California: Office of Health Care Affordability
Upshot
Democrats proposed the California Health Care Quality and Affordability Act, A.B. 1130, which would establish the Office of Health Care Affordability and the Health Care Affordability Board to monitor trends and drivers of health care costs and set and enforce spending growth targets.
Gov. Newsom included funding to establish the office in the three most recent budget proposals. The proposal passed the California Assembly and was considered in the Senate but did not pass.
The bill was introduced on February 18, 2022, and passed the Assembly on June 3, 2022. It was then considered in the Senate Committee on Health but did not move out of committee and died when the legislative session ended on August 31, 2022.
Background
California has a variety of programs to improve health care affordability and coverage. The state operates a state-based Marketplace with 12 plans that enrolled approximately 1.8 million people during the 2022 open enrollment period.
In this bill, the legislature argues that health care affordability has reached a “crisis point” with growing costs that are being driven by high prices and market conditions especially in areas with a lack of competition due to consolidation, market power, venture capital activity, or other market failures. The legislature is concerned that employers are increasingly shifting the cost of premiums and deductibles to employees which has impacted wage growth. The sponsors note that one in four people in California report problems paying or being unable to pay their medical bills, and two-thirds cut back on basic household items to pay those bills. The Commonwealth Fund found that 9.2 percent of Californians had to forgo medical care because of the cost.
Gov. Gavin Newsom first proposed the Office of Health Care Affordability (OHCA) in the 2020-2021 budget proposal and has continued to support its establishment. The 2022-2023 budget proposal included a one-time sum of $30 million to establish the office over three years. The California Health Care Quality and Affordability Act was submitted alongside the budget proposal as a “trailer bill” to formally establish the OHCA. Opposition to the proposal has focused on the heavy administrative burden of the data collection and reporting requirements. Some are also concerned the potential for financial strain on hospitals would impact clinician salaries and quality of care. Additionally, the California Hospital Association expressed concern that the OHCA may not be able to distinguish between effective or high-value spending and low-value spending.
Summary
The bill would establish the new OHCA. This entity would examine spending trends across the health care system to inform potential reforms intended to reduce the overall rate of growth in health care costs while maintaining quality of care. Specifically, the Office would examine issues such as ways to increase cost transparency, establish a statewide health care cost target; analyze pharmaceutical drug costs, and advance the adoption of VBP models, among others. Lawmakers also plan to incorporate strategies to reduce racial and ethnic disparities in health care by addressing health care costs and cost trends.
After collecting data on various drivers of health care costs, the Office would then issue annual reports beginning in 2024 that examine total health care expenditures in the state and any progress made towards achieving the state’s health care costs target. The Office would also develop a retrospective report in 2023 that provides detail on historical state spending on health care. Importantly, the Office would be directed to provide a summary of best practices for improving affordability while maintaining access, quality, and equity of care and any concerns regarding impacts on the health care work force’s stability and training needs.
Additional responsibilities of the Office would include:
APMs: The Office would also convene payers and organize an alternative payment model working group to set statewide goals for the adoption of alternative payment models.
Primary Care and Behavioral Health Investments: The Office would measure and promote a system-wide investment in primary care and behavioral health by measuring the percentage of total health expenditure allocated to primary care and behavioral health and setting spending benchmarks. The spending benchmarks would be intended to shift greater health care resources and investments away from specialty care and toward supporting innovation and care improvement in primary care and behavioral health.
Health Care Market Trends: The OHCA would set standards for health care metrics, including quality and equity, alternative payment models, primary care, primary care and behavioral health investments, and health care workforce stability. The office would also be required to monitor health care mergers, acquisitions, corporate affiliations, or other transactions with material changes to ownership, operations, or governance of health care service plans, insurers, hospitals, physician organizations, pharmacy benefit managers, or other health care entities.
COVID: The bill would also specifically require payers to submit aggregate data on health care expenditures for 2019, 2020, and 2021 by July 1, 2023. the Office would then develop a report on the impact of COVID-19 on health care spending.
Beyond establishing the OHCA, the bill would also implement various other provisions to drive down health care costs. For example, the bill would establish a Health Care Affordability Board, which would approve methodologies for setting state health care cost targets, spending benchmarks, and statewide goals for the adoption of VBP models. The Board would be required to establish health care cost targets by 2025 and annually thereafter.
Last, the legislation would establish the Health Care Affordability Fund to receive and expend any revenue collected through implementation of the bill. This could include public or private resources leveraged to provide technical assistance.