BILL ANALYSIS Ó
AB 2467
Page 1
ASSEMBLY THIRD READING
AB
2467 (Gomez)
As Amended May 31, 2016
Majority vote
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Health |11-6 |Wood, Bonilla, Burke, |Maienschein, |
| | |Campos, Chiu, |Lackey, Olsen, |
| | |Dababneh, Gomez, |Patterson, |
| | | |Steinorth, Waldron |
| | | | |
| | |Roger Hernández, | |
| | |Nazarian, Rodriguez, | |
| | |Santiago | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |14-6 |Gonzalez, Bloom, |Bigelow, Chang, |
| | |Bonilla, Bonta, |Gallagher, Jones, |
| | |Calderon, Daly, |Obernolte, Wagner |
| | |Eggman, Eduardo | |
| | |Garcia, Roger | |
| | |Hernández, Holden, | |
| | |Quirk, Santiago, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: Establishes the Hospital Executive Compensation
Transparency Act of 2016 which requires covered hospitals or
medical entities, as defined, to submit an annual hospital
executive compensation report to the Office of Statewide Health
Planning and Development (OSHPD) which provides specified
information regarding executives earning over $300,000 per year;
and, for covered hospitals or medical entities with 100 or more
employees, requires the report to also include information
regarding the pay bands of various employee classifications, as
well as voluntarily self-reported information regarding
employees' gender, ethnicity, race, sexual orientation, and
gender identity, by job categories. Specifically, this bill:
1)Requires, on and after October 1, 2017, each covered hospital
or medical entity to submit an annual hospital executive
compensation report (annual report) to OSHPD for every
hospital executive whose total annual compensation met or
exceeded the executive compensation reporting threshold
(EXCRT).
2)Requires the annual report to include all of the following
information for the prior fiscal year:
a) The names, positions, or titles of each hospital
executive and the aggregate total annual compensation for
each hospital executive at or exceeding the EXCRT, with a
description of each entity that has contributed to the
total annual compensation of each hospital executive, in
any form, and the amount of such compensation;
b) A detailed breakdown of all wage and nonwage
compensation;
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c) Identification of any benefit or remuneration excluded
from the definition of total annual compensation; and,
d) A detailed breakdown of board compensation, which shall
include all of the following:
i) The name of the publicly traded company, privately
held company, or nonprofit organization that provided the
board compensation; and,
ii) The number of hours the hospital executive spent on
matters related to their duties as a director of the
publicly traded company, privately held company, or
nonprofit organization for which the board compensation
was received.
3)Requires, consistent with the federal annual equal employment
opportunity and compensation report on employees' ethnicity,
race, and sex by job category and compensation, on or after
October 1, 2017, and annually thereafter each covered hospital
or medical entity with 100 or more employees to submit to the
Department of Public Health all of the following information
for the prior fiscal year:
a) The number of employees earning annual total
compensation in 12 pay bands, as proposed by the federal
Equal Employment Opportunity Commission (EEOC) in the
Federal Register, Volume 81 Number 20, on February 1, 2016,
on pages 5113 to 5121, inclusive, for each of the eight
employee classifications defined in OSHPD's hospital annual
financial data and by self-reported gender, ethnicity, and
race, and voluntarily self-reported sexual orientation and
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gender identity; and,
b) The total number of hours worked by the employees
included in each pay band.
4)Requires OSHPD, on and after January 1, 2018, to post the
annual hospital executive compensation report for each covered
hospital or medical entity on OSHPD's Internet Web site.
Requires the report to be submitted on the form or in the
format required by OSHPD.
5)Requires the board of directors (BOD) of any nonprofit or
for-profit corporation that owns, operates, or controls, in
whole or in part, a covered hospital or medical entity to
approve the annual report before it is submitted to OSHPD, and
requires each director to act in good faith and with
reasonable care and inquiry in approving the annual report and
in ensuring the corporation complies with the requirements of
this bill.
6)Requires the annual report for each covered hospital or
medical entity governed, owned, or controlled by a BOD, to
state that it was approved by the BOD, the date it was
approved, and contain an attestation under penalty of perjury
by an authorized representative of the covered hospital or
medical entity BOD, as specified.
7)Specifies that any scheme or artifice that has the purpose of
avoiding the reporting requirements of this bill is a
violation of this bill.
8)Specifies that payments, compensation, or remuneration by a
separate entity that is purported not to be for work performed
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or services provided at or for a covered hospital or medical
entity, but that is disproportionate to its purported purpose
so as to evade the annual hospital executive compensation
reporting requirements is a violation of this bill.
9)Requires OSHPD to establish and assess reasonable fees, to be
submitted with each annual report to cover only the reasonable
costs of implementing and ensuring compliance with this bill.
10)Defines board compensation as the total annual compensation
provided to each hospital executive by any publicly traded
company, privately held company, or nonprofit organization on
whose BOD hospital executive sits and from which the hospital
executive received total annual compensation of more than
$1,000.
11)Defines covered hospital or medical entity as any of the
following:
a) A private nonprofit general acute care hospital;
b) An acute psychiatric hospital;
c) Any private for-profit general acute care hospital;
d) A hospital group, or any person, corporation,
partnership, limited liability company, trust, or other
entity that owns, operates or controls, in whole or in
part, any such group;
e) A hospital-affiliated medical foundation that is
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directly or indirectly, including through one or more
intermediaries, controlled or owned by, or controlled or
owned by the same person or entity as, a hospital, hospital
group, hospital-affiliated physicians group, or nonprofit
corporation that owned, operates, or controls, in whole or
in part, a hospital, hospital group, or hospital-affiliated
physicians group. Specifies that a medical foundation will
be deemed a hospital-affiliated medical foundation if
either or both of the following are true:
i) The medical foundation is a disregarded entity of,
or would be required to be designated as a related
organization on the Internal Revenue Service (IRS) form
900 (or its accompanying schedules or the successor of
such forms or schedule) of, a hospital, hospital group,
hospital-affiliated physicians group, or a nonprofit
corporation that owns, operates, or controls, in whole or
in part, a hospital, hospital group, or
hospital-affiliated physicians group; and/or;
ii) A majority of the medical foundation's assets are
owned by a hospital, hospital group, or
hospital-affiliated physicians group or by a nonprofit
corporation that owns, operates, or controls, in whole or
in part, a hospital, hospital group, or
hospital-affiliated physicians group or of a nonprofit
corporation that owns, operates, or controls, in whole or
in part, a hospital, hospital group, or
hospital-affiliated physicians group;
f) A hospital-affiliated physicians group, is any
physicians group or medical group that is directly or
indirectly, including through one or more intermediaries,
controlled or owned by, or controlled or owned by the same
person or entity as, a hospital, hospital group,
hospital-affiliated medical foundation, or a nonprofit
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corporation that owns, operates, or controls, in whole or
in part, a hospital, hospital group, or hospital-affiliated
medical foundation. A physicians group shall be deemed a
hospital-affiliated physicians group if either or both of
the following are true:
i) The physicians group is a disregarded entity of, or
would be required to be designated as a related
organization on IRS form 990 (or its accompanying
schedules or the successor of such forms or schedules)
of, a hospital, hospital group, or hospital-affiliated
medical foundation or a nonprofit corporation that owns,
operates, or controls, in whole or in part, a hospital,
hospital group, or hospital-affiliated medical
foundation; and/or,
ii) A majority of the physicians group's assets are
owned by a hospital, hospital group, or
hospital-affiliated medical foundation or a nonprofit
corporation that owns, operates, or controls, in whole or
in part, a hospital, hospital group, or
hospital-affiliated medical foundation.
g) A health care district.
12)Exempts the following from the definition of a covered
hospital or medical entity:
a) Hospitals operated or licensed by the United States
Department of Veterans Affairs or public hospitals, with
the exception of hospitals owned or operated by a health
care district; and,
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b) Designated public hospitals, as defined.
13)Specifies that EXCRT means the total annual compensation from
any source for work performed or services provided at or for
the covered hospital or medical entity that is greater than
three hundred thousand dollars ($300,000) in a year.
14)Specifies that hospital executive means all persons whose
primary duties are executive, managerial, or administrative at
or for the covered hospital or medical entity, even if that
person also performs or performed other duties.
15)Specifies that hospital executive includes, but is not
limited to, chief executive officers (CEOs), chief executive
managers, chief executives, executive officers, executive
directors, chief financial officers (CFOs), presidents,
executive presidents, vice presidents, executive vice
presidents, and other comparable positions.
16)Specifies that the definition of hospital executive applies
irrespective of whether the person exercising executive,
managerial, or administrative authority is or was an employee
of a covered hospital or medical entity or a nonprofit
corporation that owns, operates, or controls, in whole or in
part, a covered hospital or medical entity. The definition
shall also apply to any person who exercises or exercised such
authority even if the arrangements for such authority or for
compensation or both are pursuant to a contract or
subcontract.
17)Specifies that the definition of hospital executive includes
any person who held the duties described in these provisions
during the period covered by the annual report, even if the
person is postemployment or post-service.
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18)Specifies that the definition of a hospital executive does
not apply to medical or health care professionals whose
primary duties are or were the provision of medical services,
research, direct patient care, or other non-managerial,
nonexecutive, and non-administrative services.
19)Specifies that total annual compensation means all
remuneration paid, earned, or accrued in the course of a
fiscal year for work performed or services provided, including
the cash value of all remuneration (including benefits) in any
medium other than cash, and including, but not limited to, all
of the following:
a) Wages; salary; paid time off; bonuses; incentive
payments; lump-sum cash payments; the fair market value of
below-market-rate loans or loan forgiveness; housing
payments; payments for transportation, travel, meals, or
other expenses in excess of actual documented expenses
incurred in the performance of duties; payments or
reimbursement for entertainment or social club memberships;
the cash value of housing, automobiles, parking, or similar
benefits; scholarships or fellowships; the cash value of
dependent care or adoption assistance or personal legal or
financial services; the cash value of stock options or
awards; payments or contributions for insurance, except as
exempted in 20) below, to a Section 125 cafeteria plan or
equivalent arrangement, to a health savings account, or for
severance or its equivalent; and deferred compensation
earned or accrued, even if not yet vested nor paid;
b) The total value in the aggregate of the compensation or
payments authorized or paid under a severance or similar
post-service or post-employment arrangement, to include the
fair market value of all cash remuneration as well as the
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fair market value of all remuneration (including benefits)
paid in any medium other than cash;
c) Payments, compensation, or remuneration for work
performed or services provided at or for a covered hospital
or medical entity even if made by a separate person or
entity, including, but not limited to, any of the
following:
i) A for-profit or unincorporated entity;
ii) A corporation, partnership, or limited liability
company;
iii) A trust or other entity that is controlled by the
same person or persons who govern a covered hospital or
medical entity;
iv) A supporting or supported organization within the
meaning of the Internal Revenue Code Sections 509(a)(3)
and 509(f)(3); or,
v) A disregarded entity of, or related organization as
set forth within, the IRS form 990 of a covered hospital
or medical entity or a nonprofit corporation that owns,
operates, or controls, in whole or in part, a covered
hospital or medical entity.
d) Payment of compensation or remuneration by any person,
corporation, partnership, limited liability company, trust,
or other entity that a covered hospital or medical entity,
or a nonprofit corporation that owns, operates, or
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controls, in whole or in part, a covered hospital or
medical entity, participates in, belongs to, is a member
of, or pays into shall be presumed compensation for work
performed or services provided at or for the covered
hospital or medical entity.
20)Specifies that total annual compensation does not include the
cost of health insurance or disability insurance or payments
or contributions to a health reimbursement account.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, staff and information technology costs to OSHPD of
$390,000 in year one, $240,000 in year two, and ongoing costs of
$110,000 to implement this bill (fee-supported by fee revenue
authorized pursuant to this bill). One-time activities include
development of regulations, preparation of system requirements
and design documents, information technology system testing,
Ongoing activities include reviewing reports, researching which
unlicensed entities must report, contacting report entities with
missing or delinquent reports and addressing questions from the
public and policy makers.
COMMENTS: According to the author, currently there is little
transparency over whether for-profit or non-profit hospitals use
taxpayer dollars to provide high-quality, affordable medical
care, or if funds are being diverted to exorbitant executive
compensation packages. The author states that this bill ensures
more accountability and transparency in an otherwise opaque
environment.
Rising healthcare costs. The United States (U.S.) Census Bureau
has published new estimates of health spending based on their
Quarterly Services Survey, published on March 10, 2016.
Analysis of the survey data shows that health spending was 7.3%
higher in the first quarter of 2015 than in the first quarter of
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last year. Hospital spending increased 9.2%. A Kaiser Family
Foundation analysis of the data concludes that greater use of
health services, as well as more people covered by the Patient
Protection and Affordable Care Act appear to be responsible for
most of the increase, noting that people are beginning to use
more physician and outpatient services again as the economy
improves and that the number of days people spent in hospitals
also rose.
Executive compensation. According to the proponents of this
bill, little is known about what factors drive health care
costs, however they point to the fact that hospital executive
compensation has spiked in recent years. According to the
healthcare industry publication "Payers & Providers," 66
executives at the state's three largest hospital systems (Sutter
Health, Dignity Health, and Kaiser Permanente) earned more than
$1 million each in 2013, up from 52 executives just two years
before.
Publicly available information.
1)Non-profit entities. The IRS 990, officially, the "Return of
Organization Exempt from Income Tax" is an IRS form that
provides the public with financial information about a
non-profit organization. It is often the only source of such
information. Non-profit hospitals are required to file the
form 990 in order to maintain their non-profit/tax-exempt
status. However, only the top 20 wage earners over $150,000
have to be identified on the forms, and due to differing
corporate structures of hospitals and hospital systems, the
data is not easily comparable. For example, Kaiser is one
corporate entity with two branches, North and South. Their
990 covers their hospitals and health plan, however their
medical group (the doctors) are a for profit entity, so their
salaries are not included on the 990. Conversely, Dignity
Health (Dignity) files a single 990 for the entire system.
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The top 20 wage earners on Dignity's form are system-wide
employees, so their 990 excludes many CEOs.
According a June 30, 2015 article published in the Chronicle
of Philanthropy, the IRS is working on a technology that
should allow it to release electronic version of the form 990
by early this year, which would make it much easier for the
public to search for information about non-profit finances and
operations.
2)For-profit entities. Publicly traded companies report
significant amounts of financial data to shareholders and the
government in their annual U.S. Securities and Exchange
Commission (SEC) filings. Several documents that companies
are required to file include information about the company's
executive compensation policies and practices including; the
company's annual proxy statement; the company's annual report;
and, registration statements filed by the company to register
securities for sale to the public. The information is
available on the SEC's searchable database, EDGAR.
3)Private for-profit entities. Privately owned for-profit
hospitals are not required to report on their executive's
salaries. Of the 105 for-profit hospitals in the state,
approximately 50 are not publicly traded, and do not report
salary information.
Federal annual equal employment opportunity and compensation
report (EEO-1 Report). The EEO-1 Report is a compliance survey
mandated by federal statute and regulations. The survey
requires company employment data to be categorized by
race/ethnicity, gender and job category. On January 29, 2016,
the EEOC announced proposed changes to its EEO-1 report, which
requires employers to submit employee W-2 earnings and hours
worked. Under the proposal, all employers with at least 100
employees (not just federal contractors) would be required to
comply. In addition, the proposed changes will require the
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submission of payroll data broken down by race/ethnicity, in
addition to gender. The data would be made available to the
EEOC and the Office of Federal Contract Compliance Programs for
enforcement purposes. The proposed rule was published on
February 1, 2016 and interested parties have 60 days to submit
comments.
The EEOC proposing to change the reporting requirements to
include the data on employees' earnings and hours worked,
beginning in 2017. The EEOC's proposed pay bands (which are
included in the reporting provisions of this bill) are as
follows:
1)$19, 239 and under;
2)$19,240 - $24, 439;
3)$24,440 - $30,679;
4)$30,680 - $38,999;
5)$39,000 - $49,919;
6)$49,920 - $62,919;
7)$62,920 - $80,079;
8)$80,080 - $101,919
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9)$128,960 - $163,799;
10)$163,800 - $207,999; and,
11)$208,000 and over.
The EEOC is prohibited from making public the employment data
derived from any of its compliance surveys. The EEOC uses EEO-1
data to support civil rights enforcement and to analyze
employment patterns, such as the representation of female and
minority workers within companies, industries or regions. The
EEOC is not proposing to require an employer to begin collecting
additional data on actual hours worked for salaried workers, to
the extent that the employer does not currently maintain such
information.
Self-reported employee information. According to the Human
Rights Campaign (HRC) unlike other diversity categories, such as
race and gender, employers are not required to collect
statistics on the number of lesbian, gay, bisexual, and
transgender (LGBT) people they employ. Employers have sought to
determine the number of their employees who identify as LGBT
while balancing privacy concerns. Some employers use LGBT
employee group membership numbers to generate estimates, but
this method is limited by the scope of such voluntary groups
over a highly dispersed workforce. More recently, employers
have gathered statistics through anonymous employee engagement
or satisfaction surveys, which can include upward of 100
questions, and through confidential and secure employee records.
In both cases, whether an employee discloses their gender
identity or sexual orientation is optional and voluntary and any
reporting or direct access to the data is designed to ensure
confidentiality of the employee. In the HRC Corporate Equality
Index 2015 survey of 781 employers, 46% allow employees to
voluntarily disclose their sexual orientation and gender
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identity on anonymous surveys or confidential Human Resource
records, compared with 141 of the 519 employers (27%) in the
2008 survey and just 17% in the 2006 survey.
The California State Council of the Service Employees
International Union (SEIU California) supports this bill,
stating, while California public hospitals (city, county, or
University of California) are already required to provide
complete salary information for all employees through the
Controller, which publicly reports these data, significant gaps
and inconsistencies exist for our understanding of
not-for-profit and for-profit hospitals.
Hospitals which are publicly-traded must disclose executive
compensation for their CEO, CFO, and the next three top paid
employees company-wide to the SEC, which seldom capture their
California executives if the firm is national. SEIU California
continues, with nonprofits, the public makes a significant
investment in the form of over a billion a year in tax
exemptions in California, but nonprofit hospitals must only
disclose their top five highest compensated employees, beyond
their officers and directors, which often obfuscates individual
hospital CEO compensation, particularly at large multi-facility
nonprofit hospital chains. In each of these examples there has
already been established a compelling policy reason to
understand how top executives are being paid - for the sake of
understanding public investments, and informing private investor
decision-making - but the reporting requirements in each case
are different in scope and detail and ultimately become of
little use in very large nonprofit chains or national companies,
especially for national systems not based in California. SEIU
California notes that, at issue for non-profit operated
hospitals is the need to better understand whether the state's
investment through tax breaks and others subsidies leads
hospitals to provide more charity care and community benefits,
or whether it simply serves as a mechanism to provide hospital
executives with more excessive pay. SEIU California points to a
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2015 study published in Health Affairs that found that
California's nonprofit hospitals spent the same amount on
uncompensated care as for-profit hospitals, which suggests
greater accountability is warranted. SEIU California concludes
this bill will align hospital executive compensation reporting
for all non-profit and for-profit hospitals, including investor
owned hospitals, and consolidate that reporting within OSHPD,
which already collects and reports a myriad of different
hospital financial data.
The California Labor Federations states that increasing
transparency of CEO compensation at hospitals is a first step in
examining all cost drivers in health care, starting at the top
of the hospital chain, and given that the largest California
hospitals are non-profits, taxpayers should have access to the
compensation and other data about hospitals that they support
with tax breaks.
The California Hospital Association (CHA) opposes this bill and
states that hospitals and health systems are not opposed to
transparency; many hospitals currently report much of the
information sought and it is available to the public, however
this bill only increases hospital costs and discloses private
compensation information without any justification. CHA also
notes that the bill raises significant privacy concerns for a
broad array of employees, extending to exempt employees, not
just executives, thus nurse managers or information technology
personnel whose total compensation meets for exceeds $250,000
annually would be reported. CHA notes that in many
organizations, particularly in urban areas, this reporting
threshold would reach deep into the organization. The Hospital
Corporation of America states it is concerned about the
unintended consequences of public reporting of salaries, noting
that it could actually drive up labor costs where employees and
applicants use the salary information as benchmarks for the
myriad of hard to fill positions in health care.
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The California Chamber of Commerce (the Chamber) states that
this bill inappropriately assumes that hospital executive
compensation is a major driver of overall health care spending.
The Chamber notes that hospital executives play a critical role
in ensuring that millions of Californians receive quality health
care services, even as cost pressures and increasing demand for
hospital services are making it harder and harder for many
hospitals to keep their doors open.
Analysis Prepared by:
Lara Flynn / HEALTH / (916) 319-2097 FN:
0003260