Office of Health Care Affordability sets spending growth target

April 30, 2024

California’s Office of Health Care Affordability (OHCA) on April 24 voted to approve statewide health care spending growth targets. The OHCA board has been meeting monthly for over a year and was statutorily required to adopt a final spending target by June 1, 2024. After months of discussion, the board adopted a modified version of OHCA staff’s recommended target. Instead of beginning at the originally proposed 3%, the board adopted a phased in approach that gradually decreases the spending growth target from 3.5% in 2025 to 3% in 2029.

Specifically, the adopted statewide health care spending target starts at 3.5% for 2025 and 2026, moving to 3.2% for 2027 and 2028, and 3% for 2029.  While the phased in approach is not as aggressive as the original proposal, CMA pointed out that setting the target artificially low will ultimately negatively impact access to health care for Californians, particularly for communities that have historically lacked equitable access to quality health care.

OHCA was established in 2022 to set health care spending targets and address the most significant cost drivers and outliers in the health care system.

CMA provided oral and written comments on the original OHCA staff proposal, which would have set an annual spending growth target of 3% starting in 2025 and lasting five years. CMA urged OHCA to ensure that the cost of practicing medicine, as well as access and equity, were considered as it set the health care spending growth targets.

“The Center for Medicare and Medicaid Services projected that the increase in the Medicare Economic Index – the cost to practice medicine – will be 4.6% in 2024,” CMA Chief of Staff Janice Rocco explained to the OHCA board in February. “We need to consider, rather than ignore, the cost of providing health care when setting this target.”

The originally proposed spending growth target – 3% annually for five years beginning in 2025 – garnered substantial support during the written public comment phase. Those who commented in favor during April’s Board meeting were mostly individuals, but also included some unions and consumer health organizations. Fortunately, that proposal was not adopted.

The proposal that was ultimately adopted – put forth by OHCA Board Chair Mark Ghaly, M.D. – provides a less unreasonable phased-in approach, moving from a 3.5% target down to a 3% target over the span of five years. It passed 6-1 with OHCA Board Member Richard Pan, M.D., voting against it.

At future OHCA meetings, there will be additional discussions about the types of spending that might cause a health care entity to exceed the target. After significant advocacy by CMA and other health care organizations, there is an acknowledgment by board members that contextualization of a health care entity’s spending growth will in some cases prevent OHCA from proposing a performance improvement plan. Some of the factors under discussion include: 

  • Statutory changes impacting health care costs
  • Changes in Medicare and Medi-Cal reimbursement
  • Investments to improve care and reduce future costs
  • Acts of God or catastrophic events
  • Emerging and unforeseen advances in medical technology
  • Emerging high-cost / high-value pharmaceuticals
  • Cost increases related to specialty pharmaceuticals
  • Costs associated with increased organized labor costs
  • Annual changes in age and sex of the entity’s population
  • Changes in an entity’s patient base/acuity

CMA will continue to advocate against an artificially low spending target that will have real-life negative impacts on patient access and quality of care.  CMA will now shift our focus to monitoring the cost target’s impact on health care access, quality and equity, as well as the impact on the health care marketplace and market consolidation.

OHCA is also required to consider sector-specific targets for 2028. CMA will continue to be one of the leading voices participating in stakeholder discussions and provide the physician perspective as the board develops additional recommendations.


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