California healthcare cost penalties could reach 125%
California healthcare cost penalties could reach as high as 125% of the amount by which hospitals and other healthcare organizations exceed state-set spending growth limits under a proposal aimed at curbing rapidly rising medical costs.
The measure could apply to hospitals, medical groups and health insurers. However, critics warn that steep penalties could ultimately reduce access to care by forcing hospitals to cut services or close, potentially pushing healthcare costs even higher.
The board of Californiaβs Office of Health Care Affordability, or OHCA, is scheduled to vote Aug. 26 on proposed standards governing financial penalties for healthcare organizations that exceed state cost-growth targets. The rules are part of the implementation of SB 184, a state law enacted in 2022.
California healthcare cost penalties and spending targets
California began setting limits last year on annual per-capita healthcare spending growth, with a statewide target of no more than 3.5%. The state plans to gradually lower that ceiling to 3.0% by 2029.
Seven designated hospitals with particularly high healthcare costs face even stricter limits. Their per-patient spending growth is capped at 1.8% this year, with the threshold set to fall further to 1.6% by 2029.
Exceeding the target would not automatically trigger a financial penalty.
State officials would first consider factors including the severity of the violation and the financial condition of the healthcare organization. Institutions would generally be given an opportunity to take corrective action before a final penalty is imposed for failure to comply.
Under the proposed system, penalties could amount to as much as 125% of the spending above the state limit.
Hospitals warn of closures and reduced care
Hospital industry groups have strongly opposed the proposed enforcement system, arguing that excessive penalties could lead to declining quality of care, reduced medical services and even hospital closures.
California has already seen 17 hospitals close since 2016, while only six new hospitals have opened during the same period.
Hospitals say reimbursement rates from Medi-Cal and Medicare often fall short of the actual cost of providing treatment. They also face financial pressure from caring for uninsured patients, leaving them dependent on revenue from privately insured patients to make up the difference, the Los Angeles Times reported Aug. 24.
California joins other states seeking to curb medical costs
California is one of at least eight states that have adopted healthcare cost-growth targets.
Connecticut, Massachusetts, Oregon and Rhode Island are among the states that also have provisions allowing financial penalties for exceeding spending targets.
However, no state has yet actually imposed such a penalty.
