BILL ANALYSIS Ó
AB 130
Page 1
Date of Hearing: May 7, 2013
ASSEMBLY COMMITTEE ON HEALTH
Richard Pan, Chair
AB 130 (Alejo) - As Amended: April 1, 2013
SUBJECT : Health care districts: chief executive officers:
benefits.
SUMMARY : Prohibits a contract between a health care district
(HCD) and its chief executive officer (CEO) from authorizing
retirement benefits to be paid to the CEO before he or she
retires.
EXISTING LAW :
1)Requires the elective officers of a HCD to consist of a Board
of Directors (Board) composed of five members, who are
registered voters residing in the HCD and who serve a
four-year term. Allows a Board to be increased from five to
seven directors, provided certain conditions are met, as
specified.
2)Allows a HCD to enter into a contract of employment with a
hospital administrator, also called a CEO, for up to four
years, and authorizes the contract to be periodically renewed
for up to four years.
3)Allows a HCD Board to prescribe the duties, powers, and
compensation of administrators, secretaries, and other
officers and employees of any health care facility of the
district.
4)Requires any written employment agreement between a HCD and
its CEO to include all material terms and conditions regarding
compensation, deferred compensation, retirement benefits,
severance or continuing compensation after termination of the
agreement, vacation pay and other paid time off for illness or
personal reasons, and other employment benefits that differ
from those available to other full-time employees.
FISCAL EFFECT : None
COMMENTS :
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1)PURPOSE OF THIS BILL . According to the author of this bill,
in recent years, local HCDs have come under scrutiny for
allegations of administrative waste, wrongdoing, and
inappropriate spending priorities. A recent Bureau of State
Audits (BSA) report on the Salinas Valley Memorial Health Care
System highlighted the fact that in 2009, the former CEO of
the Health Care System received a $2.1 million gross payment
from a supplemental retirement plan, and $917,000 was rolled
into a personal individual retirement account, while he
continued working for another two years with an annual salary
of $668,000.
The author writes that prohibiting HCDs from giving retirement
benefits to their CEOs before they retire will prevent pension
double-dipping and overly generous retirement benefit
promises.
2)BACKGROUND . California enacted the Local Hospital District
Law in 1945 (Law) to respond to a severe shortage of acute
care services after World War II. The goal of the Law was to
provide a source of tax dollars to help underserved areas
construct hospital facilities and recruit physicians. 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 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. Legislation passed in 1994 renamed hospital
districts as "health care districts" to reflect the fact that
the districts had come to support a wider array of activities,
including substance abuse and mental health programs;
outpatient services and free clinics; programs for seniors,
including transportation; physician recruitment; ambulance
services; health education programs; and a variety of wellness
and rehabilitation activities.
According to the Association of California Healthcare Districts,
there are currently 78 HCDs that provide a significant portion
of the medical care to minority populations and the uninsured
in medically underserved regions of the state. HCDs are
mainly funded by Medicare, Medi-Cal, and local property tax
dollars. HCDs are typically governed by Boards of five
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elected directors who serve without compensation, except for
payments of $100 per meeting for up to five meetings per month
and travel reimbursement.
3)MEDIA REPORT ON EXCESSIVE COMPENSATION . In April 2011, the
Los Angeles Times reported on $3.9 million in supplemental
retirement payments that were received by the CEO of Salinas
Valley Memorial Hospital. The story reported that the CEO had
negotiated these supplemental payments several times over the
course of his 26-year career at the HCD. The story reported
that many HCDs in the state indicate that they offer no
supplemental pension plan for their executives, and that HCDs
that do provide additional retirement benefits to CEOs do so
on a less generous level than Salinas Valley. Finally, the
story noted that these payments came during the same period as
a reduction of 600 positions, through layoffs and attrition,
at the hospital.
4)BSA REPORT . Subsequent to the Los Angeles Times report, the
Joint Legislative Audit Committee requested that the
California State Auditor conduct an audit concerning the
fiscal management of the Salinas Valley Memorial Healthcare
System. The report concludes that the Health Care System's
Board, when making decisions regarding executive compensation,
violated the Ralph M. Brown Act (Brown Act), which requires
legislative bodies of local public agencies to conduct their
meetings in an open manner. The report also finds that the
Healthcare System, acting without an executive compensation
policy, granted compensation for its executives at the upper
end of the range for the health care industry. In addition,
the report identifies 11 instances in which the Health Care
System had business relationships with entities in which its
executives or Board members had economic interests, possibly
violating conflict-of-interest laws.
5)SUPPORT . In support, the California Nurses Association (CNA)
writes that, in a time of rapid changes to the healthcare
industry, local HCDs should prioritize scarce funds to benefit
public health. CNA argues that this bill will prevent overly
generous benefit promises and improve transparency and
accountability for the policies that HCDs use to manage the
retirement benefits of their top executives. The Association
of California Healthcare Districts, in support, writes that
while the Salinas Valley case is an anomaly among HCDs, this
bill will foster good governance for all HCDs and the
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communities in which they serve.
6)PREVIOUS LEGISLATION .
a) AB 2115 (Alejo) of 2012 would have required a HCD, if
the HCD employs or contracts for a CEO, to enter into a
written employment contract, as specified. AB 2115 was
vetoed by Governor Brown, whose veto message read: "It is
obvious that written employment contracts between local
health care districts and hospital administrators would
provide the transparency people have a right to expect. In
fact, most local health care districts already do this.
Other local health care district boards should adopt this
practice forthwith if they have not yet done so. In this
way we will get the transparency we need without the state
being forced to pay for what is a responsibility of local
districts."
b) AB 2180 (Alejo), Chapter 322, Statutes of 2012,
requires, if a HCD and CEO enter into a written employment
agreement, that the written agreement include specified
information regarding compensation, severance, and other
benefits.
c) SB 1169 (Maddy), Chapter 696, Statutes of 1994, renames
"hospital districts" as "health care districts"; changes
the term "hospital administrator" to "chief executive
officer"; and makes numerous changes related to the
sublease of health care facilities by HCDs, financing of
construction or renovation of facilities, and requirements
of the board of directors related to open meetings under
the Brown Act.
d) SB 2460 (Bradley), Chapter 1278, Statutes of 1974,
authorizes hospital districts to enter into contracts of
employment with hospital administrators, not to exceed four
years in duration, which may be periodically renewed upon
expiration for not more than four years.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of California Healthcare Districts
California Nurses Association
AB 130
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California Teamsters Public Affairs Council
Camarillo Health Care District
National Union of Healthcare Workers
Opposition
None on file.
Analysis Prepared by : Ben Russell / HEALTH / (916) 319-2097