In 2022, the California Health Care Quality and Affordability Act (SB 184, Chapter 47, Statutes of 2022) established the Office of Health Care Affordability (OHCA) within the Department of Health Care Access and Information (HCAI). (Health and Safety Code, Division 107, Part 2, Chapter 2.6). Title 22, Division 7, Chapter 11.5, Article 1 of the California Code of Regulations sets forth the regulatory requirements for Material Change Transaction Notices and Cost and Market Impact Reviews.
A lawsuit filed this week in San Francisco County Superior Court by the California Hospital Association (and its membership of about 400 hospitals) alleges that the California Office of Health Care Affordability’s (OHCA) board, what the Association claims is “a group of eight unelected bureaucrats,” has raced to implement health care spending caps while ignoring critical factors, including:
– – The underlying costs of care (labor expenses, advancements in clinical care, pharmaceutical prices, etc.)
– – A rapidly aging population that will require more intensive care
– – National and statewide inflationary pressures
– – State and federal policy changes, such as passage earlier this year of the One Big Beautiful Bill Act, which will strip tens of billions of dollars from California’s health care system over the next decade
The California Hospital Association asks the court to prohibit OHCA from implementing five actions, effectively requiring the board to revisit:
– – The creation of a 3.5% statewide spending target for 2025, declining to 3% by 2029
– – The adoption of a hospital sector
– – The adoption of a hospital sector spending target equal to the statewide cost target
– – The adoption of criteria for identifying supposed “high-cost outlier” hospitals
– – The adoption of reduced spending targets for the “outlier” hospitals, starting at 1.8% for 2026 and declining to 1.6% by 2029
“Since its inception, OHCA has continually flouted both the letter and spirit of the law that created it,” said Carmela Coyle, President & CEO of the California Hospital Association. “Lawmakers intentionally established a multi-year time frame for OHCA – to ensure its board engaged in a thoughtful, data-driven approach to making health care more affordable without sacrificing access to care, quality of care, health care jobs, and more. Yet, the office’s illegal and breakneck pursuit of cost-cutting – regardless of the impact on patients and workers – has now put vital health care services for all Californians at risk.”
According to the lawsuit, the Legislature’s intent was clear: “OHCA’s work to improve health care affordability must promote, rather than come at the expense of, health care access, equity, and quality, and the stability of the health care workforce.”
Instead, it alleges that OHCA has rushed to establish hospital spending targets while ignoring “voluminous and complex information,” according to the lawsuit. OHCA has “relied on incomplete and at times faulty data” in establishing “improperly-focused, and unattainable cost targets, which neither consider the actual factors that impact hospital costs nor are constructed to actually ensure consumer affordability,” the lawsuit states.
The lawsuit alleges that actions taken to date by OHCA officials are “arbitrary and capricious,” contain repeated violations of state law, and do not ensure that savings from the imposed cost targets “would be passed to consumers in the form of lower premiums and cost sharing, rather than simply being retained by payers as higher profits.” While OHCA has targeted hospitals with “unattainably low” cost targets, health insurance companies are increasing the premiums paid by consumers by 10% or more each year – calling into question the agency’s actual impact on the pocketbooks of working Californians.
“The spending caps set by politically appointed bureaucrats could force cuts that result in many Californians traveling farther for care, facing longer emergency room wait times, experiencing more overcrowding, and losing access to critical services like maternity care, cancer treatment, behavioral health services, and surgical care,” Coyle said. “OHCA has unfairly targeted hospitals without the necessary research and analysis. This has resulted in a handful of unelected individuals who have chosen to cut billions from California’s health care system, endangering access to health care in vulnerable communities across the state.”