The California Hospital Association (CHA) is suing the state’s Office of Health Care Affordability (OHCA) over its spending caps. The CHA filed a lawsuit in San Francisco Superior Court on Wednesday, alleging that OHCA’s authority to set spending limits on California hospitals will
Why It Matters
The California Legislature established OHCA in 2022 in its state budget package. OHCA is responsible for collecting, analyzing and reporting data on health care expenses, developing policies for lowering health care costs for consumers and enforcing cost targets to mitigate the cost of health care in the state to ensure all residents receive affordable, equitable and high-quality care.
One of the main goals of OHCA is to slow health care spending by setting and enforcing cost targets, which are defined as “the target percentage for the maximum annual increase in per capita total health care expenditures.”
CHA President and CEO Carmela Coyle said in a statement that the actions taken by the OHCA are “threatening access to care, putting health care workers’ jobs in jeopardy, impeding efforts to improve health equity, and risking the quality of care Californians receive.”
In the court filing, the CHA said that if hospitals are starved for funds, they will be forced to cut back on services, including emergency room services, obstetrical services and behavioral health services. It adds that there will “undoubtedly be a snowball effect,” as “overwhelmed” hospitals will be unable to adequately serve patients and forced to shut down.
What To Know
Coyle said OHCA has ignored several key factors, such as the underlying costs of care, including labor expenses and pharmaceutical prices, the rapidly aging population that requires more intensive care, inflationary pressures and state and federal policy changes, like the “One Big Beautiful Bill.”
“The health care Californians rely on is on the edge of a cliff, and this lawsuit is asking the courts to step in to pull it back — before it’s too late,” she said.
The CHA lawsuit calls the actions of the OHCA “onerous and ill-informed,” estimating that they would result in more than 75 percent of all California hospitals operating at a loss, forcing deep layoffs and cuts in hospital services. They anticipate the loss of about 40,000 jobs, the elimination of vital services, including labor and delivery and mental health care, and longer travel and wait times for patients seeking care.
“California’s hospitals are dedicated to the provision of high-quality and affordable health care services to all Californians,” the court document states. “Our state’s hospitals are the backbone of the health care delivery system, and in particular, the health care safety net. Unfortunately, the actions taken by the Office of Health Care Affordability (“OHCA”) and its Board implement arbitrary and irresponsible cost targets that single out hospitals and will severely disrupt our hospitals’ ability to provide comprehensive, high-quality services by starving them of the resources they need to perform their critical roles.”
The filing also states that input from CHA and other provider groups and members of the public “went unheard,” claiming that OHCA only focused on capping hospital spending, “without ensuring its cost targets would not harm patients or the availability of hospital services.”
“Either OHCA did not consider this information or chose to ignore it and move forward based on preconceived notions that were flatly repudiated by the material presented to OHCA,” the filing said. “As a result, rather than promoting access to high-quality health care services and the equitable availability and provision of health care services statewide, OHCA’s actions threaten the viability of the entire health care delivery system.”
What Happens Next
The CHA is asking that the court declare the statewide costs target improper and unlawful and the enforcement of cost targets without an articulation of how OCHA will assess compliance unconstitutional, among other things.
What People Are Saying
In the court filing, CHA included concerns from a Democratic and Republican state senator from a hearing of the California Senate Budget and Fiscal Review Subcommittee 3 on Health and Human Services on May 1, 2025.
During the meeting of the Senate Budget Subcommittee, which oversees OHCA, Committee Chair Sen. Akilah Weber Pierson of San Diego said, “The ultimate goal of OHCA, which is to reduce the cost of health care for individuals, will not be met.”
“I think we’re living in a fantasy world,” she said. “If [providers have] this spending limit but they have to put this money out for these things that have been mandated [by existing law and regulation], then at the end of the day, something has to give. So either they won’t make [compliance with the cost targets] and will be penalized, or they have to cut services. And either way, the people who will pay are the patients.”
Sen. Shannon Grove of Bakersfield added that it was difficult for her to understand from a business perspective that the policies increase costs for all providers.
“Hospitals, medical providers, doctors, everybody has a higher cost,” she said. “I don’t see how you can cap a cost and not hurt the providers that will eventually hurt the people seeking medical care?”
She continued that her biggest issue was that the spending caps are “going to devastate hospitals.”
Amanda McAllister, the executive director of the consumer group Health Access California, supports industry spending targets and told CalMatters that the lawsuit is “outrageous.”
“For years, health care costs have vastly outpaced inflation and wage growth, with very little to show for it — our higher costs don’t translate to better quality of care, outcomes, equity, or access,” she said. “This lawsuit is a blatant attempt to try to change the rules of the game after the fact because you don’t like the outcome.”
Newsweek reached out to the California Office of Health Care Affordability for comment.