California Agency Cracks Down on High-Cost Hospitals

California’s Office of Health Care Affordability (OHCA) is shifting past broader policy-setting and into direct intervention on the supplier stage — a shift all hospitals and well being methods throughout the state ought to take severely. In abstract, California simply set strict price progress caps for choose hospitals — and all suppliers ought to be paying consideration.

On April 22, 2025, the Board voted unanimously to impose particular price progress caps on seven hospitals recognized as disproportionately costly based mostly on an in depth pricing evaluation. These services, concentrated in areas just like the Bay Area and Monterey Bay, should restrict their annual price progress to not more than 1.8% beginning in 2026, lowering additional to 1.6% by 2029. Hospitals that fail to fulfill these targets might face monetary penalties (as famous beneath, enforcement mechanisms are nonetheless beneath growth).

This motion builds on OHCA’s broader statutory mission beneath the Health Care Quality and Affordability Act: selling affordability by regulating each industrywide spending and materials transactions. See Cal. Health & Safety Code § 127500 et seq. Although a lot early consideration targeted on OHCA’s transaction evaluation authority, as we now have beforehand mentioned in our weblog, “California: AB 1415 and Expanded OHCA Oversight — What Providers, MSOs, and Investors Need to Know,” the true core of its mandate has at all times been to curb unsustainable well being care price progress throughout the state.

According to Board supplies, the seven hospitals have been chosen based mostly on a mixture of:

• Net affected person income,
• Prices paid by business insurers in comparison with Medicare, and
• Other price and market benchmarks.

Originally, 11 hospitals have been into consideration, however after supplier suggestions and enchancment submissions, the Board finalized the listing at seven. Enforcement mechanisms — together with potential penalties for noncompliance — are nonetheless being developed, with additional discussions deliberate for upcoming Board conferences.

Hospitals topic to the brand new targets argue that the caps are unrealistic given rising labor and gear prices and warn that service reductions might end result. However, OHCA officers emphasised that controlling price progress is vital to sustaining affordability for customers and defending public payers like Medi-Cal.

Why it issues for all hospitals:

This choice makes clear that OHCA’s work is now actively regulating supplier price traits. Even organizations not but straight focused ought to be monitoring their pricing and price progress carefully. The methodologies OHCA used on this motion might simply be utilized extra broadly in future enforcement rounds.

Health care suppliers in California ought to put together for an atmosphere the place price progress is not only a monetary concern — it’s a regulatory compliance situation, topic to direct scrutiny and enforcement.

Foley is right here that can assist you tackle the brief and long-term impacts within the wake of regulatory adjustments. We have the assets that can assist you navigate these and different vital authorized issues associated to enterprise operations and industry-specific points. Please attain out to the authors, your Foley relationship companion, or to our Health Care Practice Group and Health Care & Life Sciences Sector with any questions.