Santa Barbara Cottage Hospital is one of seven California facilities identified as a “high-cost outlier,” according to the state Office of Healthcare Accountability.

The OCHA Health Care Affordability Board made the designations earlier this year, and is setting cost-growth targets for these facilities that are lower than the targets for other hospitals, all in a bid to improve affordability.

Cottage Health, a nonprofit healthcare organization, owns and operates the Santa Barbara, Goleta Valley and Santa Ynez Valley Cottage hospitals and other medical facilities and services in the county.

Cottage Health leaders are evaluating the system’s costs and the implications of changing eligibility for government programs such as Medi-Cal. The OCHA designation is based on metrics including the facility’s aggregate costs compared to Medicare reimbursement.

“We recognize the way healthcare is financed in this country,” Cottage Health President and CEO Scott Wester told Noozhawk. “It doesn’t make a lot of sense in which you have governmental payers that don’t pay according to the true cost, which then drives up the self-insured and the employer-based (costs), and that’s been going on for decades.

“And living in the community we live in, we are unfortunately on the high-cost list. And we’re not ashamed of the work we do and the access we provide for people that need us most, especially at their time of most difficult challenges.

“And we will do everything we can to ensure access and affordability are something that is in our nomenclature each and every day, and we look at ways to become more efficient tomorrow than we are today. And we also try to make sure we don’t have gaps of care.

“That includes working with partners like CenCal and the Santa Barbara Neighborhood Clinics, Wester said. 

Cottage Health CFO Matt Morgan noted that the hospital is analyzing its costs as part of the OCHA designation.

“We’re analyzing all of our costs and working with our employees and our physician partners to do so because it’s not something that the CFO does or administration does. It’s something that we [all] do, each and every member of our community here, 5,000 strong,” Morgan said. 

The spending growth targets proposed for the affected hospitals range from 1.6% to 1.8% per year, through 2029, according to OCHA.

The statewide healthcare spending growth targets range from 3.5% to 3%.

“A spending target is intended to slow health care spending growth so that spending on health care does not continue to crowd out household budgets for other necessities such as housing, food, and education,” according to OCHA.

“California’s spending target is based on historical median household income growth, signaling that health care spending should not grow faster than the income of California families.”

OCHA is expected to vote later this month on proposed enforcement penalties for high-cost hospitals that do not meet these targets.

The California Hospital Association filed a lawsuit last year challenging the OCHA state spending targets, according to news reports.

Based on the OCHA numbers, Santa Barbara Cottage Hospital’s costs are 305% of what Medicare pays for some of the same services, according to Katie Van Deynze of Health Access California, a healthcare affordability advocacy group.

Hospital costs contribute to the costs of healthcare insurance premiums, she said.

“So when hospital prices go up, that directly impacts how much people are paying for their premiums, as well as their deductibles and other cost sharing,” Van Deynze said.

With Santa Barbara County having roughly 70,000 people living at or below the federal poverty line, Van Deynze said, these high prices can have a large impact on the county.

“Many people who are renters are spending more than half of their incomes on housing, and one in six adults and one in five kids live in poverty in the county,” she said.

“This means that one unexpected hospital bill could destroy a family’s finances, and we know that families limit other household necessities to afford their medical care.”

OCHA data on hospital finances also shows that Santa Barbara Cottage Hospital has more cash in reserves and spent relatively less on charity care, as of 2022, than the state average.

Morgan, the CFO, said the system has a large charity-care program, which can cover all costs for residents with a household income less than $165,000, and financial assistance available.

“If your household makes $165,000 or less, … we’re here for you, and we’ll provide care for you and this is how you access that… under our charity care provision. That’s what community hospitals do. We have a super rich policy here,” Morgan said.

Santa Barbara Cottage Hospital is a nonprofit, and Cottage Health spokesperson Cristina Cortez told Noozhawk that patients are eligible for 100% charity coverage if their household income is less than or equal to 500% of the Federal Poverty Level and meet eligibility requirements.

“We are concerned about care affordability and access, and every employee at Cottage is engaged in ideas to reduce healthcare cost for our community,” she said.

“In 2025, Cottage provided $198 million in unreimbursed hospital care, $4.5 million for partner programs to support care for vulnerable populations, $65 million to assist families experiencing financial difficulties during a medical crisis, and $27.4 million for local health education and research.”