California mulls fining healthcare organizations for rising costs

In an attempt to limit the growth in healthcare spending, California is considering fining "hospitals, medical groups, insurers, and others" if their services grow in cost above the state's targets (as reported by KFF Health News). Unsurprisingly, the hospital industry is fighting back with a lawsuit. California is not alone in trying to rein in costs: "Connecticut, Massachusetts, Oregon, and Rhode Island have also authorized the use of some type of financial penalty. The specifics of each vary widely, although so far no state has applied them."

Clearly, the rise in healthcare costs seems unsustainable. At the same time, fining organizations for rise in costs seems legally dubious. Instead, the state might be able to revoke non-profit status for institutions whose costs rise too quickly. At the very least, the state could be more aggressive in disallowing mergers. Potentially, the state could also affect patient volumes by encouraging patients to seek lower-cost providers.