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)
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|COMMITTEE VOTE: |7-2 |(August 22, 2012) |RECOMMENDATION: |concur |
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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.
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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
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.
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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.
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]
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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 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) would require
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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 out of the
Legislature and is currently awaiting the Governor's
signature.
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 will bring
sunshine and transparency to 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
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958
FN: 0005257