Late last month, California’s Office of Health Care Affordability (OHCA) established a statewide hospital sector, an expected vote that now enables the OHCA board to impose stricter spending targets on hospitals as soon as 2026.
As a reminder, the statewide health care spending target of 3.5% in 2026 holds spending for health care services to a maximum of 3.5% growth. This is problematic in and of itself, as health care spending nationwide is growing by as much as double that.
In addition to creating this new sector, the board discussed options for identifying “high-cost” hospitals, those that could be among the first targeted with a maximum growth rate of less than 3.5%. Early OHCA thinking on a list of high-cost hospitals is subject to change, but the board appears favorable toward identifying high-cost hospitals that fall in the top 10%-20% on both of two measures:
- Commercial reimbursement
- The degree to which a hospital’s commercial reimbursement covers its costs to a greater extent than Medicare does
Spending targets of around 1.7% are being considered for these hospitals, though some OHCA board members have called for them to be even lower.
In both written and verbal comments, CHA pushed back against the rush to adopt a hospital sector, the approach for identifying high-cost hospitals, and the spending target levels under consideration.
This hasty approach to actions that will move more money in California in a single year than the entire state Legislature or Congress is being undertaken without any analysis or consideration of the unintended consequences it will have.
OHCA has not analyzed the impact of its decisions on patient access to care. It has not examined the current capacity challenges for hospitals, where some emergency departments have dozens of patients flooding the halls, waiting for hours to be seen. It has not considered the need to invest in primary care and behavioral health services to actually reduce the cost of health care.
To offer an analogy, if this was a conversation about reducing the cost of housing, the direction the OHCA board appears to be taking is that the answer lies entirely in paying less to carpenters and electricians. Addressing housing affordability is much more complex — as is the issue of health care affordability.
In this case, Californians could see their health care services throttled in real time in a matter of months.
In February, OHCA staff will propose methods to determine which hospitals are “high cost” and what the spending targets will be. To set a lower sector spending target for at least some hospitals in 2026, OHCA’s board must take formal action by June 1.
The OHCA board is moving fast and has singled out hospitals as their target. And we’ve got your back. We will bring all the information, analysis, and critically important storytelling needed to ensure this board, the Legislature, and the public understand the serious impact these proposals have on access to, and the quality of, hospital care.
