April 16, 2025

Usingpos

AB 1415 (Bonta) Reining in Health Care Costs

AB 1415 (Bonta) Reining in Health Care Costs

Background

Health care costs for consumers are rising faster than inflation, taking up bigger and bigger chunks of consumers’ incomes. Californians are facing a health care affordability crisis, and that’s why the Legislature and Governor created the Office of Health Care Affordability (OHCA) in 2022.
The Legislature and Governor established OHCA with the triple aim of lower costs, better outcomes
and improved equity in health care. OHCA is responsible for setting cost-growth targets aimed at slowing the rate of rising costs, while also promoting access to primary care, behavioral health and consumer affordability.

However, there are still health care entities that are not subject to oversight by the Office of Health Care Affordability, leaving gaps in the ability to pinpoint real drivers of cost growth. AB 1415 (Bonta) will better ensure that OHCA can respond to trends in the health care market that impact the cost of care. This includes increasingly complex health care mergers that often drive up costs by reducing competition and creating health care monopolies. AB 1415 will:

  • Put health systems and management services organizations (MSOs) as health care entities under the purview of OHCA, giving OHCA authority to collect data and subject both to cost growth targets.
  • When these health systems and MSOs or private equity and hedge funds are involved in health care mergers, these entities would be subject to the full scrutiny of OHCA’s reviews of health care mergers, called Cost and Market Impact Reviews (CMIRs).

 

AB 1415 Ensures that the Office of Health Care Affordability Has the Full Picture of Cost Drivers, and Increases Transparency for Health Care Deals

AB 1415 will specifically include health systems as providers and management services organizations (MSOs) as health care entities, which the Office of Health Care Affordability could then subject to data collection and cost-growth targets. By including entire health systems in its purview, the Office will be able to better review the whole system and its combined market power and drivers of high prices for consumers. By looking at health systems as whole systems that include hospitals, physicians, and sometimes health plans, OHCA will be able to see if the systems are working together to improve access to primary care and behavioral health by moving care out of emergency rooms and into more appropriate primary and preventive care.

AB 1415 will also ensure that private equity, hedge funds and MSOs — all of which are operating with little oversight — are subject to cost and market impact reviews when they are involved in health care mergers and transactions that will impact costs for consumers. AB 1415 will strengthen OHCA and the state’s ability to slow health care costs and understand more completely the impact of private equity deals in health care.

 

The Problem with High Health Care Costs

While the state has made important progress in getting more Californians insured, health care costs remain too high for many. More than half of Californians last year reported skipping or delaying care due to the cost, often making their health conditions worse. Today, a family living on the median income of about $85,000 per year is asked to pay over $10,000 annually for the family’s share of premium and median deductible. Twenty years ago, only 33% of workers had a deductible; today, almost 80% of workers do, and those deductibles are larger than ever before. (i)This means that most working families have to pay $4,000 before their health insurance even kicks in to help pay their bills. These high health care costs disproportionately affect Black and Latino consumers in the form of higher incidence of medical debt. (ii)

 

Higher Health Care Costs Don’t Translate into Better Quality, Improved Equity or More Access to Care

Decades of research show that there is little correlation between health care spending and quality. Researchers have found that 20% — 25% of health care spending in California is excess spending and argue it could be eliminated without harming either access or quality. Most of this excess spending is accounted for by administrative complexity, pricing and market inefficiencies, along with failures in care delivery and inadequate preventative care. (iii) Lack of affordable care today creates the biggest barrier to access for most consumers.

 

Health Care Mergers Drive Up Costs without Improvements in Quality or Access Health Systems

Increasingly, consumers receive services from doctors that are part of a larger health system, including those with multiple hospitals or those affiliated with physician groups and/or health plans. While health systems have argued this leads to increased coordination and efficiency, robust research shows that health care mergers and takeovers drive higher prices of care, and do not improve quality or equity. In fact, health care prices have less to do with the cost of providing care, the quality of care, or improving health outcomes; and more to do with the relative size and market power of health providers that allows them to charge what they want to. For example, Sutter Health – which settled with the California Attorney General for $575 billion in 2022 over a lawsuit for anti-competitive contracting – used its market power as a system to drive up the cost of care in Northern California, which is 20 to 30 percent higher than in Southern California. (iv,v)

 

Private Equity Deals in Health Care

These same concerns are heightened for private equity and hedge fund acquisitions, which can lead to increased prices, dangerous health outcomes, cuts in access to care, and worse financial outcomes for the health care provider being acquired. Between 2019 and 2023, Private equity acquisitions of health care providers in California totaled $4.31 billion — roughly a third of all health care deals but had little to no regulation nor oversight at the state and federal level. (vi)

In recent years, private equity firms have used Management Services Organizations (MSOs) as a mechanism to indirectly invest in physician organizations. An MSO is a company that provides administrative and managerial services to health care providers including network management, financial management, contracting and population health. For-profit entities, like private equity firms, use the MSO model to indirectly invest in health care by purchasing providers’ nonclinical assets and providing nonclinical services, to get around violating the state’s Corporate Practice of Medicine laws. While these administrative and managerial services sound benign, they can have significant clinical implications. For example, if scheduling requires primary care doctors to spend 7-8 minutes with each patient, the primary care doctor has little choice but to refer most of the care to specialists, even though the primary care doctor could manage stable chronic conditions such as asthma and heart disease.

MSOs can significantly impact markets and thus health care costs. One way in which MSOs may do this is creating extensive provider networks that negotiate jointly with insurers, leveraging their providers’ bargaining power, and increasing prices for consumers. But there are no registration or reporting requirements imposed on MSOs, leaving the state with little information about their ownership and contractual relationships. (vii, viii)

 

How the Office of Health Care Affordability is Tackling Rising Costs and Increasing Transparency on Health Care Deals

The Office of Health Care Affordability reflects the Legislature’s strategy for slowing the growth of health care costs, while improving quality, equity and outcomes for Californians. The purpose of setting cost-growth targets for health care entities is to give health plans, hospitals and physician organizations the opportunity to manage care in a way that lowers costs while improving quality and equity. In 2024, OHCA made the first step to this goal by setting a cost-growth target of 3.5% in 2025 for all health plans and insurers, as well as hospitals, physician organizations and other health care entities in California; with a glide path to 3% by 2029. This target was established to align with the growth rate of family income: a measure of the ability of consumers to afford care.

Currently, health care entities being acquired are required to provide notice to OHCA, giving the Office the ability to review consumer and market impacts (often through cost and market impact reviews. However, there is no such requirement for private equity or hedge funds. This means OHCA only has a partial view of transactions in which private equity or hedge funds are involved. This is hampering the state’s ability to look closely at both sides of a transaction, when it includes entities like MSOs and private equity firms.

AB 1415 would give OHCA statutory authority to fully review these mergers and ensure that the market works in the best interest of consumers, not big health care corporations.

For any questions please contact:
Katie Van Deynze, Senior Policy and Legislative Advocate, [email protected]

 

Endnotes

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