California aims to limit health care costs with new office

SACRAMENTO, Calif. (AP) — Frustrated by how much they were paying for health care, two groups of California workers sued one of the nation's largest hospital systems. One group secured a half-billion-dollar settlement. The other lost in court.

Both cases took nearly a decade to resolve, highlighting the difficulty patients and their employers often face when trying to corral the ever-increasing costs of health care.

Now, instead of relying on the market or the courts to keep health care prices in check, California Gov. Gavin Newsom wants to order the state’s hospitals, doctors’ offices and insurance companies to keep their costs below a certain level. If they don't, the state could impose a hefty fine.

That's the goal of the proposed Office of Health Care Affordability, part of Newsom's $286.4 billion budget proposal. At least four other states — Massachusetts, Maryland, Rhode Island and Oregon — have similar offices. But none is as comprehensive as the one proposed in California. The big difference: California would be more willing to punish companies that charge too much.

“If we could get everybody to voluntarily really look at the way they are managing health care, they would have done it by now,” said Jim Wood, a Democratic member of the state Legislature who supports the proposal. “We're seeing health care costs rise at twice the rate of inflation for the last seven years, and that is simply unsustainable.”

When it comes to health care prices, patients and their employers have little negotiating power. Patients often don’t know how much a procedure or treatment will cost until after it’s done. A flurry of hospital mergers and acquisitions have diluted competition in the marketplace, making it easier for providers to raise rates.

The impact on consumers has been...