The Office of Health Care Affordability: California’s Newest Way to Tackle Rising Costs

What will the agency do, and will it affect your independent healthcare practice?

California State Capital building

The healthcare industry is at a turning point. Costs are increasing, mergers and acquisitions are occurring more frequently, and patients are feeling the effects in their pocketbooks. If you work in healthcare, this is not exactly “breaking news.” The pandemic further exacerbated these system-level vulnerabilities. As a result, regulators across the country began taking notice. 

In response, California has directed regulatory focus and energy toward lowering the cost of healthcare. If you own a healthcare practice in California, the Office of Health Care Affordability (OHCA) is officially coming your way. But what is this new state agency, and will it affect your overall practice operations? 

OHCA Explained 

OHCA will collect and analyze data in the healthcare industry.  It will consist of a Health Care Affordability Board comprising industry and economic experts. These experts will assist in creating a methodology for setting cost targets for healthcare services and materials.

The state created a fact sheet to outline OHCA’s primary activities, which include:

  • increasing public transparency on healthcare consolidation, market power, and other market failures; 
  • monitoring and addressing health care workforce stability; 
  • measuring and promoting a sustained systemwide investment in primary care and behavioral health; 
  • setting a statewide goal for the adoption of alternative payment models and developing standards for use by payers and providers during contracting; 
  • promoting and measuring quality and equity through performance reporting; 
  • enforcing compliance with the cost targets; 
  • setting an overall statewide cost growth target and specific targets for different sectors of the healthcare industry; and 
  • increasing public transparency on total health care spending in the state. 

Practical Implications  

OHCA was passed along with the $308 billion state budget in June 2022. The budget included $30 million to establish the OHCA. The statute requires the Board to establish statewide healthcare targets by 2025. By 2026 OHCA must take aggressive action against healthcare entities that fail to meet its standards. Those actions could include placing entities on performance improvement plans or levying administrative or monetary penalties. 

Reports suggest contention among legislators in determining which healthcare entities must report financial data to the OHCA. Whether your practice will need to report data to the OHCA in 2025 will depend on whether your practice meets the definition of “provider” under the statute’s terms. Whether you need to report to OHCA and whether you qualify as a “provider” will depend on the type of services you provide and the size of your organization. For instance, ambulatory surgical centers and accredited outpatient settings are always “providers” that will need to report to OHCA. 

Generally, small physician practices with less than 25 physicians are exempted and will not need to report to OHCA. However, if a small physician practice is considered a “high-cost outlier,” that practice will need to report to OHCA. A high-cost outlier is a practice whose costs for the same services provided are substantially compared to the statewide average, as identified through data sources. 

The OHCA will also scrutinize mergers, corporate affiliations, asset purchases, and other transactions between healthcare entities. While it’s unclear how the examination process will work, professional entities and management services organizations (MSOs) across California should expect that most transactions, including asset purchases and mergers, will likely involve an OHCA review.

Broader Impact and Legal Assistance

Other states often use California legislation as model legislation in various industries, including healthcare. Therefore, there is little doubt that other states will analyze OHCA’s effectiveness when considering establishing similar agencies or regulations.

Thus, practice owners outside of California should keep an eye on OHCA and be on the lookout for similar legislation in their states. Meanwhile, If you are in California, pay attention to further state guidance as more information regarding the agency’s scope is shared with the public. A healthcare lawyer can answer your questions regarding OHCA’s procedures, requirements, and applicability to your practice. If you practice in California or one of the other states where we have licensed attorneys, schedule a free consultation to learn more.

This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

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