BILL ANALYSIS Ó SENATE COMMITTEE ON HEALTH Senator Ed Hernandez, O.D., Chair BILL NO: AB 1350 --------------------------------------------------------------- |AUTHOR: |Salas | |---------------+-----------------------------------------------| |VERSION: |June 16, 2015 | --------------------------------------------------------------- --------------------------------------------------------------- |HEARING DATE: |June 24, 2015 | | | --------------------------------------------------------------- --------------------------------------------------------------- |CONSULTANT: |Vince Marchand | --------------------------------------------------------------- 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 : ----------------------------------------------------------------- |Assembly Floor: |80 - 0 | |------------------------------------+----------------------------| |Assembly Local Government |9 - 0 | |Committee: | | ----------------------------------------------------------------- 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 -- END --