California Hospitals File Suit Challenging State Limits on Health Care Costs

California’s largest hospital association has filed a lawsuit regarding health care costs against the state’s Office of Health Care Affordability, writes Ana B. Ibarra, in Cal Matters. California Hospital Association v. Office of Health Care Affordability challenges the new regulations that cap annual hospital spending growth.

The suit, brought in San Francisco County Superior Court, seeks to block enforcement of the limits, which are designed to curb escalating health care costs across the state. The California Hospital Association argues that the regulations are unlawful, economically damaging, and will reduce patient access to essential medical services.

The state legislature established the affordability office in 2022, amid growing concerns over rising medical expenses and increasing medical debt among residents.

Healthcare spending in California reached $405 billion in 2020, representing a 30% increase over the previous five years. The office’s governing board adopted annual spending caps of 3.5% beginning in 2025, tapering to 3% within four years. Those levels were intended to track with median household income growth.

The framework mirrors similar initiatives adopted in eight other states, authorizing fines and performance plans for hospitals exceeding the limits starting in 2028.

In the California suit, the plaintiffs assert that the spending caps “single out” hospitals and impose “arbitrary and irresponsible” financial constraints. They contend that the rules will lead to widespread operating losses and service cuts, particularly given the rising pressures of labor, pharmaceutical, and demographic costs.

The state’s health agency has declined to comment on the pending litigation.

For lawyers, this lawsuit could set an important precedent in striking a balance between cost control and operational viability in the healthcare sector. If the court limits the state’s regulatory authority, California’s model for containing health care costs could face significant revisions, potentially influencing similar efforts nationwide.