California's New Office of Health Care Affordability

California Health Care Providers Face Uncertain Future with Newly Enacted Health Care Cost Reforms

This is the first in a series of client alerts on the new Office of Health Care Affordability, culminating with a webinar from 12-1 P.M. PST on Friday, August 5, 2022.The second post will address caps on health care expenditures, and the third post will address state review of health care transactions. Registration for the webinar is available here. MCLE credit may be offered for those who attend. This webinar is in the process of being requested MCLE credit for California attorneys.

On June 30, 2022, Governor Newsom signed Senate Bill 184 ("SB 184"), which will impose sweeping changes to the future for health care providers in California.SB 184 creates within the Department of Health Care Access and Information (“HCAI”) a new Office of Health Care Affordability (“OHCA”), as well as a Health Care Affordability Board (“Board”) and a Health Care Affordability Advisory Committee (“Committee”).SB 184 will: (1) create broad data collection authority on the OHCA (discussed in today’s post); (2) authorize the Board to set and enforce health care cost targets; and (3) grant OHCA the authority to review a broad array of health care transactions. Together, these legislative impacts make California even more hostile to health care providers, many of which are already struggling in the current economic climate.

Creation of OHCA, the Board, and the Committee

SB 184 creates OHCA to “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.” The Director of HCAI will serve as the Director of OHCA.

Within OHCA, SB 184 establishes the Board. The Board has eight members, appointed as follows: (1) four members appointed by the Governor and confirmed by the Senate; (2) one member appointed by the Senate Committee on Rules; (3) one member appointed by the Speaker of the Assembly; (4) the Secretary of Health and Human Services or their designee; and (5) the CalPERS Chief Health Director or their deputy (nonvoting). The Legislature expects the appointees to have demonstrated and acknowledged expertise in one of numerous specified areas of health care and to reflect the state’s diversity in culture, race, ethnicity, sexual orientation, gender identity, and geography. However, Board members are prohibited from receiving financial compensation from, or being employed by, a health care entity that is subject to either cost targets or cost and market impact reviews or an exempted provider (defined below).

The Board, in turn, establishes the Committee to advise the Board and OHCA on various areas, including statewide and specific health care cost targets, benchmarks for health care spending, goals for alternative payment models and standards, quality and equity metrics, and stability of the workforce. This Committee must include, 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.” Like the Board, the Committee members must have demonstrated and acknowledged expertise in health care and reflect the state’s diversity.

Summary of OHCA and the Board’s Powers

OHCA and the Board will have different but complementary powers. Of these powers, the most consequential will be the Board’s ability to set “health care cost targets” which OHCA will enforce with enforcement actions such as performance improvement plans and administrative penalties. In addition, OHCA’s ability to receive notice of and review proposed transactions via a cost and market impact review will delay transactions by any “health care entity” not already reviewed by DMHC, CDI, or the Attorney General.

In addition, OHCA and the Board will develop and approve respectively:

• Health care cost targets

• Spending benchmarks for primary care and behavioral health

• Standards for the adoption of alternative payment models (“APMs”) (by July 1, 2024)

• Standards for health care workforce stability and training (by July 2024)

Table 1: Summary of OHCA and Board Powers

OHCA	Board
Develop and recommend options for statewide health care cost targets and specific targets by health care sector Support the Board through the collection, analysis, and public reporting of data, including: Analysis of trends for profits of health care entities, drug cost and quality, price of health care technologies, and cost of labor for workforce/administration, Public reporting of per capita total health care spending and factors contributing to health care cost growth, and Public reporting of performance on quality and health equity through OHCA-adopted measures	Set a statewide health care cost target (including methodology) (starting 2025) Define “health care sectors” (by October 1, 2027) Set specific targets by “health care sector” (by June 1, 2028) Define “exempted providers”
Propose spending benchmarks for primary care and behavioral health	Approve spending benchmarks for primary care and behavioral health
​Propose standards for the adoption of alternative payment models (“APMs”) (by July 1, 2024)	​Approve goals for the adoption of APMs and standards
Propose standards for health care workforce stability and training (by July 2024)	​Approve the standards to “advance the stability of the health workforce” that may apply in the approval of performance improvement plans
Assess administrative penalties through enforcement actions, including requiring and approving performance improvement plans	​Approve scope and range of administrative penalties and penalty justification factors
Review and evaluate consolidation, market power, and other market failures through cost and market impact reviews

Until January 1, 2027, OHCA may adopt any rules and regulations as emergency regulations, which must be adopted or amended within five years of initial adoption. However, any emergency regulation must be discussed by the Board at least one board meeting before adoption.

Scope of Powers

The scope of OHCA and the Board extends to all “health care entities,” which include providers, payers, and fully integrated delivery systems. The Board will later be able to define any providers who may be exempted from the health care cost targets, OHCA’s data collection, or OHCA’s cost and market impact review unless the transaction involves a non-exempt health care entity. A summary of the definition of health care entities follows:

Table 2: Scope of OHCA and Board’s Authority

Type of "Health Care Entity"	Entities Included
Fully Integrated Delivery System	​A system with (A) physician organization, health facility, or health system AND (B) nonprofit health care service plan with an exclusive contract between the nonprofit health care service plan and a single physician organization
Payer	Knox-Keene licensed health care service plan (including Medi-Cal managed care plan) CDI-licensed health insurer Payers that are part of a publicly funded health care program, including, but not limited to, Medi-Cal and Medicare Third-party administrator Any entity (excluding an individual) that arranges for the purchase of health care services on behalf of employees, dependents, or retirees
Provider	Health facility (e.g., general acute care hospital, acute psychiatric hospital, and skilled nursing facility) Ambulatory surgical center Licensed or registered clinical laboratory Imaging facility that employs or contracts with persons that are subject to the Radiation Control Law or the Radiologic Technologists Act Clinic conducted, operated, or maintained as outpatient departments of hospitals Clinic operated by a nonprofit corporation that conducts medical research and health education and provides health care to its patients through a group of 40 or more physicians and surgeons Primary care clinic eligible for licensure Specialty clinic eligible for licensure
Physician Organization	​Medical foundation Risk-bearing organization (including those exempted under Health and Safety Code section 1375.4(g)(2)) Restricted health care service plan Limited health care service plan Any organized group of physicians and surgeons that is comprised of 25 or more physicians (e.g., medical group and professional medical corporation) An organization with fewer than 25 physicians, but whose costs are substantially higher compared to the statewide average

OHCA’s New Data Collection Authority

For California to embark on these ambitious goals, OHCA has sweeping new authority to collect any necessary data that is central to its ability to function. This will result in increased reporting requirements by health care entities. It is impossible to forecast how much additional time and resources California providers will have to expend to meet these new data requirements.

OHCA will be able to request any information necessary to –

• Measure total health care expenditures and per capita total health care expenditures,

• Determine whether health care entities met health care cost targets,

• Identify the annual change in health care costs of health care entities,

• Approve and monitor implementation of performance improvement plans, and

• Assess performance on quality and equity measures.

SB 184 requires that payers and fully integrated delivery systems submit data on total health care expenditures for calendar years 2022 and 2023 on or before September 1, 2024. Data related to later years will be submitted in accordance with a schedule established by OHCA. These entities will also be required to submit data to measure the adoption of alternative payment models and to measure the percentage of total health care expenditures allocated to primary care and behavioral health.

OHCA is mandated to use HCAI’s Health Care Payments Data Program “to the greatest extent possible” to minimize reporting burdens for health care entities. With OHCA’s data collection authority and the Health Care Payments Data Program (California’s All Payer Claims Database [“APCD”]), HCAI will now possess a near complete picture of what health care costs in California.

To limit the additional amount of data requested from providers, OHCA is authorized to request data from or enter into a data sharing agreement with state agencies, including the Department of Health Care Services (“DHCS”), Covered California, the Department of Managed Health Care (“DMHC”), for the following information:

• Information about the health care workforce,

• Provider financial data or other data, and

• Timely access, language access, geographic access, and other access standards.

From DHCS, DMHC, and the California Department of Insurance (“CDI”), OHCA can also request information such as total health care expenditures and per capita total health care expenditures for Medi-Cal services; trend factors by benefit category, such as inpatient hospitalization and physician services, including price, utilization, and cost as a percentage of Medicare; medical loss ratios; and quality and equity measures or information. When obtaining such information, OHCA must comply with any confidentiality requirements of the data that would otherwise apply to these agencies. When confidentiality of data applies, OHCA may aggregate data for disclosure so that it does not reveal information specific to any particular health care service plan, health insurer, Medi-Cal managed care plan, or other entity.

OHCA may require providers and any physician organizations that are part of a fully integrated delivery system to submit an audited financial report or a comprehensive financial statement that includes details regarding annual costs, annual receipts, realized capital gains and losses, and accumulated surplus and accumulated reserves. Such reports or statements shall not be required to be disclosed pursuant to the California Public Records Act or any similar local law requiring the disclosure of public records.

SB 184 clearly contemplates that OHCA will have the authority to assess administrative penalties when a health care entity has “willfully” failed to report complete and accurate data or “knowingly” failed to provide requested information or falsified the information. However, the legislation is devoid of any details regarding to what extent administrative penalties and other enforcement actions shall be implemented for failure to submit requested data. This will likely become clear when OHCA establishes the data submission requirements and deadlines. Penalties may be appealed through an administrative hearing process.

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It is time for California health care entities to pay attention to the colossal changes that will be ushered in with the new Office of Health Care Affordability. More information will be posted on Wednesday, July 27, 2022, and Friday, July 29, 2022, on the cost targets and the new cost and market impact review process, respectively. For more information on SB 184 and its impact on providers, please contact Felicia Sze or Samuel Chang.