The 3 Key Tasks of California’s New Office of Health Care Affordability

Dec. 1, 2022
OHCA will assess cost drivers, set total healthcare cost targets, and assess market consolidation

Surveys show that Californians are more worried about paying unexpected medical bills than for housing, gas, food or utilities. To address the affordability crisis, the governor and Legislature worked together to create the Office of Health Care Affordability (OHCA). In July, when California enacted its legislation that involves setting cost targets, it became the 10th state attempting to rein in healthcare costs in this manner.

Elizabeth Landsberg, director of the California Department of Health Care Access and Information, which oversees OHCA, explained that OHCA is charged with delivering on three key tasks.

Speaking during a Nov. 30 webinar put on by the California Health Care Foundation, Landsberg said, “First, OHCA will analyze data on healthcare cost drivers. Where are the big increases happening? Second, monitoring to track the future growth in healthcare costs. OHCA will set targets defining acceptable growth, and it has the authority to enforce these targets. Finally, assess market consolidation, a key driver of healthcare costs,” she said. “OHCA also is charged with setting and enforcing targets that are designed to increase primary care and behavioral health investment, promote, value-based payment and help ensure that California has the healthcare workforce to meet the needs of 40 million Californians.”

Vishaal Pegany, the inaugural deputy director overseeing the Office of Health Care Affordability, followed Landsberg in speaking, and noted that one of the benefits of not being the first state to attempt this is that “we were able to learn from other states and take the best thinking and craft an approach that's distinctive for its comprehensiveness and also its ability to enforce the cost targets.”

In terms of managing cost growth, the office will collect, analyze, and report data on total healthcare expenditures, Pegany explained. “The office will develop a cost target methodology that considers economic measures such as GDP growth, or population-based measures such as demographics. A cost target tends to be a numeric value of how much the state decides their per capita total healthcare expenditures should grow each year.”

Initially, there will be a statewide cost target for calendar year 2025, and the first enforceable cost target will be for calendar year 2026. Eventually the office will set sector-specific targets, which can include geographic regions, certain types of entities or fully integrated delivery systems, Pegany said. “The rationale of sector targets is to take a more tailored approach rather than one numeric value under the statewide cost target.”

There will be a progressive enforcement approach, beginning with technical assistance. This is essentially a conversation with the healthcare entity to find out what happened if they exceeded the cost target, he added. Exceeding the cost target might require the entity to submit a performance improvement plan. As a last resort, the office would have the authority to issue financial penalties.

In terms of monitoring system performance, he said, the goal of the office is not to focus on cost alone, but to engage in activities that ensure a balanced approach. The first would be to track quality, equity and access. “This means we would leverage a subset of existing quality measures from sibling state departments or other recognized quality improvement programs,” Pegany said. “The intent isn't to invent a lot of new measures. We think there are a lot of great measures out there that we could pull from to have a balanced story about cost and quality. The office would also set benchmarks for primary care and behavioral health spending. This is to really reorient the healthcare system toward early intervention and health promotion so that more costly specialty care isn't needed in the future. This will take time to implement, but the evidence shows that we could not only deliver better outcomes, but save on costs as well.”

Another set of activities is going to involve setting goals for the adoption of alternative payment models. The office would set a target and then report on how payers are progressing toward that target, Pegany explained. “There are frameworks out there, such as the Health Care Learning Action Network framework, with four categories in a  continuum from fee for service to population-based payments.”

Yet another effort will involve promoting workforce stability. “The goal here is to ensure that cost targets are not achieved to the detriment of front-line healthcare workers,” he said. “It's very important that we have a stable workforce, not only for access, but also care quality. The office will be monitoring workforce stability. With the inclusion of these sets of activities, the intent is not simply to have a low-cost system but to take the best ideas out there and reorient the healthcare system towards greater value.”

The third prong of the office's work is assessing market consolidation. The office will engage in market oversight activities to partially fill the gap for mergers and acquisitions that are currently not being looked at, Pegany said. The office will receive notices of proposed changes in ownership, operations or governance for healthcare entities. If a transaction is likely to have a significant impact, the office would complete a cost and market impact review that assesses whether the transaction would be in the public interest in terms of impact on market competition or affordability for consumers and purchasers. During this process, the office would work closely with other regulators to the extent that there's overlap and also have the ability to escalate any findings to the Attorney General. “I'd also note that OHCA does not have the authority to give a thumbs up or thumbs down on whether the transaction proceeds. Other regulators such as the California Department of Managed Health Care could place conditions on transactions, but the office’s perspective is to increase public transparency for the proposed transaction,” he added.

Despite all the ambitious goals, OHCA “currently has a staff of one, which is myself,” Pegany said. “We hope to make good progress in hiring the leadership team, as well as bringing on expert consultants to quickly stand up the office. In terms of what we have planned for early 2023, we'd like to convene the board in the first quarter followed by appointing the advisory committee members.”

He said that next year they will also work on regulation packages for data collection for total healthcare expenditures, and regulations for the cost and market impact reviews and begin some of the work on the primary care investment provisions of the statute.

In 2024, they will work to set the first cost targets. “We've also been working to collect some baseline data for calendar year 2022 and 2023 for total healthcare expenditures,” Pegany said. “We will also begin receiving our first notices of proposed transactions as early as January 1 of 2024. So there is a lot to come in the next two years.”

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