California can’t wriggle from AIDS Healthcare Foundation suit over canceled contract

LOS ANGELES (CN) — A federal judge on Thursday declined to dismiss a lawsuit by the nonprofit AIDS Healthcare Foundation over the state's intentions to end its contractual relationship with the foundation.

The decision to cancel the contract was only the latest step in an escalating feud between AIDS Healthcare Foundation, or AHF, and the state Department of Health Care Services. The nonprofit provides health care to more than 1.6 million patients in 45 countries, and calls itself the "largest provider of HIV medical care in the world." Much of AHF's $1.4 billion in revenue comes from government contracts.

The contract at the center of this lawsuit was for AHF to manage a health care plan for 825 Medi-Cal patients living with AIDS, for which it receives $1.4 million in reimbursements from the state every month. The contract is subject to periodic negotiations, and by 2021 those talks had grown acrimonious. According to a declaration by one California Department of Health Care Services administrator, AHF had "requested to expand their eligible beneficiary definition," had "demanded higher rates for its services, and repeatedly threatened DHCS with political retribution and litigation." AHF threatened to walk away from the contract, which would have ended a health care plan that had been around for 27 years.

In November 2021, AHF sent a letter out to the patients in the health care plan, telling them that there was a chance the plan could sunset in just a few months. It said the state had "been unable to offer AHF rates that are enough to cover the health care costs of" its members, despite years of "continuous budget surpluses."

"In other words, DHCS expects AHF to cover a substantial part of your health care out of its own pocket," the letter said, urging patients to call the department and voice "how you feel about its decision not to adequately fund the health care plan."

The state said the letter violated the terms of its contract, which said communications with its members needed department pre-approval. The state announced it would not renew the contract past the end of 2022, citing “serious breaches of its contracts in sending a notice of expiration to its members" as well as a “history of difficulties” with the controversial nonprofit.

AHF sued the department in September 2022, saying the letter to its patients was protected free speech. In November, Judge Frimpong issued a preliminary injunction keeping the health care plan alive pending trial.

"The department has acted as a bully, and shown a callous disregard for its patients in order to silence a critic," AHF founder and president Michael Weinstein told reporters after that ruling.

On Thursday, lawyers for the state argued the one-page letter, the crux of the lawsuit, wasn't just free expression — it was unauthorized communication that jeopardized the relationship between the department of health and its patients.

"There’s a trust factor," California Deputy Attorney General Kevin Quade told the judge. "We need to have patient trust." He added: "If AHF can use this trusted channel of communication that is set up by the department to communicate things that are not related to health care, it disturbs the patient trust that’s needed for a functioning system."

AHF's lawyer Andrew Kim dismissed that argument. "There’s no support for the notion that the department of health can dictate the way AHF interacts with its enrollees," he said, and wondered aloud what harm the letter had actually caused.

Judge Frimpong pushed back, telling Kim, "I don’t think it's irrational to say there is some information the department needs to convey accurately to patients, and that it would be disturbing if AHF communicated something wrong."

Nonetheless, in a ruling issued hours after the hearing ended, Frimpong denied the motion the dismiss.

"AHF has properly alleged that it was speaking on a matter of public concern when it sent its letter," Frimpong wrote in her 29-page ruling, "that it was acting in its private capacity when it sent its letter, and that the department’s declining to extend the contract because AHF failed to seek preapproval of the letter was not constitutionally permissible."

The ruling means that the case will survive, and could potentially go to trial.

"Judge Ewusi-Mensah Frimpong again upheld AHF’s right to speak up and urge action on behalf of the Positive Healthcare members we have been serving for decades,” said Weinstein, in a written statement.

AHF is no stranger to suing government entities. Throughout the 2010s, the foundation was perpetually at odds with LA County, fighting over a number of contracts and an audit which accused the nonprofit of overbilling. A lawsuit over the audit was dismissed in 2014, with the judge writing, “Rather than a sincere attempt to vindicate their First Amendment rights, the court fears that plaintiffs instituted this action in an effort to obtain a tactical advantage in their ongoing political battles."

AHF has also sued the city of Los Angeles over a plan to allow for more housing to be constructed, and the state of California over SB 10, which allows cities to do away with single-family zoning.

Follow @hillelaron

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