“Partners in Affordability Become Plaintiffs In Court”
By Chris Deacon
It should surprise no one that the California Hospital Association has sued the state over the Office of Health Care Affordability’s new cost growth caps.
Hospitals are arguing what many of us have predicted for years: that when “cost containment” efforts start to actually constrain hospital revenues, those same hospitals will pivot from “partners in affordability” to plaintiffs in court.
The CHA’s legal arguments are broad — they allege the state acted arbitrarily and capriciously, violated the Takings and Due Process clauses, and adopted “underground regulations” without following the Administrative Procedure Act.
In short: that the caps are unworkable, unconstitutional, and impossible to meet.
And while it’s easy to roll our eyes at hospitals crying poor, the truth is — I’m not convinced they’ll lose.
I’ve long believed that these “benchmark” and “cost-growth” programs were always going to hit this wall. The moment they went from measuring spending trends to setting enforceable limits — the moment they tried to touch the hospital revenue stream — they crossed into legal quicksand.
The reason other states haven’t been sued? Because their “targets” aren’t really targets. They’re dashboards. There’s no enforcement, no accountability, and therefore no risk.
California, to its credit, is testing whether affordability benchmarks can have teeth. This lawsuit will determine whether they can legally bite.
Full analysis — including the constitutional arguments, timing missteps, and what this means for other benchmark states — on Substack for subscribers later today
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BONUS ARTICLE by Craig Gottwals
How Much Profit Is Enough for Your Non-Profit Hospital?
California’s top 10 “non-profit” hospitals are posting net margins of 20–40%.
Charitable Mission statements on the wall, mountains of money in the vault.
How does a “charity” mint cash like that?
1) Price power: Commercial plans pay 312% of Medicare in California.
2) Premium skim (integrated systems): When claims run light, the HMO keeps the difference. Shocking, I know.
3) 340B Arbitrage: Congress created 340B so hospitals could buy certain drugs at steep discounts to help low-income patients. Many hospitals then bill insurers the full freight anyway and pocket the spread. Patient doesn’t see the discount, the plan pays retail, the hospital keeps the difference. Legal? Yes. Charitable? Hardly.
4) Site-of-service Games: Buy a clinic, slap on a facility fee, same visit, bigger bill.
5) Investment windfalls & one-offs: A good year on Wall Street or a one-time gain, and suddenly the “non-profit” looks like a hedge fund with an emergency room.
Data based on 2023 from The National Academy for State Health Policy
