Governor Gavin Newsom’s California Budget for 2021-22 includes a proposal for a new Office of Health Care Affordability to be housed within the Office of Statewide Health Planning and Development (OSHPD).

The Office of Health Care Affordability will be charged with analyzing the health care market for cost trends and drivers of spending, creating a state strategy for controlling the cost of health care and ensuring affordability for consumers and purchasers, and enforcing cost targets.

The work of the Office will be guided by an Advisory Board comprised of experts that will advise on the key activities of the Office:

The Office will require reporting of total health care expenditure data, broken down by service category (e.g., hospital care, physician services, prescription drugs, etc.). This data will be supplemented with financial reports from providers and granular claims data from the emerging Health Care Payments Data System. The Office will publish an annual report in conjunction with a public meeting on health care spending trends and underlying factors, along with policy recommendations to control costs and improve the quality and equity of the health care system.

The Office will establish an overall health care cost target for changes in per capita spending in California, and have the ability to set specific targets by health care sector, including payers, providers, insurance market and line of business, as well as by geographic region. The targets will be based on established economic indicators.

The Office will progressively enforce compliance with cost targets, beginning with technical assistance and progressively increase to include testimony at public meetings, corrective action plans, and assessment of escalating financial penalties.

Because focusing on cost alone can have unanticipated consequences, performance on quality and equity measures will be reported for health plans, hospitals, and physician organizations, with special consideration of disparities in health care. Alignment with other payers and programs will be prioritized to reduce administrative burden and avoid duplication.

The Office will set a statewide goal for adoption of alternative payment models that promote shifting payments from fee-for-service to payments that reward high quality and cost-efficient care. The Office will measure progress towards the goal and adopt standards for alternative payment models that may be used by providers and payers during contracting. The standards will consider the current best evidence for strategies such as risk sharing arrangements and population-based contracts.

The Office will examine and analyze the role of the health care workforce and assist health care entities with strategies to implement cost-reduction strategies that do not exacerbate existing workforce shortages and promote the stability of the health care workforce.

Research has linked higher prices paid for health care services to increased market consolidation among health plans, hospitals, medical groups or physician organizations, pharmacy benefit managers, and other health care entities. The Office will increase public transparency, through cost and market impact reviews on transactions that may impact market competition and affordability for consumers and purchasers and work with other regulators to address them.