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Affordability board defines hospitals as a sector, directs staff to craft target methodology
Summary
The state Office of California Health Care Affordability voted to designate hospitals as a distinct sector so the board can set sector-specific spending targets. The board asked staff to return with a methodology and target proposals, while debate focused on metrics, Kaiser reporting, and protecting access.
The Office of California Health Care Affordability voted to define hospitals as a health-care sector, a procedural step that lets the board set hospital-specific spending targets separate from the statewide target. The board approved the motion by voice vote, 6 ayes, 1 absent.
The designation does not itself set a numeric target. Staff told the board they will return with recommended methods and proposed target values for discussion at the February meeting, publish a 45‑day public comment period, and seek formal adoption before the statutory deadlines for sector work later this year.
Why it matters: Hospitals account for a large share of state health spending and for significant variation in prices across California markets. Defining hospitals as a sector lets the office apply methods tailored to hospital inpatient and outpatient spending and to adjust requirements for facilities the office determines are “disproportionately high cost.” Supporters said acting now balances urgency for relief with time to refine measurement; opponents urged more analysis before special rules are created.
Staff presentations summarized two candidate price measures used in analysis: inpatient commercial net patient revenue per case‑mix‑adjusted discharge (NPR per CMAD) and a commercial‑to‑Medicare payment‑to‑cost ratio. Board members and advisory committee members raised concerns about each measure’s limitations, the need to avoid misclassifying hospitals with atypical payer mixes (for example, safety‑net or specialty hospitals), and the potential for small hospitals to generate volatile averages.
Board discussion emphasized process and transparency. Board member Richard Kronick urged speed and clarity: “This seems like a no brainer. I mean, hospitals are a sector.” Several members and public commenters pressed staff to include Kaiser hospital data at the hospital level where available and to examine system‑level payments when hospitals are part of larger integrated organizations. Staff said HCAI currently collects some facility‑level Kaiser reporting beginning in 2021 and will extend analysis as more Kaiser data become available. Staff also said they will consider system‑level context when reviewing individual entity performance as part of any enforcement or performance improvement process.
The board asked staff for clearer thresholds and measures for deciding which hospitals would merit an adjusted, lower target and for options on how long any adjusted target would apply. Staff presented three identification options for “disproportionately high‑cost” hospitals: repeat outliers by unit price (commercial NPR per CMAD), repeat outliers by relative price (commercial to Medicare payment‑to‑cost ratio), or hospitals that are repeat outliers on both metrics. Staff showed the sensitivity of each approach (different percentile cutoffs yield between about 5 and 23 hospitals identified as outliers, depending on thresholds and volume filters).
Staff reiterated schedule and next steps: staff will return with a recommended methodology and proposed target values in February, open a 45‑day public comment period, and seek any regulatory adoption necessary to implement targets. Staff noted statutory timing: the board must define initial healthcare sectors on or before Oct. 1, 2027, and establish sector targets by June 1, 2028, though the board may move earlier, as it did by defining hospitals now.
Votes at a glance: The board’s formal vote to define hospitals as a sector passed 6–0 with 1 member absent. The minutes and other procedural items were approved earlier in the meeting (see separate actions). Staff will return with a detailed target‑setting proposal and values for Board consideration in February.
Looking ahead: The board’s action opens a formal, public rulemaking and comment cycle on hospital target methodology and on any adjustments for individual hospitals or hospital groups. Staff signaled it will engage advisory stakeholders and publish comparisons that include Kaiser facility data as more years become available.
