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California’s Office of Health Care Affordability Outlines Roadmap to Delivering Better Value and Outcomes for Patients

Left to right: Kristof Stremikis, Millie Virgil, Hector Flores, MD

California took another step toward slowing the escalation of healthcare cost growth with the formal launch of the Office of Health Care Affordability at a briefing in Sacramento on November 30. The long-awaited state agency’s goals are to lower the cost of care by setting spending targets for payers and providers – including hospitals – and ensuring that the money spent delivers better value and outcomes.

State policymakers formed the Office in response to the surging cost of care for California families and employers far outpacing inflation and wage growth. Governor Gavin Newsom and several major participants in the state’s health care system, including Blue Shield of California, championed the law.

“Average spending on health care topped $10,000 a year for each Californian in 2020,” said Elizabeth Landsberg, director of the California Department of Health Care Access and Information. As a result, many people are paying a rapidly increasing portion of their income for healthcare coverage, co-pays, deductibles and medicine.

According to Kara Carter, senior vice president of strategy and programs at the California Health Care Foundation, more people in the state say they are worried about paying for unexpected medical bills than the cost of food, gas or housing. For half of all Californians, she said, runaway healthcare costs have caused them to delay or even skip care for a health problem – something that often can lead to more serious issues and much more expensive care later.

The Office of Health Care Affordability will make California one of ten states with cost target programs. Vishaal Pegany, Deputy Director of the Office of Health Care Affordability, and the current head of the new agency noted that California would take advantage of lessons learned in other states while creating the program.

The agency will start by collecting, analyzing, and reporting data on total healthcare expenditures in the state. From there, it will develop a model for determining how much statewide healthcare expenditures should be in future years and how fast they should grow. That will eventually lead to targets enforced by the state, with the first target set in June 2024 for spending in 2025.

The state will take a “progressive enforcement approach,” Pegany said, beginning with technical assistance to help providers, payers, and integrated health systems get their costs in line. Over time, that would shift to implementing performance improvement plans and escalating financial penalties if entities fail to meet cost targets.

It's crucial that the plan not only focuses on reducing cost increases but also on improving the quality of care, health equity, and ensuring access to care for all Californians. Regulators intend to emphasize primary care, increased access to behavioral health, and reorient the state’s health care system to focus on early intervention and prevention.

“The intent is not simply to have a low-cost system,” Pegany said. “But to take the best ideas and reorient the system toward the best value.”

A value-oriented approach to primary care is proven to lower costs and improve patient outcomes, which is especially important for lower-income individuals.

“The integration of behavioral health, oral health, and public health, that’s our next big leap,” said Dr. Hector Flores, medical director for Family Care Specialists Medical Group in Los Angeles, which treats a large Medi-Cal population.

“Collaboration among health plans, providers, health systems and others in the healthcare ecosystem is vital to ensuring the agency’s mission is a success,” said Millie Virgil, senior vice president of Transformation and Customer Experience at Blue Shield of California. By working toward a more digital future with real-time exchange of patient data to guide care, it will be possible to address both cost and value.

Virgil continued, “The promise this office has in bringing different entities together to collaborate on the benefits that value-based models can bring to us, along with real-time clinical data sharing, those two things coming together is very powerful.”

To view the full panel discussion, click here to watch the video.

For more information on the Office of Healthcare Affordability, please visit