BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON HEALTH
                          Senator Ed Hernandez, O.D., Chair

          BILL NO:                    AB 1350             
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          |AUTHOR:        |Salas                                          |
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          |VERSION:       |June 16, 2015                                  |
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          |HEARING DATE:  |June 24, 2015  |               |               |
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          |CONSULTANT:    |Vince Marchand                                 |
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           SUBJECT  :  Kern County Hospital Authority

           SUMMARY  :  Makes a number of changes to provisions of law governing the  
          ability of Kern County (County) to establish a separate  
          authority, and to transfer control of the county hospital, Kern  
          Medical Center, to this authority. These changes include  
          requiring the County to be obligated to ensure that required  
          employer contributions to fund retirement benefits for employees  
          are paid, requiring an expired memorandum of understanding to be  
          adhered to in the same manner as a memorandum of understanding  
          that has not expired, as well as other technical, clarifying,  
          and conforming changes.

          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)Authorizes the County to establish, by ordinance, the Kern  
            County Hospital Authority (Authority) as a separate public  
            entity, in order to transfer the management, administration,  
            and control of Kern Medical Center (KMC) and other  
            health-related resources.

          3)Requires the enabling ordinance adopted by the County 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, and transfer of  
            employees.








          AB 1350 (Salas)                                    Page 2 of ?
          
          
          4)Contains extensive provisions relating to the Authority's  
            effects on current KMC and County employees, including  
            requirements related to the maintenance of current employees'  
            seniority and benefits, employees' eligibility for membership  
            in the Kern County Employee's Retirement Association,  
            recognition of exclusive representatives of employee's  
            bargaining units, and the continuation of an existing  
            memorandum of understanding (MOU) covering the terms and  
            conditions, including the level of wages and benefits, of  
            current employees for 24 months or through the term of the  
            MOU, whichever is longer.

          5)Requires the Authority to be a government entity separate and  
            apart from the County, and exempts the Authority from the  
            County's civil service requirements, and from the policies or  
            operational rules of the County or any other public entity,  
            including policies or rules relating to personnel and  
            procurement.

          6)Requires the Authority to be subject to the jurisdiction of  
            the Public Employment Relations Board, to comply with  
            specified statutes relating to the termination of employee  
            contracts, to maintain financial and accounting records, and  
            to meet all local, state, and federal data reporting  
            requirements.

          7)Specifies how the Board may dissolve the Authority and provide  
            for the disposition of its assets, obligations, and  
            liabilities.

          This bill:
          1)Requires the enabling ordinance establishing the Authority to  
            specify whether funds of the Authority are to be deposited in  
            the custody of, and paid out solely through, the County  
            treasurer's office. Clarifies that if the enabling ordinance  
            does not require funds to be deposited in the County treasury,  
            the Authority is permitted to establish its own treasury.

          2)Requires the Authority, if a memoranda of understanding (MOU)  
            is expired on the date of the transfer of control of KMC, to  
            continue to be bound by the terms and conditions of the most  
            recent MOU for 24 months, unless modified by a mutual  
            agreement with each of the exclusive employee representatives,  
            and requires the benefits and wages of transferred employees  
            to be retained, as specified.








          AB 1350 (Salas)                                    Page 3 of ?
          
          

          3)Requires the Authority to be considered a public employer that  
            offered a plan of replacement benefits prior to January 1,  
            2013, for purposes of a provision of law prohibiting a public  
            employer from offering a replacement benefits plan for  
            employees after January 1, 2013 if they had not already been  
            offering such a plan prior to January 1, 2013. Deems the  
            County's plan of replacement benefits in effect prior to  
            January 1, 2013 to also be the Authority's replacement plan  
            for the sole purpose of allowing the Authority to continue to  
            offer the replacement benefit plan to an employee who was  
            employed as of January 1, 2013, or to employees who are part  
            of a member group to which the County offered a replacement  
            benefit plan prior to January 1, 2013.

          4)Requires legacy employees, as defined, to be deemed County  
            employees for purposes of participation in a benefit plan  
            administered by the Kern County Employees' Retirement  
            Association, but only for that purpose, and not be employees  
            of the County for any other purpose.

          5)Requires Kern County, upon the transfer of control of KMC, to  
            include legacy employees in a special County employee group  
            for which the County has primary financial responsibility to  
            fund all employer contributions that, together with  
            contributions by employees and earnings, are necessary to fund  
            all benefits for legacy employees administered by the Kern  
            County Employees' Retirement Association, notwithstanding the  
            fact that the Authority is required to commence making  
            periodic employer contributions for legacy employees following  
            the transfer of control of KMC. Requires the County to be  
            obligated to make employer contributions in the event the  
            Authority fails to make the required contributions.

          6)Defines "legacy employees," for purposes of the Authority, as  
            the employees of the County who retired from KMC prior to the  
            date of transfer of control of KMC, employees of the County  
            who are initially transferred to the Authority on the date of  
            transfer of control of KMC, and employees first hired by or  
            retired from the Authority during the 24-month period  
            following the date of transfer of control of KMC.

          7)Requires the Authority to be primarily responsible for any  
            employer contributions necessary to fund benefits for new  
            employees, but requires the County to be obligated to make the  








          AB 1350 (Salas)                                    Page 4 of ?
          
          
            required contributions in the event the Authority fails to  
            make the required contributions for new employees. Requires  
            the County to maintain this obligation until the Authority  
            demonstrates, and the Kern County Employees' Retirement  
            Association's Board of Retirement determines, that the  
            Authority is sufficiently capable financially to fully assume  
            the obligation to make all employer contributions, as  
            specified. However, in the event the Authority fails to make  
            contributions due to the Authority's dissolution or  
            bankruptcy, the County is again obligated to make the required  
            contributions.

          8)Defines "new employees," for purposes of the Authority, as  
            employees first hired by the Authority after the 24-month  
            period following the date of transfer of control of KMC.

          9)Clarifies that the County, in the enabling ordinance  
            transferring control of KMC to the Authority, has the option  
            to require the Authority to lease KMC, in addition to the  
            option of transferring ownership of KMC to the Authority.

          10)Clarifies that the current requirement that the Department of  
            Health Care Services take all necessary steps to ensure that  
            the Authority is permitted to operate KMC includes ensuring  
            that the Authority has all of the licenses, permits, and  
            approvals needed.

          11)Clarifies the ability of the County to lend the Authority  
            funds to meet its operating and capital needs by permitting  
            the County to use any borrowing power the County otherwise has  
            under law, and not just issue revenue anticipation notes.

          12)Permits the County to contract for services or purchase items  
            on behalf of the Authority, and unless otherwise provided for,  
            requires the Authority's board of governors to have authority  
            over procurement and contracts for the Authority. 

          13)Specifies that the Authority's ability to contract for  
            personnel or other services and items it deems necessary is  
            only limited by the obligations under specified provisions of  
            law which govern the relationship between employee groups and  
            local governments.

          14)Defines "transfer of control" of KMC as the transfer by the  
            County to the Authority of the maintenance, operation,  








          AB 1350 (Salas)                                    Page 5 of ?
          
          
            management, and personnel of KMC, whether by lease, transfer  
            of ownership, or other means, as provided by, and subject to,  
            any conditions and limitations specified by the board of  
            supervisors in the enabling ordinance.

          15)Makes other technical, clarifying and conforming changes.

           FISCAL  
          EFFECT  :  This bill is keyed non-fiscal.

           PRIOR  
          VOTES  :  
          
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          |Assembly Floor:                     |80 - 0                      |
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          |Assembly Local Government           |9 - 0                       |
          |Committee:                          |                            |
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          COMMENTS  :
          1)Author's statement.  According to the author, KMC is owned and  
            operated by the County. KMC serves a community of over 650,000  
            residents, including indigent individuals with no other means  
            of obtaining medical care. KMC provides the only trauma care  
            between Los Angeles and Fresno, and is vital to training  
            physicians through academic residency and education programs.  
            Last year, AB 2546 (Salas, Chapter 613, Statutes of 2014), was  
            enacted to give the Kern County Board of Supervisors the  
            option to establish a hospital authority to manage and  
            administer KMC. A hospital authority allows 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.  The law established extensive provisions intended  
            to ensure 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. This  
            bill makes technical and clarifying changes to ensure that  
            employees transferred from KMC to the Authority are covered  
            under most current MOU and receive the same retirement  
            benefits. This bill also allows the Authority to deposit and  
            borrow funds from the County Treasury, and gives the Authority  
            the option of establishing its own treasury. In addition, this  








          AB 1350 (Salas)                                    Page 6 of ?
          
          
            bill clarifies the scope of the transfer of control of KMC  
            operations to the Authority, the Authority's responsibilities  
            as hospital operator, and the conditions under which the  
            transfer shall occur.
            
          2)Background on KMC. KMC is a 222-bed acute care teaching  
            hospital owned and operated by the County, and the County  
            reports that it has historically faced significant operational  
            issues and financial losses. Prior to the County appointing a  
            new Chief Executive Officer (CEO) in December 2013, the  
            hospital had been losing $3 million per month. Since that time  
            under new leadership, considerable improvements have been  
            achieved. Within five months of the new leadership team being  
            in place, the losses were reduced to $400,000 per month, and  
            within eight months the medical center began generating a  
            profit. Through the 10 months ended April 30, 2015, the net  
            income for KMC is $7,272,956. During the same period last year  
            the hospital reported a net loss of $12,083,046. The  
            $19,356,003 improvement has been achieved through a number of  
            initiatives including replacing management staff, improvements  
            in how the hospital bills and collects, labor productivity  
            management, and renegotiated managed care contracts. The  
            County reports that it has begun pursuing growth  
            opportunities, including physician recruitment in needed  
            specialties, adding new clinics and services, including a  
            medical home model, and enhancing access to care in outpatient  
            clinics, with monthly visits increasing by 40 % over the past  
            year.

          3)Background on plan to transfer KMC to the Authority. Last  
            year, AB 2546 was introduced with the initial plan to form an  
            authority that would combine under a single governance  
            structure both KMC and Kern Health Systems, which is the Local  
            Initiative Medi-Cal managed care plan. In response to concerns  
            regarding the financial implications of a merger of Kern  
            Health Systems with the hospital, AB 2546 was scaled back to  
            follow the precedent that the Legislature had established in  
            previous legislation for Alameda and Monterey counties by  
            allowing the County to establish an authority to govern the  
            county's medical center.  The author and sponsor state that by  
            separating KMC from the County's governance structure, there  
            will be opportunities for increased flexibility,  
            responsiveness, and innovation that will enable KMC to  
            stabilize financially and continue to meet the needs of the  
            community.








          AB 1350 (Salas)                                    Page 7 of ?
          
          

            Following the enactment of AB 2546 last year, the County  
            reports that an implementation plan was approved in January  
            2015.  The implementation plan detailed the guiding principles  
            of the transition, a transition plan, a transition budget, and  
            a list of agreements and steps necessary to transition the  
            medical center.  The County and KMC formed a Hospital  
            Authority Steering Committee, which is responsible for the  
            overall coordination and implementation of the transfer.  The  
            County states that in order to successfully transition KMC  
            from a County department to a hospital authority, KMC has  
            begun to engage with legal and financial consultants to gain  
            an understanding of the mechanics of the transfer of control,  
            assets, liabilities, and personnel of the medical center to  
            the hospital authority.  The draft ordinance to enact the  
            hospital authority has been drafted and is in circulation for  
            public review and feedback.  The County states it plans on  
            taking the ordinance to the Board of Supervisors for a vote in  
            the fall of 2015 and transferring the medical center,  
            personnel, assets and liabilities from the county to the  
            hospital authority in July 2016. 
            
          4)Double referral. This bill is double referred. Should this  
            bill pass out of this committee, it will be referred to Senate  
            Committee on Governance and Finance.

          5)Prior legislation. AB 2546 authorized the County to establish  
            the Authority to manage, administer, and control KMC, and  
            provided for the Authority's governance, powers, and  
            procedures.

            AB 276 (Alejo, Chapter 686, Statutes of 2012), authorized the  
            Monterey County Board of Supervisors to establish the Central  
            Coast Hospital Authority (CCHA), as specified, and prohibited  
            the board of supervisors from establishing the CCHA until an  
            agreement to affiliate with at least one other health care  
            facility is reached.

            AB 2374 (Bates, Chapter 816, Statutes of 1996), authorized the  
            County of Alameda to establish a hospital authority to manage  
            the respective county hospitals and county programs of the  
            Alameda County Medical Center.

          6)Support.  This bill is supported by the Kern County Board of  
            Supervisors, which states that among other provisions, this  








          AB 1350 (Salas)                                    Page 8 of ?
          
          
            bill will ensure that the most current MOU existing at the  
            time that KMC is transferred to the Authority will apply to  
            any County employees who are transferred to the Authority. The  
            County states that other provisions clarify the ability of the  
            Authority to deposit funds in, and borrow funds from, the  
            County treasury, which will allow the Authority to receive  
            temporary cash transfer from the County treasury pool. The  
            County states that this bill also makes needed amendments to  
            treat the Authority as a public employer for purposes of  
            making County employees whose retirement benefits are limited  
            by federal law eligible for the same replacement benefits  
            after transferring to the Authority that would be due to them  
            as County employees. This bill is also supported by the  
            California State Council of the Service Employees  
            International Union (SEIU California), which states that the  
            purpose of last year's AB 2546 was to ensure a smooth  
            transition of KMC to an authority while preserving key  
            protections for the hospital employees who would be  
            transitioning to a different model of administration within  
            the County. After AB 2546's enactment, SEIU California states  
            that the need for clarification and clean-up has emerged on  
            several issues related to the transition of KMC into the  
            Authority. Kern Health Systems states in support that it is a  
            partner with KMC in preserving and improving the delivery  
            system that serves California's uninsured and indigent  
            population, and therefore supports this bill so that these  
            technical changes can be enacted as swiftly as possible,  
            clearing the way for KMC's transition to a hospital authority.

           SUPPORT AND OPPOSITION  :
          Support:  Kern County Board of Supervisors 
          Kern Health Systems 
                    Service Employees International Union, California  
                    State Council

          
          Oppose:   None received
          
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