OCA recommends adjusted growth targets for 11 ‘high‑cost’ hospitals; opens 45‑day comment period

OAKLAND/Monterey — The Office of Health Care Affordability on Feb. 25 recommended a methodology and specific adjustment steps to set lower allowable spending‑growth targets for hospitals the agency identifies as “disproportionately high cost.” The agency said it will publish a statute‑required memorandum and opened a 45‑day public comment period ending April 11, 2025, before the Board must set targets by June 1, 2025.

OCA staff told the Health Care Affordability Board the office would identify repeat outliers using two metrics and a persistence rule: commercial inpatient net patient revenue per case‑mix‑adjusted discharge (a unit‑price measure) and a relative‑price measure (commercial to Medicare payment‑to‑cost ratio). Staff proposed labeling hospitals that are above the 85th percentile on both measures for at least 3 of the most recent 5 years as disproportionately high cost. Those hospitals would be eligible for an adjusted, lower growth target than the statewide target.

Staff presented the underlying numbers the office used to compute a combined “cost relativity” for the group it identified. For the 11 hospitals staff flagged as repeat outliers, the pooled weighted average commercial inpatient net patient revenue per case‑mix adjusted discharge was roughly $40,200 versus about $20,200 for other comparable hospitals (a 2.0 relativity). For the commercial‑to‑Medicare payment‑to‑cost ratio the pooled averages were roughly 350% for the outliers and 200% for other hospitals (a 1.8 relativity). Averaging the two relativity values produced a combined relativity of 1.9, which staff used to scale the statewide target for the identified group.

Using that combined relativity as the adjustment factor, staff calculated proposed adjusted growth values that would apply to the identified hospitals if the Board adopts the recommendation: a 1.8% allowable growth rate for 2026, about 1.7% for 2027–28 and about 1.6% for 2029. Staff also presented a stylized projection showing that, at those slower growth rates, the outlier group would converge toward the 80th percentile value in roughly 20 years under the modeled assumptions.

The Board did not vote on targets on Feb. 25. Chair Sandra Hernandez and staff framed the recommendation as the beginning of a formal rulemaking and public comment process. The Board opened the 45‑day comment period (ending April 11, 2025) and noted staff will return with final recommendations before the statutory deadline to set targets in June.

Public commenters at the meeting and on the phone included hospital executives, trade groups, patient advocates and labor representatives. Hospital speakers and trade associations warned the proposed adjustments would threaten access in communities with high Medi‑Cal and Medicare shares and cited high capital and operating costs (for example seismic retrofit requirements and local wage levels). Salinas Valley Health, Scripps Health, Dignity Health, Cottage Health, Stanford Health Care, Marshall Medical Center and other hospitals urged staff to consider health system‑level finance, payer mix, capitated Medicare Advantage accounting, and recent improvements when identifying outliers. Community advocates, labor unions and health‑care affordability groups urged prompt action and supported the staff approach as a way to begin curbing what they described as excessively high provider pricing.

Staff told the Board they will continue one‑on‑one meetings with hospitals to collect additional feedback in March and planned follow‑up Board and advisory‑committee briefings. OCA staff emphasized the methodology is modifiable after public comment and that exclusions apply to noncomparable entities (for example, Kaiser facilities and certain long‑term state hospitals as listed in Health and Safety Code §1250 or where submitted data are not comparable). The office said it will not apply a separate “discharge” size cutoff after hearing hospital input.