The California Hospital Association has filed a lawsuit against the state’s Office of Health Care Affordability, alleging the agency’s cost-control measures violate state law and threaten access to care.
The 99-page lawsuit, filed Oct. 16, accuses OHCA of exceeding its authority by rushing to impose hospital spending caps without fully considering the effect on patients, providers or the healthcare workforce. CHA alleges the office has ignored legislative mandates to protect care access, health equity, quality and staffing.
The lawsuit challenges five key OHCA actions, including:
- The establishment of a 3.5% statewide spending growth target for 2025, declining to 3% by 2029;
- The creation of a hospital sector;
- The formation of a hospital sector spending target equal to the statewide cost target;
- The criteria used to identify “high-cost outlier” hospitals; and
- Lower spending growth caps for those outlier hospitals — starting at 1.8% in 2026 and decreasing to 1.6% by 2029.
While OHCA is capping hospital spending at “unattainably low” levels, payers are raising consumer premiums by 10% or more annually — raising questions about the agency’s real impact on Californians’ healthcare costs, according to the lawsuit.
“The spending caps … could force cuts that result in many Californians traveling farther for care, facing longer emergency room wait times, experiencing more overcrowding, and losing access to critical services like maternity care, cancer treatment, behavioral health services and surgical care,” CHA President and CEO Carmela Coyle said in a news release. “OHCA has unfairly targeted hospitals without the necessary research and analysis. This has resulted in a handful of unelected individuals who have chosen to cut billions from California’s healthcare system, endangering access to healthcare in vulnerable communities across the state.”
CHA argues in the lawsuit that OHCA is racing to implement healthcare spending caps and disregarding “voluminous and complex information,” including:
- Rising costs tied to labor, clinical advancements and pharmaceuticals;
- A rapidly aging population requiring more complex care;
- Inflation at both the state and national level; and
- Policy changes — including the One Big Beautiful Bill Act — expected to strip tens of billions of dollars from California’s healthcare system over the next 10 years.
The lawsuit comes just months after OHCA voted to impose stricter caps on seven hospitals it identified as “high-cost outliers” — including Stanford Health Care in Palo Alto and Community Hospital of the Monterey Peninsula — prompting backlash from providers concerned about access, staffing and financial sustainability.
Matt Morgan, CFO of Montage Health, which operates Community Hospital of the Monterey Peninsula, told Becker’s the caps could cut up to $50 million in revenue by 2028. He warned the measures would force service cuts and delay physician recruitment — especially as wait times for care continue to grow.
“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 … 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.”
CHA alleges OHCA’s actions are arbitrary, lack transparency and violate state law by prioritizing cost-cutting over care access and quality. The association has asked the San Francisco County Superior Court to block OHCA from enforcing its “current “unattainable cost targets” and to require a revised, evidence-based process that includes stakeholder input and protects California’s healthcare infrastructure.
A spokesperson for OHCA told Becker’s that it does not comment on pending litigation.
