California SB 184: OHCA Spending Target, Notices, and Penalties

California Senate Bill 184, signed as an urgency statute on June 30, 2022, created the Office of Health Care Affordability (OHCA) inside the Department of Health Care Access and Information and gave it the authority to set statewide healthcare spending growth targets, review large healthcare transactions, and penalize entities whose costs grow too fast.¹ The 2026 calendar year is the first year those spending targets carry enforcement power, so payers, providers, and integrated delivery systems operating in California need to understand the rules now, before the first enforceable data cycle begins.

What OHCA Was Created to Do

OHCA analyzes the healthcare market for cost trends and spending drivers, develops a statewide cost-control strategy, and monitors how consolidation affects prices, access, quality, and equity.¹ The Director of HCAI serves as the director of OHCA and carries out enforcement.

The office collects total health care expenditure data broken down by service category, including hospital care, physician services, and prescription drugs, and uses it for public reporting and analysis of what is driving spending across regions and populations.² OHCA does not regulate how individual providers bill. It holds organizations accountable when overall spending growth outpaces what California families can afford.

The Statewide Spending Growth Target

The Health Care Affordability Board sets a statewide target for how fast per capita healthcare spending can grow each year. The target is anchored to the average growth rate of median household income in California from 2002 to 2022, built on the premise that healthcare costs should not outrun earnings.³

The target phases in on this schedule:

2025–2026: 3.5 percent per capita spending growth
2027–2028: 3.2 percent
2029 and beyond: 3.0 percent

The 2025 target year is a reporting-only baseline. Entities must submit data but face no enforcement. Starting with the 2026 target year, OHCA gains full authority to take progressive enforcement action against entities that exceed their target.³ The Board has identified seven hospitals as high-cost outliers and set a tighter target for those facilities: 1.8 percent for 2026, stepping down to 1.6 percent by 2029.⁴

The statute also directs the targets to promote quality and equitable care, consider the impact on people with disabilities and chronic illness, and support workforce stability, including graduate medical education and apprenticeships.⁵ An entity’s target can be adjusted if it demonstrates that organized labor costs are projected to grow faster than the target rate, so collectively bargained wage increases do not themselves trigger penalties.

Who Has to Comply

SB 184 defines “health care entity” to cover three groups: payers, providers, and fully integrated delivery systems.⁶

Payers include health care service plans such as HMOs, health insurers, Medi-Cal managed care plans, Medicare, third-party administrators, and other entities that pay for or arrange healthcare on behalf of employees, dependents, or retirees.

Providers include physician organizations, hospitals and other health facilities, outpatient clinics, ambulatory surgical centers, clinical laboratories, and imaging facilities.

Fully integrated delivery systems combine a physician organization, a health facility or system, and a nonprofit health care service plan serving a specific geographic region.

Physician organizations with fewer than 25 physicians are generally exempt from the spending targets unless the Board designates them as a high-cost outlier. The Board can define additional exemptions based on annual revenue, patient volume, or geographic factors.²

How Enforcement Escalates

OHCA does not go straight to penalties. The statutory process climbs through four steps:

Technical assistance. OHCA analyzes what is driving the entity’s spending and identifies best practices to bring costs down.
Public testimony. The entity can be required to explain its spending failures at a public Board meeting.
Performance improvement plan. The entity submits a plan identifying the causes of its excess spending and specific strategies to return to target. Plans can run up to three years. OHCA will not approve any plan that would erode access, quality, equity, or workforce stability.
Financial penalties. If an entity fails to comply with its performance improvement plan and still exceeds the cost target, the Director may assess administrative penalties commensurate with the degree of the overshoot.

An entity that fully complies with its approved performance improvement plan by the deadline will not be penalized even if it has not yet hit the target. The Director may still require modifications to the plan until the target is met.¹

Repeated noncompliance is where consequences steepen. If an entity goes through one or more performance improvement plans and remains noncompliant, the Director can assess escalating penalties that exceed the initial amounts.¹ In setting amounts, the Board considers the nature and gravity of the failures, the entity’s financial condition (including revenues, reserves, and profits of affiliated entities), and the entity’s market impact.

OHCA can skip the improvement plan process and go directly to penalties when an entity willfully fails to report accurate data, repeatedly neglects to file an acceptable improvement plan, or knowingly falsifies information.

When Penalties Actually Arrive

Although the 2026 target year is the first enforceable year, the clock for actual penalties runs longer than many people expect. Data collection for the 2026 target happens in 2027, and public reporting follows in 2028. The soonest enforcement actions can occur is sometime in 2028.² That lag gives entities time to prepare and gives those that ignore the targets now a worse starting position when enforcement arrives.

The statute directs the Board to approve specific dollar ranges for administrative penalties and the justification factors for applying them, but those amounts have not yet been publicly finalized. The law describes penalties as “initially commensurate with the failure to meet the targets, and in escalating amounts for repeated or continuing failure.”² Entities should watch the Board’s rulemaking for the final figures.

Transaction Notice and Market Impact Review

SB 184 also authorizes OHCA to examine healthcare mergers, acquisitions, and other transactions that involve material changes to ownership, operations, or governance. Any health care entity entering a material change transaction must file written notice with OHCA at least 90 days before closing. The notice requirement applies to transactions closing on or after April 1, 2024.

A transaction counts as a “material change” in several situations, including:

The deal has a fair market value of $25 million or more.
The transaction would increase any party’s California-derived annual revenue by $10 million or by 20 percent or more.
It involves the sale or disposition of 25 percent or more of an entity’s California assets.
It transfers 25 percent or more of voting power or governance control.
A new entity is formed that is projected to have at least $25 million in California-derived annual revenue.

Smaller parties are not off the hook when they transact with larger ones. An entity with at least $10 million in California revenue or assets must file if the other party has at least $25 million. Entities in designated mental health or primary care shortage areas must file regardless of size.¹

If OHCA determines that a transaction is likely to significantly affect market competition, the state’s ability to meet cost targets, or costs for consumers and purchasers, it conducts a formal cost and market impact review (CMIR). The review examines changes in market share, price comparisons with peer providers, effects on quality and access, competition for workers, and barriers to entry for competitors. A transaction subject to a CMIR cannot close without written authorization from OHCA.¹

OHCA’s transaction review role is informational. Unlike the Attorney General, the Department of Managed Health Care, or the Department of Insurance, OHCA does not have authority to block or impose conditions on transactions. It collects data, seeks public input, and reports on anticipated market impacts, which other enforcement agencies can then act on.

Data Reporting Obligations

The spending targets only work if OHCA has reliable data, so the law imposes substantial reporting duties. All covered health care entities must submit total health care expenditure data to OHCA. Payers and fully integrated delivery systems report on an annual schedule set by the office.²

OHCA also draws on the Healthcare Payments Database, which gathers claims and encounter data from commercial insurers, Medi-Cal, and Medicare. The database allows granular analysis of utilization and spending, variation across payers and regions, and investigation of specific cost drivers like inpatient services or prescription drugs.

Willful failure to report complete and accurate data, or knowingly falsifying information, can trigger administrative penalties without going through the performance improvement plan process first.

What SB 184 Does Not Cover

SB 184 targets system-level spending growth and consolidation. It does not replace federal price transparency rules or surprise billing protections, which apply to the same California entities on separate tracks. Starting January 1, 2026, updated federal rules under the Hospital Outpatient Prospective Payment System require hospitals to publish machine-readable files with expanded pricing data, including median allowed amounts and 10th and 90th percentile figures derived from electronic remittance data, with a senior official such as the CEO personally certifying completeness and accuracy.⁷ The federal No Surprises Act separately restricts surprise billing for emergency care, out-of-network care at in-network facilities, and air ambulance services, and requires good-faith cost estimates for uninsured or self-paying patients.⁸ Compliance with SB 184 does not satisfy either framework, and compliance with those federal rules does not satisfy SB 184.

1
California Legislative Information. SB 184 Health
2
California Department of Health Care Access and Information. OHCA Background and Resources
3
California Department of Health Care Access and Information. Statewide Health Care Spending Target Approval Is Key Step Towards Improving Health Care Affordability for Californians
4
California Department of Health Care Access and Information. Slow Spending Growth
5
California Legislative Information. California Health and Safety Code HSC 127502
6
California Legislative Information. SB 184 Health – Today’s Law As Amended
7
Wisconsin Hospital Association. Price Transparency Changes Coming in 2026 – What Hospitals Need to Know
8
CMS.gov. Overview of Rules and Fact Sheets