BILL ANALYSIS �
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:
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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;
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
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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
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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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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