text:
(a) The Legislature finds and declares all of the following:

(1) It is in the public interest that all Californians receive health care that is accessible, affordable, equitable, high-quality, and universal.

(2) While California has reduced the uninsured share of its population to a historic low of 7 percent through implementation of the federal Patient Protection and Affordable Care Act (PPACA: Public Law 111-148) and other state efforts, affordability has reached a crisis point as health care costs continue to grow.

(3) As costs rise, employers are increasingly shifting the cost of premiums and deductibles to employees, negatively impacting the potential for wage growth. Between 2010 and 2018, wages in the state kept pace with inflation by increasing by 19 percent. Meanwhile, families with job-based coverage experienced a 45 percent increase in premiums, or more than twice the rate of wage growth. During the same period, families experienced a 70 percent increase in PPO deductibles, or nearly four times the rate of wage growth. While health insurance premium increases for 2021 may be considered moderate due to lower utilization of preventive, routine, and nonemergency services as a result of the novel coronavirus (COVID-19) pandemic, this abatement in health care cost growth is expected to be temporary.

(4) Escalating health care costs are being driven primarily by high prices and the underlying factors or market conditions that drive prices, particularly in geographic areas and sectors where there is a lack of competition due to consolidation, market power, venture capital activity, the role of profit margins, and other market failures. Consolidation through acquisitions, mergers, or corporate affiliations is pervasive across the industry and involves health care service plans, health insurers, hospitals, physician organizations, pharmacy benefit managers, and other health care entities. Further, market consolidation occurs in various forms, including horizontal, vertical, and cross industry mergers, transitions from nonprofit to for-profit status or vice versa, and any combination involving for-profit and nonprofit entities, such as a nonprofit entity merging with, acquiring, or entering into a corporate affiliation with a for-profit entity or vice versa.

(5) Californians of color experience health disparities, including barriers to accessing care, receiving lower quality of care, lack of access to culturally and linguistically competent care, and experiencing worse health outcomes. Certain communities, including low-income, Black, Latino, Pacific Islander, and essential workers, have been disproportionately impacted by COVID-19 in terms of higher rates of infection, hospitalizations, and deaths. These negative health outcomes further highlight a public health imperative to reduce racial and ethnic disparities in health care.

(6) The COVID-19 pandemic has exposed vulnerabilities within the current system with regard to provider payments. Physician fee-for-service payment has increased over the past decade, while the use of population-based prepayment has decreased in the employer-sponsored coverage market. As Californians stayed home, the loss of fee-for-service (FFS) payment revenue for providers has downstream impacts on access to care and for health care workers’ economic security. Beyond exposing providers to considerable financial instability, FFS payments may not be the most effective way to incentivize providers to deliver high-quality and cost-efficient care or offer the flexibility to make practice changes that enable improved access, care coordination, patient engagement, and quality.

(7) Primary care is foundational to an effective health care system and evidence supports that greater use of primary care has been associated with lower costs, higher patient satisfaction, reduced low birth weight, fewer hospitalizations and emergency department visits, and lower mortality, among other key outcomes. However, the United States as a whole spends a far lower share of health care expenditures on primary care and experiences worse outcomes in life expectancy and mortality than other countries.

(8) Behavioral health needs are common among Californians, with most who need it not receiving treatment. National research finds that persons with mental health or substance use disorders have approximately two to three times higher medical costs than those with no behavioral health diagnosis. This research also shows that total health care spending on mental health and substance use disorder services have remained relatively flat between 2012 and 2017. Models that integrate primary care and behavioral health services have been shown to improve access to effective behavioral health services that improve health outcomes, as well as deliver a return on investment by reducing downstream health care costs.

(9) Surveys show that people are delaying or going without care due to concerns about cost, or are getting care but struggling to pay the resulting bill. In California, one in four people report problems paying or being unable to pay their medical bills, with two-thirds cutting back on basic household items like food and clothing to pay those bills. Concerns about affordability of coverage and care are expected to be exacerbated during the economic recession related to the COVID-19 pandemic, particularly among lower-wage workers.

(10) High drug prices contribute significantly to health care costs. Prescription drugs account for nearly one-fifth of health care spending. The Centers for Medicare and Medicaid Services project that prescription drug spending will grow faster and outpace other categories of health care spending in the years to come. Cost-effectiveness analyses often find that drugs are priced in excess of the value they deliver to patients.

(11) The State of California has a substantial public interest in the price and cost of health care coverage. California is a major purchaser through the Public Employees’ Retirement System, the State Department of Health Care Services, the Department of General Services, the Department of Corrections and Rehabilitation, and other entities acting on behalf of a state purchaser. The government also provides major tax expenditures through the tax exclusion of employer-sponsored coverage and tax deductibility of coverage purchased by individuals, as well as tax deductibility of excess health care costs for individuals and families.

(b) It is the intent of the Legislature to have a comprehensive view of health care spending, cost trends, and variation to inform actions to reduce the overall rate of growth in health care costs while maintaining quality of care, with the goal of improving affordability, access, and equity of health care for Californians.

(c) It is the intent of the Legislature to encourage policies, payments, and initiatives that improve the affordability, quality, equity, efficiency, access, and value of health care service delivery, with a particular focus on ensuring health equity and reducing disparities in care, access, and outcomes across California.

(d) It is the intent of the Legislature to recognize and consider the unique health care needs of people with disabilities and chronic illnesses and the associated challenges with access, affordability, equity, quality, and delivery of health care.

(e) It is the intent of the Legislature for the State of California to achieve more affordable health care and better outcomes by consistently measuring and promoting sustained systemwide investment in primary care and behavioral health.

(f) It is the intent of the Legislature to facilitate increased adoption of alternative payment models that reward high-quality and cost-efficient care, including strategies for shared savings and downside risk arrangements and population-based payments.

(g) It is the intent of the Legislature to promote the goal of health care affordability while recognizing the need to maintain and increase the supply of trained, culturally and linguistically competent health care workers, and to monitor the effects of cost containment efforts on health care workforce stability, high-quality health care jobs, and the training needs of health care workers. It is the intent of the Legislature that cost containment does not constrain the health care workforce that California needs, including the competitive wages and benefits of frontline health care workers.

(h) It is the intent of the Legislature that health care cost targets not be used to place a floor or ceiling on health care workforce compensation.

(i) It is the intent of the Legislature to increase transparency on mergers, acquisitions, and corporate affiliations involving health care service plans, health insurers, hospitals or hospital systems, physician organizations, pharmacy benefit managers, and other health care entities that may impact market competition and affordability for consumers and purchasers.

(j) It is the intent of the Legislature to analyze cost and quality trends in the pharmaceutical sector, study the impact of drug prices and pharmaceutical market failures on affordability, and inform policy interventions to improve competition and lower consumer costs.

(k) It is the intent of the Legislature in enacting this chapter to provide accountability to the State of California for the affordability and cost of health care in California.

(l) It is the intent of the Legislature in enacting this chapter that the setting of health care cost targets distinguish between health care entities that deliver cost-efficient, high quality care and those that deliver high-cost care without commensurate improvements in overall quality.

(m) It is the intent of the Legislature in enacting this chapter that enforcement actions to address growth in per capita total health care expenditures are implemented in a progressive manner, such that health care entities are assisted to come into compliance with cost targets, including through technical assistance and performance improvement plans, before assessing administrative penalties unless there are egregious violations as specified in Section 127502.5.

(n) To avoid duplication of efforts and to avoid inconsistency between federal and state laws, it is the intent of the Legislature that collaboration occur between relevant regulatory agencies regarding whether a health care entity is in compliance or noncompliance with the cost targets.

(o) It is the intent of the Legislature, therefore, to establish a single entity within state government charged with doing all of the following:

(1) Developing a comprehensive strategy for cost containment in California, including measuring progress towards reducing the rate of growth in per capita total health care spending and ultimately lowering consumer spending on premiums and out-of-pocket costs, while maintaining quality, access, and equity of care, as well as promoting workforce stability and maintaining high-quality health care jobs.

(2) Addressing cost increases in excess of health care cost targets through public transparency, opportunities for remediation, and other progressive enforcement actions to achieve cost targets that optimize value in health care spending.

(3) Referring transactions that may reduce market competition or increase costs to the Attorney General for further review.

article: 1. General Provisions and Definitions


kind: section

code: HSC

text:
(a) There is hereby established, within the Department of Health Care Access and Information, the Office of Health Care Affordability. The Director of the Department of Health Care Access and Information shall be the director of the office and shall carry out all functions of that position, including enforcement.

(b) The office shall be responsible for analyzing the health care market for cost trends and drivers of spending, developing data-informed policies for lowering health care costs for consumers and purchasers, creating a state strategy for controlling the cost of health care and ensuring affordability for consumers and purchasers, and enforcing cost targets.

(c) The office shall do all of the following:

(1) Increase cost transparency through public reporting of per capita total health care spending and factors contributing to health care cost growth.

(2) Support the board, through data collection and analysis and recommendations, to establish a statewide health care cost target for per capita total health care spending.

(3) Support the board, through data collection and analysis and recommendations, to establish specific health care cost targets by health care sector, including fully integrated delivery systems, geographic regions, and individual health care entities, as appropriate.

(4) Collect and analyze data from existing and emerging public and private data sources that allow the office to track spending, set cost targets, approve performance improvement plans, monitor impacts on health care workforce stability, and carry out all other functions of the office.

(5) Analyze cost and quality trends for drugs covered by pharmaceutical and medical benefits. The office shall consider the data in the reports required pursuant to Section 1367.243 and Section 10123.205 of the Insurance Code and pharmaceutical data reported in the Health Care Payments Data Program, established pursuant to Chapter 8.5 (commencing with Section 127671).

(6) Oversee the state’s progress towards meeting the health care cost target by providing technical assistance, requiring public testimony, requiring submission of and monitoring compliance with performance improvement plans, and assessing administrative penalties through enforcement actions, including escalating administrative penalties for noncompliance.

(7) Promote, measure, and publicly report performance on quality and health equity through the adoption of a priority set of standard quality and equity measures for health care entities, with consideration for minimizing administrative burden and duplication.

(8) Advance standards for promoting the adoption of alternative payment models.

(9) Measure and promote sustained systemwide investment in primary care and behavioral health.

(10) Advance standards for health care workforce stability and training, as these relate to costs.

(11) Disseminate best practices from entities that comply with the cost target, including a summary of affordability efforts that enable the entity to meet the cost target.

(12) Review and evaluate consolidation, market power, and other market failures through cost and market impact reviews of mergers, acquisitions, or corporate affiliations involving health care service plans, health insurers, hospitals, physician organizations, pharmacy benefit managers, and other health care entities.

(13) Analyze trends in the price of health care technologies.

(14) Analyze trends in the cost of labor for both management and administration, as well as nonsupervisorial health care workforce, as well as analyzing the profits of health care entities, if that data is available.

(15) Conduct ongoing research and evaluation on payers, fully integrated delivery systems, management services organizations, and providers, including physician organizations, to determine whether the definitions or other provisions of this chapter include those entities that significantly affect health care cost, quality, equity, and workforce stability.

(16) Adopt and promulgate regulations for the purpose of carrying out this chapter.

(17) Establish advisory or technical committees, as necessary.

(d) For purposes of implementing this chapter, including hiring staff and consultants, through the procurement authority and processes of the department, facilitating and conducting meetings, conducting research and analysis, and developing the required reports, the office may enter into exclusive or nonexclusive contracts on a bid or negotiated basis. Until January 1, 2026, contracts entered into or amended pursuant to this chapter are exempt from Chapter 6 (commencing with Section 14825) of Part 5.5 of Division 3 of Title 2 of the Government Code, Part 2 (commencing with Section 10100) of Division 2 of the Public Contract Code, and the State Administrative Manual, and are exempt from the review or approval of any division of the Department of General Services.

history: (History: Amended by Stats. 2025, Ch. 641, Sec. 2. (AB 1415) Effective January 1, 2026.)

division: 107. HEALTH CARE ACCESS AND INFORMATION

part: 2. HEALTH POLICY AND PLANNING

chapter: 2.6. Health Care Affordability

article: 2. Office of Health Care Affordability

path: 107. HEALTH CARE ACCESS AND INFORMATION > 2. HEALTH POLICY AND PLANNING > 2.6. Health Care Affordability > 2. Office of Health Care Affordability


text:
(a) Until January 1, 2027, any necessary rules and regulations for the purpose of implementing this chapter may be adopted as emergency regulations in accordance with the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code). The adoption of emergency regulations pursuant to this section shall be deemed to be an emergency and necessary for the immediate preservation of the public peace, health and safety, or general welfare.

(b) Notwithstanding Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, including subdivisions (e) and (h) of Section 11346.1, an emergency regulation adopted pursuant to this section shall be repealed by operation of law unless the adoption, amendment, or repeal of the regulation is promulgated by the office pursuant to Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code within five years of the initial adoption of the emergency regulation.

(c) Any rule or regulation adopted pursuant to this section shall be discussed by the board during at least one board meeting before the office adopts the rule or regulation.

history: (History: Added by Stats. 2022, Ch. 47, Sec. 19. (SB 184) Effective June 30, 2022.)

article: 2. Office of Health Care Affordability


text:
(a) The office shall be responsive to requests for additional information from the Legislature, including providing testimony during hearings and commenting on proposed legislation or policy issues.

(b) The Legislature finds and declares that activities, including, but not limited to, responding to legislative or executive inquiries, tracking and commenting on legislation and regulatory activities, and preparing reports on the implementation of this chapter and the performance of the office, are necessary state requirements.

article: 2. Office of Health Care Affordability


text:
(a) (1) Notwithstanding any other state or local law, the office shall collect data and other information it determines necessary from health care entities, except exempted providers, to carry out the functions of the office. To the extent consistent with federal law and to the greatest extent possible, the office may use existing and emerging public and private data sources to minimize administrative burdens and duplicative reporting, including data or information from federal agencies as well as state agencies. The office may request data and information from, or enter into a data sharing agreement with, the State Department of Health Care Services, Covered California, the Department of Managed Health Care, the Department of Insurance, the Labor and Workforce Development Agency, the Business and Consumer Services Agency, and other relevant state agencies that monitor compliance of plans and providers with access standards, including timely access, language access, geographic access, and other access standards as provided by law and regulation. The office may also enter into a data sharing agreement with these state agencies that collect payer and provider financial data or other data or information about the health care workforce.

(2) In furtherance of this chapter, and with the intent to reduce administrative burdens, the office shall coordinate with the State Department of Health Care Services on data and other information necessary to report both of the following:

(A) Total health care expenditures and per capita total health care expenditures for Medi-Cal services.

(B) Medical loss ratios required under applicable state and federal laws.

(C) Quality and equity measures to assess performance for the Medi-Cal program or other programs administered by the State Department of Health Care Services.

(3) (A) The office shall obtain from the Department of Managed Health Care and the Department of Insurance information about health care services plans, as defined in subdivision (b) of Section 1345, and insurers offering policies of health insurance, as defined in subdivision (b) of Section 106 of the Insurance Code. The information shall be for coverage in the individual, small group, and large group markets for both grandfathered and nongrandfathered products. The information shall include, but not be limited to, all of the following:

(i) Information on premiums, cost sharing, benefits, and other information required under Article 6.2 (commencing with Section 1385.01) of Chapter 2.2 of Division 2 of this code and Article 4.5 (commencing with Section 10181) of Chapter 1 of Part 2 of Division 2 of the Insurance Code.

(ii) Trend factors by benefit category, such as inpatient hospitalization and physician services, including price, utilization, and cost as a percentage of Medicare, as required by Section 1385.045 of this code and Section 10181.45 of the Insurance Code.

(iii) Medical loss ratio for each health care service plan or health insurer under applicable state and federal laws.

(iv) Cost containment and quality improvement efforts reported consistent with Sections 1385.03 and 1385.045 of this code and Sections 10181.3 and 10181.45 of the Insurance Code.

(v) Prescription drug costs consistent with Section 1367.243 and Article 6.1 (commencing with Section 1385.001) of Chapter 2.2 of Division 2 of this code and Section 10123.205 of the Insurance Code.

(vi) Information regarding health equity and quality required under Article 11.9 (commencing with Section 1399.870) of Chapter 2.2 of Division 2, including data and results.

(B) The Department of Managed Health Care and the Department of Insurance shall provide the above information in the initial submission of data to the office for the five years prior to 2023, to the extent that information is available, and annually thereafter.

(b) The office shall establish requirements for payers and fully integrated delivery systems to submit data and other information necessary to do all of the following:

(1) Measure total health care expenditures and per capita total health care expenditures.

(2) Determine whether health care entities met health care cost targets.

(3) Identify the annual change in health care costs of health care entities.

(4) Approve and monitor implementation of performance improvement plans.

(5) Assess performance on quality and equity measures.

(c) The office shall, in a manner prescribed by the office, establish requirements for providers to submit data in support of this section as necessary to carry out the functions of the office.

(d) (1) For the purpose of the baseline health care spending report published pursuant to subdivision (a) of Section 127501.6, payers and fully integrated delivery systems shall submit data on total health care expenditures for the 2022 and 2023 calendar years on or before September 1, 2024. Enforcement shall not be implemented pursuant to this baseline report, except any enforcement actions necessary to ensure compliance with the deadline for submitting data.

(2) For the first annual report, published pursuant to subdivision (b) of Section 127501.6, payers and fully integrated delivery systems shall submit data on total health care expenditures for the 2024 and 2025 calendar years based on a reporting schedule established by the office. For subsequent annual reports, payers and fully integrated delivery systems shall submit data for the relevant calendar years according to the reporting schedule established by the office.

(e) (1) The office shall require health care entities to submit data and other information as necessary to fulfill its functions and measure total health care expenditures and per capita total health care expenditures by sectors.

(2) For the calculation of total health care expenditures and per capita total health care expenditures by sectors, the office shall use the Health Care Payments Data Program, established pursuant to Chapter 8.5 (commencing with Section 127671), to the greatest extent possible, to minimize reporting burdens for health care entities, and may also use data from federal agencies.

(f) The office shall require payers, fully integrated delivery systems, hospitals, and physician organizations to report data and other information, as necessary, for the single set of standard quality measures pursuant to Section 127503.

(g) (1) The office shall require payers, fully integrated delivery systems, restricted health care service plans, and limited health care service plans, as defined in Section 1300.49 of Title 28 of the California Code of Regulations, to submit data and other information to measure the adoption of alternative payment models pursuant to Section 127504.

(2) The office shall establish requirements for payers, fully integrated delivery systems, restricted health care service plans, and limited health care service plans, as defined in Section 1300.49 of Title 28 of the California Code of Regulations, to report data and other information, including, but not limited to, the types of payment models, adoption by line of business, the number of members covered by alternative payment models, the percent of budget dedicated to alternative payments, or cost and quality performance measures tied to those payment models.

(h) (1) The office shall require payers, fully integrated delivery systems, restricted health care service plans, and limited health care service plans, as defined in Section 1300.49 of Title 28 of the California Code of Regulations, to submit data and other information to measure the percentage of total health care expenditures allocated to primary care and behavioral health pursuant to Section 127505.

(2) For the calculation of total health care expenditures allocated to primary care and behavioral health, the office shall do all of the following:

(A) Use the Health Care Payments Data Program, established pursuant to Chapter 8.5 (commencing with Section 127671), to the greatest extent possible, to minimize reporting burdens for health care entities.

(B) Determine the categories of health care professionals who should be considered primary care and behavioral health providers and consider existing state and national approaches, as appropriate.

(C) Determine specific procedure codes that should be considered primary care and behavioral health services and consider existing state and national approaches, as appropriate.

(D) Determine the categories of payments to primary care or behavioral health care providers and practices, including non-claims-based payments, such as alternative payment models, that should be included when determining the total amount spent on primary care and behavioral health.

(i) (1) With consideration to minimizing reporting burdens and expenses, the office shall require providers and any physician organizations that are part of a fully integrated delivery system to submit audited financial reports, similar to those required in paragraphs (a) to (e), inclusive, of Section 128735. This paragraph does not apply to exempted providers.

(2) For physician organizations defined in paragraph (5) of subdivision (p) of Section 127500, and providers that do not routinely prepare audited financial reports, the office shall require a comprehensive financial statement that includes details regarding annual costs, annual receipts, realized capital gains and losses, and accumulated surplus and accumulated reserves using the standard accounting method routinely used by the physician organization or provider. The comprehensive financial statement shall be supported by sworn written declarations by the chief financial officer, chief executive officer, or other officer who has financial management and oversight responsibilities for the physician organization or provider, certifying that the financial statement is complete, true, and correct in all material matters to the best of their knowledge, and that the provider does not routinely prepare audited financial reports. This paragraph does not apply to exempted providers and physician organizations that are part of a fully integrated delivery system.

(3) The board, members of the board, the office, the department, and the employees, contractors, and advisors of the office and the department shall keep the audited financial reports and comprehensive financial statements confidential, and shall use the confidential information and documents only as necessary for the function of the office.

(4) This subdivision does not apply to providers that are already required to report under Section 128735 or risk bearing organizations (RBOs) that are required to file quarterly and annual financial statements under Section 1375.4 of this code and Section 1300.75.4.2 of Title 28 of the California Code of Regulations.

(5) Notwithstanding any other law, all information and documents obtained under this subdivision shall not be required to be disclosed pursuant to the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code) or any similar local law requiring the disclosure of public records.

(j) (1) Consistent with subdivision (a), the office shall obtain data from existing state and federal data sources and from regulated entities to effectively monitor impacts to health care workforce stability and training needs.

(2) In order for an adjustment to cost targets to be made under paragraph (7) of subdivision (d) of Section 127502, a provider, a fully integrated delivery system, or other associated party shall produce actual or projected nonsupervisory employee organized labor costs, including increased expenditures related to compensation, and any other supporting information to validate the adjustment, as may be requested by the office pertaining to the actual or projected organized labor costs.

(3) The office may collect all of the following types of data and make it accessible to the public:

(A) Overall trends in the health care workforce, including, but not limited to, statewide and regional workforce supply, unemployment and wage data, trends and projections of wages and compensation, projections of workforce supply by region and specialty, training needs, and other future trends in the health care workforce.

(B) The number and classification of workers in internship, clinical placements, apprenticeships, and other training programs sponsored by an employer.

(C) The percentage of employees employed through a registry or casual employment.

(D) The number of workers at health care entities that were retrained through established public training programs.

(E) Investments by health care entities in private training and retraining programs.

(F) The number of workers subject to relocation, termination, or mass layoff as described in Chapter 4 (commencing with Section 1400) of Part 4 of Division 2 of the Labor Code.

(4) The office may request additional data from health care entities if it finds that the data is needed to effectively monitor impacts to health care workforce stability and training needs.

(5) The office may annually request from health care entities that are in compliance with the cost target, a summary of best practices used for improving health care affordability, if any.

(k) In furtherance of this section, the office shall promulgate regulations to collect data and other information it determines necessary from health care entities, except exempted providers, to carry out the functions of the office. The regulations may include, but are not limited to, detailed reporting schedules, technical specifications, and other resources to ensure the submission of accurate data in a standardized format within the specified timeframes. Prior to adopting regulations and approving the reporting schedules, technical specifications, and other resources, the office shall engage relevant stakeholders, hold a public meeting to solicit input, and provide a response to input received.

(l) The amendments made to this section by the act adding this subdivision shall become operative on July 1, 2026.

history: (History: Amended by Stats. 2026, Ch. 28, Sec. 97. (SB 170) Effective June 29, 2026. Operative July 1, 2026, by its own provisions.)

article: 2. Office of Health Care Affordability


text: The office shall, in a manner prescribed by the office, establish requirements for management services organizations to submit data and other information as necessary to carry out the functions of the office.

history: (History: Added by Stats. 2025, Ch. 641, Sec. 3. (AB 1415) Effective January 1, 2026.)

article: 2. Office of Health Care Affordability


text:
(a) For data submitted to the office under paragraph (1) of subdivision (d) of Section 127501.4, the office shall prepare a report on baseline health care spending consistent with subparagraph (A) of paragraph (2) of subdivision (b) on or before June 1, 2025.

(b) (1) On or before June 1, 2027, the office shall prepare and publish its first annual report concerning health care spending trends and underlying factors, for the 2024 and 2025 calendar years, along with policy recommendations to control costs and improve quality performance and equity of the health care system, while maintaining access to care and high-quality jobs and workforce stability. The report shall be based on the office’s analysis of data and other information collected pursuant to this chapter.

(2) The annual report shall include all of the following:

(A) Total health care expenditures, per capita total health care expenditures, and, as appropriate, disaggregated data by categories such as service category, consumer out-of-pocket spending, and health care sector or geographic region, as specified in Section 127502.

(B) The state’s progress towards achieving the health care cost target and improving affordability for consumers and purchasers of health care, while improving quality, reducing health disparities, and maintaining access to care and high-quality jobs and workforce stability.

(C) Upon implementation of the Health Care Payments Data Program pursuant to Chapter 8.5 (commencing with Section 127671), or the availability of an alternative source of health care spending data for payers and fully integrated delivery systems required to report to the office, drivers of overall cost and cost growth, including cost trends by health care sector, such as type of provider or service type. Alternative sources of data shall include, but not be limited to, data provided to existing multipayer claims databases or other state or federal agencies. Any analysis of cost trends in the pharmaceutical sector shall account for the effect of drug rebates and other price concessions in the aggregate, without disclosing any product- or manufacturer-specific rebate or price concession information, and without limiting or otherwise affecting the confidential or proprietary nature of any rebate or price concession agreement.

(D) Factors that contribute to cost growth within the state’s health care system.

(E) Access, quality, and equity of care measures and data, as available. Access includes timely access, language access, geographic access, and other measures of access reported through available data.

(F) Performance improvement plans required, administrative penalties imposed and assessed, and the amount returned to consumers and purchasers, if any.

(G) A summary of best practices for improving affordability while maintaining access, quality, and equity of care, as well as any concerns regarding impacts on the health care workforce stability and training needs of health care workers, as feasible.

(c) (1) Prior to and following the completion of the report on baseline health care spending, the office shall present the report’s findings to the board and the broader public at a public meeting of the board.

(2) On or before July 1, 2027, and at least 30 days after posting the annual report, and each year thereafter, the office shall present the annual report at a public meeting of the board to inform the board, policymakers, including the Governor and the Legislature, and the broader public about implementation of this chapter, including health care cost targets, cost trends, and actionable recommendations for mitigating cost growth.

(3) (A) The office shall seek comments on the findings of the annual report from health care entities, purchasers, consumer advocacy organizations, organizations representing employers who purchase health coverage, representatives of trust funds and other self-insured purchasers of health benefits, and experts on matters relevant to health care affordability, costs, quality, access, and equity of care, workforce stability, and administrative simplification. The office shall also solicit and collect comments from the public, submitted orally, electronically, or in writing, regarding the impacts of health care affordability efforts on health care workforce stability or training needs. All comments may be posted on the office’s internet website to the extent that they are in compliance with state guidelines for the appropriateness of communications.

(B) The office shall notify the relevant regulatory agency and the Attorney General if a health care entity is impacting health care workforce stability or quality jobs, lowering quality, or reducing access or equity of care.

(d) The annual report and the report on baseline health care spending shall be submitted to the Governor and the Legislature and shall be made available to the public on the office’s internet website, along with key data and statistics supporting its findings. The reports submitted pursuant to this section shall be submitted in compliance with Section 9795 of the Government Code.

(e) The public meetings shall be subject to the Bagley-Keene Open Meeting Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code).

article: 2. Office of Health Care Affordability


text:
(a) (1) Notwithstanding any other law regarding the confidentiality of data submitted by health care service plans or other entities to the Department of Managed Health Care, the office and the Department of Managed Health Care may enter into an interagency agreement for the transfer of data pursuant to Section 127501.4 and any other data maintained by the Department of Managed Health Care deemed necessary by the office to implement this chapter.

(2) The interagency agreement shall specify that the office shall comply with any confidentiality requirements of the data that would otherwise apply to the Department of Managed Health Care with respect to disclosure. When confidentiality of data applies, the office may aggregate data for disclosure so that it does not reveal information specific to any particular health care service plan or other entity.

(b) (1) Notwithstanding any other law regarding the confidentiality of data submitted by health insurers or other entities to the Department of Insurance, the office and the Department of Insurance may enter into an interagency agreement for the transfer of data pursuant to Section 127501.4 and any other data maintained by the Department of Insurance deemed necessary by the office to implement this chapter.

(2) The interagency agreement shall specify that the office shall comply with any confidentiality requirements of the data that would otherwise apply to the Department of Insurance with respect to disclosure. When confidentiality of data applies, the office may aggregate data for disclosure so that it does not reveal information specific to any particular health insurer or other entity.

(c) (1) Notwithstanding any other law regarding the confidentiality of data submitted by health plans or other entities to the State Department of Health Care Services, the office and the State Department of Health Care Services may enter into an interagency agreement for the transfer of data pursuant to Section 127501.4 and any other data maintained by the State Department of Health Care Services deemed necessary by the office to implement this chapter.

(2) The interagency agreement shall specify that the office shall comply with any confidentiality requirements of the data that would otherwise apply to the State Department of Health Care Services with respect to disclosure. When confidentiality of data applies, the office may aggregate data for disclosure so that it does not reveal information specific to any particular Medi-Cal managed care plan or other entity.

(d) (1) Notwithstanding any other law regarding the confidentiality of data submitted by qualified health plans or other entities to Covered California, the office and Covered California may enter into an interagency agreement for the transfer of data pursuant to Section 127501.4 and any other data maintained by Covered California deemed necessary by the office to implement this chapter.

(2) The interagency agreement shall specify that the office shall comply with any confidentiality requirements of the data that would otherwise apply to Covered California with respect to disclosure. When confidentiality of data applies, the office may aggregate data for disclosure so that it does not reveal information specific to any particular qualified health plan or other entity.

(e) (1) Notwithstanding any other law regarding the confidentiality of data submitted to a state agency, the office may enter into an interagency agreement for the transfer of data pursuant to Section 127501.4 and any other data maintained by the state agency deemed necessary by the office to implement this chapter.

(2) The interagency agreement shall specify that the office shall comply with any confidentiality requirements of the data that would otherwise apply to the state agency with respect to disclosure. When confidentiality of data applies, the office may aggregate data for disclosure so that it does not reveal specific confidential information.

(f) For the purposes of this section, information that is otherwise publicly available, or that has not been confidentially maintained by the source, shall not be considered nonpublic information.

article: 2. Office of Health Care Affordability


text:
(a) There is hereby established in the State Treasury the Health Care Affordability Fund for the purpose of receiving and expending revenues collected pursuant to this chapter. This fund is subject to appropriation by the Legislature.

(b) All moneys in the fund shall be expended in a manner that prioritizes the return of the moneys to consumers and purchasers.

(c) The office may identify any opportunities to leverage existing public and private financial resources to provide technical assistance to health care entities and support to the office. Any private or public moneys obtained may be placed in the Health Care Affordability Fund, for use by the office upon appropriation by the Legislature.

article: 2. Office of Health Care Affordability


text:
(a) There is hereby established, within the office, the Health Care Affordability Board. The board shall be composed of eight members, as follows:

(1) Four members shall be appointed by the Governor and confirmed by the Senate.

(2) One member shall be appointed by the Senate Committee on Rules.

(3) One member shall be appointed by the Speaker of the Assembly.

(4) The Secretary of Health and Human Services or their designee.

(5) The CalPERS Chief Health Director or their deputy shall serve as a nonvoting member of the board.

(b) Members of the board who are appointed shall be appointed for a term of four years, except that the initial appointment by the Senate Committee on Rules shall be for a term of five years, the initial appointment by the Speaker of the Assembly shall be for a term of two years, and one of the initial appointments by the Governor shall be for a term of three years. A member of the board may continue to serve until the appointment and qualification of a successor. Vacancies shall be filled by appointment for the unexpired term.

(c) (1) Each person appointed to the board shall have demonstrated and acknowledged expertise in at least one of the following areas: health care economics; health care delivery; health care management or health care finance and administration, including payment methodologies; health plan administration and finance; health care technology; research and treatment innovations; competition in health care markets; primary care; behavioral health, including mental health and substance use disorder services; purchasing or self-funding group health care coverage for employees; enhancing value and affordability of health care coverage; or organized labor that represents health care workers.

(2) Appointing authorities shall consider the expertise of the other members of the board and attempt to make appointments so that the board’s composition of members reflects a diversity of expertise on health care entities, purchasers, and consumer advocacy groups, who also meet the requirements of paragraph (1).

(3) In making appointments to the board, the appointing authorities shall take into consideration the state’s diversity in culture, race, ethnicity, sexual orientation, gender identity, and geography so that the board’s composition reflects the communities of California. Appointing authorities shall consider the experience the board member has as a patient or caregiver of a patient with a chronic condition requiring ongoing health care, which may include behavioral health care or a disability.

(4) (A) An appointee to the board shall not receive financial compensation from, or be employed by, a health care entity that is subject to the cost targets, an entity subject to cost and market impact reviews, or an exempted provider.

(B) For purposes of this paragraph, an appointee’s prohibited financial compensation and employment does not include employment by a health care entity solely as a tenured academic instructor with duties and compensation unrelated to the health care operations of the entity.

(C) For purposes of this paragraph, financial compensation does not include compensation received pursuant to a retirement plan.

(D) For purposes of this paragraph, financial compensation does not include clinical volunteer services if all of the following conditions are met:

(i) The board member is a health care professional who was actively participating in that profession prior to appointment to the board.

(ii) The board member does not receive compensation for performing volunteer services and does not have an ownership interest or other financial interest in the entity, facility, clinic, or provider group.

(iii) The clinical volunteer services are performed at the University of California or a nonprofit educational institution; a facility, clinic, or provider group operated by, or affiliated with, an academic medical center of either the University of California or a nonprofit educational institution; or a facility, clinic, or provider group operated by a state agency or county health system that does not directly contract with the office.

(E) For purposes of subparagraph (D), compensation and financial interest for a health care professional who performs clinical volunteer services does not include either of the following:

(i) A contribution to a professional liability insurance program made by the entity, facility, clinic, or provider group for the member or staff.

(ii) The provision of physical space, equipment, support staff, or other supports made by the entity, facility, clinic, or provider group for the member or staff necessary for the performance of clinical volunteer services described in subparagraph (D).

(5) The board shall elect a chair.

(d) (1) Each member of the board shall receive a per diem of five hundred dollars ($500) for each day actually spent in the discharge of official duties, not to exceed 30 days per year, and shall be reimbursed for traveling and other expenses necessarily incurred in the performance of official duties. After June 30, 2026, the per diem shall be one hundred dollars ($100) per day.

(2) Notwithstanding any other law, a public officer or employee shall not receive per diem salary compensation for serving on the board on any day when the officer or employee also received compensation for their regular public employment.

(e) (1) The board shall meet at least quarterly or at the call of the chair.

(2) The board shall be subject to the Bagley-Keene Open Meeting Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code), except that the board may hold closed sessions when considering matters related to the office assessing administrative penalties, requiring performance improvement plans under Section 127502.5, and discussing nonpublic information and documents received by the office and board under this chapter.

(3) The board shall be subject to Article 3 (commencing with Section 87300) of Chapter 7 of Title 9 of the Government Code, and the regulations promulgated thereunder.

article: 2. Office of Health Care Affordability


text:
(a) After receiving input, including recommendations, from the office and the advisory committee, and receiving public comments, the board shall establish all of the following:

(1) A statewide health care cost target.

(2) The definitions of health care sectors, which may include geographic regions and individual health care entities, as appropriate, except fully integrated delivery systems as defined in subdivision (h) of Section 127500.2, and specific targets by health care sector, which may include fully integrated delivery systems, geographic regions, and individual health care entities, as appropriate.

(3) The standards that need to be met for exemption from health care cost targets or submitting data directly to the office, including the definition of exempted providers.

(b) The board shall approve all of the following:

(1) Methodology for setting cost targets and adjustment factors to modify cost targets when appropriate.

(2) The scope and range of administrative penalties and the penalty justification factors for assessing penalties.

(3) The benchmarks for primary care and behavioral health spending.

(4) The statewide goals for the adoption of alternative payment models and standards that may be used between payers and providers during contracting.

(5) The standards to advance the stability of the health workforce that may apply in the approval of performance improvement plans.

(c) The director shall present to the board for discussion all of the following:

(1) Options for statewide health care cost targets, specific targets by health care sector, including fully integrated delivery systems, geographic regions, and individual health care entities, as appropriate.

(2) The collection, analysis, and public reporting of data for the purposes of implementing this chapter.

(3) The risk adjustment methodologies for the reporting of data on total health care expenditures and per capita total health care expenditures.

(4) Review and input on performance improvement plans prior to approval, including delivery of periodic updates about compliance with performance improvement plans to inform any adjustment to the standards for imposing those plans.

(5) Review and input on administrative penalties to inform any adjustments to the scope and range of administrative penalties and the penalty justification for assessing penalties.

(6) Factors that contribute to cost growth within the state’s health care system, including the pharmaceutical sector.

(7) Strategies to improve affordability for both individual consumers and purchasers of health care, including data collection, targets, and other steps.

(8) Recommendations for administrative simplification in the health care delivery system.

(9) Approaches for measuring access, quality, and equity of care.

(10) Recommendations for updates to statutory provisions necessary to promote innovation and to enable the increased adoption of alternative payment models.

(11) Methods of addressing consolidation, market power, and other market failures.

(d) (1) To support the board’s decisionmaking, the board may request data analysis to be conducted or collected by the office.

(2) The office may establish advisory or technical committees, as necessary. The office shall establish advisory or technical committees at the request of the board. These committees may be standing committees or time-limited workgroups, at the discretion of the board. Members of these committees shall comply with the requirements in paragraph (1) of subdivision (c) of Section 127501.10. A committee established by the board may include members who are health care entities, consumer organizations representing health care consumers or patients, organized labor representing health care workers, or patients or caregivers of patients with a chronic condition requiring ongoing health care, which may include behavioral health care or a disability.

article: 2. Office of Health Care Affordability


text:
(a) (1) The board shall establish a Health Care Affordability Advisory Committee to provide input, including recommendations, to the board and the office on a range of areas, including, but not limited to, all of the following:

(A) A statewide health care cost target and specific targets by health care sector and geographic region.

(B) The methodology for setting cost targets and adjustment factors to modify cost targets when appropriate.

(C) Definitions of health care sectors.

(D) Benchmarks for primary care and behavioral health spending.

(E) Statewide goals for the adoption of alternative payment models and standards.

(F) Quality and equity metrics.

(G) Standards to advance the stability of the health care workforce.

(H) Other areas requested by the board or the office.

(2) The advisory committee may provide input, including recommendations, to the board regarding board requests for data analysis performed by the office, but does not have authority to direct data analysis or any other work performed by the office.

(b) (1) The board shall appoint the members of the advisory committee. Appointments shall be made by a majority vote of the voting members of the board. When appointing members to the advisory committee, the board shall aim for broad representation, including, at a minimum, representatives of consumer and patient groups, payers, fully integrated delivery systems, hospitals, organized labor, health care workers, medical groups, physicians, and purchasers, and shall apply the same considerations of demonstrated knowledge, expertise, diversity, and personal experience outlined in paragraphs (1) to (3), inclusive, of subdivision (c) of Section 127501.10.

(2) Each appointed member shall serve at the discretion of the board and may be removed at any time by a majority vote of the voting members of the board.

(3) The advisory committee members shall not have access to confidential, nonpublic information that is accessible to the board and office. Instead, the advisory committee shall only have access to information that is publicly available. Neither the board nor the office shall disclose any confidential, nonpublic information to the advisory committee members.

(4) Advisory committee members shall receive reimbursement for travel and other actual costs.

(c) (1) The advisory committee shall meet at least four times per year or when requested by the board.

(2) At least one member of the board shall attend the advisory committee meetings.

(3) Advance notice of any advisory committee meetings shall be posted on the office’s internet website to allow for public participation at the meetings. Meeting minutes of all advisory committee meetings and input, including recommendations, on proposed cost targets shall be posted on the office’s internet website.

(d) The board shall consider input, including recommendations, from the advisory committee, along with public comments, in the board’s deliberation and decisionmaking.

article: 2. Office of Health Care Affordability


text:
(a) The board shall establish a statewide health care cost target.

(b) (1) The board shall establish specific targets by health care sector, including fully integrated delivery systems, geographic regions, and individual health care entities, as appropriate. The board shall define health care sectors, which may include geographic regions and individual health care entities, as appropriate, except for fully integrated delivery systems, and the office shall promulgate regulations accordingly.

(2) The board may adjust cost targets by health care sector, including fully integrated delivery systems, geographic regions, and individual health care entities, as appropriate, when warranted to account for the baseline costs in comparison to other health care entities in the health care sector and geographic region.

(3) The setting of different targets by health care sector, including fully integrated delivery systems, geographic regions, and individual health care entities, as appropriate, shall be informed by historical cost data and other relevant supplemental data, such as financial data on health care entities submitted to state agencies and the Health Care Payments Data Program, as well as consideration of access, quality, equity, and health care workforce stability and quality jobs pursuant to Section 127506.

(c) The health care cost targets shall meet all of the following requirements:

(1) Promote a predictable and sustainable rate of change in per capita total health care expenditures.

(2) (A) Be based on a target percentage, with consideration of economic indicators or population-based measures, and be developed based on a methodology that is available and transparent to the public.

(B) Economic indicators may include established measures reflecting the broader economy, the labor markets, and consumer cost trends.

(C) Population-based measures may include changes in the state’s demographic factors that may influence demand for health care services, such as aging.

(3) Be set for each calendar year, with consideration of multiyear targets to provide health care entities with consistency, be updated periodically, and shall consider relevant adjustment factors.

(4) Be developed, applied, and enforced.

(5) Promote the goal of improved affordability for consumers and purchasers of health care, while maintaining quality and equitable care, including consideration of the impact on persons with disabilities and chronic illness.

(6) Promote the stability of the health care workforce, including the development of the future workforce, such as graduate medical education teaching, training, apprenticeships, and research.

(7) Be adjusted for a provider or fully integrated delivery system’s cost target, as appropriate upon a showing that nonsupervisory employee organized labor costs are projected to grow faster than the rate of any applicable cost targets.

(d) (1) Consistent with paragraph (1) of subdivision (b) of Section 127501.11, the office shall develop a methodology, for approval by the board, to set health care cost targets. The methodology shall be available and transparent to the public.

(2) The methodology shall review historical trends and projections for economic indicators and population-based measures.

(3) The methodology shall review historical trends in costs for Medi-Cal, Medicare, and commercial health care coverage. The methodology shall provide differential treatment of the 2020 and 2021 calendar years due to the impacts of COVID-19 on health care spending and health care entities.

(4) The methodology shall review potential factors to adjust future cost targets, including, but not limited to, the health care employment cost index, labor costs, the consumer price index for urban wage earners and clerical workers, impacts due to known emerging diseases, trends in the price of health care technologies, provider payer mix, state or local mandates such as required capital improvement projects, and any relevant state and federal policy changes impacting covered benefits, provider reimbursement, and costs.

(5) (A) With respect to Medi-Cal, the methodology shall consider provision of nonfederal share, determined to be appropriate by the Director of Health Care Services, associated with Medi-Cal payments, such as expenditures by providers or provider-affiliated entities that serve as the nonfederal share associated with Medi-Cal reimbursement.

(B) The methodology may also consider all of the following:

(i) Supplemental payments to qualifying providers who provide services to Medi-Cal and underinsured patients.

(ii) Provisions of nonfederal share or reimbursement of state costs not associated with specific Medi-Cal reimbursement, but that supports the Medi-Cal program, and any other reimbursements and fees assessed by the State Department of Health Care Services, as determined appropriate by the Director of Health Care Services.

(iii) Health care-related taxes or fees that, in whole or in part, provide the nonfederal share associated with Medi-Cal payments or support the Medi-Cal program, as determined appropriate by the Director of Health Care Services.

(C) The methodology shall allow the board, to the extent necessary for the Medi-Cal program to comply with federal requirements to help ensure that full federal financial participation is available and not otherwise jeopardized related to services, programs, benefits, and contracts that involve funds disbursed by the State Department of Health Care Services, including but not limited to funds authorized pursuant to Title XIX (42 U. S.C. Sec. 1396 et seq.) of the Social Security Act or Title XXI of the Social Security Act (42 U.S.C. Sec. 1397aa et seq.), to adjust any targets, when warranted, as they pertain to health care entities in the Medi-Cal program, upon the request of the Director of Health Care Services.

(6) (A) The methodology shall allow the board to adjust cost targets downward, when warranted, for health care entities that deliver high-cost care that is not commensurate with improvements in quality, and upward, when warranted, for health care entities that deliver low cost, high quality care.

(B) Data sources on cost and quality performance of health care entities may include, but are not limited to, all of the following:

(i) Cost and quality performance data reported by or sourced from recognized quality improvement and transparency initiatives.

(ii) Any other relevant supplemental data, such as financial data on health care entities, submitted to state agencies, and data on costs, payments, and quality from the Health Care Payments Data Program established pursuant to Chapter 8.5 (commencing with Section 127671).

(iii) Any relevant federal, state, or local data.

(7) The methodology shall require the board to adjust cost targets for a provider or a fully integrated delivery system as appropriate to account for actual or projected nonsupervisory employee organized labor costs, including increased expenditures related to compensation. For an adjustment to be effectuated, the provider, the fully integrated delivery system, or other associated party shall submit a request with supporting documentation in a format prescribed by the office. To validate the basis for the requested adjustment, the office may request or accept further information, such as any single labor agreement that is final and reflects the actual or projected increased nonsupervisory employee organized labor costs. The office may audit the submitted data and supporting information as necessary.

(e) The methodology for setting a sector target for an individual health care entity shall be developed taking into account the following:

(1) Allow for the setting of cost targets based on the entity’s status as a high-cost outlier.

(2) Allow for the setting of cost targets that encourage an individual health care entity to serve populations with greater health care risks by incorporating all of the following:

(A) A risk factor adjustment reflecting the health status of the entity’s patient mix, consistent with risk adjustment methodology developed under subdivision (f).

(B) An equity adjustment accounting for the social determinants of health and other factors related to health equity for the entity’s patient mix, consistent with subdivision (g).

(C) A geographic cost adjustment reflecting the relative cost of doing business, including labor costs in the communities the entity operates.

(f) (1) In consultation with the board, the office shall establish risk adjustment methodologies for the reporting of data on total health care expenditures and may rely on existing risk adjustment methodologies. The methodology shall be available and transparent to the public.

(2) To select appropriate risk adjustment methodologies or inform the way any adjustments are applied to unadjusted data to account for the underlying health status of the population, the office may convene technical committees, as necessary.

(3) The risk adjustment methodologies selected or used to inform any adjustments shall take into account the impact of perverse incentives that may inflate the measurement of population risk, such as upcoding. The office may audit submitted data and make periodic adjustments to address those issues as necessary.

(g) In consultation with the board, the office shall establish equity adjustment methodologies to take into account social determinants of health and other factors related to health equity, to the extent data is available and methodology has been developed and validated.

(h) (1) Targets set for payers shall also include targets on administrative costs and profits to deter growth in administrative costs and profits.

(2) The targets established for a payer’s administrative costs and profits under this subdivision may be subject to annual adjustment, but shall not increase to the extent the costs for the medical care portion of the medical loss ratio exceed a target.

(3) The office shall consult with the Department of Managed Health Care, the State Department of Health Care Services, and the Department of Insurance to ensure any targets for payers established by the office consider actuarial soundness and rate review requirements imposed by or upon those departments.

(i) (1) Until the board approves sector targets for fully integrated delivery systems, fully integrated delivery systems shall comply with the statewide cost target.

(2) Targets set for fully integrated delivery systems shall include all health care services, costs, and lines of business managed by that system in each separately administered geographic service area of the state. The system shall provide sufficient data and information, comparable to other unintegrated payers and providers, including patient risk mix, to the office to enable analysis and public reporting of performance, including by sector, insurance market, line of business, and separately administered geographic service area.

(3) Targets for fully integrated delivery systems shall include targets on payer administrative costs and profits.

(4) After the board approves sector targets for fully integrated delivery systems, a fully integrated delivery system shall be subject to a target for each of its geographic service areas in which a single medical group is responsible for providing, or arranging for the provision of, all professional services to the payer’s enrollees.

(j) The office shall direct the public reporting of performance on the health care cost targets, which may include analysis of changes in total health care expenditures on an aggregate and per capita basis for all of the following:

(1) Statewide.

(2) By geographic region.

(3) By insurance market and line of business, including for each payer.

(4) For health care entities, both unadjusted and using a risk adjustment methodology against the covered lives or patient populations, as applicable, for which they serve.

(5) For impact on affordability for consumers and purchasers of health care.

(k) The office shall direct the analysis and public reporting of contributions of health care entities to cost growth in the state using data that includes, but is not limited to, data submitted to the office, data from state and federal agencies, other relevant supplemental data, such as financial data on health care entities, that is submitted to state agencies, and the Health Care Payments Data Program, established pursuant to Chapter 8.5 (commencing with Section 127671).

(l) (1) The board shall establish a statewide health care cost target for the 2025 calendar year and for each calendar year thereafter. The 2025 baseline target shall be a reporting year only and shall not be subject to enforcement pursuant to Section 127502.5. The targets established for the 2026 calendar year, and each calendar year thereafter, shall be enforced for compliance pursuant to Section 127502.5.

(2) (A) On or before October 1, 2027, the board shall define initial health care sectors, which may include geographic regions and individual health care entities, as appropriate, except fully integrated delivery systems, considering factors such as delivery system characteristics. Sectors may be further defined over time.

(B) Not later than June 1, 2028, the board shall establish specific targets by health care sector, including fully integrated delivery systems, geographic regions, and individual health care entities, as appropriate, in accordance with this chapter.

(C) The development of sector targets shall be done in a manner that minimizes fragmentation and potential cost shifting and that encourages cooperation in meeting statewide and geographic region targets.

(D) Sector targets adopted under this subdivision shall specify which single sector target is applicable if a health care entity falls within two or more sectors.

(m) (1) The board shall hold a public meeting to discuss the development and adoption of recommendations for statewide cost targets, or specific targets by health care sector, including fully integrated delivery systems, geographic regions, and individual health care entities. The board shall deliberate and consider input, including recommendations from the office, the advisory committee, and public comment. Cost targets and other decisions of the board consistent with this section shall not be adopted, enforced, revised, or updated until presented at a subsequent public meeting. The meetings shall be subject to the Bagley-Keene Open Meeting Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code) consistent with paragraph (2) of subdivision (e) of Section 127501.10.

(2) The office shall publish on its internet website its recommendations for proposed cost targets for the board’s review and consideration. The board shall discuss recommendations at a public meeting for proposed targets on or before March 1 of the year prior to the applicable target year.

(3) The board shall receive and consider public comments for 45 days after the board meeting.

(4) The board shall adopt final targets on or before June 1, at a board meeting. The board shall remain in session, and members shall not receive per diem under Section 127501.10, until the board adopts all required cost targets for the following calendar year.

(n) The adoption of cost targets under this section is exempt from the requirements of the Administrative Procedure Act (Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code).

(o) For purposes of this section, “individual health care entity” does not include an exempted provider.

(p) (1) Statewide and sector-specific health care cost targets do not apply to exempted providers. Upon approval by the board, the office shall promulgate regulations defining who is an exempted provider.

(2) This section does not exempt claims and non-claims-based payments for exempted providers, and associated cost-sharing amounts paid by consumers, from inclusion in the calculation of total health care expenditures and per capita total health care expenditures that uses data submitted by payers.

history: (History: Amended by Stats. 2022, Ch. 738, Sec. 5. (AB 204) Effective September 29, 2022.)

article: 3. Health Care Cost Targets

path: 107. HEALTH CARE ACCESS AND INFORMATION > 2. HEALTH POLICY AND PLANNING > 2.6. Health Care Affordability > 3. Health Care Cost Targets


text:
(a) The director shall enforce the cost targets established by this chapter against health care entities in a manner that ensures compliance with targets, allows each health care entity opportunities for remediation, and ensures health care entities do not implement performance improvement plans in ways that are likely to erode access, quality, equity, or workforce stability. The director shall consider each entity’s contribution to cost growth in excess of the applicable target and any actions by the entity that have eroded, or are likely to erode, access, quality, equity, or workforce stability, factors that contribute to spending in excess of the applicable target, and the extent to which each entity has control over the applicable components of its cost target. The director shall review information and other relevant data from additional sources, as appropriate, including data from the Health Care Payments Data Program, to determine the appropriate health care entity that may be subject to enforcement actions under this section. Commensurate with the health care entity’s offense or violation, the director may take the following progressive enforcement actions:

(1) Provide technical assistance to the entity to assist it to come into compliance.

(2) Require or compel public testimony by the health care entity regarding its failure to comply with the target.

(3) Require submission and implementation of performance improvement plans, including input from the board.

(4) Assess administrative penalties in amounts initially commensurate with the failure to meet the targets, and in escalating amounts for repeated or continuing failure to meet the targets.

(b) Prior to taking any enforcement action, the office shall do all of the following:

(1) Notify the health care entity that it has exceeded the health care cost target.

(2) Give the health care entity not less than 45 days to respond and provide additional data, including information in support of a waiver described in subdivision (i).

(3) If the office determines that the additional data and information meets the burden established by the office to explain all or a portion of the entity’s cost growth in excess of the applicable target, the office may modify its findings, as appropriate.

(4) The director shall consult with the Director of Managed Health Care, the Director of Health Care Services, or the Insurance Commissioner, as applicable, prior to taking any of the enforcement actions specified in this section with respect to a payer regulated by the respective department to ensure any technical assistance, performance improvement plans, or other measures authorized by this section are consistent with laws applicable to regulating health care service plans, health insurers, or a Medi-Cal managed care plan contracted with the State Department of Health Care Services.

(c) (1) If a health care entity exceeds an applicable cost target, the office shall notify the health care entity of their status and provide technical assistance. The office shall make public the extent to which the health care entity exceeded the target. The office may require a health care entity to submit and implement a performance improvement plan that identifies the causes for spending growth and shall include, but not be limited to, specific strategies, adjustments, and action steps the health care entity proposes to implement to improve spending performance during a specified time period. The office shall request further information, as needed, in order to approve a proposed performance improvement plan. The director may approve a performance improvement plan consistent with those areas requiring specific performance or correction for up to three years. The director shall not approve a performance improvement plan that proposes to meet cost targets in ways that are likely to erode access, quality, equity, or workforce stability. The standards developed under Article 7 (commencing with Section 127506) may be considered in the approval of a performance improvement plan.

(2) The office shall monitor the health care entity for compliance with the performance improvement plan. The office shall publicly post the identity of a health care entity implementing a performance improvement plan and, at a minimum, a detailed summary of the entity’s compliance with the requirements of the performance improvement plan while the plan remains in effect and shall transmit an approved performance improvement plan to appropriate state regulators for the entity.

(3) A health care entity shall work to implement the performance improvement plan as submitted to, and approved by, the office. The office shall monitor the health care entity for compliance with the performance improvement plan.

(4) The board, the members of the board, the office, the department, and employees, contractors, and advisors of the office and the department shall keep confidential all nonpublic information and documents obtained under this subdivision, and shall not disclose the confidential information or documents to any person, other than the Attorney General, without the consent of the source of the information or documents, except in an administrative penalty action, or a public meeting under this section if the office believes that disclosure should be made in the public interest after taking into account any privacy, trade secret, or anticompetitive considerations. Prior to disclosure in a public meeting, the office shall notify the relevant party and provide the source of nonpublic information an opportunity to specify facts documenting why release of the information is damaging or prejudicial to the source of the information and why the public interest is served in withholding the information. Information that is otherwise publicly available, or that has not been confidentially maintained by the source, shall not be considered nonpublic information. This paragraph does not limit the board’s discussion of nonpublic information during closed sessions of board meetings.

(5) Notwithstanding any other law, all nonpublic information and documents obtained under this subdivision shall not be required to be disclosed pursuant to the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1 of the Government Code), or any similar local law requiring the disclosure of public records.

(d) (1) If the director determines that a health care entity is not compliant with an approved performance improvement plan and does not meet the cost target, the director may assess administrative penalties commensurate with the failure of the health care entity to meet the target. An entity that has fully complied with an approved performance improvement plan by the deadline established by the office shall not be assessed administrative penalties. However, the director may require a modification to the performance improvement plan until the cost target is met.

(2) The administrative penalty shall be deposited into the Health Care Affordability Fund.

(3) Prior to assessing an administrative penalty against a health care entity, the director may consider related provision of nonfederal share, determined to be appropriate by the Director of Health Care Services, associated with Medi-Cal payments, such as expenditures by providers or provider-affiliated entities that serve as the nonfederal share associated with Medi-Cal reimbursement.

(4) To the extent that an administrative penalty is related to a Medi-Cal expenditure, including federal financial participation, the office shall coordinate with the State Department of Health Care Services to ensure appropriate treatment and return of any federal funds pursuant to Subpart F commencing with Section 433.300 of Part 433 of Title 42 of the Code of Federal Regulations.

(5) If, after the implementation of one or more performance improvement plans, the health care entity is repeatedly noncompliant with the performance improvement plan, the director may assess escalating administrative penalties that exceed the penalties imposed under paragraphs (1) and (2) of this subdivision and paragraph (4) of subdivision (a).

(6) The director shall consider all of the following to determine the penalty:

(A) The nature, number, and gravity of the offenses.

(B) The fiscal condition of the health care entity, including revenues, reserves, profits, and assets of the entity, as well as any affiliates, subsidiaries, or other entities that control, govern, or are financially responsible for the entity or are subject to the control, governance, or financial control of the entity.

(C) The market impact of the entity.

(e) Administrative penalties shall not constitute expenditures for the purpose of meeting cost targets. The imposition of administrative penalties shall not alter or otherwise relieve the health care entity of the obligation to meet a previously established cost target or a cost target for subsequent years.

(f) (1) For payers and fully integrated delivery systems, the director also shall enforce cost targets established by Section 127502 against the cost growth for administrative costs and profits.

(2) If a payer exceeds the target for per capita growth in total health care expenditures, but has met its target for administrative costs and profits, the payer shall submit relevant documentation or supporting evidence for the drivers of excess cost growth.

(3) This subdivision does not relieve a payer of its obligation to meet targets for per capita growth in total health care expenditures established by Section 127502, and does not limit enforcement actions for payers under this section.

(g) If data indicate adverse impacts on cost, access, quality, equity, or workforce stability from consolidation, market power, or other market failures, the director may, at any point, require that a cost and market impact review be performed on a health care entity, consistent with Section 127507.2.

(h) (1) The director may directly assess administrative penalties when a health care entity has failed to comply with this chapter by doing any of the following:

(A) Willfully failing to report complete and accurate data.

(B) Repeatedly neglecting to file a performance improvement plan with the office.

(C) Repeatedly failing to file an acceptable performance improvement plan with the office.

(D) Repeatedly failing to implement the performance improvement plan.

(E) Knowingly failing to provide information required by this section to the office.

(F) Knowingly falsifying information required by this section.

(2) The director may call a public meeting to notify the public about the health care entity’s violation and declare the entity as imperiling the state’s ability to monitor and control health care cost growth.

(i) The office may establish requirements for health care entities to file for a waiver of enforcement actions due to reasonable factors outside the entity’s control, such as changes in state or federal law or anticipated costs for investments and initiatives to minimize future costly care, such as increasing access to primary and preventive services, or under extraordinary circumstances, such as an act of God or catastrophic event. The entity shall submit documentation or supporting evidence of the reasonable factors, anticipated costs, or extraordinary circumstances. The office shall request further information, as needed, in order to approve or deny an application for a waiver.

(j) As applied to the administrative penalties for acts in violation of this chapter, the remedies provided by this section and by any other law are not exclusive and may be sought and employed in any combination to enforce this chapter.

(k) Following an administrative hearing, a health care entity adversely affected by a final order imposing an administrative penalty authorized by this chapter may seek independent judicial review by filing a petition for a writ of mandate in accordance with Section 1094.5 of the Code of Civil Procedure.

(l) After an order imposing an administrative penalty becomes final, and if a petition for a writ of mandate has not been filed within the time limits prescribed in Section 11523 of the Government Code, the office may apply to the clerk of the appropriate court for a judgment in the amount of the administrative penalty. The application, which shall include a certified copy of the final order of the administrative hearing officer, shall constitute a sufficient showing to warrant the issuance of the judgment. The court clerk shall enter the judgment immediately in conformity with the application. The judgment so entered has the same force and effect as, and is subject to all the provisions of law relating to, a judgment in a civil action, and may be enforced in the same manner as any other judgment of the court in which it is entered.

history: (History: Amended by Stats. 2023, Ch. 131, Sec. 130. (AB 1754) Effective January 1, 2024.)

article: 3. Health Care Cost Targets


text:
(a) (1) The office shall adopt a single set of standard measures for assessing health care quality and equity across payers, fully integrated delivery systems, hospitals, and physician organizations. Performance on quality and health equity measures shall be included in the annual report required in Section 127501.6.

(2) The standard quality and equity measures shall use recognized clinical quality, patient experience, patient safety, and utilization measures for health care service plans, health insurers, hospitals, and physician organizations.

(3) The standard quality and equity measures shall reflect the diversity of California in terms of race, ethnicity, sex, age, language, sexual orientation, gender identity, and disability status. The standard quality and equity measures shall be appropriate for a population under 65 years of age, including children and adults.

(4) The standard quality and equity measures shall consider available means for reliable measurement of disparities in health care, including race, ethnicity, sex, age, language, sexual orientation, gender identity, and disability status.

(5) The office shall reduce administrative burden by selecting quality and equity measures that simplify reporting and align performance measurement with other payers, programs, and state agencies, including leveraging existing voluntary and required reporting to the greatest extent possible. The office shall further reduce administrative burden by encouraging other payers and programs to use the same reporting mechanisms.

(6) Public reporting developed pursuant to this article shall consider differences among payers, fully integrated delivery systems, hospitals, and physician organizations, including factors such as plan or network design or line of business, provider payer mix, and the risk mix associated with the covered lives or patient population for which they are primarily responsible.

(b) In implementing this section, the office shall coordinate with the Department of Managed Health Care to align with requirements under Article 11.9 (commencing with Section 1399.870) of Chapter 2.2 of Division 2. The office shall also coordinate with the State Department of Health Care Services, Covered California, and the Public Employees’ Retirement System, and shall consult with state departments, external quality improvement organizations and forums, payers, physicians, other providers, and consumer advocates or stakeholders with expertise in quality or equity measurement.

(c) The office shall periodically review and update the priority set of standard measures for assessing the quality and equity of care pursuant to subdivision (a).

history: (History: Amended by Stats. 2022, Ch. 738, Sec. 6. (AB 204) Effective September 29, 2022.)

article: 4. Quality and Equity Performance

path: 107. HEALTH CARE ACCESS AND INFORMATION > 2. HEALTH POLICY AND PLANNING > 2.6. Health Care Affordability > 4. Quality and Equity Performance


text:
(a) The office shall promote the shift from payments based on fee-for-service to alternative payment models that provide financial incentive for equitable high-quality and cost-efficient care. In furtherance of this goal, the office shall convene health care entities and organize an alternative payment model working group, set statewide goals for the adoption of alternative payment models, and measure the state’s progress toward those goals. With input from the working group, the office shall set benchmarks that include, but are not limited to, increasing the percentage of total health care expenditures delivered through alternate payment models or the percentage of membership covered by an alternative payment model.

(b) (1) To advance statewide goals for adoption of alternative payment models, the office shall consider existing alternative payment models and work with the working group to develop standards for alternative payment models that may be used during contracting between health care entities. The office shall adopt the standards for alternative payment models on or before July 1, 2024.

(2) The standards for alternative payment models shall focus on encouraging and facilitating multipayer participation and alignment, improving affordability, efficiency, equity, and quality by considering the current best evidence for strategies such as investments in primary care and behavioral health, shared risk arrangements, or quality-based or population-based payments.

(3) The standards shall include minimum criteria for what is considered an alternative payment model, but be flexible enough to allow for innovation and evolution over time. The standards shall be consistent, and align, to the extent possible, with the quality and equity measures outlined in Article 4 (commencing with Section 127503) to encourage physicians and other providers to make investments and aim to see year-over-year improvement.

(4) The standards shall address appropriate incentives to physicians and other providers and balanced measures, including, but not limited to, total cost of care and quality, access, and equity requirements and shared savings models, to protect against perverse incentives and unintended consequences.

(5) The standards shall attempt to reduce administrative burden by incorporating alternative payment models that facilitate multipayer participation and align with other state payers and programs or national models.

(6) The office shall review the standards at least every five years or more frequently, as appropriate, in order to determine whether the standards are rewarding high-quality, cost-efficient, and equitable care.

(c) The office shall include an analysis of alternative payment model adoption in the annual report required in Section 127501.6.

(d) In implementing this section, the office shall consult with state and federal departments to ensure consistency with state and federal laws, and shall also consult with external organizations promoting alternative payment models and other entities and individuals with expertise in health care financing and quality and equity measurements.

article: 5. Alternative Payment Models

path: 107. HEALTH CARE ACCESS AND INFORMATION > 2. HEALTH POLICY AND PLANNING > 2.6. Health Care Affordability > 5. Alternative Payment Models


text:
(a) (1) The office shall measure and promote a sustained systemwide investment in primary care and behavioral health. In furtherance of this goal, the office shall measure the percentage of total health care expenditures allocated to primary care and behavioral health and set spending benchmarks. Spending benchmarks for primary care shall consider current and historic underfunding of primary care services.

(2) The intent of the spending benchmarks is to build and sustain infrastructure and capacity, specifically methods of reimbursement that shift greater health care resources and investments away from specialty care and toward supporting and facilitating innovation and care improvement in primary care and behavioral health. It is intended that increased support for primary care and behavioral health will not increase costs to consumers or increase the total costs of health care. However, shifting resources may take time and not be associated with immediate savings.

(3) Benchmarks and public reporting developed pursuant to this article shall consider differences among payers and fully integrated delivery systems, including factors such as plan or network design or line of business, the diversity of settings and facilities through which primary care can be delivered, including clinical and nonclinical settings, the use of both claims-based and non-claims-based payments, and the risk mix associated with the covered lives or patient population for which they are primarily responsible.

(4) In addition to measuring performance of health care entities with the spending benchmarks, the office shall promote improved outcomes for primary care and behavioral health, including, but not limited to, health care entities making investments in, or adopting models that do, any or all of the following:

(A) Promote the importance of primary care and adopt practices that give consumers a regular source of primary care.

(B) Increase access to advanced primary care models and adoption of measures that demonstrate their success in improving quality and outcomes.

(C) Integrate primary care and behavioral health services, including screenings for behavioral health conditions in primary care settings or delivery of behavioral health support for common behavioral health conditions, such as anxiety, depression, or substance use disorders.

(D) Leverage alternative payment models that provide resources at the practice level to enable improved access and team-based approaches for care coordination, patient engagement, quality, and population health. Team-based approaches support the sharing of accountability for delivery of care between physicians and nurse practitioners, physician assistants, medical assistants, nurses and nurse case managers, social workers, pharmacists, and traditional and nontraditional primary and behavioral health care providers, such as peer support specialists, community health works, and others.

(E) Deliver higher value primary care and behavioral health services with an aim toward reducing disparities.

(F) Leverage telehealth and other digital health solutions to expand access to primary care and behavioral health services, care coordination, and care management.

(G) Implement innovative approaches that integrate primary care and behavioral health with broader social and public health services.

(b) The office shall include an analysis of primary care and behavioral health spending and growth, and relevant quality and equity performance measures, in the annual report required pursuant to Section 127501.6.

(c) In implementing this section, the office shall consult with state departments, external organizations promoting investment in primary care and behavioral health, and other entities and individuals with expertise in primary care, behavioral health, and health equity.

path: 107. HEALTH CARE ACCESS AND INFORMATION > 2. HEALTH POLICY AND PLANNING > 2.6. Health Care Affordability > 6. Primary Care and Behavioral Health Investments


text:
(a) The intent of this section is to monitor the effects of cost targets on health care workforce stability, high-quality jobs, and training needs of health care workers, in addition to adjustments to cost targets pertaining to nonsupervisory employee organized labor costs pursuant to paragraph (7) of subdivision (d) of Section 127502. The Legislature intends that the office use a transparent process that allows for public input to monitor how health care entities achieve the cost targets and highlight best practices and discourage practices harmful to workers and patients.

(b) The office shall monitor health care costs while promoting health care workforce stability, including the competitive wages and benefits of frontline health care workers, and the professional judgment of health professionals acting within their scope of practice. The office shall monitor health care workforce stability with the goal that workforce shortages do not undermine health care affordability, access, quality, equity, and culturally and linguistically competent care. The office shall also promote the goal of health care affordability, while recognizing the need to maintain and increase the supply of trained health care workers.

(c) To assist health care entities in implementing cost-reducing strategies that advance the stability of the health care workforce, and without exacerbating existing health care workforce shortages, the office, on or before July 2024, in consultation with the board and with input from organized labor representing health care workers, health care entities, and other entities and individuals with expertise in the health care workforce, shall develop standards to advance the stability of the health care workforce. The standards may be considered in the setting of cost targets pursuant to Section 127502 or in the approval of performance improvement plans imposed pursuant to Section 127502.5.

article: 7. Health Care Workforce Stability

path: 107. HEALTH CARE ACCESS AND INFORMATION > 2. HEALTH POLICY AND PLANNING > 2.6. Health Care Affordability > 7. Health Care Workforce Stability