Hospital leaders are sounding the alarm over California’s latest cost-control measures targeting “high-cost” hospitals as concerns mount over the potential effects on patient access, physician recruitment and financial viability.
On April 22, the California Office of Health Care Affordability Board voted unanimously to cap spending growth at seven hospitals it identified as disproportionately expensive. Beginning in 2026, those hospitals would be required to limit annual growth in total patient and payer costs to no more than 1.8%, with the cap tightening to 1.6% by 2029. Failure to comply could lead to significant financial penalties.
The seven hospitals designated by OHCA under its “high-cost” methodology are:
- Community Hospital of the Monterey Peninsula
- Doctor’s Medical Center (Modesto)
- Dominican Hospital (Santa Cruz)
- Salinas Valley Memorial Hospital
- Santa Barbara Cottage Hospital
- Stanford Health Care (Palo Alto)
- Washington Hospital (Fremont)
These hospitals were selected based on their cost metrics between 2018 and 2022, including high commercial net revenue per adjusted discharge and commercial-to-Medicare payment-to-cost ratios, along with payer mix and volume criteria. The designation is part of a broader statewide initiative to rein in healthcare expenditures, which exceeded $405 billion in 2020.
Leaders at affected hospitals argue that the spending restrictions could have devastating consequences for care delivery — particularly in communities already facing physician shortages and long wait times.
“Montage Health is deeply disappointed in OHCA’s deep rate cuts, especially in the light of massive spending limits being suggested by the federal and state governments,” Matt Morgan, vice president and CFO of Montage Health, the parent organization of Community Hospital of the Monterey Peninsula.
Montage projects a $16 million revenue reduction in 2026, rising to $33 million in 2027 and nearing $50 million by 2028 as a result of the new caps. Mr. Morgan warns that such steep cuts — layered atop wage inflation, rising supply costs and new tariffs — will ultimately reduce access to care and curtail essential services.
“Our ability to recruit physicians to meet the community demand will be stressed, and we’ve already had to restrict key new recruits,” he said. “This comes at a time when some of our large physician group specialists and primary care providers have wait lists three to ten months to see a patient. We will continue to seek ways to lower the cost of care for Monterey County, and through an affordability initiative and direct employer contracting have been able to do so.”
While OHCA argues the cuts are necessary to combat unsustainable spending and wide cost variation, providers are skeptical of the broader benefits — particularly for patients.
“Lowering hospital charges does not guarantee that consumers/patients will see any reduction in their premiums or out-of-pocket expenses,” Mr. Morgan said. “OHCA has not developed safeguards to ensure that savings generated would be passed on to consumers in the form of lower premiums and cost sharing, rather than retained by payers as higher profits. While growth in hospitals’ patient care resources would be capped at around 1.7% growth, health insurance company premiums will be allowed to grow at twice that rate, further boosting insurers’ profits.”
The California Hospital Association has taken a firm stance against OHCA’s plan, arguing that the board has moved too quickly, ignored statutory timelines and failed to ensure a transparent, data-driven process.
“These cuts are coming on top of below-inflation spending caps for all hospitals that OHCA has already put in place,” said Carmela Coyle, president and CEO of CHA. “Make no mistake — the hospital care Californians receive is now being decided by a handful of unelected people who are cutting billions of dollars from your healthcare.”
The CHA submitted two formal letters on April 11 opposing OHCA’s high-cost hospital methodology — one questioning the quality and fairness of the underlying data, and another criticizing the board for prematurely defining the hospital sector before completing the required public development process.
Ms. Coyle compared OHCA’s decisions to federal proposals to reduce Medicaid funding, warning that both efforts could jeopardize care quality and access — especially in underserved areas.
OHCA has until June 1 to finalize spending targets for 2026. The next opportunity for public comment and policy revisions will be at the board’s May 27 meeting. Until then, hospital leaders are being urged to continue submitting formal comments and engaging in the rulemaking process.
