OCA advances hospital sector regulations and proposes adjusted targets for 11 high‑cost hospitals

The Office of Health Care Affordability presented its proposed hospital sector definition regulations and a recommended methodology for identifying disproportionately high‑cost hospitals and setting adjusted sector targets.

OCA staff said the proposed sector, drawn from Health and Safety Code section 12 50, would include general acute care hospitals, acute psychiatric hospitals, special hospitals, chemical dependency recovery hospitals and psychiatric health facilities. CJ Howard, “Assistant Deputy Director over the Healthcare Spending Targets branch within the office of healthcare portability,” briefed the advisory committee on the agency’s plan to submit the regulation package to the Office of Administrative Law this spring.

The board‑level policy matter matters because hospitals account for a large share of healthcare spending and the sector designation allows a tailored target‑setting approach. OCA also proposed a five‑step methodology to identify “repeat outliers” (hospitals above the 80th percentile on both a unit‑price and a relative‑price measure for 3 of 5 years, 2018–2022). Using commercial inpatient net patient revenue per case‑mix‑adjusted discharge (NPR per CMAD) and a commercial‑to‑Medicare payment‑to‑cost ratio, staff said the approach flagged 11 hospitals as repeatedly disproportionately high cost.

OCA recommended the hospital sector target start by default equal to the statewide spending target and that targets for the identified high‑cost hospitals be adjusted downward by a “cost relativity” factor. Under the example shown to the committee, a statewide target of 3.5 percent divided by an average cost relativity of 1.9 would yield an adjusted target of about 1.8 percent for that group of hospitals.

Public commenters and committee members pressed staff on details. Beth Capelle of Health Access said she backed the proposed regulation “defining all hospitals as general acute care as hospitals for the purpose of defining sector,” and added, “This includes Kaiser hospitals.” In contrast Ben Johnson of the California Hospital Association told the committee, “California hospitals oppose the establishment of a hospital sector at this time, given that it comes years ahead of schedule and, before OCA has done major pieces of due diligence,” and warned proposed targets could force service reductions at hospitals already reporting low cash reserves.

Committee members asked about measurement choices and next steps. Questions included how long‑term care or long‑term acute care beds are treated under the statutory definition; clarification that Kaiser system reporting is handled differently because statute treats fully integrated delivery systems separately; concerns about outpatient volume (committee members noted shifting care away from inpatient settings); and how capitation and Medicare Advantage payments are allocated in hospital financial filings. Staff said Kaiser facilities are included in reporting but were excluded from the high‑cost outlier analysis because comparable financial data were not available in the same form. Staff also said they will continue to meet individually with the 11 identified facilities and report back to the board on preliminary follow‑up work.

OCA opened a 45‑day public comment window on the target methodology (closing April 11), and the board has until June 1 to set 2026 targets. The advisory committee recommended additional regional checks, suggested a rolling recent‑years approach (for example a rolling three‑year window) and urged staff to include outpatient intensity measures over time.

Among next steps, OCA staff said they will: continue individual meetings with the 11 hospitals; investigate recent data anomalies at specific facilities; finalize the public comment summary; and return to the board with any proposed modifications before formalizing targets.