California’s Office of Health Care Affordability Board on April 22 voted unanimously to impose strict limits on cost growth at seven hospitals it identified as excessively expensive, according to documents obtained by Becker’s.
“The board’s unanimous vote is in response to two years of public testimony about high hospital costs and eight months of public discussion regarding the definition of a hospital sector, and the development of a methodology and target values for high-cost hospitals,” a spokesperson for OHCA said in an statement to Becker’s.
Under Draft Motion 3, OHCA will annually set the hospital sector spending target to match the statewide benchmark. The motion also outlines criteria for designating “high-cost” hospitals — including consistently ranking above the 85th percentile on Commercial Inpatient Net Patient Revenue per Case Mix Adjusted Discharge and Commercial-to-Medicare Payment-to-Cost Ratios for at least three of the past five years (2018–2022), having a payer mix threshold of at least 5%, and meeting volume and reporting requirements.
Initially, 11 hospitals met the high-cost criteria, but Marshall Medical Center in Placerville and NorthBay Medical Center in Fairfield were later excluded due to two consecutive years of declining cost metrics in 2021 and 2022. Earlier adjustments removed Barton Memorial Hospital in Lake Tahoe and Goleta Valley Cottage Hospital from the list due to their smaller size.
With these changes, the final seven hospitals identified by OHCA as “high-cost” are:
- Community Hospital of the Monterey Peninsula (Monterey)
- Doctor’s Medical Center (Modesto)
- Dominican Hospital (Santa Cruz)
- Salinas Valley Memorial Hospital (Salinas)
- Santa Barbara Cottage Hospital (Santa Barbara)
- Stanford Health Care (Palo Alto)
- Washington Hospital (Fremont)
Beginning in 2026, these hospitals must restrict the annual growth in costs charged to patients and payers to no more than 1.8%, with that ceiling tightening to 1.6% by 2029. Noncompliance could lead to financial penalties.
OHCA will update the list of qualifying high-cost hospitals and evaluation criteria each year.
The decision is the latest action by OHCA to enforce broader cost-control measures, following a 2020 report that pegged California’s healthcare expenditures at more than $405 billion.
In January 2025, the OHCA board unanimously voted to establish a hospital sector, allowing it to set a lower spending target for high-cost hospitals. The decision reflected concerns over hospitals accounting for about 40% of healthcare spending and significant cost variation across facilities. In February, OHCA responded by proposing a methodology to identify disproportionately high-cost hospitals and apply the reduced target accordingly.
The move has triggered significant backlash from industry leaders who fear the measures may threaten patient care and hospital solvency.
“Today’s decision by the Office of Health Care Affordability to impose deep cuts on seven hospitals will create alarming consequences for patient care,” Carmela Coyle, president and CEO of the California Hospital Association, said in an April 22 statement. “These cuts are coming on top of below-inflation spending caps for all hospitals that OHCA has already put in place. 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.”
Ms. Coyle also compared the board’s actions to proposals in Congress to cut federal Medicaid funding, arguing that both efforts jeopardize healthcare access.
“OHCA’s breakneck pursuit of cost-cutting — regardless of the impact on patient care — is in sharp contrast to state law,” she said. “The OHCA Board has leapfrogged over the three-year effort outlined in law that was intended to ensure a thoughtful, data-driven approach to making health care more affordable for all Californians without sacrificing access and quality.”
A key point of contention is OHCA’s methodology and the perceived lack of transparency. CHA sent two letters on April 11 opposing the board’s hospital sector proposal:
- The first letter denounces the proposal as “deeply flawed,” alleging it singles out hospitals unfairly and relies on questionable data.
- The second letter challenges the board’s premature definition of the hospital sector, urging a return to the statutory development timeline and a more inclusive process.
If OHCA does not finalize its proposals in April, it has until June 1 to adopt new targets for 2026. The next opportunity to take action would be the board’s May 27 meeting.
CHA is urging hospital leaders to voice their concerns — either through formal letters or public comment — in hopes of influencing the final direction of these policies.