BILL ANALYSIS Ó AB 2180 Page 1 ASSEMBLY THIRD READING AB 2180 (Alejo) As Amended March 29, 2012 Majority vote LOCAL GOVERNMENT 6-3 ----------------------------------------------------------------- |Ayes:|Alejo, Bradford, Campos, | | | | |Davis, Gordon, Hueso | | | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Smyth, Knight, Norby | | | | | | | | ----------------------------------------------------------------- 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. AB 2180 Page 2 3)Allows a health care district to include incorporated or 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. AB 2180 Page 3 FISCAL EFFECT : None COMMENTS : 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. 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 that this bill creates a fair pension system within local health care districts and would prevent AB 2180 Page 4 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. 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 conflict-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 against public agencies making gifts of public funds. Additionally, for contracts we AB 2180 Page 5 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. 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. 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." 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 Legislature 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. Health care districts were designed to compete in the private AB 2180 Page 6 sector, and as such, are very different from other types of special districts in California. The Legislature 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. 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 Legislature 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. 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. Analysis Prepared by : Debbie Michel / L. GOV. / (916) 319-3958 FN: 0003480 AB 2180 Page 7