California Health Care Providers Brace for Impact as State Implements Health Care Cost Targets
California’s health care landscape is set for a significant shake-up as the state rolls out new measures aimed at reining in costs and promoting alternative payment models (APMs). The recently proposed statewide health care cost targets and standards, along with goals for APM adoption, spell out greater challenges ahead for health care entities across the state.
Under the HealthCare Quality and Affordability Act (HCQA), the newly formed Office of Health Care Affordability (OHCA) has put forward ambitious targets for curbing the growth of health care expenditures. These targets, including a proposed statewide cost target of 3% annually starting in 2025, are designed to align with the average annual increase in median household income over the past two decades. However, with health care spending historically outpacing income growth, meeting these targets presents a formidable task for providers already grappling with pandemic fallout and inflationary pressures.
Notably, the HCQA empowers OHCA to enforce compliance with these targets, signaling a departure from similar programs in other states. Failure to meet cost targets could result in penalties and other enforcement measures, adding urgency to the need for providers to recalibrate their approach to payer negotiations and cost management.
In tandem with cost containment efforts, OHCA is driving a push towards APMs, which incentivize quality care delivery while controlling costs. With a statewide goal aiming for at least 75% of members enrolled in commercial, Medi-Cal, and Medicare Advantage plans to be under APM arrangements within the next decade, providers can expect heightened pressure from payers to transition away from traditional fee-for-service models.
While some health care entities, such as integrated provider networks, may be better positioned to navigate these changes, others, including hospitals, face a steep learning curve in adapting to APMs and managing financial risk. The transition necessitates a new skill set and support infrastructure, from actuarial expertise to legal contract drafting.
Moreover, OHCA’s oversight extends to material changes in provider networks, potentially complicating growth strategies through mergers and acquisitions. Providers must navigate OHCA’s review processes to mitigate barriers to expansion.
As the implementation of these measures looms, California’s health care providers are urged to closely monitor OHCA’s directives and proactively strategize for the evolving landscape of payer-provider dynamics. Adapting to the dual imperatives of cost containment and APM adoption will be critical for ensuring long-term viability and sustainability in the state’s health care ecosystem.
Sources:
https://www.jdsupra.com/legalnews/california-health-care-providers-to-5133209/