BILL ANALYSIS Ó
AB 2180
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Date of Hearing: May 2, 2012
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
AB 2180 (Alejo) - As Amended: March 29, 2012
SUBJECT : Local health care districts: employee benefits.
SUMMARY : Limits specified benefits for health care district
employees unless the same options are available to all officers
and employees. Specifically, this bill :
1)Prohibits an employer from providing to, or on behalf of, an
officer or employee any of the following, unless the employer
makes the same options available to all officers and
employees:
a) A lump sum payment, including one based on service or
merit;
b) Any payment contingent upon severance or retirement;
c) A contribution to more than one retirement plan or other
supplemental pension plan, whether public or private; or,
d) Any other retirement benefit.
2)Defines "employer" to include "the board of directors, a
hospital district, and a health care facility of a hospital
district."
3)Defines "officer or employee" to include "the hospital
administrator, a director, policymaking management employee,
or medical staff officer, and any executive or staff of the
health care facilities of the district."
EXISTING LAW :
1)Establishes the Local Health Care District Law.
2)Allows a local health care district to be organized,
incorporated and managed, as specified under the Local Health
Care District Law.
3)Allows a health care district to include incorporated or
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unincorporated territory, or both, or territory in any one or
more counties, and allows the territory comprising the
district to not be contiguous, as specified.
4)Enumerates the powers and duties of health care districts.
5)Allows, notwithstanding any other provision of law, a hospital
district, or any affiliated nonprofit corporation upon a
finding by the board of directors of the district that it will
be in the best interests of the public health of the
communities served by the district and in order to obtain a
licensed physician and surgeon to practice in the communities
served by the district, to do any of the following:
a) Guarantee to a physician and surgeon a minimum income
for a period of no more than three years from the opening
of the physician and surgeon's practice;
b) Guarantee purchases of necessary equipment by the
physician and surgeon;
c) Provide reduced rental rates of office space in any
building owned or leased by the district or any of its
affiliated entities, or subsidize rental payments for
office space in any other buildings, for a term of no more
than three years;
d) Provide other incentives to a physician and surgeon in
exchange for consideration and upon terms and conditions
the hospital district's board of directors deems reasonable
and appropriate; and,
e) Finds and declares that this section is necessary to
assist district hospitals to attract qualified physicians
and surgeons to practice in the communities served by these
hospitals, and that the health and welfare of the residents
in these communities require these provisions.
6)Requires, at least once each year, the board of the health
care district to engage the services of a qualified accountant
of accepted reputation to conduct an audit of the books of the
hospital and prepare a report, as specified.
FISCAL EFFECT : None
COMMENTS :
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1)Near the end of World War II, California faced a severe
shortage of hospital beds. To respond to the inadequacy of
acute care services in the non-urban areas of the state, the
Legislature enacted the Local Hospital District Law, with the
intent to give rural, low income areas without ready access to
hospital facilities a source of tax dollars that could be used
to construct and operate community hospitals and health care
institutions, and, in medically underserved areas, to recruit
physicians and support their practices.
The Local Hospital District Law (now called the Local Health
Care District Law) allowed communities to create a new
governmental entity - independent of local and county
jurisdictions - that had the power to impose property taxes,
enter into contracts, purchase property, exercise the power of
eminent domain, issue debt, and hire staff. In general, the
process of creating a hospital district started with citizens
in a community identifying the need for improved access to
medical care. The hospital district's boundaries were usually
based on the distance between communities and the closest
available acute care hospital services. A petition for
formation was then filed by the community to the county board
of supervisors, and then residents of the proposed district
were needed to vote in favor of the measure to create the
hospital district. In 1963, the Knox Nisbet Act was passed,
which created local agency formation commissions (LAFCOs) and
clarified and formalized the process for establishing a
district.
According to the Association of California Healthcare
Districts, there are currently 74 districts, of which 30 are
rural, 20 are critical access, five have stand-alone clinics,
and three have stand-alone skilled nursing facilities. These
institutions provide a significant portion of the medical care
to minority populations and the uninsured in medically
underserved regions of the state and are mainly funded by
Medicare, Medi-Cal, and district tax dollars.
2)This bill prohibits local health care districts from providing
to an employee any special retirement benefits unless the
district makes the same options available to all employees.
According to the author, this bill would allow all public
employees to benefit from the same retirement benefits that
hospital administrators are often offered. The author notes
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that this bill creates a fair pension system within local
health care districts and would prevent hospitals from giving
excessive retirement benefits to hospital executives. This
bill is author-sponsored.
The author notes that "in recent years, local health care
districts have come into public scrutiny with allegations of
administrative waste, wrongdoing, and lack of appropriate
spending priorities." The author sites the recent Bureau of
State Audits (BSA) examination of Salinas Valley Memorial
Health Care System as one of the reasons for the justification
for the bill.
3)The BSA audit, released in, March 2012, concluded the
following in the opening letter to the Governor and
Legislative Leaders:
"This report concludes that the ÝSalinas Valley Memorial]
Health Care System's board of directors, when making decisions
regarding executive compensation, violated the Ralph M. Brown
Act, which requires legislative bodies of local public
agencies to conduct their meetings in an open manner. In an
environment characterized by a lack of an executive
compensation policy and limited transparency, the Health Care
System granted compensation for its executives at the upper
end of the range for the health care industry. In addition,
the former chief executive officer (CEO) received generous
retirement and severance benefits totaling $4.9 million
between 2008 and 2011, most of which were paid to him before
he retired.
Our review also noted weaknesses in controls in several areas.
We audited instances in which the Health Care System had
business relationships between 2006 and 2010 with entities in
which its executives or board members had economic interests.
In the two relationships we reviewed, the former CEO may have
violated contract-of-interest laws in one instance, and the
board may have violated conflict-of-interest laws in the other
instance. Also, the Health Care System did not ensure that
many of the individuals its conflict-of-interest code
identified as needing to submit statements of economic
interests did so. Further, it does not have written policy
and procedures to demonstrate that its community funding
furthers its public purposes, thereby risking questions about
whether this funding violates the constitutional prohibition
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against public agencies making gifts of public funds.
Additionally, for contracts we reviewed for which it was not
required by state law to use a competitive process, the Health
Care System generally did not document how it selected
contractors in a way that demonstrated that it obtained the
best value when procuring goods and services."
4)According to a report completed by the California HealthCare
Foundation in 2006, the majority of health care district
programs place great emphasis on community health and wellness
programs and services designed to prevent or postpone acute
hospital care. In many cases, the districts have filled gaps
in local health services, resulting from the funding
constraints faced by local public health departments, public
safety organizations, and transportation agencies. They also
play a vital role in physician recruitment and nurse training,
in light of the shortages of medical professionals in most
regions of California.
5)The California Nurses Association (CNA), in support, writes
that "the bill reflects a need for fairness at district
hospitals where executive compensation is often at shocking
levels, particularly within the public sector." CNA notes that
"despite the large sums paid for executive compensation at
district hospitals, Ýnurses] have continued to see attempts to
undercut patient care services and employee compensation."
6)The Association of California Healthcare Districts (ACHD), in
opposition, writes that the bill "will remove the recruitment
and retention mechanisms of district hospitals to compete with
private, non-profit and other public hospitals." ACHD notes
that many district hospitals are located in rural areas and as
such, the hospitals find the only tool they have to recruit
strong leadership is by offering competitive compensation
packages. Additionally, ACHD believes that "removing these
tools from a district hospital's reach will negatively impact
the daily operations of the hospital and the communities they
serve."
ACHD writes that "increasing transparency of district
hospitals may be a better solution than limiting widely
accepted employment tools." The Committee may wish to
consider whether greater transparency and community
involvement may help solve the issue of excessive benefits for
some health care district employees versus others.
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7)Health care districts were designed to compete in the private
sector, and as such, are very different from other types of
special districts in California. The Committee may wish to
consider whether the provisions of the bill decrease the
ability of health care districts to attract employees and
administrators, thereby undermining the competitive nature
with which districts were created.
8)In 2000, the Legislature passed the Cortese-Knox-Hertzberg
Act, which rewrote the previous 1985 Act and gave new powers
to LAFCOs to conduct municipal service reviews (MSRs) of all
the special districts in a county, including health care
districts. MSRs consist of making determinations about
infrastructure needs or deficiencies, growth and population
projects, the location and characteristic of any disadvantaged
unincorporated communities, present and planned capacity of
public facilities, the financial ability of agencies to
provide services, the status of, and opportunities for, shared
facilities, accountability for community service needs, and
any other matters related to effective or efficient service
delivery.
The Committee may wish to consider whether there are
alternative ways of increasing transparency through the LAFCO
MSR process in order to deal with the goal of the bill to
combat excessive retirement benefits.
9)Support arguments : Supporters argue that this bill reflects a
need for fairness at district hospitals where executive
compensation is often at shocking levels and is a good
response to issues recently brought up in the BSA audit of
Salinas Valley Memorial Health Care System.
Opposition arguments : Opponents argue that districts will not
be able to compete for top talent with other public, private,
and non-profit hospitals that do not have the same
restrictions as this bill places on health care districts.
REGISTERED SUPPORT / OPPOSITION :
Support
California Nurses Association
National Union of Healthcare Workers
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Opposition
Association of California Healthcare Districts
California Hospital Association
California Special Districts Association
Coalinga Hospital District
District Hospital Leadership Forum
Fallbrook Healthcare District
John C. Fremont Healthcare District
Los Medanos Community Healthcare District
Mayers Memorial Hospital District
Palomar Health
Southern Mono Healthcare District
Analysis Prepared by : Debbie Michel / L. GOV. / (916)
319-3958