BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 130
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          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








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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