The California Office of Health Care Affordability adopted a 3.5% annual spending growth cap for hospitals and is imposing high penalties for hospitals, physician groups and insurers who exceed the cap, CalMatters reported.
Here is what to know.
1. Under the approved framework, the state caps annual spending growth at 3.5% until 2029, when it will drop to 3%. Some hospitals deemed “high cost” may face stricter limits. Over the last decade, health spending grew an average of 6% per year.
2. Seven hospitals have been deemed “high cost” and face stricter annual growth limits. One of these hospitals, Fremont-based Washington Health, will have its spending growth capped at 1.8%, before dropping to 1.6% in 2029.
3. The state is set to release enforcement guidelines in October, and hospitals can face fines in 2028.
4. Providers who miss spending targets will get technical assistance and complete a performance improvement plan. Fines will only apply if they violate the plan.
5. The framework allows the office to set penalties anywhere from 0% to 125% of the overage.
6. Hospital executives have been critical of the framework, noting they have little control over many costs. The California Hospital Association sued last year to block the spending cap and argued that the office “only focused on capping hospital spending, without ensuring its cost targets would not harm patients or the availability of hospital services.” That suit is still pending.
7. The California Association of Health Plans, which represents insurers, has also raised concerns.
“For this framework to succeed, it must distinguish between spending growth that can be addressed and spending growth driven by broader market and policy realities,” the group said in a statement. “Unfortunately, many critical questions were not answered, leaving great uncertainty and significant work ahead.”
At the Becker's 11th Annual IT + Revenue Cycle Conference: The Future of AI & Digital Health, taking place September 14–17 in Chicago, healthcare executives and digital leaders from across the country will come together to explore how AI, interoperability, cybersecurity, and revenue cycle innovation are transforming care delivery, strengthening financial performance, and driving the next era of digital health. Apply for complimentary registration now.
