BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2546 HEARING: 6/25/14
AUTHOR: Salas FISCAL: No
VERSION: As proposed to be amended TAX LEVY: No
CONSULTANT: Weinberger
KERN COUNTY HOSPITAL AUTHORITY
Authorizes the Kern County Board of Supervisors to create
the Kern County Hospital Authority, and specifies the new
authority's governance, powers, and procedures.
Background and Existing Law
State law requires counties to provide or secure public
health care services and authorizes the formation of
hospital districts to provide such services. Facing
escalating costs, however, some county hospitals have
sought to restructure their governance, merge, or affiliate
with other hospitals in their areas.
Kern Medical Center is a 222-bed acute care teaching
hospital owned and operated by Kern County. The Medical
Center serves a community of approximately 650,000 and
employs approximately 1,800 staff members. Kern Medical
Center provides care for over 16,000 inpatients annually,
while the clinics provide care and services for over
100,000 patients. The emergency room experiences 43,000
visits per year. As one of California's public safety-net
hospitals, Kern Medical Center serves a high proportion of
underinsured and uninsured patients, providing healthcare
access to all patients regardless of their ability to pay.
As a public safety-net hospital, Kern Medical Center faces
significant challenges. The recent economic slowdown has
increased the population of patients who rely on the
hospital's safety-net services while, at the same time,
decreasing the reimbursements that the hospital receives
from the federal and state governments. The Medical Center
is confronting significant fiscal challenges, which include
monthly operating deficits and a total deficit in the
current year of $25.8 million. The medical center's
management team has taken steps to reduce costs and has
AB 2546 - As proposed to be amended -- Page 2
succeeded in significantly reducing operating deficits in
recent months.
Public hospitals also face the challenge of competing with
private health care providers while complying with statutes
governing procurement, hiring, public records, and other
restrictions imposed by state law. In response to similar
concerns, the Legislature granted the Alameda County Board
of Supervisors the power to establish a separate hospital
authority to govern the county's medical center (AB 2374,
Bates, 1996). Recently, the Legislature granted similar
authority to the Monterey County Board of Supervisors (AB
276, Alejo, 2012).
The Kern County Board of Supervisors wants to create a
hospital authority to govern the Kern Medical Center.
At its June 18, 2014 hearing, the Senate Health Committee
considered AB 2546, as the bill was amended on June 10,
2014. In response to concerns about some of the June 10
amendments, the author committed in Senate Health Committee
to make extensive amendments to AB 2546 in the Senate
Governance & Finance Committee. Senate Health Committee
passed AB 2546, with the understanding that the bill would
be subsequently amended. This analysis does not reflect
the version of the bill that is currently in print but
refers, instead, to amendment language that the author is
asking the Senate Governance & Finance Committee to adopt.
Proposed Law
Assembly Bill 2546 authorizes the Kern County Board of
Supervisors to establish, by ordinance, the Kern Hospital
Authority (KHA) as a separate public entity, specifies
KHA's purpose, and charges it with the management,
administration, and control of Kern Medical Center and
other health related resources.
Assembly Bill 2546 requires the enabling ordinance adopted
by the board of supervisors to establish the terms and
conditions of the transfer to the authority from the
county, including:
Any transfer of real and personal property, assets
and liabilities, including, medical center liabilities
related to county funds previously advanced but not
AB 2546 - As proposed to be amended -- Page 3
repaid or otherwise recovered.
Transfer of employees, including any necessary
personnel transition plan, as specified in a specified
statute and assignment of title to funded pension
assets and responsibility for any unfunded pension
liabilities.
Maintenance, operation, and management or ownership
of the medical center.
Transfer of licenses.
Any other matters as the board of supervisors deems
necessary, appropriate or convenient for the conduct
of the authority's activities.
Assembly Bill 2546 directs that a transfer of the
maintenance, operation, and management of the medical
center to KHA does not empower KHA to transfer any county
ownership interest except as otherwise approved by the
county. The bill allows the county to retain control of the
medical center's physical plant and facilities except as
otherwise specifically provided for in the enabling
ordinance, and that any lease agreement or other agreement
between the county and the Authority may provide that the
county premises shall not be sublet without the county's
approval.
Assembly Bill 2546 allows the County to contract with KHA
to provide indigent care services on behalf of the County,
and specifies conditions that must apply to that
contractual agreement.
Assembly Bill 2546 directs that, with specified exceptions,
all of KHA's obligations are solely KHA's obligations and
are not obligations of the state, county, or any other
entity. The bill requires KHA's contracts to contain a
provision that liabilities or obligations of KHA with
respect to its activities pursuant to the contract must be
KHA's liabilities or obligations and must not be the
liabilities or obligations of the other contracting entity.
Assembly Bill 2546 exempts the KHA from the jurisdiction of
a local agency formation commission pursuant to the
Cortese-Knox-Hertzberg Local Government Reorganization Act
of 2000 or any successor statute.
AB 2546 contains extensive provisions relating to the KHA's
effects on current medical center and county employees,
AB 2546 - As proposed to be amended -- Page 4
including requirements related to:
The adoption of a personnel transition plan
containing specified elements.
The qualifications and retention of current
employees.
The maintenance of current employees' seniority and
benefits.
Changes in current employee classifications and job
descriptions.
Employees' eligibility for membership in the Kern
County Employee's Retirement Association.
Recognition of exclusive representatives of
employee's bargaining units.
The continuation of an existing memorandum of
understanding or agreement covering the terms and
conditions, including the level of wages and benefits,
of current employees.
Assembly Bill 2546 directs that a board of governors,
appointed by the board of supervisors, will govern the KHA.
The bill requires the board of supervisors to determine,
by ordinance, the number of members, the composition of
membership, the qualifications for individual members, the
term of office, the manner of appointment, selection, or
removal, and all other matters pertaining to the board of
governors.
Assembly Bill 2546 requires the board of supervisors to
adopt bylaws for KHA that must specify the officers of the
board of governors, the time, place, and conduct of
meetings, and other matters that the board of supervisors
deems necessary or appropriate to conduct the authority's
activities. The bill specifies that the bylaws become
operative upon approval by a majority vote of the board of
supervisors, but may be amended by a majority vote of the
board of supervisors.
AB 2546 specifies:
The manner in which KHA's board members must comply
with state conflict of interest laws related to
contracts.
That KHA's board members are not vicariously liable
for injuries caused by the act or omission of the KHA,
to the extent that specified statutory protection
applies to members of governing boards of local public
entities.
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That KHA's board is a duly constituted governing
body as the term is used specified sections of the
California Code of Regulations.
That, in the event of a change of license
ownership, KHA's board must comply with specified
obligations of governing bodies of general acute care
hospitals as well as the terms and conditions of the
license.
AB 2546 assigns corporate powers to the KHA, including
provisions relating to:
Real and personal property.
Lawsuits, claims, and liability.
Procurement and contracts.
Personnel, employee compensation, and benefits.
Financial management.
Joint powers agreements.
The creation of nonprofit, for profit, or other
entities to carry out KHA's duties.
The use of a computerized management information
system and electronic health records.
Assembly Bill 2546 prohibits the medical center's transfer
to KHA from disqualifying the county or KHA from
participating in specified local, state, or federal funding
mechanisms, including Medi-Cal disproportionate share
hospital payments, Medi-Cal supplemental reimbursements,
the Low Income Health Program, and any other funding source
that would otherwise be available to a county provider or
designated public hospital.
AB 2546 requires that the KHA must:
Be a government entity separate and apart from the
county and any other public entity. The bill declares
that KHA cannot be considered to be an agency,
division, or department of the county or any other
public entity.
Be exempt from the county's civil service
requirements.
Be exempt from the policies or operational rules of
the county or any other public entity, including
policies or rules relating to personnel and
procurement.
Adopt written rules, regulations, and procedures
with regard to basic human resource functions
consistent with memoranda of understanding covering
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employees represented by employee organizations or
specified provisions of state law.
Be subject to state and federal taxation laws that
are applicable to public entities generally.
Comply with the Myers-Milias-Brown Act, the Public
Records Act, and the Ralph M. Brown Act.
Be subject to the jurisdiction of the Public
Employment Relations Board.
Carry professional and general liability insurance
or programs to the ex-tent sufficient to cover its
activities.
Comply with specified statutes relating to the
termination of employee contracts.
Maintain financial and accounting records.
Meet all local, state, and federal data reporting
requirements.
AB 2546 authorizes KHA to incur indebtedness and to borrow
money and issue bonds, including notes and revenue bonds,
to provide sufficient funds for any of KHA's purposes. The
bill exempts any notes, bonds, or other securities issued,
and the income from them, from taxation by the state or any
agency, political subdivision, or instrumentality of the
state. The bill prohibits KHA from incurring any
indebtedness, notes, bonds, or other securities that
require voter approval pursuant to state law, without the
prior approval of the board of supervisors. The bill
specifies that any indebtedness incurred, or notes, bonds,
or other securities that require voter approval must be the
indebtedness, notes, bonds, or securities of KHA and not of
the county. KHA is prohibited from pledging or relying
upon the county's credit to incur the indebtedness, or
issue the notes,
bonds, or other securities, unless the board of supervisors
explicitly authorizes the use of the county's credit AB
2546 allows the KHA to arrange for guarantees or insurance
of its bonds, notes, or other obligations and to pay the
associated premiums.
Assembly Bill 2546 allows KHA to request that the board of
supervisors levy a tax on its behalf. If the board of
supervisors approves the proposal to levy the tax, it must
call the election to seek voter approval and place the
appropriate measure on the ballot for that election. The
proceeds of these taxes must be tax proceeds of KHA and not
of the county. KHA must reimburse the county for all costs
AB 2546 - As proposed to be amended -- Page 7
associated with the county's consideration of these taxes,
and must defend, indemnify, and hold harmless the county
from any liability, costs, or expenses arising from or
related to the imposition of these taxes.
Assembly Bill 2546 allows KHA's board to hold meetings in
closed sessions for discussions of trade secrets, and
exempts records that reveal KHA's trade secrets, or rates
of payment, from disclosure. The bill allows KHA to form
peer review bodies, and exempts the activities of these
peer review bodies from disclosure, and extends other
confidentiality protections in existing law to the
activities of these peer review bodies.
AB 2546 defines KHA as a public agency that is a local unit
of government for purposes of eligibility with respect to
grants and other funding and loan guarantee programs. The
bill requires that contributions to KHA must be tax
deductible to the extent permitted by state and federal law
and that KHA's nonproprietary income must be exempt from
state income taxation.
Assembly Bill 2546 allows:
KHA to engage in managed care contracting, joint
ventures, affiliations with other health care
facilities, other health care providers and payers,
management agreements, or to participate in alliances,
purchasing consortia, health insurance pools,
accountable care organizations, alternative delivery
systems, or other cooperative arrangements, with any
public or private entity.
KHA to enter into joint powers agreements,
including a joint powers agreement with a private
non-profit hospital located in the county, as
authorized by a specified statute.
KHA and the county to engage in marketing,
advertising, and promotion of the medical and health
care services made available to the community by KHA.
KHA, or the county on behalf of KHA, to apply as a
public agency for one or more licenses for the
provision of health care or the operation of a health
care service plan pursuant to statutes and regulations
governing licensing.
KHA and its board to exercise specified statutory
authority to prescribe rules that authorize a county
hospital to integrate its services with those of other
AB 2546 - As proposed to be amended -- Page 8
providers into a system of community service that
offers free choice of hospitals to those requiring
hospital care.
KHA, subject to restrictions in state law and any
limitations or conditions set forth in the enabling
ordinance, to borrow money from the county, repay debt
it owes to the county, and use the borrowed funds to
provide for its operating and capital needs.
AB 2546 grants the board of trustees authority over KHA's
procurement and contracts, pursuant to written rules,
regulations, and procedures that KHA's board must adopt.
The bill allows contracts by and between KHA and any public
agency, and contracts by and between the authority and
providers of health care, goods, or services, to be let on
a nonbid basis and exempts those contracts from specified
provisions of the Public Contract Code.
AB 2546 declares that a member of KHA's administrative
staff cannot be considered to be engaged in activities
inconsistent and incompatible with his or her duties as a
result of prior employment or affiliation with the county
or the governing board.
The bill specifies how the Kern County Board of Supervisors
may dissolve the authority and provide for the disposition
of its assets, obligations, and liabilities.
The bill contains legislative findings and declarations
regarding the need to establish a public hospital authority
in Kern County.
As constitutionally required by Proposition 59 (2004), AB
2546 also includes legislative findings and declarations
regarding the necessity of maintaining the confidentiality
of the authority's discussions, deliberative processes,
writings, and other communications pertaining to trade
secrets or other strategic planning actions, its rates of
payments for providing or arranging for health care
services, and its peer review functions.
State Revenue Impact
No estimate.
AB 2546 - As proposed to be amended -- Page 9
Comments
1. Purpose of the bill . AB 2546 follows the precedent
that the Legislature has established in previous
legislation for Alameda and Monterey counties by allowing
Kern County to establish a separate authority to govern the
county's medical center. Recent investigations have
revealed that Kern Medical Center is in poor fiscal
condition, which has generated interest in modifying the
way KMC is governed. The bill will allow Kern County to
benefit from the cost savings that can be generated by
operating under a separate governance structure and provide
opportunities for increased flexibility, responsiveness,
and innovation. At the same time, AB 2546 contains
extensive provisions intended to guarantee that the medical
center will continue to provide affordable, high-quality
health care services and that medical center employees will
have a seamless transition of wages, benefits, and
contracts without loss of rights or status.
2. Similar legislation . AB 2546 is substantially similar
to AB 276 (Alejo, 2012), which authorized the Monterey
County Board of Supervisors to establish the Central Coast
Hospital Authority (CCHA) and prohibited the Monterey
County Board of Supervisors from establishing the CCHA
until an agreement to affiliate or consolidate the
Natividad Medical Center with at least one other health
care facility was reached. Prior to AB 276, previous
health authorities were established with existing
county-run and operated hospitals and programs. Unlike AB
276, AB 2546 does not authorize KHA to issue bonds and levy
taxes requiring voter approval independently of the county.
Another significant difference with past legislation is
that AB 2546 does not make the transfer of the medical
center to KHA conditional upon the county reaching an
agreement to affiliate or consolidate the medical center
with another facility.
3. Double-referral . Because AB 2546 authorizes the
creation of a new local hospital authority, Senate Rules
Committee double-referred the bill, first to the Senate
Health Committee, which hears bills related to health care
policy, and then to the Senate Governance & Finance
Committee, which hears bills related to local governments'
powers. At its June 18 hearing, the Senate Health
AB 2546 - As proposed to be amended -- Page 10
Committee passed AB 2546 by a 8-0 vote.
4. Special legislation . The California Constitution
prohibits special legislation when a general law can apply
(Article IV, §16). AB 2546 contains findings and
declarations explaining the need for legislation that
applies only to Kern County.
Assembly Actions
Assembly Local Government Committee: 9-0
Assembly Floor: 76-0
Support and Opposition (6/23/14)
Support : California Association of Public Hospitals and
Health Systems; California Labor Federation; California
State Association of Counties; California State Council of
the Service Employees International Union; Kern County
Board of Supervisors.
Opposition : Dignity Health; Health Net; Local Health Plans
of California.