New state affordability office sets spending targets and a lower target for 7 high‑cost hospitals, drawing sharp questions from providers and lawmakers

Elizabeth Landsberg, director of the Department of Health Care Access and Information (HCAI), described the Office of Health Care Affordability’s approach to measuring and moderating health‑care spending growth for the Senate Budget Subcommittee No. 3. The office is charged with collecting spending data, reporting total health expenditures and enforcing targets the Healthcare Affordability Board sets.

What OCA proposed

- A statewide five‑year spending growth target adopted by the board: 3.5% in 2025, progressively decreasing to 3.0% in 2029. The board tied the target to median household income growth to link spending growth with what Californians can afford. - A sector‑target approach to identify “high‑cost” hospitals. HCAI’s initial methodology proposed hospitals in the 80th percentile across two measures (commercial unit price and commercial‑to‑Medicare relative price) for 2018–2022. That yielded 11 hospitals initially; after public deliberation the board finalized a list of seven high‑cost hospitals. - The board set a lower adjusted hospital sector target for those high‑cost hospitals: 1.8% in 2026, declining to 1.6% in 2029.

Why it matters

HCAI officials said hospital spending comprises a large share of total health costs (about 40% of total health spending) and that prices vary widely — HCAI told the committee that the seven high‑cost hospitals averaged roughly 400% of Medicare price on relative commercial‑to‑Medicare measures, compared to a statewide average near 200% for other hospitals.

Questions and concerns raised

Committee members and hospital representatives pressed the office on several fronts:

- Whether targets account for unavoidable cost drivers, such as seismic compliance (SB 525), workforce wage requirements, inflation and capital investments. Elizabeth Landsberg said these considerations have been discussed and that the board plans further conversations and possible adjustment factors in the fall. - How and when consumers would see relief. Landsberg said targets slow spending growth and are not an immediate mechanism to reduce premiums or out‑of‑pocket costs, though OCA will track and report premium, deductible and other affordability measures annually; a baseline report was due within a month of the hearing and further annual reporting is planned. - The board’s methodology and the potential for unintended access harms. Hospital and safety‑net representatives, including the California Hospital Association and public‑hospital systems, warned that the targets are being set before OCA has collected full data and that a subinflationary target could pressure hospitals to cut services.

HCAI statements and context

Landsberg emphasized the Office’s stakeholder process and the multi‑month deliberations that produced the sector‑target methodology. She said the board considered geography, types of entities and the relative price measures and that the final hospital list was pared from an initial 11 to seven after data review and conversations with hospitals. “The proposed adjusted target divides the statewide target by the cost relatively of the high cost hospitals,” she said.

Legislative perspectives

LAO staff and Finance representatives participated in the briefing; LAO analysts recommended legislative oversight and suggested alternatives for targeted affordability investments. Several senators questioned OCA staff about adjusting targets to reflect requirements like seismic upgrades, and asked for continued and timely reporting on consumer affordability metrics.

Ending note

HCAI said it will continue stakeholder engagement as the board develops enforcement and implementation policies and that the office will prepare annual public reporting to measure equity, quality and affordability alongside cost indicators. Lawmakers signaled they will maintain close oversight to avoid unintended service reductions or access problems for rural and safety‑net hospitals.