California Hospital Association Makes New Claims in its Case Against OHCA Spending Targets
Overview
In April 2024, the Health Care Affordability Board at California’s Office of Health Care Affordability (OHCA) approved a statewide health care spending target, setting an annual per capita growth rate that health plans and providers are expected to meet in order to slow the rise in health care costs. Starting January 1, 2026, OHCA intended to begin to enforce spending targets, limiting annual increases in healthcare expenditures for most California hospitals to 3.5% and 1.8% for seven high-cost hospitals. By 2029, these targets drop to 3% and 1.6%, respectively.
In response, on October 15, 2025, the California Hospital Association (CHA), the professional trade organization that represents California hospitals, filed suit against OHCA and affiliated defendants. The CHA suit claims that OHCA’s cost targets are arbitrary, irresponsible, and single out hospitals, and will severely disrupt hospital services, starving hospitals of needed resources. On February 14th, 2026, OHCA responded by filing their first petition for demurrer (a legal objection claiming that opponent's pleading fails to state a valid legal claim). The court sustained the demurrer, holding that CHA failed to demonstrate standing but gave CHA an opportunity to file an amended complaint. On June 1st, 2026, CHA filed their second amended petition which OHCA responded to on July 6th, 2026, in a second petition for demurrer. A hearing is scheduled for September 9th where the court will decide whether to sustain the demurrer.
This post recaps the first complaint and its dismissal and then turns to the new developments: CHA's unsuccessful motion to seal its filings, the new standing theory in its second amended petition, and OHCA's pending demurrer to that petition.
The First Complaint and Its Dismissal
In its first complaint, CHA argued that OHCA's cost targets were unlawful on four grounds: 1) they conflicted with the legislature's mandates to consider care access, equity, and workforce stability; 2) they were arbitrary and capricious; 3) they imposed confiscatory payments in violation of the takings and due process clauses; and 4) the criteria for identifying high-cost hospitals were adopted without the rulemaking required under the California Administrative Procedure Act. The complaint asked the court to declare the targets unlawful and to bar OHCA from applying them.
OHCA demurred, arguing that CHA lacked standing because it had not shown a concrete and particularized injury and had not identified any individual member hospital that had been or would be harmed. CHA responded that complying with the targets, in practice, would cause its members concrete and imminent harm. The court sustained the demurrer for lack of standing, finding CHA's alleged injuries hypothetical, and granted CHA 30 days to file an amended petition.
CHA Challenge to Seal and File Second Complaint
Before submitting the amended petition, CHA moved to seal its amended petition. A court may seal a record only if a party's overriding privacy interest outweighs the public's right of access, and the seal must serve that interest, use the least restrictive means, and cover only the necessary portions. CHA argued the petition contained confidential hospital-insurer pricing data which would violate antitrust rules against competitors sharing pricing information if released.
On May 7, 2026, Judge Quinn found that CHA had not presented sufficient evidence to demonstrate that the pricing information outweighed the public interest, and that CHA’s motion to seal the documents was substantially overbroad. The court permitted CHA to file a second amended petition by June 1st, 2026, so long as the first was removed from the record.
Second Complaint
On June 1st, 2026, CHA filed their second amended petition. In it, CHA claims that OHCA's health care cost targets are arbitrary, unlawful, and unconstitutional. Specifically, it challenges OHCA’s adoption of hospital sector-specific cost targets, including reduced cost targets for high-cost hospitals and the adoption of criteria for identifying high-cost hospitals.
CHA's overall structure, three claims and causes of action, statutory background, and most of the "public comment" evidence recitation remain unchanged from the first complaint. The second amended complaint introduced a new standing argument, asserting that CHA has organizational standing on behalf of its members being harmed by the requirement to comply with the cost targets or face mandatory enforcement, and identifies seven named hospitals that have suffered concrete harm.
CHA’s public comment evidence section raises broad assertions that OHCA failed to consider relevant and necessary evidence. However, the complaint does not specify which of OHCA’s actions, if any, reflect a failure to consider these comments.
CHA also introduces a new allegation that the spending targets weakened hospitals' bargaining positions with insurers, forcing them to accept lower rates. Lucile Salter Packard Children's Hospital (LPCH), a named CHA member, alleged that the cost targets harmed its negotiations with commercial payors, which had previously involved robust discussions of a variety of data points. LPCH claimed that the cost targets limited its negotiations, with payors only agreeing to rate increases in accordance with the targets, causing LPCH to accept lower rate increases than in previous years.
CHA Amended Standing Argument
The judge dismissed CHA’s standing argument in their first complaint because he found that CHA had not suffered any actual harm. CHA revised its second amended petition, to argue that it has suffered an injury in expending “staff time or other resources on responding to a new threat to its mission,” thereby “diverting those resources from other projects.” Specifically, CHA alleges it has spent 2,134 hours and $953,098, including $8,990 on external consultants, analyzing the impact of the OHCA cost targets, responding through public comments, and delivering member education.
CHA also alleges its members have suffered harm by being required to comply with the cost targets or face mandatory enforcement, which is requiring them to make significant changes in their everyday practices. CHA cites Food and Drug Administration v. Alliance for Hippocratic Medicine (AHM), in which the AHM argued it had to expend resources to counter the FDA’s relaxed regulations on Mifepristone. Food and Drug Administration v. Alliance for Hippocratic Medicine, 602 U.S. 367 (2024). In that lawsuit, AHM claimed the diversion of resources, stress, and strain on emergency medical systems caused the organization harm, and that their members would face harm in being forced to treat emergency abortion complications against their moral or religious beliefs. Ultimately, the Supreme Court found this argument too speculative, and that a general disagreement with an agency’s lawful decision does not create a legal right to standing. Organizations cannot claim standing by alleging they have suffered harm from contesting an otherwise legal policy.
OHCA’s Memorandum of Points and Authorities in Support of Demurrer to Second Amended Petition
On July 6th, 2026, OHCA filed a memorandum of points and authorities in support of its demurrer to the second amended petition, arguing that CHA still lacks standing because the core, dispositive facts remain unchanged. OHCA notes that there is no immediate penalty for exceeding cost targets since OHCA can only issue penalties after a mandated progressive enforcement scheme, meaning the earliest possible spending target penalties are still years away, making any harm from these spending targets entirely speculative. OHCA further argues that CHA's new allegations are only loosely connected to the spending targets and are supported solely by conclusory allegations, with neither CHA nor its members able to show that their alleged harms actually stem from the challenged conduct. According to OHCA, CHA cannot claim injury from the mere prospect of future enforcement, particularly where ample opportunity exists to avoid penalties altogether. OHCA alleges CHA’s new allegations are rank speculation about what might have transpired had OHCA adopted different cost targets and are supported only with conclusory allegations with no clear links to the challenged conduct.
OHCA claims that the only concrete harm CHA alleges it suffered is in spending time and money opposing OHCA’s cost targets strategy. OHCA urges the court to reject this theory, as the Supreme Court did in FDA v. AHM. OHCA contends that accepting CHA's logic would allow any organization ideologically opposed to a pending regulation to manufacture standing simply by spending resources to oppose it, quoting the case's warning that "a simple diversion of resources would effectively eliminate standing since all the organizations in America would have standing to challenge almost every federal policy that they dislike, provided they spend a single dollar opposing those policies.” Food and Drug Administration 602 U.S. at 395. OHCA adds that the costs CHA points to as harm do not stem from the challenged conduct at all, but rather from the lawful act of promulgating cost targets.
As a professional trade organization, CHA’s objective is to lobby on behalf of hospitals, including preparing and submitting public comments in response to proposing agency actions and legislation. Allowing CHA to claim harm for diverting resources towards their organizational mission would open the door for CHA to bring suit for any work they do in lobbying against a policy.
OHCA also responds to CHA’s bargaining impact allegation, where LPCH claims their negotiating power has been weakened by the cost targets. OHCA argues that CHA failed to identify any concrete, specific instance in which a hospital actually negotiated a lower rate because of the cost targets. CHA relied on assertions that insurers "brought up" the cost targets in negotiations, without showing a causal link that these mentions impacted hospitals’ bargaining power above all other factors. OHCA argues that CHA’s failure to demonstrate causation fails to demonstrate standing.
OHCA asks the court to affirm its earlier rejection of CHA's public interest standing argument, maintaining that this is not a case where absent public interest standing, agency action would “be effectively insulated from judicial review.”
As in the first round, the case turns largely on standing: whether CHA's new theories of harm, its own diverted resources and its members' compliance costs, are concrete enough to let the challenge proceed. The September 9 hearing will decide whether the second amended petition survives where the first did not. The Source staff will continue to follow this case. For more background, please go to our case page.
Leave A Comment