BILL ANALYSIS Ó AB 130 Page 1 Date of Hearing: April 3, 2013 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT K.H. "Katcho" Achadjian, Chair AB 130 (Alejo) - As Amended: April 1, 2013 SUBJECT : Health care districts: chief executive officers: benefits. SUMMARY : Enacts changes to a contract of employment between a healthcare district and a hospital administrator. Specifically, this bill : 1)Prohibits a healthcare district from entering into or renewing a contract, on or after January 1, 2014, with a hospital administrator that authorizes retirement plan benefits to be paid prior to his or her retirement. 2)Allows a healthcare district to renew a contract before expiration, for a term of no more than four years. EXISTING LAW : 1)Establishes the Local Health Care District Law. 2)Allows a local healthcare district to be organized, incorporated and managed, as specified under the Local Health Care District Law. 3)Allows a healthcare 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 healthcare 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, if a healthcare district and hospital administrator enter into a written employment agreement that the written agreement include specific information regarding all material terms and conditions as follows: AB 130 Page 2 a) Compensation; b) Deferred compensation; c) Retirement benefits; d) Severance or continuing compensation after termination of the agreement; e) Vacation; f) Pay; g) Other paid time off for illness or personal reasons; and, h) Other employment benefits that differ from those available to other full time employees. 7)Requires, at least once each year, the board of the healthcare 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. 8)Specifies that any reference to "hospital administrator" includes a chief executive officer, for purposes of the Local Health Care District Law. FISCAL EFFECT : Unknown COMMENTS : 1)This bill prohibits contracts, entered into or renewed on or after January 1, 2014, from authorizing the payment of retirement plan benefits to a hospital administrator prior to his or her retirement. This bill also allows healthcare districts to renew employment contracts with a hospital administrator before expiration, for up to four years. This bill is author-sponsored. 2)According to the author, "Prohibiting healthcare districts from giving retirement benefits to its CEOs before they retire will prevent pension double-dipping and overly generous retirement benefit promises. Furthermore, it will improve the AB 130 Page 3 transparency and accountability for the policies that public entities have to manage the retirement benefits of their top executives." 3)The Local Hospital District Law (now called the Local Health Care District Law) allows communities to create a new governmental entity - independent of local and county jurisdictions - that have 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. According to the Association of California Healthcare Districts, there are currently 78 districts, of which 30 are rural hospitals, 20 are critical access hospitals, 54 are rural districts (with or without hospitals), 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. The Salinas Valley Memorial Healthcare System, in the County of Monterey, was founded in 1947 under the provisions of the Local Hospital District Law. 4)The author notes that "In recent years, local healthcare districts have come under scrutiny for allegations of administrative waste, wrong doing, and inappropriate spending priorities." The author sites the Bureau of State Audits' (BSA) examination of Salinas Valley Memorial Health Care System as the justification for the bill. 5)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 [Salinas 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 AB 130 Page 4 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." 6)This bill builds upon similar legislation to address the findings from the BSA audit regarding executive compensation. AB 2115 (Alejo, 2012), would have required a local healthcare district, if the district employs or contracts for a hospital administrator, to enter into a written employment contract, not to exceed four years. Current law allows healthcare districts to enter into and renew an employment contract upon expiration for up to four years. AB 2115 was vetoed by the Governor citing that most healthcare districts already have written contracts, and those that don't should adopt the practice without the state having to pay for it. Additionally, AB 2180 (Alejo), Chapter 322, Statutes of 2012, requires, if a healthcare district and hospital administrator enter into a written employment agreement, that the written agreement include information regarding retirement benefits and severance or continuing compensation after termination of the agreement. The author argues that this bill also addresses concerns raised about the lack of transparency in executive compensation including generous retirement benefits. 7)Support arguments : Supporters argue that in a time of rapid changes within the healthcare industry, healthcare districts should prioritize scare funds to benefit public health. Prohibiting healthcare districts from giving retirement benefits to its CEOs before they retire will improve transparency and accountability for the policies that healthcare districts use to manage retirement benefits to their top executives. Opposition arguments : None on file. 8)This bill is double referred to the Committee on Health. AB 130 Page 5 REGISTERED SUPPORT / OPPOSITION : Support Association of California Healthcare Districts California Nurses Association California Teamsters Public Affairs Council National Union of Healthcare Workers Opposition None on file Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916) 319-3958