BILL ANALYSIS Ó
AB 2180
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2180 (Alejo)
As Amended June 20, 2012
Majority vote
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|ASSEMBLY: | |(May 21, 2012) |SENATE: |30-6 |(August 9, |
| | | | | |2012) |
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(vote not relevant)
Original Committee Reference: L. GOV.
SUMMARY : Requires, if a health care district and hospital
administrator enter into a written employment agreement, that
the written agreement include specified information regarding
compensation, severance, and other benefits, as specified.
The Senate amendments delete the Assembly version of this bill,
and instead, require a written employment agreement, if a health
care district and a hospital administrator enter into one, to
include all material terms and conditions as follows:
1)Compensation.
2)Deferred compensation.
3)Retirement benefits.
4)Severance or continuing compensation after termination of the
agreement.
5)Vacation pay.
6)Other paid time off for illness or personal reasons.
7)Other employment benefits that differ from those available to
other full-time employees.
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
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Care District Law.
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 a local hospital district to enter into a contract of
employment with a hospital administrator, the duration of
which shall not exceed four years, but which may periodically
be renewed upon expiration for not more than four years.
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.
7)Specifies that any reference to "hospital administrator"
includes a chief executive officer, for purposes of the Local
Health Care District Law.
AS PASSED BY THE ASSEMBLY , this bill limited specified benefits
for health care district employees unless the employer makes the
same options available to all officers and employees.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
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,
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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.
According to the author this bill, "would allow the public and
board members to have a reference point for information
regarding executive compensation and would increase transparency
in the process by which compensation packages for CEOs and
hospital administrators are determined."
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
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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
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.
The BSA audit also provides several recommendations as part
of the report to increase transparency and accountability.
The recommendations to the Health Care System includes
developing a formal policy that establishes a process for
determining executive compensation, including retirement
benefits, that clearly documents all executive compensation
decisions.
Current law allows local hospital districts to enter into a
contract of employment with a hospital administrator.
Another bill that is similar in nature, AB 2115 (Alejo)
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would require a written employment agreement if a local
health care district employs or contracts with a hospital
administrator or chief executive officer (CEO). AB 2115
recently passed off the Senate Floor.
Building on the provisions of AB 2115 (Alejo), this bill
would require that a written employment agreement include
specific terms and conditions. This bill will bring
further transparency to the compensation practices of local
health care districts by requiring that written agreements
include the compensation, deferred compensation, retirement
benefits, severance or continuing compensation after
termination of the agreement, vacation pay, other paid time
off for illness or personal reasons, and other employment
benefits that differ from those available to other
full-time employees.
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: None
The Assembly-approved provisions of this bill were deleted in
the Senate. However, the subject matter of this bill, as
amended in the Senate, is substantially similar to another
measure heard by the Assembly Local Government Committee in this
legislative session.
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958
FN: 0004508