BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2546| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2546 Author: Salas (D) Amended: 6/26/14 in Senate Vote: 21 SENATE HEALTH COMMITTEE : 8-0, 6/18/14 AYES: Hernandez, Morrell, Beall, DeSaulnier, Evans, Monning, Nielsen, Wolk NO VOTE RECORDED: De León SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 6/25/14 AYES: Wolk, Knight, Beall, DeSaulnier, Hernandez, Liu, Walters SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 ASSEMBLY FLOOR : 76-0, 5/19/14 - See last page for vote SUBJECT : Kern County Hospital Authority SOURCE : Author DIGEST : This bill authorizes the Kern County Board of Supervisors (Board) to establish the Kern County Health System Authority (Authority) to manage, administer, and control the Kern Medical Center (KMC) and for the operation of additional programs, facilities, care organizations, physical practice plans, and delivery systems that may be affiliated or consolidated with the medical center, and specifies the new Authority's governance, powers, and procedures. CONTINUED AB 2546 Page 2 ANALYSIS : Existing law: 1.Requires every county to be a "provider of last resort," by supporting all incompetent, poor, indigent persons, and those incapacitated by age, disease, or accident, who reside in the county, when such persons are not supported and relieved by their relatives or friends, by their own means, or by state hospitals or other state or private institutions. 2.Permits the board of supervisors of each county to prescribe rules that authorize the county hospital to integrate its services with those of other hospitals into a system of community service. Permits the board of supervisors of any county to transfer the maintenance, operation and management or ownership of the county hospital to the University of California or any other public agency or community nonprofit corporation empowered to operate a hospital facility upon a finding that the community services provided by the hospital could be more efficient, effectively or economically provided by the transferee than the county. 3.Establishes the Alameda County Hospital Authority as a separate public entity, established by the Alameda County Board of Supervisors, to manage the Alameda County Medical Center. 4.Defines "designated public hospital" as one of a list of county and UC hospitals, including KMC. 5.Establishes the Medi-Cal program, which is administered by the Department of Health Care Services (DHCS), under which qualified, low-income individuals receive health care services. 6.Defines a "local initiative" as the Medi-Cal prepaid health plan that is organized by a county government or by county governments of a region designated by the director of DHCS, or organized by stakeholders of the designated region, and awarded a Medi-Cal contract by DHCS. 7.Requires, through regulation, in regions designated by DHCS, eligible Medi-Cal beneficiaries to receive health care CONTINUED AB 2546 Page 3 services through one of two prepaid health plans (this is known as the "two plan model"). This bill: 1.Authorizes the Board to establish, by ordinance, the Authority as a separate public entity, specifies the Authority's purpose, and charges it with the management, administration, and control of KMC and other health-related resources. 2.Requires the enabling ordinance adopted by the Board to establish the terms and conditions of the transfer to the Authority from Kern County (County), including: A. Any transfer of real and personal property, assets and liabilities, including, medical center liabilities related to county funds previously advanced but not repaid or otherwise recovered. B. 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. C. Maintenance, operation, and management or ownership of the medical center. D. Transfer of licenses. E. Any other matters as the Board deems necessary, appropriate, or convenient for the conduct of the Authority's activities. 1.Directs that a transfer of the maintenance, operation, and management of the KMC to the Authority does not empower the Authority to transfer any County ownership interest except as otherwise approved by the County. 2.Allows the County to retain control of KMC'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. CONTINUED AB 2546 Page 4 3.Allows the County to contract with the Authority to provide indigent care services on behalf of the County, and specifies conditions that must apply to that contractual agreement. 4.Directs that, with specified exceptions, all of the Authority's obligations are solely their obligations and are not obligations of the state, County, or any other entity. Requires the Authority's contracts to contain a provision that liabilities or obligations of the Authority with respect to its activities pursuant to the contract must be the Authority's liabilities or obligations and must not be the liabilities or obligations of the other contracting entity. 5.Exempts the Authority 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. 6.Contains extensive provisions relating to the Authority's effects on current KMC and County employees, including requirements related to: A. The adoption of a personnel transition plan containing specified elements. B. The qualifications and retention of current employees. C. The maintenance of current employees' seniority and benefits. D. Changes in current employee classifications and job descriptions. E. Employees' eligibility for membership in the Kern County Employee's Retirement Association. F. Recognition of exclusive representatives of employee's bargaining units. G. 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. CONTINUED AB 2546 Page 5 1.Directs that a board of governors, appointed by the Board, will govern the Authority. Requires the Board 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. 2.Requires the Board to adopt bylaws for the Authority 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. This bill specifies that the bylaws become operative upon approval by a majority vote of the Board and may be amended by a majority vote of the Board. 3.Specifies: A. The manner in which the Authority's board members must comply with state conflict of interest laws related to contracts. B. That the Authority's board members are not vicariously liable for injuries caused by the act or omission of the Authority, to the extent that specified statutory protection applies to members of governing boards of local public entities. C. That the Authority's board is a duly constituted governing body as the term is used specified sections of the California Code of Regulations. D. That, in the event of a change of license ownership, the Authority'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. 1.Assigns corporate powers to the Authority, including provisions relating to: A. Real and personal property. B. Lawsuits, claims, and liability. CONTINUED AB 2546 Page 6 C. Procurement and contracts. D. Personnel, employee compensation, and benefits. E. Financial management. F. Joint powers agreements. G. The creation of nonprofit, for profit, or other entities to carry out the Authority's duties. H. The use of a computerized management information system and electronic health records. 1.Prohibits KMC's transfer to the Authority from disqualifying the County or the Authority 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. 2.Requires that the Authority must: A. Be a government entity separate and apart from the county and any other public entity. This bill declares that the Authority cannot be considered to be an agency, division, or department of the county or any other public entity. B. Be exempt from the county's civil service requirements. C. 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. D. Adopt written rules, regulations, and procedures with regard to basic human resource functions consistent with memoranda of understanding covering employees represented by employee organizations or specified provisions of state law. E. Be subject to state and federal taxation laws that are CONTINUED AB 2546 Page 7 applicable to public entities generally. F. Comply with the Myers-Milias-Brown Act, the Public Records Act, and the Ralph M. Brown Act. G. Be subject to the jurisdiction of the Public Employment Relations Board. H. Carry professional and general liability insurance or programs to the extent sufficient to cover its activities. I. Comply with specified statutes relating to the termination of employee contracts. J. Maintain financial and accounting records. AA. Meet all local, state, and federal data reporting requirements. 1.Authorizes the Authority to incur indebtedness and to borrow money and issue bonds, including notes and revenue bonds, to provide sufficient funds for any of the Authority's purposes. This 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. This bill prohibits the Authority 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. This 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 the Authority and not of the County. The Authority 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 explicitly authorizes the use of the County's credit. 2.Allows the Authority to arrange for guarantees or insurance of its bonds, notes, or other obligations and to pay the associated premiums. 3.Allows the Authority to request that the Board levy a tax on its behalf. If the Board approves the proposal to levy the tax, it must call the election to seek voter approval and CONTINUED AB 2546 Page 8 place the appropriate measure on the ballot for that election. The proceeds of these taxes must be tax proceeds of the Authority and not of the County. The Authority must reimburse the county for all costs 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. 4.Allows the Authority's board to hold meetings in closed sessions for discussions of trade secrets, and exempts records that reveal the Authority's trade secrets, or rates of payment, from disclosure. This bill allows the Authority 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. 5.Defines the Authority 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. This bill requires that contributions to the Authority must be tax deductible to the extent permitted by state and federal law and that the Authority's nonproprietary income must be exempt from state income taxation. 6.Allows: A. The Authority 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. B. The Authority 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. C. The Authority and the County to engage in marketing, advertising, and promotion of the medical and health care CONTINUED AB 2546 Page 9 services made available to the community by the Authority. D. The Authority, or the County on behalf of the Authority, 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. E. The Authority and its board to exercise specified statutory authority to prescribe rules that authorize a County hospital to integrate its services with those of other providers into a system of community service that offers free choice of hospitals to those requiring hospital care. F. The Authority, 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. 1.Grants the board of trustees authority over the Authority's procurement and contracts, pursuant to written rules, regulations, and procedures that the Authority's board must adopt. This bill allows contracts by and between the Authority and any public agency, and contracts by and between the Authority and providers of health care, goods, or services, to be let on a non-bid basis and exempts those contracts from specified provisions of the Public Contract Code. 2.Declares that a member of the Authority's administrative staff cannot be considered to be engaged in activities inconsistent and incompatible with his/her duties as a result of prior employment or affiliation with the County or the governing board. 3.Specifies how the Board may dissolve the Authority and provide for the disposition of its assets, obligations, and liabilities. 4.Contains legislative findings and declarations regarding the need to establish a public hospital authority in the County. CONTINUED AB 2546 Page 10 5.Includes, as constitutionally required by Proposition 59 (2004), 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. Background KMC is a 222-bed acute care teaching hospital owned and operated by the County. KMC serves a community of approximately 650,000 and employs approximately 1,800 staff members. KMC 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, KMC serves a high proportion of underinsured and uninsured patients, providing health care access to all patients regardless of their ability to pay. As a public safety-net hospital, KMC 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. KMC is confronting significant fiscal challenges, which include monthly operating deficits and a total deficit in the current year of $25.8 million. KMC's management team has taken steps to reduce costs and has 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, Chapter 816, Statutes of 1996). Recently, the Legislature granted similar authority to the Monterey County Board of Supervisors (AB 276, Alejo, Chapter 686, Statutes of 2012). CONTINUED AB 2546 Page 11 Comments 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 KMC is in poor fiscal condition, which has generated interest in modifying the way KMC is governed. This bill will allow the 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. Special Legislation . The California Constitution prohibits special legislation when a general law can apply (Article IV, Sec. 16). AB 2546 contains findings and declarations explaining the need for legislation that applies only to Kern County. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No SUPPORT : (Verified 8/6/14) 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 ASSEMBLY FLOOR : 76-0, 5/19/14 AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Medina, Melendez, Mullin, Muratsuchi, Olsen, Pan, CONTINUED AB 2546 Page 12 Patterson, Perea, John A. Pérez, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins NO VOTE RECORDED: Mansoor, Nazarian, Nestande, Vacancy JL:e 8/6/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED