The Office of Health Care Affordability presented data and policy options for adopting sector targets for hospitals, prompting a sustained exchange between board members, staff and numerous public commenters from Monterey County who urged quick action to address what they described as disproportionately high local hospital prices.

CJ Howard, assistant deputy director for health care spending targets, described a two‑step rulemaking process: the board must first define sectors (to be codified in regulation) and then establish target values. Staff reviewed four illustrative hospital metrics for 2018–2022—average inpatient net patient revenue per case‑mix adjusted discharge (NPR/CMAD), annual growth in NPR/CMAD, operating margin, and average payment‑to‑cost ratios (third party vs Medicare)—and produced top‑30 lists and comparisons under alternative exclusions (critical access, psychiatric, children's, small, long‑stay, Kaiser).

The data showed wide variation across hospitals and metrics. Consultants noted that metrics measure different constructs—revenue per case, payer‑specific payment behavior, and cost coverage—so correlations across metrics were neither guaranteed nor straightforward. Board members flagged apparent outliers (e.g., facilities with extremely high payment‑to‑cost ratios) that may reflect reporting anomalies or special circumstances and asked staff to investigate data quality and volume trends (admissions and case mix) before setting targets.

Staff presented four options for near‑term action: (1) wait until the statutory schedule (initial sectors defined by Oct. 1, 2027); (2) define the three Monterey hospitals (Community Hospital of the Monterey Peninsula/CHOMP, Salinas Valley Memorial, and Natividad Medical Center) as a narrowly tailored sector; (3) adopt a rules‑based high‑cost hospital sector using quantitative inclusion/exclusion criteria; or (4) define all hospitals as a sector but allow individual target adjustments based on facility attributes and metrics. Staff recommended Option 4 if the board wants sector targets effective for performance year 2026 because it provides flexibility to adjust targets for specific hospitals while creating a hospital sector for rulemaking.

Public commenters strongly urged quicker action. Steve McDougall, representing local public agencies and schools, described a sudden spike in claims that doubled debt to his JPA and warned districts face cuts or unpaid invoices. Dr. Galvin (Salinas Union High School District) and teachers’ representatives described employer premium increases (one speaker cited a 12.47% premium jump for district employees starting Jan. 1, 2025). Multiple commenters asked the board to adopt Option 4 or otherwise move quickly to protect workers and employers from further cost shocks.

Hospital and system representatives cautioned against moving too fast, citing incomplete data, pandemic‑era financial pressures and the risk of unintended consequences for financially distressed hospitals. Staff said the office will continue to validate data, explore geographic and market‑level analyses (including county or market groupings), and return with target‑setting recommendations and enforcement approaches for board review.

Formal votes: the board voted earlier in the meeting to accept an amendment to the November minutes and passed that motion by roll call (4 ayes). No sector targets were adopted at this meeting; staff said they will return with more detailed recommendations and regulatory language if the board directs.

Next steps: staff will investigate outliers, refine measurement of inpatient/outpatient spending, consider geographic analyses, and develop proposed target‑setting parameters and enforcement processes for future board consideration.