A San Francisco judge has tentatively kept alive the California Hospital Association’s (CHA) challenge to the state’s caps on hospital spending growth, rejecting — at least for now — the state’s argument that hospitals cannot sue over the caps until they are actually penalized for exceeding them. San Francisco County Superior Court Judge Joseph M. Quinn issued the tentative ruling ahead of a Wednesday, September 9, 2026 hearing on the state’s demurrer to CHA’s second amended complaint; because the ruling is tentative and Judge Quinn took the matter under submission after argument, it is not yet a final order, and this account of the court’s reasoning is drawn from Courthouse News Service’s report of the hearing rather than the tentative ruling itself, which was not independently available.
CHA, which represents roughly 400 California hospitals and health systems, sued the Office of Health Care Affordability (OHCA), its parent Department of Health Care Access and Information, Director Elizabeth Landsberg, and the Health Care Affordability Board on October 15, 2025, in a verified petition for writ of mandate and complaint for declaratory relief filed in San Francisco County Superior Court, Case No. CPF-25-519370.
The original filing challenges five OHCA actions: a statewide health care cost target starting at 3.5% annual growth in 2025 and 2026 and declining to 3.0% by 2029; the creation of a hospital-specific “sector” subject to that same statewide target; and a further, stricter target of 1.8% declining to 1.6% by 2029 for seven hospitals OHCA designated as “high-cost.” OHCA was created by the Legislature in 2022 under the California Health Care Quality and Affordability Act, Health and Safety Code section 127500 et seq., and is tasked with slowing health care spending growth while maintaining access, quality, equity, and workforce stability.
CHA’s petition argues the cost targets are inconsistent with that statutory mandate, arbitrary and capricious, and violate the takings and due process clauses of the state and federal constitutions; it separately argues the criteria OHCA used to identify “high-cost” hospitals amount to an underground regulation adopted without following the state’s rulemaking procedures under the Administrative Procedure Act. CHA’s petition states the targets are “arbitrary and irresponsible cost targets that single out hospitals” and projects that if the targets stand, more than 75% of California hospitals would operate at a loss, forcing layoffs and cuts to services including labor and delivery, mental health, and trauma care.
Enforcement of the 2026 targets technically began January 1, but the state has represented in court filings that actual monetary penalties are likely years away, since OHCA must first collect and analyze a full year of spending data and then work through a multi-step notice, waiver, and appeal process before any sanction could be imposed.
The state moved to dismiss the suit by demurrer, filed December 15, 2025 by the Attorney General’s office on OHCA’s behalf, arguing primarily that CHA’s member hospitals lack the “beneficial interest” needed to sue because no hospital has been penalized, or shown it will be penalized, for exceeding a cost target; the state’s brief called any such injury “too imaginary or speculative” to support standing.
The state separately argued CHA should not be permitted to sue on a “public interest” theory instead, and that the petition fails to plausibly allege the targets were arbitrary and capricious given OHCA’s multi-year public rulemaking process. According to Courthouse News’ account of Wednesday’s hearing, Deputy Attorney General David Houska pressed the standing argument, telling the court that CHA’s asserted harms remain hypothetical and that even a successful lawsuit might only produce a similar or higher target on remand. Judge Quinn reportedly rejected that framing, characterizing the harm CHA alleges not as the numerical targets themselves but as the product of an allegedly unlawful process for setting them — telling the state’s counsel, as Courthouse News reported, that “the problem is not with the number 3.5” but with OHCA’s alleged failure to weigh the factors the Legislature required, and that hospitals’ operational impacts from that allegedly unauthorized rate do not depend on waiting for a formal enforcement action.
For employers in the health care and insurance industries, the litigation matters regardless of how the standing question is ultimately resolved: a ruling allowing the case to proceed keeps in play CHA’s broader claims that OHCA’s rate-setting methodology, and its process for designating “high-cost” hospitals, did not follow the statutory criteria the Legislature imposed — claims that, if successful, could force OHCA to redo target-setting work that commercial payers and providers have already begun building into contract negotiations. Judge Quinn gave no indication of when a final ruling will issue.