reimbursed at."
This is not the first dispute the foundation has been involved in over the drug program. Weinstein bitterly fought the state's move to centralize the program and unsuccessfully sued to block changes, which take effect today.
Under the new system, a single nonprofit agency will deal directly with pharmacies across the state, meaning that local AIDS organizations such as Weinstein's will no longer buy and dispense the drugs.
Weinstein insisted that centralization would hurt the program. Critics said he did not want to give up a program that was making money for his organization.
The foundation, which has an annual budget of $34 million, has been in a financial crunch in recent years, and a $653,641 IOU to the county would only make matters worse. "We would litigate it," Weinstein said.