BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
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          |Bill No:  |AB 1350                          |Hearing    |7/15/15  |
          |          |                                 |Date:      |         |
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          |Author:   |Salas                            |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |Version:  |6/16/15                          |Fiscal:    |No       |
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          |Consultant|Weinberger                                            |
          |:         |                                                      |
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                            KERN COUNTY HOSPITAL AUTHORITY



          Makes numerous changes to state laws allowing the Kern County  
          Board of Supervisors to create the Kern County Hospital  
          Authority.


           Background and Existing Law

           State law requires counties to provide or secure public health  
          care services and authorizes the formation of hospital districts  
          to provide such services.  Facing escalating costs, however,  
          some county hospitals have sought to restructure their  
          governance, merge, or affiliate with other hospitals in their  
          areas.

          Kern Medical Center is a 222-bed acute care teaching hospital  
          owned and operated by Kern County.  The Medical Center serves a  
          community of approximately 650,000 and employs approximately  
          1,800 staff members.  Kern Medical Center provides care for over  
          16,000 inpatients annually, while the clinics provide care and  
          services for over 100,000 patients.  The emergency room  
          experiences 43,000 visits per year.  As one of California's  
          public safety-net hospitals, Kern Medical Center serves a high  
          proportion of underinsured and uninsured patients, providing  
          healthcare access to all patients regardless of their ability to  
          pay.








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          As a public safety-net hospital, Kern Medical Center faces  
          significant challenges.  The recent economic slowdown has  
          increased the population of patients, who rely on the hospital's  
          safety-net services while, at the same time, decreasing the  
          reimbursements that the hospital receives from the federal and  
          state governments.  The Medical Center is confronting  
          significant fiscal challenges.  The medical center's management  
          team has taken steps to reduce costs and has succeeded in  
          significantly reducing operating deficits in recent months. 

          Public hospitals also face the challenge of competing with  
          private health care providers while complying with statutes  
          governing procurement, hiring, public records, and other  
          restrictions imposed by state law.  In response to similar  
          concerns, the Legislature granted the Alameda County Board of  
          Supervisors the power to establish a separate hospital authority  
          to govern the county's medical center (AB 2374, Bates, 1996).   
          Recently, the Legislature granted similar authority to the  
          Monterey County Board of Supervisors (AB 276, Alejo, 2012).

          Last year, the Legislature passed AB 2546 (Salas, 2014), which  
          allowed the Kern County Board of Supervisors to create a  
          hospital authority to govern the Kern Medical Center (KMC).  Now  
          that the county has started the process of forming a hospital  
          authority, stakeholders have identified more changes to state  
          law that will help facilitate KMC's transfer to the new  
          authority.


           Proposed Law

           State law authorizes the Kern County Board of Supervisors to  
          establish, by ordinance, the Kern County Hospital Authority  
          (KCHA) as a separate public entity, specifies KCHA's purpose,  
          and charges it with the management, administration, and control  
          of Kern Medical Center (KMC) and other health related resources.  
           Assembly Bill 1350 requires the enabling ordinance establishing  
          the KCHA to specify whether KCHA's funds are to be deposited in  
          the custody of, and paid out solely through, the county  
          treasurer's office.  The bill clarifies that if the enabling  
          ordinance does not require funds to be deposited in the county  
          treasury, KCHA can establish its own treasury.

          State law requires the Department of Health Care Services take  








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          all necessary steps to ensure that KCHA is permitted to operate  
          KMC.  Assembly Bill 1350 clarifies that this requirement  
          includes ensuring that KCHA has all of the licenses, permits,  
          and approvals needed.

          Assembly Bill 1350 defines "transfer of control" of KMC as the  
          transfer by the county to KCHA of the maintenance, operation,  
          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.

          State law requires the enabling ordinance adopted by the board  
          of supervisors, to establish the terms and conditions of the  
          transfer to KCHA from the county, including the maintenance,  
          operation, and management or ownership of the KMC.  Assembly  
          Bill 1350 clarifies that the county, has the option to require  
          KCHA to lease KMC, in addition to the option of transferring  
          ownership of KMC.

          State law contains extensive provisions relating to KCHA's  
          effects on current medical center and county employees,  
          including requirements related to the continuation of an  
          existing memorandum, of understanding or agreement covering the  
          terms and conditions, including the level of wages and benefits,  
          of current employees.  Assembly Bill 1350 requires KCHA, 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.

          State law specifies the manner in which current KMC employees  
          would retain membership in specified retirement systems after a  
          transfer to KCHA.  Assembly Bill 1350 requires KCHA to be  
          considered a public employer that offered a plan of replacement  
          benefits prior to January 1, 2013, for purposes of a statute  
          prohibiting a public employer from offering a replacement  
          benefits plan for employees after January 1, 2013, if it had not  
          already been offering such a plan prior to January 1, 2013.   
          Assembly Bill 1350 deems the County's plan of replacement  
          benefits in effect prior to January 1, 2013 to also be the  
          KCHA's replacement plan for the sole purpose of allowing KCHA to  








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          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.

          Assembly Bill 1350 defines "legacy employees," for purposes of  
          KCHA, as county employees who retired from KMC before the date  
          of transfer of control of KMC, county employees who are  
          initially transferred to KCHA on the date of transfer of control  
          of KMC, and employees first hired by or retired from KCHA during  
          the 24-month period following the date of transfer of control of  
          KMC.  Assembly Bill 1350 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.  The bill  
          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 KCHA must  
          make periodic employer contributions for legacy employees  
          following the transfer of control of KMC.  The bill requires the  
          county to be obligated to make employer contributions in the  
          event the KCHA fails to make the required contributions.

          Assembly Bill 1350 defines "new employees," for purposes of  
          KCHA, as employees first hired by KCHA after the 24-month period  
          following the date of transfer of control of KMC.  Assembly Bill  
          1350 requires KCHA 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 required  
          contributions in the event KCHA fails to make the required  
          contributions for new employees.  The bill requires the county  
          to maintain this obligation until KCHA demonstrates, and the  
          Kern County Employees' Retirement Association's Board of  
          Retirement determines, that KCHA is sufficiently capable  
          financially to fully assume the obligation to make all employer  
          contributions, as specified.  However, in the event that KCHA  
          fails to make contributions due to dissolution or bankruptcy,  
          the County is again obligated to make the required  
          contributions.








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          State law allows the county to lend KCHA funds or issue revenue  
          anticipation notes to obtain funds necessary to meet KCHA's  
          operational or capital needs.  Assembly Bill 1350 clarifies the  
          county's ability to lend KCHA 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.

          State law requires KCHA's board of governors to have authority  
          over procurement and contracts for KCHA, subject to written  
          rules, regulations, and procedures adopted by the board.   
          Assembly Bill 1350 allows the county to contract for services or  
          purchase items on behalf of KCHA.  The bill specifies that  
          KCHA'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.

          Assembly Bill 1350 makes other technical, clarifying and  
          conforming changes to the statutes governing KCHA.


           State Revenue Impact

           No estimate.


           Comments

           1.  Purpose of the bill  .  The Kern Medical Center (KMC), which is  
          owned and operated by the Kern County Board of Supervisors,  
          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 gave Kern County the  
          option to establish the KCHA to manage and administer KMC.  AB  
          1350's provisions will ensure that employees transferred from  
          KMC to KCHA are covered under the most current MOU and receive  
          the same health and retirement benefits.  The bill also protects  
          retiree benefits should KCHA dissolve, allows KCHA to deposit  
          and borrow funds from the county treasury, and gives KCHA the  
          option of establishing its own treasury.  In addition, AB 1350  








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          clarifies the scope of the transfer of control of KMC  
          operations, KCHA's responsibilities as hospital operator, and  
          the conditions under which the transfer must occur.  By  
          facilitating the establishment of KCHA, AB 1350 will allow Kern  
          County to benefit from the cost savings, that can be generated  
          by operating KMC under a separate governance structure and  
          provide opportunities for increased flexibility, responsiveness,  
          and innovation.  

          2.   Double-referred  .  Because AB 1350 relates to the creation of  
          a new local hospital authority, Senate Rules Committee  
          double-referred the bill, first to the Senate Health Committee,  
          which hears bills related to health care policy, and then to the  
          Senate Governance & Finance Committee, which hears bills related  
          to local governments' powers.  At its June 24 hearing, the  
          Senate Health Committee passed AB 1350 on an 8-0 vote.


           Assembly Actions

           Assembly Local Government Committee:  9-0
          Assembly Floor:               80-0


           Support and  
          Opposition   (7/9/15)


           Support  :  Kern County Board of Supervisors; Kern Health Systems;  
          Service Employees International Union, California State Council

           Opposition  :  Unknown.



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