California positioned to create nation-leading health care cost control entity
California could soon have a nation-leading, first-of-its-kind health care cost control entity, according to supporters of the proposed Office of Health Care Affordability (OHCA). The Assembly voted in favor of creating the office earlier this month, moving the initiative one step closer to passage.
The OHCA, which would operate within the Office of Statewide Health Planning and Development (OSHPD), was initially part of Gov. Gavin Newsom’s 2020-2021 budget proposal, but was abandoned amidst the state’s COVID-19 response. This year, he included the initiative in his budget again, accompanied by Asm. Jim Wood’s AB 1130, a bill to establish the office.
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Wood, chair of the Assembly Health Committee, said eight out of ten Californians want to see the state take action to reduce health care costs. In a statement earlier this month, he said cost controls are critical to achieving affordable health care in California.
“We will never be able to provide health care to everyone without controlling costs and we can’t do that unless we first create a process that can gather all those costs, analyze them and establish cost targets. We’ve been allowing health care costs to grow uncontrollably without any transparency or data about what’s working well and what’s just costing a lot of money.”
If AB 1130 passes, the OHCA — guided by an advisory board of experts — would begin its work by collecting state health care expenditure data, categorized by sector. This includes specific data from hospitals, health plans, and pharmaceutical companies.
After evaluating this data, the office would release its first annual report on or before June 21, 2026, that details its findings on state health care expenditures for 2024 and provides policy solutions for addressing observed high costs. It would establish an overall cost target for per capita health care spending, as well as additional sector-specific cost targets.
The state would commit to shifting from fee-for-service delivery models to value-based care. Using evidence from successful delivery system transformations, the Office would establish alternative payment model standards that could be used by providers and payers during contracting.
The Office would also promote the increased use of primary care and behavioral health services, which, according to OSHPD, are proven to be successful drivers of high-value care.
Bill Kramer, executive director for health policy at the Purchaser Business Group on Health (PBGH), told State of Reform the OHCA will significantly reduce health care costs while also ensuring high-quality care.
“We know that health care costs could be lower — much lower — while maintaining the quality of care. Numerous studies have shown that the amount of unnecessary spending is probably 20 to 30 percent of total health care spending. We also know that some hospitals and physician groups are able to provide high-quality services at much lower costs. So this is possible — it’s possible to achieve lower costs.”
According to Kramer, beginning several years ago, the state met with stakeholders including PBGH, providers, health plans, and consumers to design the plan that was ultimately included in Newsom’s budget.
During the Assembly floor vote on AB 1130, Wood explained that the bill follows in the steps of several other states that have enacted similar legislation. These states include Massachusetts, Maryland, Oregon, and Rhode Island.
“The concept of a commission or office charged with cost containment is not a new one. There are already six states that have something like this in place, and they’re showing results. Sadly, California is not one of those states.”
Wood said in a statement that California’s effort to establish the OHCA is unprecedented in the U.S.
“Let’s be clear, this legislation would make this the most comprehensive health care cost containment initiative in the nation. The breadth of this office’s ability to analyze costs is unprecedented. And that’s exactly why getting it to this point has been the most significant challenge of my legislative career.”
Kramer agreed, telling State of Reform he believes California’s proposal is better than those of other states, since it takes quality and equity — and not just cost — into consideration.
“Because of the careful design, the planning over several years [and] the involvement of virtually all important stakeholders, I believe this is one of the best-designed cost commissions in the country.”
The initiative passed the Assembly along party lines, with all present Republican assembly members voting against it. Asm. Randy Voepel, one of the 14 opposed lawmakers, explained his opposition on the Assembly floor earlier this month.
“The more you try to control health costs, the more you will be actually making the problem worse.”
Voepel believes setting price controls for health care services will interfere with the necessary, naturally occurring rate fluctuations in the insurance market.
“You have cycles in the insurance business. There are cycles where rates are somewhat steady. Other times, reacting to market forces, the rates go up. Many times, corporations will self-insure. If they self-insure, it depends upon their actuarial experience as far as their claims go. If claims are high, you have to raise your premiums.”
He argued there are already regulatory rules in place, saying the California Department of Insurance is required to approve of any rate increases. The “elaborate dance” between companies, providers, and other stakeholders shouldn’t be interrupted by the state’s cost control efforts, he said.
“This particular bill really will bring a heavy hammer outside the insurance department, outside the insurance marketplace, that we really don’t need. Rates are going to go up no matter what, because that is the nature of the beast.”
AB 1130 currently awaits debate in the Senate Health Committee. It has not yet been placed on the committee’s calendar for a hearing.