California to end AIDS Healthcare contract, alleging improper negotiation tactics

California will no longer contract with the AIDS Healthcare Foundation to provide healthcare plans for hundreds of HIV-positive patients in Los Angeles County after the state accused the high-profile nonprofit of engaging in improper tactics during negotiations over rates.

The foundation and its controversial founder Michael Weinstein are a powerful political force in California, with the group bankrolling rent-control measures, challenging Los Angeles planning decisions and pushing statewide initiatives to lower prescription drug costs and require porn actors to wear condoms. Weinstein called the state’s move “pure retaliation” for his group’s push for higher rates.

According to the Department of Health Care Services, the foundation sent a letter to its healthcare enrollees last year alerting them that they would no longer be providing their care. At the time, the department was negotiating the monthly rate the state would pay AIDS Healthcare per enrollee. A department official said the state had no plans to end the contract at the time the foundation notified its members that it would stop providing care.

The letter allegedly stoked fear among the 770 HIV-positive patients AIDS Healthcare is contracted to care for, prompting the state to call the move an inappropriate negotiation tactic and contract violation.

“DHCS’ priority is to ensure the health and well-being of all Medi-Cal members, which is why we will not renew our Medi-Cal managed care contract with the AIDS Healthcare Foundation beyond the current contract end date of December 31, 2022,” said Michelle Baass, director of the state Department of Health Care Services, in a statement Thursday. “We will take all necessary measures to assist members as they transition to other plans, including maintaining continuity of care.”

AIDS Healthcare has 67 outpatient healthcare centers and 55 pharmacies in 17 states, including California, Florida, Georgia, New York and Texas, according to its most recent tax filings from 2019. Outside of the United States, the foundation operates more than 400 healthcare centers.

The state paid AIDS Healthcare $9.5 million in 2018-2019, the most recent year of records publicly available online. That year, the foundation was the only Medi-Cal provider that did not meet federal requirements that 85% of spending be on direct medical care for patients. The foundation dedicated just 66% of spending on patients where the statewide average was nearly 93% during the 2018-2019 fiscal year.

The bulk of the foundation’s $1.4-billion annual revenue is from pharmacy revenue, according to its nonprofit filings.

Weinstein said the foundation’s negotiations over increasing rates were going nowhere last year when AIDS Healthcare notified patients that they would end services at the end of 2021.

“They said we had scared the patients,” Weinstein said. “This is the bureaucracy caring more about the power to have providers jump when they say jump.”

The state said that the foundation could not unilaterally end the contract last year and negotiations over rates continued.

“The result of the controversy was higher rates,” Weinstein said. “We never wanted to end the contract. ... We have been subsidizing this plan to the tune of millions of dollars a year.”

AIDS Healthcare began with a narrowly tailored mission to provide end-of-life care to those dying of AIDS in the late 1980s, but its advocacy has expanded over the years. Now, AIDS Healthcare is one of the biggest — and most controversial — nonprofits, having branched to housing and several other areas. The litigious group is the subject of a mountain of lawsuits.

Weinstein’s firebrand style of advocacy prompted one longtime Los Angeles County supervisor to call him a “thug.”

“Their approach is burn down the house, take no prisoners,” said Steve Maviglio, a Democratic political consultant who served as spokesperson on campaigns that opposed statewide ballot measures that AIDS Healthcare supported.

“They will do anything to get their way,” added Maviglio, who filed a complaint against the group this month to the Fair Political Practices Commission. Maviglio alleges that AIDS Healthcare did not report a campaign expenditure in which he said the foundation hired people to protest outside his home in 2020.

AIDS Healthcare has a long track record of challenging Los Angeles officials on planning decisions. The group has spent years attempting to block multistory real estate projects in Hollywood and elsewhere, filing lawsuits and launching public relations campaigns.

The foundation has used the ballot box to attempt to alter housing policy in California, spending millions in 2018 and 2020 on initiatives to expand rent control throughout the state. Voters decisively rejected both efforts. It sponsored Measure S, a 2017 ballot initiative aimed at halting approvals of new high-density development in Los Angeles for two years. Backers said it was needed to stem gentrification, but voters knocked it down by a wide margin.

The foundation has also lobbied against proposals in the statehouse to bolster California’s housing supply, including several written by state Sen. Scott Wiener, a San Francisco Democrat who advocates for changing zoning regulations to allow for multi-family projects.

The foundation opposed a 2019 bill to compel local governments to allow for more apartment buildings and other dense housing construction near transit and job centers, which failed, and then fought against a modified version of the proposal last year. After Newsom signed the amended measure, Senate Bill 10, AIDS Healthcare sued to block its implementation, alleging that it allows local governments to override initiatives passed by voters.

In December, the foundation also filed a lawsuit following the Los Angeles City Council’s release of its so-called Housing Element, a planning blueprint that local officials crafted to add hundreds of thousands of new homes over the next eight years. The group alleged that the city violated environmental regulations when it approved its plan and would create more gentrification and displacement of vulnerable people.

AIDS Healthcare also clashed with Los Angeles city and county officials over audits that found that the nonprofit overbilled the county for HIV/AIDS-related services in 2011 and 2012 and incorrectly charged the county for services it should have paid for using other funding sources in 2008 and 2009.

Lawsuits stemming from those audits were dismissed in Los Angeles Superior Court. In one of those lawsuits, the foundation argued the audit findings were a form of retaliation for its outspoken views on policies the county did not agree with. A judge dismissed that case in 2014, finding that the foundation sued “to obtain a tactical advantage in their ongoing political battles” with the county.

Times staff writers Hannah Wiley in Sacramento and Laura J. Nelson in Los Angeles contributed to this report.