Hospital association sues California over spending caps

California hospitals filed a lawsuit against a state health regulator on Wednesday, trying to block rules designed to prevent consumers’ health care costs from rising too quickly.

The state’s Office of Health Care Affordability sets limits on health care costs, limiting the amount a hospital’s costs can rise each year. The California Hospital Association claims the rules are illegal and will lead to layoffs and cutbacks in services, ultimately reducing access to care.

c complaint filed in San Francisco County Superior Courtthe hospital association argued that setting cost limits created “arbitrary and irresponsible target costs that single out hospitals.” The suit also claims the rules “will seriously impair … hospitals’ ability to provide comprehensive, high-quality services by depriving them of the resources they need to perform their critical roles.”

A spokesman for the California Health and Human Services Agency, which runs the accessibility office, said the agency does not comment on pending litigation.

In 2022, state legislators created the Office of Accessibility in order to contain skyrocketing health care costs. More than half of Californians reported skipping medical care because it was too expensive and 38% reported having medical debt. in California, health care spending reached $405 billion in 2020 — or $10,299 per person — a 30% increase over five years.

The service-appointed board, noting that California’s median household income is growing an average of 3 percent a year, set spending targets for hospitals and other providers that are meant to match rising consumer incomes. The rules cap spending growth at 3.5 percent beginning in 2025 and then reduce the cap to 3 percent a year starting after four years.

Eight other countries have goals similar to California’s rules. In California, hospitals and providers are required to submit cost data to the state to demonstrate compliance. Starting in 2028, the state can enforce the spending targets with performance improvement plans and fines.

The board’s approval of the affordability of growth caps was controversial, with one board member saying the goal is unrealistic.

Since then, Office regulators have also lowered the limits further by seven hospitalscalling them “expensive” for consumers. For those facilities, including Stanford Health Care in Palo Alto and Community Hospital of the Monterey Peninsula, regulators set cost growth targets of 1.8 percent in 2026 and 1.6 percent over four years.

“Spending caps imposed by politically appointed bureaucrats could force cuts that cause many Californians to travel farther for care, face longer emergency room waits, experience greater overcrowding and lose access to critical services such as maternity care, cancer care, behavioral health services and surgical care,” the president and CEO of California Hospital Association Carmela Coyle.

In its lawsuit, the association estimates that the state’s targeted spending will force 75 percent of its members to operate at a loss. The policy, the group argued, ignores increasing cost pressures on hospitals, including labor, drug prices and a rapidly aging population. In addition, hospitals estimate that a federal spending law will lead to billions in losses over the next 10 years as federal funding and reimbursement for patient care is cut or reduced.

The statewide goal also applies to large physician groups and health insurance companies. The California Health Plan Association, which represents insurers, responded to the hospital association’s lawsuit by saying the state cannot achieve its goal of making health care more affordable “unless everyone is part of the solution.” The lawsuit, according to the group, “demonstrates (hospitals’) lack of commitment to the affordability that Californians urgently need.”

Consumer advocates who support industry spending targets slammed the hospital association’s lawsuit, calling it “outrageous.”

“For years, health care costs have significantly outpaced inflation and wage growth, with very little to show for our higher costs not translating into better quality of care, outcomes, equity or access,” said Amanda McAllister, executive director of the consumer group Health Access California. That’s why, she said, the state “very thoughtfully” created an accessibility office and set rules to control the problem.

“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,” she said.

Supported by the California Health Care Foundation (CHCF), which works to ensure that people have access to the care they need, when they need it, at a cost they can afford. Visit www.chcf.org to learn more.