With its goal of curbing uncontrollably high health care costs, California’s Office of Health Care Affordability is up against an enormous challenge.
The agency was founded in 2022 with the intention of improving health outcomes while lowering costs and increasing accessibility to care, particularly for the state’s most impoverished citizens. That will need an extended wrestling battle between powerful industrial players who have a great deal of experience fighting the state and each other, and a vast, frequently dysfunctional health system.
Can the new body work with hospitals, medical groups, and insurers to control costs while they compete for market share in the $405 billion health care industry in the state? Is it possible to change the system in a way that places more of an emphasis on paying for high-quality treatment rather than charging astronomically high fees for an almost infinite number of services and procedures?
The case is still pending and may remain thus for some time.
After Connecticut, Delaware, Massachusetts, Nevada, New Jersey, Oregon, Rhode Island, and Washington, California is the eighth state to establish yearly expenditure caps on health care.
The first state to implement yearly expenditure objectives was Massachusetts, which did so in 2013. Its outcomes are inconsistent, and it’s the only one that is ancient enough to have a significant pre-pandemic track record: For three of the first five years, the yearly growth in health spending fell short of the target and below the national average. However, in recent years, health spending has skyrocketed.
The growth in health care spending in 2022 was much higher than Massachusetts’s target. “There are many alarming trends which, if unaddressed, will result in a health care system that is unaffordable,” issued a warning from the state organization called the Health Policy Commission, which was set up to supervise the attempts to restrict spending.
Despite an existing regulation that restricted hospital price increases, neighboring Rhode Island exceeded its objective for overall health care spending growth in 2019, the year the legislation went into effect. The epidemic mainly impacted spending in 2020 and 2021. The state’s target rate of spending rise was just half achieved in 2022. Conversely, Delaware and Connecticut both exceeded their 2022 goals.
All of this is still a work in progress, and California’s agency will mostly be winging it when it comes to state laws and demographic realities that demand higher health care costs.
And since it deals with excessively high costs, pointless medical procedures, excessive use of expensive care, administrative waste, and the inflationary consolidation of an increasing number of institutions into a small number of hands, it will unavoidably encounter resistance from the sector.
According to Michael Bailit, head of Bailit Health, a Massachusetts-based consulting firm that has provided advice to numerous states, including California, “if you’re telling an industry we need to slow down spending growth, you’re telling them we need to slow down your revenue growth.” “And perhaps that will be seen as “we need to limit your margins.” These are really challenging talks.”
Several of the biggest players in California’s health care industry have expressed disapproval of the newly established affordability agency, without directly opposing its objectives.
The California Hospital Association addressed the affordability office a letter in April stating that hospitals “stand ready to work with” the agency, even as it considered setting an annual per capita expenditure growth objective of 3%. However, the group contended that the estimated figure was far too low because it ignored expense constraints such as California’s aging population and additional Medi-Cal investments.
The hospital group recommended a five-year aim for average spending increases of 5.3% over 2025–2029. That is marginally more than the average annual growth in per capita health spending throughout the five-year period from 2015 to 2020, which was 5.2%.
The affordability board approved a somewhat less ambitious aim that begins at 3.5% in 2025 and decreases to 3% by 2029, five days after the hospital association issued its letter. The association’s chief executive, Carmela Coyle, stated in a statement that the board’s choice still did not take into consideration the aging population, the rising demand for addiction and mental health services, and the workforce scarcity.
Similar worries were voiced by the California Medical Association, which represents physicians in the state. “Less unreasonable” than the initial plan, the revised phased-in aim was said to be, but the group would “continue to advocate against an artificially low spending target that will have real-life negative impacts on patient access and quality of care.”
Let’s give the state some credit, though, for this. It’s difficult to dispute with the mission’s ambitious goals, which include bringing in some financial justification and helping millions of Californians who would otherwise have to skip necessary medical care or cut other crucial household expenses in order to pay for it.
After suffering a miscarriage, 38-year-old Sushmita Morris of Pasadena was taken aback by the bill she received for an outpatient treatment at the University of Southern California’s Keck Hospital last July. Morris claims that the treatment took exactly thirty minutes, and she paid the doctor’s bill—which came to be little over $700. However, she was responsible for more than $4,600 of the over $9,000 hospital bill that eventually arrived.
Morris tried to get an itemization of the charges by calling the Keck billing office several times, but he was not successful. “I got a robotic answer, ‘You have a high-deductible plan,'” she continues. “But I should still receive a bill within reason for what was done.” She expects to hear from a collection agency shortly because she has declined to pay the bill.
A lot of obstacles and unanticipated occurrences will stand in the way of achieving more affordable health care, necessitating a great deal of flexibility.
There is some inherent flexibility. For starters, health care facilities, industry groups, or geographical areas that can demonstrate their unique circumstances warranting more spending—such as older, sicker patients or significant increases in labor costs—may be exempt from the state cap on spending increases.
A performance improvement plan will be implemented as the first step for individuals who surpass the limit without providing a valid reason. If that fails, the affordability office may, at a later date, impose financial penalties equal to the entire amount by which an organization surpasses the goal. However, considering the time lag in data gathering, discussions with individuals who surpass the objective, and possible improvement plans, that is unlikely to occur until at least 2030.
Officials, consumer activists, and professionals in the field of health care in California assert that increased participation from all parties involved, guided by comprehensive and institution-specific data regarding cost patterns, will ultimately result in more accountability and openness.
A member of the affordability board and a professor of public health at the University of California, San Diego, Richard Kronick points out that there is little information available to the public regarding the changes in costs at certain healthcare facilities. nevertheless, “we will know that in the future,” he asserts, “and I think that knowing it and having that information in the public will put some pressure on those organizations.”
