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Board staff proposes penalties tied to excess spending, urges PIP milestones and adjustments for fiscal condition
Summary
OKA staff proposed penalties initially commensurate with the dollar amount a health entity exceeded its spending target, adjusted for factors such as fiscal condition and market impact; the board debated PIP milestones, rebasing concerns and fairness to rural or fiscally stressed providers.
The Office of Healthcare Affordability presented a proposed approach to financial penalties for entities that exceed their spending targets and fail to comply with approved performance improvement plans (PIPs).
Assistant Deputy Director CJ Howard summarized OKA’s recommended two‑step approach. "Step one is to calculate penalties initially commensurate with the degree to which an entity exceeded the target," he said. Staff described that calculation as the difference between the entity’s actual spending growth and what growth would have been had the entity met the target, then adjust that amount using statutory factors.
Using a sample of historical 2023 data, staff said that an "initially commensurate" penalty could range widely across entities — roughly from several million dollars at the low end to hundreds of millions at the high end — before applying adjustments for fiscal condition, investments (for example in primary care), market impact and state or federal law changes.
Board members pressed staff about PIP design and enforcement timing. Several members urged PIPs to include measurable interim milestones so staff can detect failure early rather than waiting two or more years for final results. "If there's a PIP milestone that isn't met in six months…penalties could occur at that point rather than waiting till the end of the two years," one member said.
Members also raised concerns about potential perverse incentives, such as cutting services or staff to meet short‑term targets, and emphasized the need for OKA to consider fiscal solvency and market concentration before imposing penalties that could threaten access. Public commenters ranged from labor and advocacy groups urging strict penalties to hospital and payer representatives who urged careful calibration to avoid jeopardizing access and highlighted volatility in hospital spending measures.
Staff said they will return with more detailed choices for penalty formulas and the treatment of repeated noncompliance, including how or whether to rebase entity targets when a PIP succeeds but leaves a higher baseline.
