Board adopts lower growth targets for selected high‑cost hospitals, adds annual reassessment and data correction path

The Health Care Affordability Board voted to adopt lower spending‑growth targets for hospitals identified as “high cost” under a staff methodology, and added an annual reassessment requirement and a mechanism to remove hospitals that show two consecutive years of improving relative prices.

The board framed the action as a step to reduce price disparities among hospitals and to protect household budgets. Secretary Kim Johnson moved the amended motion (motion 2 as presented by staff and amended during debate) and the board recorded five ayes; the motion passed.

What the board adopted

• Sector baseline: hospitals remain a distinct sector for target calculation; the hospital sector target equals the statewide spending target for most hospitals. The board retained the statewide spending target as the starting point for hospital performance.

• Identification of high‑cost hospitals: staff will designate hospitals as high cost using a two‑measure, five‑year lookback (2018–2022): commercial inpatient net patient revenue per case‑mix adjusted discharge (NPR/CMAD) and the commercial‑to‑Medicare payment‑to‑cost ratio (PTCR). A hospital is identified as an outlier if it is above the 85th percentile on those measures for at least 3 of the 5 years and meets a minimal commercial payer mix threshold and data comparability requirements in the annual financial disclosures. The board approved an amended motion that adds a discharge threshold (30th percentile) and a rule to remove hospitals that show two consecutive years of decreasing values and fall below the 85th percentile.

• Target values for high‑cost hospitals: staff presented adjusted, lower targets for identified high‑cost hospitals. The adopted adjustment reduces the statewide target for those hospitals to a range around 1.8% for 2026, 1.7% for 2027 and 2028, and 1.6% for 2029 (staff provided cost‑relativity calculations underpinning those values).

• Annual reassessment and corrections: the board added an annual reporting and reassessment requirement. Staff will publish each year an updated list of hospitals that meet the above criteria and the factors considered in identifying high‑cost hospitals. Hospitals may resubmit corrected annual financial disclosures if they believe filing errors occurred; staff said resubmissions may change subsequent assessments.

Why proponents supported the step

Consumer advocates and some board members urged prompt action. Beth Capell of Health Access California said higher commercial prices are the root cause of unaffordable care and urged the board not to delay. Public commenters told the board the same message: high hospital prices drive medical debt and high premiums, and immediate action is needed to protect families.

Why hospitals and some stakeholders opposed or urged caution

Hospital systems and trade groups said the staff methodology and the underlying data needed more validation and that targets could impair capacity, investments and workforce stability in communities that depend on those hospitals. Several hospital CEOs and system representatives described high Medi‑Cal shares, regional service responsibilities (trauma, NICU, specialty care), and capital needs like seismic retrofitting. Multiple hospitals asked for deeper inspection of payer mix, Medicare payment types and whether system‑level financing would be treated equitably.

Board discussion highlights

Board members emphasized urgency to protect households from rising premiums and medical debt while also asking staff to continue validation work and to incorporate outpatient measurement as it comes online. Members requested an annual review cadence so hospitals can demonstrate improved performance and be removed from the list if they show sustained improvement. Several board members said the adjusted targets were modest but represented a first accountability step; others said they wished the board could move faster.

Formal action (structured)

• Motion text (summary): Set the hospital sector spending target equal to the statewide target; identify high‑cost hospitals using staff methodology (2018–2022 NPR/CMAD and PTCR above 85th percentile for 3 of 5 years, commercial payer mix threshold, data comparability); apply a 30th‑percentile discharge threshold; exclude hospitals showing two consecutive years of improvement below the 85th percentile; set adjusted target values for identified high‑cost hospitals (about 1.8% in 2026, 1.7% in 2027–28, 1.6% in 2029); require annual staff updates of the high‑cost list and factor set.

• Mover / second: Mover — Secretary Kim Johnson (motion moved during meeting); second — not specified in public roll call.

• Vote record: Doctor Sandra Hernandez — aye; Secretary Kim Johnson — aye; Richard Kronick — aye; Ian Lewis — aye; Elizabeth Mitchell — aye; Doctor Richard Pan — aye. Outcome: approved (5 ayes recorded at roll call; motion passed per meeting record).

• Outcome notes: The board directed staff to publish updated lists annually; hospitals may resubmit corrected financial reports and staff will consider updated data in subsequent assessments.

Next steps and uncertainty

Staff will continue validation work, incorporate outpatient measurement when ready and report annually. The board and stakeholders acknowledged remaining questions about data attribution, proprietary versus open weight groupers for outpatient measures, and the near‑term fiscal environment (possible federal Medicaid changes). Staff said enforcement rules and the office’s process for reasonable factors that may justify exceeding targets will be developed in future rulemaking and public discussion.

Ending

The board’s vote starts an iterative process: it narrows the initial group of hospitals subject to lower target values and instructs staff to refine measurement, publish updates annually and continue stakeholder engagement.