The Manatt State Cost Containment Update

March Spotlight

In this issue, Manatt provides a refresher on California's new Office of Health Care Affordability and an update on next steps for its newly elected Affordability Board, and also breaks down Congressman Don Beyer's National All-Payer Claims Database Act of 2022, which was introduced shortly after Manatt's December 2022 National All-Payer Claims Database Summit, renewing discussions on the Hill about the value of national health system transparency.

A PDF of our update is also available here.

California Gets Rolling: Health Care Affordability Board Appointed and Set to Convene on March 21, 2023

The takeaway. In early March, California's Office of Health Care Affordability (OHCA) announced its Health Care Affordability Board members and set the date for the Board's first meeting: Tuesday, March 21, 2023. California's health care public and private industry leaders-many of whom have only become recently aware of OHCA's cost containment authorities-will be listening closely to understand the vision of the Office's new Deputy Director, Vishaal Pegany (previously an Assistant Secretary at CalHHS), for the state's benchmarking program and how the state's new spending targets will be set to account for the dynamics of the nation's largest, and potentially most complex, health care market. State leaders will not be the only ones listening. As America grapples with health care costs that continue to rise, comprising greater shares of household salaries and state budgets, state policymakers and regulators are looking to health care cost growth benchmarking programs as potential tools to better understand and address health care cost drivers.

With California's passage of the Health Care Quality and Affordability Act in 2022, ten states1 have cost growth benchmarking programs in place or in development, covering over 70million people-or one in five Americans. California's statewide cost growth benchmarking program aims to measure the market in new ways, as its leaders strive to identify and stem cost drivers, promote consumer affordability, improve health equity, and maintain high-quality care. However, much of the state's program remains undefined, left to be designed through implementation. Stakeholders should be prepared to engage with OHCA through 2023 and 2024 as the Board sets key program parameters and definitions.

What it is. After years of negotiation between the California Legislature and health care organizations, in late June 2022, California's Governor Newsom signed the California Health Care Quality and Affordability Act (Senate Bill 184) to establish OHCA within the California Department of Health Care Access and Information (HCAI). OHCA is charged with creating a state strategy for controlling the cost of health care, establishing a state cost growth benchmarking program, and supporting other market oversight activities. Specific responsibilities of the Office include:

  • Establishing Governance. Within OHCA, an eight-member Health Care Affordability Board comprised of people appointed by the Governor, the Senate Committee on Rules, the Speaker of the Assembly, the Secretary of Health and Human Services, and the CalPERS Chief Health Director will serve as a key decision-making body for California's cost growth benchmarking program. The Board will also establish a Health Care Affordability Advisory Committee comprised of industry stakeholders, including representatives of consumer and patient groups, payers, fully integrated delivery systems, hospitals, organized labor, health care workers, medical groups, physicians, and purchasers. The Board may also choose to establish other technical/advisory committees to advise the Board's decision-making.
  • Developing Cost Growth Targets. The Health Care Affordability Board is charged with establishing a statewide cost target on total health care spending, as well as specific targets by health care sector, geographic region, and health care entity as appropriate. The statewide cost target will be determined by the Board and set annually beginning in 2025,2 while specific targets by sector, by geographic region, and, potentially, by individual entity will be set beginning in 2028. Targets may incorporate economic or population-based measures; will account for baseline health care costs, historical trends, and other relevant data; and should be "predictable and sustainable" and set in accordance with a Board-approved, transparent methodology.
  • Measuring System Performance. OHCA will annually collect and analyze data from public and private payers to monitor health care spending across all lines of business in the state and assess statewide performance against established and approved cost growth targets. OHCA will supplement benchmarking data collection and measurement with additional HCAI data, such as hospital payment data, health care workforce data, hospital financial reporting data, and Health Care Payments Data (HPD, the state's APCD).

    OHCA will develop a baseline report by June 1, 2025 (using 2022 and 2023 calendar year data) and its first annual report (using 2024 and 2025 calendar year data) on health care spending trends and underlying cost drivers by June 1, 2027, along with policy recommendations to control costs, improve quality performance, and advance equity of the health care system. Recommendations will ensure access to care and high-quality jobs while preserving workforce stability. At least 30 days after posting the annual report, OHCA will present the report at a public meeting of the Board to inform policymakers and the broader public about its findings, including actionable recommendations for mitigating cost growth.
  • Fostering Target Compliance. Beginning in 2026, OHCA may start to take progressive actions against health care entities for failing to meet the cost targets. If entity-attributed cost growth is found to be in excess of the target, OHCA may provide technical assistance to the entity, require public testimony from the entity, require submission and implementation of a performance improvement plan (PIP), and/or impose 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."

    OHCA may also establish requirements for health care entities that wish to file for a waiver of enforcement actions due to circumstances that are outside the entity's control or for entities that provide other sufficient reasons for being unable to meet cost targets.
  • Providing Additional Market Oversight. OHCA will seek to promote competitive markets in California by examining and analyzing the impact of market changes in a manner supportive of the efforts of the Attorney General (AG), the Department of Managed Health Care, and the California Department of Insurance. Beginning April 1, 2024, health care entities will be required to provide written notice of certain agreements or transactions 90 days in advance of the agreement or transaction taking place. OHCA is also granted oversight to prospectively examine and conduct cost and market impact reviews (CMIRs) of proposed consolidations and other similar transactions that may have " a risk of significant impact on market competitions, the state's ability to meet cost targets, or costs for purchasers and consumers." Upon CMIR completion, OHCA will issue a preliminary report of its findings, to which affected parties and the public can respond, and may refer findings to the AG for further review of unfair methods of competition, anticompetitive behavior, or anticompetitive effects.
  • Encouraging Market Transformation. SB-184 advances a comprehensive benchmarking program that extends beyond core expenditure measurement and reporting to include:

    a. Quality and Equity. SB-184 includes a specific emphasis on maintaining a quality and equity lens in carrying out the functions of OHCA and establishing a single set of standard measures to report on quality and equity performance across payers, fully integrated delivery systems, hospitals, and physician organizations.

    b. Alternative Payment Models. OHCA will promote a shift from fee-for-service to alternative payment models by adopting alternative payment model standards for use during payer-provider contracting by July 1, 2024. OHCA will establish benchmarks to increase the proportion of care delivered through alternative payment models.

    c. Primary Care and Behavioral Health. To measure and promote a sustained systemwide investment in primary care and behavioral health, OHCA will set spending benchmarks for primary care and behavioral health services and promote investments into models that integrate primary care and behavioral health services or that leverage alternative payment models to improve access, quality, and care coordination.

    d. Health Care Workforce Stability and Training. To ensure that the implementation of cost-reducing strategies does not negatively impact workforce stability, OHCA will develop health care "workforce stability" standards to incorporate into statewide cost growth targets by 2024.

What it means. Implementing SB-184 will require a multiyear process of defining and refining the benchmarking program's design and respective requirements. Stakeholder engagement will be central to advancing the bill's long-term goals, and stakeholders should keep in mind that:

  • SB-184 is a blueprint with much left to design and define. SB-184 is a blueprint for OHCA and California's benchmarking program that leaves much to design (e.g., performance measurement methodology) and define (e.g., health care "sector").
  • Stakeholder engagement will be essential for program success. With the Board officially appointed, expect OHCA to set up an accelerated schedule of public meetings to support program design and implementation.
  • Transparency is at the core of OHCA's design. Public transparency is built into SB-184, requiring the establishment of a Health Care Affordability Board (to be run in accordance with Bagley-Keene requirements) and a Health Care Affordability Advisory Committee. Both the Board and the Committee are expected to be publicly consulted on crucial program development and market accountability decisions.
  • Benchmarking programs are about culture change. Benchmarking programs seek to engage public and private stakeholders around a common goal and develop collective and clear pathways and expectations for reaching that goal.
  • Playing the long game. Culture change-and benchmarking program development-takes time. Stakeholders should not expect major market reporting prior to the Baseline Report until mid-2025 or major system "accountability" actions (e.g., performance improvement plans) until the late 2020s, at the earliest.

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