BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 130
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          Date of Hearing:  April 3, 2013

                           K.H. "Katcho" Achadjian, Chair
                     AB 130 (Alejo) - As Amended:  April 1, 2013
          SUBJECT  :  Health care districts: chief executive officers:  

           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:


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             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;  

             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  


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            transparency and accountability for the policies that public  
            entities have to manage the retirement benefits of their top  

          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  


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            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.



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          Association of California Healthcare Districts
          California Nurses Association 
          California Teamsters Public Affairs Council
          National Union of Healthcare Workers

          None on file
          Analysis Prepared by  :    Misa Yokoi-Shelton / L. GOV. / (916)