BILL ANALYSIS �
AB 2180
Page 1
Date of Hearing: August 22, 2012
ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT
Cameron Smyth, Chair
AB 2180 (Alejo) - As Amended: June 20, 2012
SUBJECT : Local health care districts: employment contracts.
SUMMARY : Requires, if a health care district and hospital
administrator enter into a written employment agreement, that
the written agreement include specified information regarding
compensation, severance, and other benefits, as specified.
The Senate amendments delete the Assembly version of this bill,
and instead, require a written employment agreement, if a health
care district and a hospital administrator enter into one, to
include all material terms and conditions as follows:
1)Compensation.
2)Deferred compensation.
3)Retirement benefits.
4)Severance or continuing compensation after termination of the
agreement.
5)Vacation pay.
6)Other paid time off for illness or personal reasons.
7)Other employment benefits that differ from those available to
other full-time employees.
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.
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
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district to not be contiguous, as specified.
4)Enumerates the powers and duties of health care districts.
5)Allows a local hospital district to enter into a contract of
employment with a hospital administrator, the duration of
which shall not exceed four years, but which may periodically
be renewed upon expiration for not more than four years.
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.
7)Specifies that any reference to "hospital administrator"
includes a chief executive officer, for purposes of the Local
Health Care District Law.
AS PASSED BY THE ASSEMBLY , this bill limited specified benefits
for health care district employees unless the employer made the
same options available to all officers and employees.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS :
1)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.
2)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
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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.
3)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.
4)According to the author this bill, "would allow the public and
board members to have a reference point for information
regarding executive compensation and would increase
transparency in the process by which compensation packages for
CEOs and hospital administrators are determined." This bill
is author-sponsored.
5)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.
6)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
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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
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."
7)The BSA audit also provides several recommendations as
part of the report to increase transparency and
accountability. The recommendations to the Health Care
System includes developing a formal policy that
establishes a process for determining executive
compensation, including retirement benefits, that clearly
documents all executive compensation decisions.
8)Current law allows local hospital districts to enter into
a contract of employment with a hospital administrator.
Another bill that is similar in nature, AB 2115 (Alejo)
would require a written employment agreement if a local
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health care district employs or contracts with a hospital
administrator or chief executive officer (CEO). AB 2115
passed out of the Legislature and is currently awaiting
the Governor's signature.
9)Building on the provisions of AB 2115 (Alejo), this bill
would require that a written employment agreement include
specific terms and conditions. This bill will bring
further transparency to the compensation practices of
local health care districts by requiring that written
agreements include the compensation, deferred
compensation, retirement benefits, severance or
continuing compensation after termination of the
agreement, vacation pay, other paid time off for illness
or personal reasons, and other employment benefits that
differ from those available to other full-time employees.
10)Support arguments: Supporters argue that this will
bring sunshine and transparency to 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: None
11)The Assembly-approved provisions of this bill were
deleted in the Senate. However, the subject matter of
this bill, as amended in the Senate, is substantially
similar to another measure heard by this Committee in
this legislative session.
REGISTERED SUPPORT / OPPOSITION :
Support
California Conference of Machinists
California Conference Board of the Amalgamated Transit Union
California Labor Federation
California Nurses Association
Engineers and Scientists of California
International Longshore & Warehouse Union
Professional & Technical
UNITE HERE
United Food and Commercial Workers Union, Western States Council
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Utility Workers Union of America, Local 132
Opposition
None on file
Analysis Prepared by : Misa Yokoi-Shelton / L. GOV. / (916)
319-3958