California Hospital Association Files Suit Against OHCA Spending Targets
On October 15, 2025, the California Hospital Association (CHA) filed suit against the California Office of Health Care Affordability (OHCA) (and affiliated defendants) over claims that OHCA’s spending targets are arbitrary, irresponsible and single out hospitals, and will severely disrupt hospital services, starving hospitals of needed resources.
The California Legislature created OHCA in 2022 and authorized it: to analyze healthcare markets for cost trends and drivers of spending, to set and enforce cost-growth benchmarks for the state, and to review and assess the impact of mergers, acquisitions, affiliations, and other healthcare transactions on price and competition. In April 2025, the Health Care Affordability board voted to authorize OHCA to enforce cost targets that limit the total healthcare expenditures of California hospitals to 3.5% for most hospitals, and 1.8% for seven high-cost hospitals starting in January 2026. By 2029, these targets drop to 3% and 1.6%, respectively. California’s Department of Health Care Access and Information website states “[r]ecognizing that health care affordability has reached a crisis point as health care costs continue to grow, OHCA’s enabling statute emphasizes that it is in the public interest that all Californians receive health care that is accessible, affordable, equitable, high-quality, and universal.”
The cost targets have come under fire from the provider community, with an article published in JAMA noting “potentially adverse effects of [OHCA’s] policies on patient access, quality of care, and workforce stability.” The California Medical Association stated that OHCA’s cost growth benchmarks are divorced from the real-world costs of providing care.
In the recently filed suit, CHA claims that the current establishment of cost growth targets are invalid because they:
- Are inconsistent with the Legislature’s mandates (including claims that OHCA did not consider maintaining access to quality and equitable care and the stability of the health care workforce when setting targets, as required by statute, and based the targets on faulty and incomplete data)
- Are arbitrary and capricious, and therefore a prejudicial abuse of discretion in that they failed to consider the relevant factors in the enabling legislation and took actions that are not supported by the relevant record
- Violated the takings and due process clauses of the United States and California Constitutions in that they will result in payments to hospitals that are confiscatory and subject hospitals to enforcement without a clear statement of how to comply with the cost targets
- Were not adopted in conformance with the California Administrative Procedure Act when the board adopted criteria for identifying high-cost hospitals.
Among other things, the CHA suit asks the court to declare the establishment of statewide cost targets to be improper, unlawful, and unconstitutional, and to prohibit OHCA from applying the statewide cost targets to hospitals. The suit also asks the court to void the methodology designating some hospitals as “high-cost” hospitals.
The California Department of Health Care Access and Information responded that it does not comment on pending litigation.
The authority vested in OHCA is an ambitious attempt to control healthcare costs in California, and striking down the current plan to limit the growth of expenditures would be a setback for the program. The Source will provide more analysis and information as it becomes available.