Healthcare Affordability Board revisits hospital-sector target method after hospitals urge changes and warn on access

The Healthcare Affordability Board on March 12 reviewed staff follow-up on the proposed hospital-sector target methodology, presented additional hospital feedback and advisory committee input, and heard extended public comment from hospital officials, community representatives and unions.

Board staff said they met with more than a dozen hospitals and health systems to test options for identifying “disproportionately high-cost hospitals” and to consider measures that would justify a lower spending target for some facilities. Vishal Pagani, Deputy Director for the Office of Cost and Analysis (OCA), told the board, “By the end of this month, we plan to post an advance notice of emergency rulemaking for the regulatory proposal online,” and explained the Office would submit the package to the Office of Administrative Law for review.

Why it matters: the board is working to translate the statewide spending benchmark into sector- and provider-level signals that identify outlier hospitals whose prices or growth substantially exceed peers. Hospitals, public hospitals and county advocates argued the current proposals risk harming access to care in small and rural communities and urged the board to refine definitions, add thresholds for low-discharge facilities, and account for system-level finances.

Most of the board discussion focused on technical choices that determine which hospitals appear as “high cost,” including (1) whether to reinstate a discharge threshold to exclude very small facilities, (2) whether to evaluate operating margins at the system versus the facility level, (3) how to treat Medicare Advantage and capitation revenue, and (4) whether to add measures such as charity care, graduate medical education (GME) funding or seismic retrofit costs as contextual modifiers.

Board members pressed staff on data reliability and fairness. Ian Lewis (board member) said the role of health systems in the calculation was “striking” because systems can be used to argue opposite outcomes — either to spread fixed costs or to mask higher prices — and asked staff to return with a clearer approach. Staff described a case study with North Bay Medical Center, whose reported commercial revenue fell after 2021 when a new reporting firm reclassified Medicare Advantage receipts into Medicare categories; staff said they validated the shift and flagged the hospital’s plan to resubmit corrected prior-year filings.

Hospitals and public hospital groups asked for a narrower approach to enforcement. Representatives repeatedly warned that some small hospitals carry fixed costs that cannot be spread across many discharges and that workforce, local cost of living and union contracts materially raise operating costs. Dr. Candry Yee, Vice President of Hospital Operations at Barton Health, told the board: “We are not just a hospital. We're the sole provider of essential healthcare services for thousands.” Barton officials described Barton as a small, geographically isolated provider with a 63‑bed license, an average daily census of about 18 and outpatient growth they say they subsidize to preserve access; the hospital noted it plans more than $6 million in clinic expansion to add mental health and addiction services.

Advisory-committee input and data improvements: the OCA advisory committee generally supported the multi-measure approach but recommended additional geographic balancing and technical assistance. The advisory group favored the board’s approach to identify repeat outliers across multiple years (OCA’s current 3‑of‑5 rule was discussed) and suggested exploring rolling three‑year averages to capture recent trends. Several committee members urged OCA to study low-cost outlier hospitals as potential models for replication.

Public comment was extensive. Multiple rural and district hospitals, Dignity Health and other systems warned that aggressive targets could trigger service reductions or closures; union and consumer groups urged speed and called out wide price variation across counties. Small-business advocates described how steep premiums affect employers’ benefits decisions.

Where the board left off: staff recommended finalizing the hospital-sector definition in regulation to preserve the board’s option to set sector-specific target values later. CJ Howard, Assistant Deputy Director for Healthcare Spending Targets, summarized public comment submitted on the draft sector regulation as falling into two camps — those who said it was premature to single out hospitals and those who supported adopting a hospital-sector definition consistent with the statute and noted that inclusion in the sector does not automatically mean an entity will receive a different target value.

What’s next: staff said OCA will post the advance notice of emergency rulemaking, accept public comment, and submit the regulatory package to OAL. Meanwhile, the office will continue data-validation work and outreach to submitters to correct reporting anomalies and to explore adding non‑claims payments (capitation) to the Health Care Payments Database (HPD) to better measure total payments.

Ending: Board members repeatedly stressed the need to balance affordability objectives with stable access, particularly in rural and safety‑net communities. Several members pressed for additional data and clearer criteria before finalizing any facility‑level target values.