§ 127500.2. — 127500.2. (Amended by Stats. 2025, Ch. 641, Sec. 1.)

As used in this chapter, the following definitions apply:
(a)
(1)
“Administrative costs and profits” means the total sum of all expenses not included in the numerator of the medical loss ratio calculation under state or federal law, including, but not limited to, all of the following:
(A)
All categories of administrative expenditures.
(B)
Net additions to reserves.
(C)
Rate dividends or rebates.
(D)
Profits or losses.
(E)
Taxes and fees.
(2)
For purposes of this chapter, “administrative costs and profits” for a fully integrated delivery system means those associated with its nonprofit health care services plan.
(b)
“Affordability for consumers” means considering the totality of costs paid by consumers for covered benefits, including the enrollee share of premium and cost-sharing amounts paid towards the maximum out-of-pocket amount, including deductibles, copays, coinsurance, and other forms of cost sharing for public and private health coverage.
(c)
“Affordability for purchasers” means considering the cost to purchasers, including, but not limited to, health plans and health insurers,
employers purchasing group coverage, and the state, for health coverage and shall include premium costs, actuarial value of coverage for covered benefits, and the value delivered on health care spending in terms of improved quality and cost efficiency.
(d)
“Alternative payment model” means a state or nationally recognized payment approach that financially incentivizes high-quality and cost-efficient care.
(e)
“Board” means the Health Care Affordability Board established by Section 127501.10.
(f)
“Director” means the Director of the Department of Health Care Access and Information.
(g)
(1)
“Exempted provider” means a provider that meets standards
established by the board for exemption from either of the following:
(A)
The statewide health care target.
(B)
Specific targets set for health care sectors, including fully integrated delivery systems, geographic regions, and for individual health care entities.
(2)
The factors used in setting standards for exemption may include, but are not limited to, annual gross and net revenues, patient volume, and high-cost outliers in a given service or geographic region.
(3)
In determining whether a provider is an exempted provider, the board shall also consider any affiliates, subsidiaries, or other entities that control, govern, or are financially responsible
for the provider or that are subject to the control, governance, or financial control of the provider.
(4)
A physician practice that does not meet the definition in subdivision (r) is an exempted provider.
(h)
“Fully integrated delivery system” means a system that includes a physician organization, health facility or health system, and a nonprofit health care service plan that provides health care services to enrollees in a specific geographic region of the state through an affiliate hospital system and an exclusive contract between the nonprofit health care service plan and a single physician organization in each geographic region to provide those medical services.
(i)
“Geographic region” may either be the regions
specified in Section 1385.01 or may be otherwise defined by the board.
(j)
“Health care cost target” means the target percentage for the maximum annual increase in per capita total health care expenditures.
(k)
“Health care entity” means a payer, provider, or a fully integrated delivery system.
(
l
)
“Hedge fund” means a pool of funds managed by investors for the purpose of earning a return on those funds, regardless of the strategies used to manage the funds. Hedge funds include, but are not limited to, a pool of funds managed or controlled by private limited partnerships or other types of private corporate or partnership formations. A hedge fund does not include either of the following:
(1)
Natural persons or other entities that contribute, or promise to contribute, funds to the hedge fund, but otherwise do not participate in the management of the hedge fund or the fund’s assets, or in any change in control of the hedge fund or the fund’s assets.
(2)
Entities that solely provide or manage debt financing secured in whole or in part by the assets of a health care facility, including, but not limited to, banks and credit unions, commercial real estate lenders, bond underwriters, and trustees.
(m)
“Insurance market” means the public and private health insurance markets.
(n)
“Line of business” means the different individual, small, and large
group business lines, as defined in Section 1348.95 of this code and Section 10127.19 of the Insurance Code, as well as Medi-Cal, Medicare, Covered California, or self-insured public employee health plans.
(o)
“Management services organization” means an entity that provides management and administrative support services for a provider in support of the delivery of health care services, excluding the direct provision of health services. Management and administrative support services shall include provider rate negotiation, revenue cycle management, or both. A management services organization does
not include entities that own one or more health facilities, as defined in subdivision (a) or (b) of Section 1250.
(p)
“Material change” means any change in ownership, operations,
or governance for a health care entity, involving a material amount of assets of a health care entity.
(q)
“Payer” means private and public health care payers, including all of the following:
(1)
A health care service plan or a specialized mental health care service plan, as defined in the Knox-Keene Health Care Service Plan Act of 1975 (Chapter 2.2 (commencing with Section 1340) of Division 2) or a Medi-Cal managed care plan contracted with the State Department of Health Care Services to provide full scope benefits to a Medi-Cal enrollee pursuant to Chapter 7 (commencing with Section 14000), Chapter 8 (commencing with Section 14200), or Chapter 8.75 (commencing with Section 14591) of, Part 3 of Division 9 of the Welfare and Institutions Code.
(2)
A health insurer licensed to provide health insurance or specialized behavioral health-only policies, as defined in Section 106 of the Insurance Code.
(3)
A publicly funded health care program, including, but not limited to, Medi-Cal and Medicare.
(4)
A third-party administrator.
(5)
Any other public or private entity, other than an individual, that pays for or arranges for the purchase of health care services on behalf of employees, dependents, or retirees.
(r)
“Physician organization” includes any of the following:
(1)
An organization described in paragraph (2) of subdivision (g) of
Section 1375.4.
(2)
A risk-bearing organization, as defined in Section 1375.4.
(3)
A restricted health care service plan and limited health care service plan under subdivision (a) of Section 1300.49 of Title 28 of the California Code of Regulations. The inclusion of restricted health care service plans and limited health care service plans in the definition of “physician organization” does not narrow, abrogate, or otherwise alter the regulatory authority of the Department of Managed Health Care over these entities.
(4)
A medical foundation exempt from licensure pursuant to subdivision (l) of Section 1206.
(5)
A medical group practice, a professional medical
corporation, a medical partnership, or any lawfully organized group of physicians and surgeons that provides, delivers, furnishes, or otherwise arranges for health care services and is comprised of 25 or more physicians.
(6)
Notwithstanding paragraph (5), an organization of less than 25 physicians, but that is a high-cost outlier whose costs for the same services provided are substantially higher compared to the statewide average, as identified through data sources that include, but are not limited to, data from state and federal agencies, other relevant supplemental data, such as financial data on providers that is submitted to state agencies, or data reported to HCAI under the Health Care Payments Data Program, established pursuant to Chapter 8.5 (commencing with Section 127671). The cost of delivering the same services in a
geographic region shall be considered to the extent that cost substantially deviates from the statewide average and reflects higher costs in that region unrelated to the market dominance of providers in that region or unrelated to the ownership, management, or asset structure chosen by the organization.
(s)
“Private equity group” means an investor or group of investors who primarily engage in the raising or returning of capital and who invest, develop, dispose of, or purchase any equity interest in assets, either as a parent company or through another entity the investor or investors completely or partially own or control. A private equity group does not include natural persons or other entities that contribute or promise to contribute funds to the private equity group, but otherwise do not participate in the management of the private
equity group or the group’s assets, or in any change in control of the private equity group or the group’s assets.
(t)
“Provider” means any of the following that delivers or furnishes health care services:
(1)
A physician organization.
(2)
A health facility, as defined in Section 1250, including a general acute care hospital.
(3)
A clinic conducted, operated, or maintained as an outpatient
department of a hospital, as described in subdivision (d) of Section 1206.
(4)
A clinic described in subdivision (l) of Section 1206.
(5)
A clinic described in subdivision (a) of Section 1204.
(6)
A specialty clinic, as described in paragraphs (1) to (3), inclusive, of subdivision (b) of Section 1204.
(7)
An ambulatory surgical center or accredited outpatient setting.
(8)
A clinical laboratory licensed or registered with the State Department of Public Health under Chapter 3 (commencing with Section 1200) of the Business and Professions Code.
(9)
An imaging facility that employs or contracts with persons that are subject to the Radiation Control Law (Chapter 8 (commencing with Section 114960) of Part 9 of Division 104), or the Radiologic Technologists Act (Article 5 (commencing with Section 106955) of Chapter 4 of Part 1, or Article 6 (commencing with Section 107150) of Chapter 4 of Part 1 of Division 104).
(u)
“Purchaser” means an individual, organization, or business entity that purchases health care services, including, but not limited to, trust funds, trade associations, and private and public employers who provide health care benefits to their employees, members, and dependents.
(v)
“Total health care expenditures” means all health care spending in the state by public and private sources, including all of
the following:
(1)
All claims-based payments and encounters for covered health care benefits.
(2)
All non-claims-based payments for covered health care benefits, such as capitation, salary, global budget, other alternative payment methods, or supplemental provider payments pursuant to the Medi-Cal program.
(3)
All cost sharing for covered health care benefits paid by residents of this state, including, but not limited to, copayments, coinsurance, and deductibles.
(4)
Administrative costs and profits.
(5)
Pharmacy rebates and any inpatient or outpatient prescription drug costs not otherwise
included in this subdivision.

Legislative History

Amended by Stats. 2025, Ch. 641, Sec. 1. (AB 1415) Effective January 1, 2026.