BILL ANALYSIS �
AB 2180
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ASSEMBLY THIRD READING
AB 2180 (Alejo)
As Amended March 29, 2012
Majority vote
LOCAL GOVERNMENT 6-3
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|Ayes:|Alejo, Bradford, Campos, | | |
| |Davis, Gordon, Hueso | | |
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|Nays:|Smyth, Knight, Norby | | |
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SUMMARY : Limits specified benefits for health care district
employees unless the same options are available to all officers and
employees. Specifically, this bill :
1)Prohibits an employer from providing to, or on behalf of, an
officer or employee any of the following, unless the employer
makes the same options available to all officers and employees:
a) a lump sum payment, including one based on service or merit; b)
any payment contingent upon severance or retirement; c) a
contribution to more than one retirement plan or other
supplemental pension plan, whether public or private; or, d) any
other retirement benefit.
2)Defines "employer" to include "the board of directors, a hospital
district, and a health care facility of a hospital district."
3)Defines "officer or employee" to include "the hospital
administrator, a director, policymaking management employee, or
medical staff officer, and any executive or staff of the health
care facilities of the district."
EXISTING LAW :
1)Establishes the Local Health Care District Law.
2)Allows a local health care district to be organized, incorporated
and managed, as specified under the Local Health Care District
Law.
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3)Allows a health care district to include incorporated or
unincorporated territory, or both, or territory in any one or more
counties, and allows the territory comprising the district to not
be contiguous, as specified.
4)Enumerates the powers and duties of health care districts.
5)Allows, notwithstanding any other provision of law, a hospital
district, or any affiliated nonprofit corporation upon a finding
by the board of directors of the district that it will be in the
best interests of the public health of the communities served by
the district and in order to obtain a licensed physician and
surgeon to practice in the communities served by the district, to
do any of the following:
a) Guarantee to a physician and surgeon a minimum income for a
period of no more than three years from the opening of the
physician and surgeon's practice;
b) Guarantee purchases of necessary equipment by the physician
and surgeon;
c) Provide reduced rental rates of office space in any building
owned or leased by the district or any of its affiliated
entities, or subsidize rental payments for office space in any
other buildings, for a term of no more than three years;
d) Provide other incentives to a physician and surgeon in
exchange for consideration and upon terms and conditions the
hospital district's board of directors deems reasonable and
appropriate; and,
e) Finds and declares that this section is necessary to assist
district hospitals to attract qualified physicians and surgeons
to practice in the communities served by these hospitals, and
that the health and welfare of the residents in these
communities require these provisions.
6)Requires, at least once each year, the board of the health care
district to engage the services of a qualified accountant of
accepted reputation to conduct an audit of the books of the
hospital and prepare a report, as specified.
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FISCAL EFFECT : None
COMMENTS : Near the end of World War II, California faced a severe
shortage of hospital beds. To respond to the inadequacy of acute
care services in the non-urban areas of the state, the Legislature
enacted the Local Hospital District Law, with the intent to give
rural, low income areas without ready access to hospital facilities
a source of tax dollars that could be used to construct and operate
community hospitals and health care institutions, and, in medically
underserved areas, to recruit physicians and support their
practices.
The Local Hospital District Law (now called the Local Health Care
District Law) allowed communities to create a new governmental
entity - independent of local and county jurisdictions - that had
the power to impose property taxes, enter into contracts, purchase
property, exercise the power of eminent domain, issue debt, and hire
staff. In general, the process of creating a hospital district
started with citizens in a community identifying the need for
improved access to medical care. The hospital district's boundaries
were usually based on the distance between communities and the
closest available acute care hospital services. A petition for
formation was then filed by the community to the county board of
supervisors, and then residents of the proposed district were needed
to vote in favor of the measure to create the hospital district. In
1963, the Knox Nisbet Act was passed, which created local agency
formation commissions (LAFCOs) and clarified and formalized the
process for establishing a district.
According to the Association of California Healthcare Districts,
there are currently 74 districts, of which 30 are rural, 20 are
critical access, five have stand-alone clinics, and three have
stand-alone skilled nursing facilities. These institutions provide
a significant portion of the medical care to minority populations
and the uninsured in medically underserved regions of the state and
are mainly funded by Medicare, Medi-Cal, and district tax dollars.
This bill prohibits local health care districts from providing to an
employee any special retirement benefits unless the district makes
the same options available to all employees. According to the
author, this bill would allow all public employees to benefit from
the same retirement benefits that hospital administrators are often
offered. The author notes that this bill creates a fair pension
system within local health care districts and would prevent
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hospitals from giving excessive retirement benefits to hospital
executives. This bill is author-sponsored.
The author notes that "in recent years, local health care districts
have come into public scrutiny with allegations of administrative
waste, wrongdoing, and lack of appropriate spending priorities."
The author sites the recent Bureau of State Audits (BSA) examination
of Salinas Valley Memorial Health Care System as one of the reasons
for the justification for the bill.
The BSA audit, released in, March 2012, concluded the following in
the opening letter to the Governor and Legislative Leaders:
This report concludes that the �Salinas Valley Memorial]
Health Care System's board of directors, when making
decisions regarding executive compensation, violated the
Ralph M. Brown Act, which requires legislative bodies of
local public agencies to conduct their meetings in an
open manner. In an environment characterized by a lack
of an executive compensation policy and limited
transparency, the Health Care System granted compensation
for its executives at the upper end of the range for the
health care industry. In addition, the former chief
executive officer (CEO) received generous retirement and
severance benefits totaling $4.9 million between 2008 and
2011, most of which were paid to him before he retired.
Our review also noted weaknesses in controls in several
areas. We audited instances in which the Health Care
System had business relationships between 2006 and 2010
with entities in which its executives or board members
had economic interests. In the two relationships we
reviewed, the former CEO may have violated
conflict-of-interest laws in one instance, and the board
may have violated conflict-of-interest laws in the other
instance. Also, the Health Care System did not ensure
that many of the individuals its conflict-of-interest
code identified as needing to submit statements of
economic interests did so. Further, it does not have
written policy and procedures to demonstrate that its
community funding furthers its public purposes, thereby
risking questions about whether this funding violates the
constitutional prohibition against public agencies making
gifts of public funds. Additionally, for contracts we
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reviewed for which it was not required by state law to
use a competitive process, the Health Care System
generally did not document how it selected contractors in
a way that demonstrated that it obtained the best value
when procuring goods and services.
According to a report completed by the California HealthCare
Foundation in 2006, the majority of health care district programs
place great emphasis on community health and wellness programs and
services designed to prevent or postpone acute hospital care. In
many cases, the districts have filled gaps in local health services,
resulting from the funding constraints faced by local public health
departments, public safety organizations, and transportation
agencies. They also play a vital role in physician recruitment and
nurse training, in light of the shortages of medical professionals
in most regions of California.
The California Nurses Association (CNA), in support, writes that
"the bill reflects a need for fairness at district hospitals where
executive compensation is often at shocking levels, particularly
within the public sector." CNA notes that "despite the large sums
paid for executive compensation at district hospitals, �nurses] have
continued to see attempts to undercut patient care services and
employee compensation."
The Association of California Healthcare Districts (ACHD), in
opposition, writes that the bill "will remove the recruitment and
retention mechanisms of district hospitals to compete with private,
non-profit and other public hospitals." ACHD notes that many
district hospitals are located in rural areas and as such, the
hospitals find the only tool they have to recruit strong leadership
is by offering competitive compensation packages. Additionally,
ACHD believes that "removing these tools from a district hospital's
reach will negatively impact the daily operations of the hospital
and the communities they serve."
ACHD writes that "increasing transparency of district hospitals may
be a better solution than limiting widely accepted employment
tools." The Legislature may wish to consider whether greater
transparency and community involvement may help solve the issue of
excessive benefits for some health care district employees versus
others.
Health care districts were designed to compete in the private
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sector, and as such, are very different from other types of special
districts in California. The Legislature may wish to consider
whether the provisions of the bill decrease the ability of health
care districts to attract employees and administrators, thereby
undermining the competitive nature with which districts were
created.
In 2000, the Legislature passed the Cortese-Knox-Hertzberg Act,
which rewrote the previous 1985 Act and gave new powers to LAFCOs to
conduct municipal service reviews (MSRs) of all the special
districts in a county, including health care districts. MSRs
consist of making determinations about infrastructure needs or
deficiencies, growth and population projects, the location and
characteristic of any disadvantaged unincorporated communities,
present and planned capacity of public facilities, the financial
ability of agencies to provide services, the status of, and
opportunities for, shared facilities, accountability for community
service needs, and any other matters related to effective or
efficient service delivery.
The Legislature may wish to consider whether there are alternative
ways of increasing transparency through the LAFCO MSR process in
order to deal with the goal of the bill to combat excessive
retirement benefits.
Support arguments: Supporters argue that this bill reflects a need
for fairness at district hospitals where executive compensation is
often at shocking levels and is a good response to issues recently
brought up in the BSA audit of Salinas Valley Memorial Health Care
System.
Opposition arguments: Opponents argue that districts will not be
able to compete for top talent with other public, private, and
non-profit hospitals that do not have the same restrictions as this
bill places on health care districts.
Analysis Prepared by : Debbie Michel / L. GOV. / (916) 319-3958
FN: 0003480
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