BILL ANALYSIS �
SENATE COMMITTEE ON HEALTH
Senator Ed Hernandez, O.D., Chair
BILL NO: AB 2115
AUTHOR: Alejo
AMENDED: May 31, 2012
HEARING DATE: June 13, 2012
CONSULTANT: Marchand
SUBJECT : Local health care districts: employment contracts.
SUMMARY : Requires a written employment agreement if a local
health care district employs or contracts with a hospital
administrator or chief executive officer.
Existing law:
1.Establishes "The Local Health Care District Law," under which
a local hospital district may be organized, incorporated and
managed. Permits a district to include incorporated or
unincorporated territory, or both, in any one or more
counties.
2.Permits a local hospital district to enter into a contract of
employment with a hospital administrator, and limits the
duration of this contract to four years, but permits the
contract to be renewed periodically upon expiration.
3.Specifies that any reference to a "hospital administrator"
means "chief executive officer (CEO)."
This bill:
1.Revises provisions of law that permit a local hospital
district to enter into a contract of employment with a
hospital administrator or chief executive by requiring a
written employment agreement if a local district employs or
contracts with the hospital administrator or chief executive
officer.
2.Requires, if the Commission on State Mandates determines that
this bill contains costs mandated by the state, health care
districts to be reimbursed for those costs by the state.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, negligible costs. This bill provides for
reimbursement to local agencies if the Commission on State
Mandates determines there are mandated costs, however, there are
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not likely to be any such costs.
PRIOR VOTES :
Assembly Local Government:9- 0
Assembly Appropriations: 17- 0
Assembly Floor: 76- 0
COMMENTS :
1.Author's statement. California law allows local health care
districts, like the Salinas Valley Memorial Healthcare System
(SVMHS), to enter into a renewable employment contract of up
to four years with a hospital administrator. However, current
law does not specify that the contracts should be written. The
author states that the SVMHS state audit highlighted the fact
that the former CEO worked for the hospital for 26 years
without a written employment contract. This resulted in an
absence of transparency and oversight regarding his
compensation. For example, due to the lack of a written
contract, board members were unclear about the former CEO's
total compensation and what he was entitled to. The board gave
the CEO $4.9 million in retirement and severance benefits
between 2008 and 2011, most of which were paid to him before
he retired. The author states that requiring local health care
districts to have written contracts with their administrators
will result in clarity, transparency and accountability in
terms of employment and compensation.
2.Double referral. This bill is double referred. Should it pass
out of this Committee, it will be referred to the Senate
Committee on Governance and Finance.
3.Related legislation. AB 2180 (Alejo) would prohibit local
health care districts from providing any retirement benefit
unless the health care district makes the same options
available to all employees. AB 2180 is scheduled to be heard
in the Committee on Governance and Finance on June 13, 2012.
4.State audit of the Salinas Valley Memorial Healthcare System.
In March of 2012, the Bureau of State Audits released its
report on the fiscal mismanagement of SVMHS, subtitling the
report "Increased Transparency and Stronger Controls Are
Necessary as It Focuses on Improving Its Financial Situation."
SVMHS is an independent special health care district with an
elected five-member board of directors that governs its
activities. At the core of SVMHS is the Salinas Valley
Memorial Hospital, which employed more than 1,700 employees as
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of June 20, 2011, and maintains 269 beds. According to the
report, "although as a public agency SVMHS's decisions
regarding compensation for its top executives should be
transparent, this has not been the case for such board
decisions." The report goes on to state that in an environment
characterized by the lack of an executive compensation policy
and limited transparency in executive compensation matters,
SVMHS's executives were granted compensation at the upper
level of industry practices. The former CEO, who retired in
April 2011, received $4.9 million in retirement and severance
benefits between 2008 and 2011, the majority of which came
from multiple retirement investment plans that SVMHS provided
him as part of his overall retirement benefits package.
The Bureau of State Audits made several recommendations as part
of this report, including recommending that SVMHS develop a
formal policy that establishes a process for determining
executive compensation that clearly documents all executive
compensation decisions. Additionally, the report recommended,
in order to ensure that the terms of its CEO's employment and
compensation are clear and to aid the board in its oversight
role, that SVMHS should engage its next permanent CEO in a
written employment contract.
5.Support. This bill is supported by the Association of
California Healthcare Districts (ACHD), which states most
district hospitals currently maintain written agreements with
their administrators. ACHD believes this bill creates a
uniform approach which fosters good governance for all
district hospitals and the communities in which they serve.
This bill is also supported by the California Nurses
Association, which states that this is a simple bill that will
result in clarity, transparency and accountability in terms of
employment and compensation.
6.Opposition. This bill is opposed by the Department of Finance
(DOF), which states that it could result in a reimbursable
state mandate by requiring local hospital districts to enter
into written contracts when hiring hospital administrators.
DOF states that the cost of this mandate is currently unknown
but may be significant.
SUPPORT AND OPPOSITION :
Support: Association of California Healthcare Districts
AB 2115 | Page 4
California Nurses Association
Oppose: Department of Finance
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