April 26, 2024 | Tim Madden, Legislative Advocate

On Wednesday, the Office of Health Care Affordability (OHCA) Board voted to establish a statewide spending growth target rate for health care spending for health care entities over the next five years. The spending growth target rate will be phased in over time, initially starting at 3.5 percent for 2025 and 2026, the target will be lowered to 3.2 percent for 2027 and 2028 before ultimately reaching 3 percent for 2029 and beyond.

The spending growth target rate will apply to health care entities, including health plans, provider organizations (with at least 25 physicians) and hospitals. Beginning with the Calendar Year 2026 target, OHCA can begin taking progressive enforcement action against health care entities that exceed the spending growth target. Progressive enforcement approaches include technical assistance, requiring an explanation at public meetings, imposing performance improvement plans, and ultimately, if warranted, assessing financial penalties.

The Board also may develop targets that apply to specific sectors, such as geographic regions, as well as targets specific to fully integrated delivery systems, types of health care entities and individual health care entities. The Board will define sectors by October 1, 2027, and set sector-specific targets by June 1, 2028.

The spending growth target rate is based on the average growth rate of median household income from 2002-2022. The perspective from OHCA is that health care spending should not grow faster than the incomes of California families.

Over the past three months, the OHCA Board has been discussing the target rates and receiving feedback from various stakeholders. There have been numerous concerns raised about the use of median household income to determine the spending growth target. Ultimately the Board moved forward and approved the spending growth target based on median income.

It is important to note for 2025 there will be no penalties assessed as the Board wants to see the results and then potentially make adjustments. I recognize there may be a number of questions. This is a new effort for California in its’ pursuit of controlling health care expenditures and undoubtedly will face some bumps along the way.