The California Hospital Association sues the state over spending caps, including those impacting CHOMP and SVH.

In April when the Office of Health Care Affordability (OHCA) Board set lower spending cap increases for so-called "high cost" hospitals, including Community Hospital of the Monterey Peninsula and Salinas Valley Health, it seemed inevitable the decision would be put to a legal test. On Wednesday, Oct. 15, the test arrived when the California Hospital Association filed suit against OHCA, calling the spending caps "arbitrary and irresponsible."

CHA officials contend in the suit that the caps will disrupt services and cause up to 75 percent of California hospitals to operate at a loss, leading to the elimination of approximately 40,000 jobs for nurses and other health care workers.

They are asking the court to declare the spending caps as unconstitutional, as well as enforcement of cost targets without a plan for how the state will assess compliance. They are also asking the court to prohibit the state from applying the spending caps on hospitals.

They are also asking the court to prohibit the state "from employing their unlawfully promulgated methodology to designate hospitals as 'high cost' hospitals."

A spokesperson for the Department of Health Care Access of Information, which OHCA falls under, says the department does not comment on pending litigation.

Health care advocates were swift to condemn the lawsuit.

"This lawsuit is a blatant attempt to try to change the rules of the game after the fact because you don't like the outcome," Amanda McAllister-Wallner, executive director of Health Access California, said in a press release. 

Health Access California was one of the organizations that supported the decision by OHCA, contending that hospitals needed to keep spending in check to help lower the cost of health care for Californians.

In May 2024, the OHCA Board voted to set a 3-percent cap on spending increases for hospitals and larger medical facilities across the state phased in over three years. It began this year with a 3.5-percent cap and is set to land at 3 percent in 2029. 

Hanging over the ongoing discussions was what to do with some of the most expensive hospitals in the state, with CHOMP, SVH and Natividad all showing up in data as at or near the top. Union members from Monterey County had been showing up to OHCA meetings since it launched in 2023 asking board members for relief.

On April 22 the board voted to require those hospitals designated as high-cost to conform to a lower spending limit cap of 1.8 percent beginning in 2026. The cap will lower to 1.7 percent in 2027 and 2028, then 1.6 percent in 2029.

Dr. Mike McDermott, CEO of Montage Health, parent company of CHOMP, warned the board at the time that the cap will have "catastrophic impacts" on patient care.

On Thursday, Oct. 16, the head of the California Hospital Association, Carmela Coyle, said in a written statement that OHCA "has routinely chosen to ignore key data, dismiss valid and thoughtful perspectives and suggest that complex problems that arise from decisions they make could be figured out after the dust settles."

She said board members ignored underlying costs of care such as labor expenses and pharmaceutical prices, as well as a rapidly aging population, national and statewide inflationary pressures and policy changes such as President Donald Trump's "One Big Beautiful Bill" which will have negative impacts on health care in California.

McAllister-Wallner made the case that health care costs have outpaced inflation and wage growth "with very little to show for it—our higher costs don't translate to better quality of care, outcomes, equity or access." 

Instead, she said consumer have skipped care or taken on medical debt. "That's why the state created OHCA and very thoughtfully set a spending target that aligns with consumers' ability to pay."