Office of Health Care Affordability (OHCA)

OHCA Background & Resources

Overview

In 2022, the California Health Care Quality and Affordability Act (SB 184, Chapter 47, Statutes of 2022) established the Office of Health Care Affordability (OHCA) within the Department of Health Care Access and Information (HCAI). Recognizing that health care affordability has reached a crisis point as health care costs continue to grow, OHCA’s enabling statute emphasizes that it is in the public interest that all Californians receive health care that is accessible, affordable, equitable, high-quality, and universal. 

OHCA has three primary responsibilities: slow health care spending growth, promote high value system performance, and assess market consolidation. OHCA will collect, analyze, and publicly report data on total health care expenditures, and enforce spending targets set by the Health Care Affordability Board. To ensure a balanced approach to slow spending growth, OHCA will promote high value system performance by measuring quality, equity, adoption of alternative payment models, investment in primary care and behavioral health, and workforce stability. Through cost and market impact reviews, OHCA will analyze transactions that are likely to significantly impact on market competition, the state’s ability to meet targets, or affordability for consumers and purchasers. Based on results of the review, OHCA will then coordinate with other state agencies to address consolidation as appropriate.  

Health care spending in California reached $10,299 per capita and $405 billion overall in 2020, up 30% from 2015. Californians with job-based coverage are facing higher out-of-pocket costs, with the share of workers with a large deductible ($1,000 or more) increasing from 6% in 2006 to 54% in 2020. For the third consecutive year, the 2022 CHCF California Health Policy Survey found that half of Californians (49%) – and fully two-thirds of those with lower incomes (under 200% of the federal policy level) – reported skipping or delaying at least one kind of health care due to cost in the past 12 months. Among those who reported skipping or delaying care due to cost, about half reported that their conditions worsened as a result. 

To create a sustainable health care system, the rate of health care spending needs to align with a target percentage, such as the statewide economic growth rate. An analysis of health care spending in California identified a range of contributors to high health care costs, including overtreatment and administrative complexity, and estimated that California could save between $58 and $73 billion per year by eliminating waste and improving efficiency. 

Laws and Regulations 

Health and Safety Code, Division 107, Part 2, Chapter 2.6, the California Health Care Quality and Affordability Act, describes the legislative intent and activities of OHCA. 

Title 22, Division 7, Chapter 11.5, Article 1 of the California Code of Regulations sets forth the regulatory requirements for Material Change Transaction Notices and Cost and Market Impact Reviews.

Resources 

Several non-profit, non-partisan organizations track health care costs and spending and affordability and produce information and analysis aimed at understanding this complex issue and developing solutions. Below is a partial list of resources. 

The OHCA Fact Sheet includes anticipated program activities from July 2022 through June 2028.   

Additional Information 

Role of the Health Care Affordability Board 

The Health Care Affordability Board (Board) is a decision-making body charged with setting the statewide and sector-specific spending targets, among other responsibilities. The Board has eight members: California’s Health and Human Services Secretary, the CalPERS Chief Health Director (non-voting), four appointees from the Governor’s Office, and one each from the Assembly and the Senate. Members may not receive compensation from health care entities.  

Other responsibilities of the Board include appointing a Health Care Affordability Advisory Committee; approving key benchmarks, such as statewide goals for alternative payment model adoption and share of spending dedicated to primary care and behavioral health; and approving the scope and range of administrative penalties and penalty justification factors to apply in enforcing the spending targets. 

Role of the Health Care Affordability Advisory Committee 

The Health Care Affordability Advisory Committee may make recommendations but does not have decision-making authority or access to non-public information. Advisory Committee members will be appointed by the Board, with representation to include consumer and patient groups, payers, fully integrated delivery systems, hospitals, organized labor, health care workers, medical groups, physicians, and purchasers.  

Data Reporting Entities  

OHCA’s first public reporting on total health expenditure data will be the baseline health care spending report, which will cover calendar years 2022 and 2023. For this report, payers (including health plans, health insurers, and Medi-Cal managed care plans) and fully integrated delivery systems  will submit data on total health care expenditures by September 1, 2024. As defined in statute, a fully integrated delivery system includes a physician organization,  health system, and health plan and meets several additional criteria (see HSC 127500.2(f)); Kaiser Permanente is the only health care entity that meets the definition.  

In 2023, in advance of the data submission deadline, OHCA will undertake an emergency regulations process, including obtaining input from stakeholders through regulations “workshopping,” and develop data specifications and guidance for submitters. OHCA will present the key findings of the baseline health care spending report at a public meeting of the Board and will release the baseline report by June 1, 2025.  

Following baseline health care data submission, it is anticipated that payers and fully integrated delivery systems will submit total health care expenditure data on an annual basis on a reporting schedule set by OHCA.  

Additional data will be needed for OHCA to implement the  legislation. When all legislative provisions are fully implemented, OHCA will monitor quality, equity, spending on primary care and behavioral health, adoption of alternative payment models, and workforce stability. Existing data from the Healthcare Payments Data Program, the Department of Managed Health Care, the Department of Health Care Services, Covered California and other sources will be leveraged to reduce the need for new data collection.   

Cost Growth Targets  

Historically, growth in health care spending has substantially exceeded overall economic growth in California. Without bringing health care spending growth down, spending on health care will continue to crowd out other important  investments by state and county governments and priorities in household budgets. A statewide health care spending target creates a clear expectation about an acceptable rate of growth. For example, Oregon’s annual target is 3.4% through 2025, then 3.0% annually for the next five years.   

Initially, California’s target will be set at a statewide level. The Board will set a cost spending target for each year, with consideration of multi-year targets to support long-term planning. The spending target percentage will consider economic indicators such as the gross state product, household income, and the consumer price index; targets may also consider population-based measures such as aging. The target-setting methodology may allow adjustments for relevant factors such as labor costs and relevant federal and state policy changes impacting covered benefits and provider reimbursement. The initial target will not rely on data submitted by health care entities, but subsequent targets and/or sector-specific targets may take such data into account.  

The Board will set the first statewide target, for 2025, by June 1, 2024. Progress against the target will be publicly reported in the first Annual Report to be released in June 2027. The 2025 target will not be subject to enforcement, and the results are for reporting purposes only; enforcement will begin with the 2026 target (for which results will be reported in 2028).   

The Board also may develop targets that apply to specific sectors, such as geographic regions, as well as targets specific to fully integrated delivery systems, types of health care entities and individual health care entities. The Board will define sectors by October 1, 2027, and set sector-specific targets by June 1, 2028.   

Who will be subject to the spending targets?   

All health care entities – payers, providers, and fully integrated delivery systems – will be subject to the spending targets, except for exempted providers. The Board will set the standards for exemption from statewide and sector-specific spending targets, considering factors such as annual revenue, patient volume, and high-cost outlier status in a geographic region or service line. Physician organizations with fewer than 25 physicians are exempt unless the practice is a high-cost outlier.

Ensuring that spending targets don’t lead to unintended consequences, such as wage cuts. 

The enabling legislation includes several provisions to guard against unintended consequences of cost targets. OHCA will track key elements of system performance, including quality, equity, workforce stability, adoption of alternative payment models, and investment in primary care and behavioral health.   

For example, OHCA is charged with monitoring health care workforce stability with the goal that workforce shortages do not undermine affordability, access, quality, equity, and culturally and linguistically competent care. By July 2024, OHCA will develop standards to advance the stability of the health care workforce. The Board may consider those standards in setting spending targets or in approving performance improvement plans. OHCA will also establish a process to adjust spending targets based on organized labor costs.   

Other key provisions include:  

  • OHCA will measure and publicly report on performance on quality and equity indicators, leveraging quality and equity metrics used by the Department of Health Care Services, the Department of Managed Health Care, and Covered California.   
  • The Board will set a statewide goal for adoption of alternative payment models that promote shifting payments from fee-for-service to payments that reward high quality and cost-efficient care. OHCA will measure progress towards the goal and adopt standards for alternative payment models.     
  • OHCA will measure and promote a sustained systemwide investment in primary care and behavioral health. The Board will adopt spending benchmarks for the percentage of total health expenditures allocated to primary and behavioral health care, and OHCA will measure and publicly report on performance against the benchmarks.  

If spending targets are not met.

Compared to other state health care spending benchmarking programs, California’s law provides stronger enforcement authority. The progressive stages of enforcement are intended to support health care entities to meet the spending targets, with increasing scrutiny of costs and performance improvement expectations, followed by financial penalties if cost growth does not come in line with the target. The specific steps outlined in statute are:  

  • technical assistance, such as analysis of drivers of health care spending or identification of best practices  
  • public testimony
  • a performance improvement plan
  • financial penalties “in amounts initially commensurate with the failure to meet the targets, and in escalating amounts for repeated or continuing failure to meet the targets.”  

The first enforcement period will be on the 2026 statewide spending target. Data collection will take place in 2027 and public reporting in 2028. Based on that timeline, the soonest enforcement actions can occur would be sometime in 2028.  

Cost and Market Impact Reviews 

Consolidation in California’s health care market is growing, with potential implications for cost, access, and affordability. In response, OHCA will monitor the impact of market consolidation on cost trends and will evaluate and review prospective transactions that could adversely impact competition and affordability in California’s market.   

Health care entities are required to provide OHCA with 90-day advance notice of material changes in ownership or governance such as mergers, acquisitions, and corporate affiliations.   

OHCA will decide whether to conduct a cost and market impact review or issue a waiver from the review. If the transaction or other material change is likely to have a significant impact on market competition, the state’s ability to meet cost targets, or costs for purchasers and consumers, OHCA will conduct a cost and market impact review. Upon completion of the review, OHCA will make its findings and issue a preliminary report.  After allowing affected parties and the public to respond to the preliminary report, OHCA will issue a final report. The transaction that triggered the cost and market review may not be implemented until 60 days after OHCA issues its final report. Based on the results, OHCA will then work with other state agencies to address market consolidation as appropriate.   

OHCA and the Healthcare Payments Data Program

The Healthcare Payments Data Program (HPD), housed at HCAI, is California’s All-Payer Claims Database (APCD). The HPD gathers claims and encounter data from the commercial market, Medi-Cal, and Medicare. The granular data available through the HPD supports detailed analysis of utilization and spending patterns; variation across payers, geographic regions, populations, and care settings; and investigation of drivers of health care spending such as inpatient services or prescription drugs.   

OHCA will track aggregate spending growth and assess the performance of health care entities against the cost growth target. It is anticipated that data will be submitted annually. OHCA will collect total health care expenditure data broken down by service category (e.g., hospital, physician services, prescription drugs, etc.). As in all states that have both a spending growth target program and an APCD, OHCA will require supplemental data submission to capture information not available in the HPD.  

OHCA and the HPD Program will collaborate on data collection and reporting to ensure efforts are complementary. For example, OHCA will rely on the HPD System for detailed analyses of drivers of health care spending. To the extent feasible, standards and measures for topics such as alternative payment models and primary care spending will align across the two programs.  

Stakeholder and Public Involvement 

Transparency and stakeholder engagement are central tenets of the enabling legislation and of OHCA. For example:  

  • Meetings of the Board and the Advisory Committee are public and  subject to the Bagley-Keene Open Meeting Act: agendas will be posted 10 days in advance, and materials and minutes will be posted following each meeting.   
  • Findings of the baseline report and annual reports will be presented by OHCA at a public meeting of the Board and public comment will be solicited.   
  • Proposed spending targets, both statewide and sector-specific, will be posted on OHCA’s website and discussed at a public meeting of the Board; the public then has 45 days to comment before finalization and adoption at a subsequent public Board meeting.   
  • Public in-person and virtual Workshops were held in 2023 for regulations regarding 1) data collection from payers and fully integrated delivery systems on total health care expenditures; and 2) development of the cost and market impact review program. 

Please see our Public Meetings section for more information.

Contact

Contact OHCA at ohca@hcai.ca.gov with any questions.

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