BILL ANALYSIS Ó
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 2180
AUTHOR: Alejo
AMENDED: June 20, 2012
HEARING DATE: June 27, 2012
CONSULTANT: Marchand
SUBJECT : Local health care districts: employee benefits.
SUMMARY : Requires a written employment agreement between a
health care district and a hospital administrator to include all
material terms and conditions agreed to between the district and
the hospital administrator regarding compensation and other
benefits, as specified, that differ from those available to
other full-time employees.
Existing law:
1.Establishes "The Local Health Care District Law," under which
a local hospital district may be organized, incorporated and
managed. Permits a district to include incorporated or
unincorporated territory, or both, in any one or more
counties.
2.Permits a local hospital district to enter into a contract of
employment with a hospital administrator, and limits the
duration of this contract to four years, but permits the
contract to be renewed periodically upon expiration.
3.Specifies that any reference to a "hospital administrator"
means "chief executive officer (CEO)."
This bill: Requires a written employment agreement between a
health care district and a hospital administrator to include all
material terms and conditions agreed to between the district and
the hospital administrator regarding compensation, retirement
benefits, severance or continuing compensation after termination
of the agreement, vacation pay and other paid time off for
illness or personal reasons, and other employment benefits that
differ from those available to other full-time employees.
FISCAL EFFECT : This bill has not been analyzed by a fiscal
committee.
PRIOR VOTES : Prior Assembly votes not relevant.
Continued---
AB 2180 | Page 2
COMMENTS :
1.Author's statement. In recent years, local health care
districts have come into public scrutiny with allegations of
administrative wrong doing and lack of transparency. For
example, a recent State audit of the Salinas Valley Memorial
Health Care System, located in my district, highlighted the
fact that the former CEO left the hospital with $4.9 million
from seven separate investment plans; along with a severance
package 18 times his average monthly salary. In addition, he
also collects $115,000 from his annual pension. During the 26
years that the CEO worked for the hospital, board members were
unclear about the CEO's total compensation and what he was
entitled to. Requiring heath care district to disclose
compensation information in their contract agreements with
CEOs and hospital administrators will result in clarity,
transparency and accountability in terms of employment and
compensation.
2.Double referral: This bill will be heard in the Senate
Governance and Finance Committee on June 27, 2012, and should
it pass out that Committee, this Committee will hear it on the
same day.
3.Related legislation. AB 2115 (Alejo) requires a written
employment agreement if a local health care district employs
or contracts with a hospital administrator or chief executive
officer. AB 2115 was approved by Senate Health Committee on
June 13, 2012, on a 7-0 vote, and subsequently approved by
Senate Governance and Finance Committee on a 9-0 vote. AB
2115 is currently pending in Senate Appropriations Committee.
4.State audit of the Salinas Valley Memorial Health Care System
(SVMHS). In March of 2012, the Bureau of State Audits
released its report on the fiscal mismanagement of SVMHS,
subtitling the report "Increased Transparency and Stronger
Controls Are Necessary as It Focuses on Improving Its
Financial Situation." SVMHS is an independent special health
care district with an elected five-member board of directors
that governs its activities. At the core of SVMHS is the
Salinas Valley Memorial Hospital, which employed more than
1,700 employees as of June 20, 2011, and maintains 269 beds.
According to the report, "although as a public agency SVMHS's
decisions regarding compensation for its top executives should
be transparent, this has not been the case for such board
AB 2180 | Page
3
decisions." The report goes on to state that in an environment
characterized by the lack of an executive compensation policy
and limited transparency in executive compensation matters,
SVMHS's executives were granted compensation at the upper
level of industry practices. The former CEO, who retired in
April 2011, received $4.9 million in retirement and severance
benefits between 2008 and 2011, the majority of which came
from multiple retirement investment plans that SVMHS provided
him as part of his overall retirement benefits package.
The Bureau of State Audits made several recommendations as part
of this report, including recommending that SVMHS develop a
formal policy that establishes a process for determining
executive compensation that clearly documents all executive
compensation decisions. Additionally, the report recommended,
in order to ensure that the terms of its CEO's employment and
compensation are clear and to aid the board in its oversight
role, that SVMHS should engage its next permanent CEO in a
written employment contract.
SUPPORT AND OPPOSITION :
Support: None received.
Oppose: None received.
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