California is weighing stiff penalties for hospitals and other healthcare entities that don’t stay under state spending limits, potentially levying hundreds of millions of dollars in fines if these providers don’t take steps to rein in rising healthcare costs.
If the state Office of Health Care Affordability adopts the fines next week, hospitals, medical groups, insurers, and others could face penalties that amount to as much as 125% of the total they spend above the state’s annual growth targets.
The penalty proposal comes after healthcare entities in California were asked to limit growth by 3.5% last year and ramp down to 3% by 2029. Seven hospitals that state officials consider particularly expensive face even smaller growth targets: 1.8% in 2026, dropping to 1.6% by 2029.
Consumer advocates argue that state financial deterrents are critical to bring relief to millions of Californians struggling with high insurance premiums and out-of-pocket expenses. Hospitals accounted for 40% of the increase in U.S. health spending from 2022 to 2024, compared with 11% from retail prescription drugs. But adding teeth to those targets sets up a fight with the powerful hospital industry, which has a pending lawsuit challenging the spending limits as unreasonable. Hospitals warned that they will cut back on vital services, including in emergency rooms, obstetrics, and behavioral health.
