California Legislature—2015–16 Regular Session

Assembly BillNo. 2467


Introduced by Assembly Member Gomez

February 19, 2016


An act to add Chapter 2.17 (commencing with Section 1339.85) to Division 2 of the Health and Safety Code, relating to health facilities.

LEGISLATIVE COUNSEL’S DIGEST

AB 2467, as introduced, Gomez. Health facilities: executive compensation.

Existing law provides for the licensure and regulation of health facilities, including general acute care hospitals, by the State Department of Public Health.

This bill would require covered hospitals and medical entities, as defined, to annually submit to the Office of Statewide Health Planning and Development an executive compensation report for every executive whose annual compensation exceeds a specified threshold. The bill would require specified information to be included in the report, and include a requirement that certain reports be attested to under penalty of perjury. Because a violation thereof would be a crime, the bill would impose a state-mandated local program. The bill would authorize the office to impose a reasonable fee to cover the costs of implementation and administration of these provisions. The bill would require the office to post these reports on its Internet Web site.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

This act shall be known and may be cited as the
2Hospital Executive Compensation Transparency Act of 2016.

3

SEC. 2.  

The Legislature finds and declares all of the following:

4(a) The public has a direct and immediate interest in ensuring
5its money is spent efficiently and wisely. Through direct cash
6payments and exemptions from paying taxes, nonprofit hospitals
7receive billions in taxpayer funds.

8(b) The compensation packages of chief executive officers,
9executives, managers, and administrators of hospitals, hospital
10groups, and affiliated medical entities that operate under nonprofit
11corporate status are often excessive, unnecessary, and inconsistent
12with the corporations’ charitable purposes, as revealed by
13compensation surveys and other sources.

14(c) Payment of excessive compensation to executives, managers,
15and administrators undermines the purposes of nonprofit
16corporations because it results in fewer funds being available for
17their charitable purposes, and it is often the case that the hospitals,
18hospital groups, and affiliated medical entities that pay the most
19excessive compensation also provide less charitable care than
20comparable institutions that pay reasonable compensation to their
21executives, managers, and administrators.

22(d) Existing requirements of law do not adequately ensure that
23assets held for charitable purposes are not instead used to enrich
24executives, managers, and administrators of nonprofit hospitals,
25hospital groups, and affiliated medical entities through payment
26of excessive compensation.

27(e) The compensation packages for chief executive officers,
28executives, managers, and administrators of for-profit hospitals in
29California are often excessive, unnecessary, and inconsistent with
30the provision of high-quality, affordable medical care, by diverting
31funds that could be used to expand access to affordable medical
32care for all Californians.

33(f) Chief executive officers, executives, managers, and
34administrators at hospitals, hospital groups, and affiliated medical
35entities who are also compensated for their positions on boards of
P3    1directors of publicly traded companies, privately held companies,
2and nonprofit organizations risk spending time away from their
3primary responsibilities to the detriment of high-quality, affordable
4medical care.

5(g) In order to properly assess the scope of excessive
6compensation packages in the nonprofit hospital sector and to
7inform policy decisions related to escalating health care costs, it
8is necessary to understand excessive compensation among private
9hospitals.

10(h) It is the intent of the Legislature in enacting this act to ensure
11that compensation packages for chief executive officers, executives,
12managers, and administrators of for-profit and nonprofit hospitals
13are consistent with the goal of providing affordable, high-quality
14medical care to all Californians.

15(i) The intent of the Legislature in enacting this act is also to
16ensure that compensation packages for chief executive officers,
17executives, managers, and administrators of nonprofit hospitals,
18hospital groups, and affiliated medical entities are consistent with
19the charitable purposes of those nonprofits and are reasonable and
20not excessive in light of the substantial public benefit that the state
21tax exemption for nonprofit organizations conveys.

22

SEC. 3.  

Chapter 2.17 (commencing with Section 1339.85) is
23added to Division 2 of the Health and Safety Code, to read:

24 

25Chapter  2.17. Hospital Executive Compensation
26Transparency Act of 2016
27

 

28

1339.85.  

For purposes of this chapter, the following definitions
29shall have the following meanings:

30(a) “Annual hospital executive compensation report” refers to
31the report described in Section 1339.87.

32(b) “Board compensation” shall mean the total annual
33compensation provided to each hospital executive by any publicly
34traded company, privately held company, or nonprofit organization
35on whose board of directors a hospital executive sits and from
36which the hospital executive received total annual compensation
37of more than one thousand dollars ($1,000).

38(c) (1) “Covered hospital or medical entity” shall mean any of
39the following:

P4    1(A) A private nonprofit general acute care hospital, as defined
2in subdivision (a) of Section 1250.

3(B) An acute psychiatric hospital, as defined in subdivision (b)
4of Section 1250.

5(C) Any private for-profit general acute care hospital that is
6licensed under subdivision (a) or (b) of Section 1250 and operated
7within the state for profit under Division 1 (commencing with
8Section 100) of Title 1 of the Corporations Code, including by a
9foreign corporation.

10(D) A hospital group, which shall mean any group of two or
11more hospitals described in paragraph (1) or (2) or any person,
12corporation, partnership, limited liability company, trust or other
13entity that owns, operates, or controls, in whole or in part, any
14such group.

15(E) A hospital-affiliated medical foundation, which shall mean
16a medical foundation, as defined in subdivision (f) of Section 1206,
17that is directly or indirectly, including through one or more
18intermediaries, controlled or owned by, or controlled or owned by
19the same person or entity as, a hospital, hospital group,
20hospital-affiliated physicians group, or nonprofit corporation that
21owns, operates, or controls, in whole or in part, a hospital, hospital
22group, or hospital-affiliated physicians group. A medical
23foundation shall be deemed a hospital-affiliated medical foundation
24if either or both of the following are true:

25(i) The medical foundation is a disregarded entity of, or would
26be required to be designated as a related organization on Internal
27Revenue Service Form 990 (or its accompanying schedules or the
28successor of such forms or schedules) of, a hospital, hospital group,
29 hospital-affiliated physicians group, or a nonprofit corporation
30that owns, operates, or controls, in whole or in part, a hospital,
31hospital group, or hospital-affiliated physicians group.

32(ii) A majority of the medical foundation’s assets are owned by
33a hospital, hospital group, or hospital-affiliated physicians group
34or by a nonprofit corporation that owns, operates, or controls, in
35whole or in part, a hospital, hospital group, or hospital-affiliated
36physicians group, or the medical foundation owns a majority of
37the assets of a hospital, hospital group, or hospital-affiliated
38physicians group or of a nonprofit corporation that owns, operates,
39or controls, in whole or in part, a hospital, hospital group, or
40hospital-affiliated physicians group.

P5    1(F) A hospital-affiliated physicians group, which shall mean
2any physicians group or medical group that is directly or indirectly,
3 including through one or more intermediaries, controlled or owned
4by, or controlled or owned by the same person or entity as, a
5hospital, hospital group, hospital-affiliated medical foundation, or
6a nonprofit corporation that owns, operates, or controls, in whole
7or in part, a hospital, hospital group, or hospital-affiliated medical
8foundation. A physicians group shall be deemed a
9hospital-affiliated physicians group if either or both of the
10following are true:

11(i) The physicians group is a disregarded entity of, or would be
12required to be designated as a related organization on Internal
13Revenue Service Form 990 (or its accompanying schedules or the
14successor of such forms or schedules) of, a hospital, hospital group,
15or hospital-affiliated medical foundation or a nonprofit corporation
16that owns, operates, or controls, in whole or in part, a hospital,
17hospital group, or hospital-affiliated medical foundation.

18(ii) A majority of the physicians group’s assets are owned by a
19hospital, hospital group, or hospital-affiliated medical foundation
20or a nonprofit corporation that owns, operates, or controls, in whole
21or in part, a hospital, hospital group, or hospital-affiliated medical
22foundation.

23(G) A health care district organized pursuant to Chapter 1
24(commencing with Section 32000) of Division 23.

25(2) “Covered hospital or medical entity” shall not include any
26of the following:

27(A) Hospitals operated or licensed by the United States
28Department of Veterans Affairs or public hospitals as defined in
29paragraph (25) of subdivision (a) of Section 14105. 98 of the
30Welfare and Institutions Code, with the exception of hospitals
31owned or operated by a health care district organized pursuant to
32Chapter 1 (commencing with Section 32000) of Division 23.

33(B) Designated public hospitals, as described in subdivision (d)
34of Section 14166.1 of the Welfare and Institutions Code.

35(d) “Executive compensation reporting threshold” shall mean
36the total annual compensation from any source for work performed
37or services provided at or for the covered hospital or medical entity
38that is greater than two hundred fifty thousand dollars ($250,000)
39in a year.

P6    1(e) (1) “Hospital executive” shall mean all persons whose
2primary duties are executive, managerial, or administrative at or
3for the covered hospital or medical entity, even if that person also
4performs or performed other duties.

5(2) “Hospital executive” shall include, but is not limited to,
6chief executive officers, chief executive managers, chief executives,
7executive officers, executive directors, chief financial officers,
8presidents, executive presidents, vice presidents, executive vice
9presidents, and other comparable positions.

10(3) The definition of “hospital executive” shall apply irrespective
11of whether the person exercising executive, managerial, or
12administrative authority is or was an employee of a covered
13hospital or medical entity or a nonprofit corporation that owns,
14operates, or controls, in whole or in part, a covered hospital or
15medical entity. The definition shall also apply to any person who
16exercises or exercised such authority even if the arrangements for
17such authority or for compensation or both are pursuant to a
18contract or subcontract.

19(4) “Hospital executive” shall include any person who held the
20duties described under this paragraph during the period covered
21by the annual report, even if the person is postemployment or
22postservice.

23(5) “Hospital executive” shall not apply to medical or health
24care professionals whose primary duties are or were the provision
25of medical services, research, direct patient care, or other
26nonmanagerial, nonexecutive, and nonadministrative services.

27(f) “Office” means the Office of Statewide Health Planning and
28Development.

29(g) (1) “Total annual compensation” shall mean all
30remuneration paid, earned, or accrued in the course of a fiscal year
31for work performed or services provided, including the cash value
32of all remuneration (including benefits) in any medium other than
33cash, except as otherwise specified in paragraph (2), and including,
34but not limited to, all of the following:

35(A) Wages; salary; paid time off; bonuses; incentive payments;
36lump-sum cash payments; the fair market value of
37below-market-rate loans or loan forgiveness; housing payments;
38payments for transportation, travel, meals, or other expenses in
39excess of actual documented expenses incurred in the performance
40of duties; payments or reimbursement for entertainment or social
P7    1club memberships; the cash value of housing, automobiles, parking,
2or similar benefits; scholarships or fellowships; the cash value of
3dependent care or adoption assistance or personal legal or financial
4services; the cash value of stock options or awards; payments or
5contributions for insurance except as exempted in paragraph (2),
6to a Section 125 cafeteria plan or equivalent arrangement, to a
7health savings account, or for severance or its equivalent; and
8deferred compensation earned or accrued, even if not yet vested
9nor paid.

10(B) The total value in the aggregate of the compensation or
11payments authorized or paid under a severance or similar
12postservice or postemployment arrangement, to include the fair
13market value of all cash remuneration as well as the fair market
14value of all remuneration (including benefits) paid in any medium
15other than cash, as defined in paragraph (1), subject to the exclusion
16set forth in paragraph (2).

17(C) Payments, compensation, or remuneration for work
18performed or services provided at or for a covered hospital or
19medical entity even if made by a separate person or entity,
20including, but not limited to, any of the following:

21(i) A for-profit or unincorporated entity.

22(ii) A corporation, partnership, or limited liability company.

23(iii) A trust or other entity that is controlled by the same person
24or persons who govern a covered hospital or medical entity.

25(iv) A supporting or supported organization within the meaning
26of Sections 509(a)(3) and 509(f)(3) of the Internal Revenue Code.

27(v) A disregarded entity of, or related organization as set forth
28within, the Internal Revenue Service Form 990 of a covered
29hospital or medical entity or a nonprofit corporation that owns,
30operates, or controls, in whole or in part, a covered hospital or
31medical entity.

32(D) Payment of compensation or remuneration by any person,
33corporation, partnership, limited liability company, trust, or other
34entity that a covered hospital or medical entity, or a nonprofit
35corporation that owns, operates, or controls, in whole or in part, a
36covered hospital or medical entity, participates in, belongs to, is
37a member of, or pays into shall be presumed compensation for
38work performed or services provided at or for the covered hospital
39or medical entity.

P8    1(2) “Total annual compensation” shall not include the cost of
2health insurance or disability insurance or payments or
3contributions to a health reimbursement account.

4

1339.87.  

(a) On and after October 1, 2017, each covered
5hospital or medical entity shall submit an annual hospital executive
6compensation report to the office for every hospital executive
7whose total annual compensation met or exceeded the executive
8compensation reporting threshold. The report shall include all of
9the following information for the prior fiscal year:

10(1) The names, positions, or titles of each hospital executive
11and the aggregate total annual compensation for each hospital
12executive at or exceeding the executive compensation reporting
13threshold, including all of the information described under
14subdivision (g) of Section 1339.85, with a description of each
15entity that has contributed to the total annual compensation of each
16hospital executive, in any form, and the amount of such
17compensation.

18(2) A detailed breakdown of all wage and nonwage
19compensation.

20(3) Identification of any benefit or remuneration excluded from
21the definition of total annual compensation pursuant to paragraph
22(2) of subdivision (g) of Section 1339.85.

23(4) A detailed breakdown of board compensation, which shall
24include all of the following:

25(A) The name of the publicly traded company, privately held
26company, or nonprofit organization that provided the board
27compensation.

28(B) The number of hours the hospital executive spent on matters
29related to their duties as a director of the publicly traded company,
30privately held company, or nonprofit organization for which the
31board compensation was received.

32(b) On and after January 1, 2018, the office shall post the annual
33hospital executive compensation report for each covered hospital
34or medical entity on the office’s Internet Web site.

35(c) The annual report shall be submitted on the form or in the
36format required by the office.

37(d) (1) The board of directors of any nonprofit or for-profit
38corporation that owns, operates, or controls, in whole or in part, a
39covered hospital or medical entity shall approve the annual report
40before it is submitted to the office.

P9    1(2) Each director shall act in good faith and with reasonable
2care and inquiry in approving the annual report and in ensuring
3that the corporation complies with the requirements of this section.

4(3) For each covered hospital or medical entity governed, owned,
5or controlled by a board of directors, the annual report shall state
6that it was approved by the board of directors and set forth the date
7of such approval, and shall be attested to under penalty of perjury
8by an authorized representative of the covered hospital or medical
9entity board of directors.

10(e) (1) Any scheme or artifice that has the purpose of avoiding
11the reporting requirements established by this section shall
12constitute a violation of this section.

13(2) Payments, compensation, or remuneration by a separate
14entity that is purported not to be for work performed or services
15provided at or for a covered hospital or medical entity, but that is
16disproportionate to its purported purpose so as to evade the annual
17hospital executive compensation reporting requirements specified
18in this section, shall constitute a violation of this section.

19(f) The office shall establish and assess reasonable fees, to be
20submitted with each annual report, to cover only the reasonable
21costs of implementing and ensuring compliance with this section
22and each activity authorized or required by this section.

23

SEC. 4.  

No reimbursement is required by this act pursuant to
24Section 6 of Article XIII B of the California Constitution because
25the only costs that may be incurred by a local agency or school
26district will be incurred because this act creates a new crime or
27infraction, eliminates a crime or infraction, or changes the penalty
28for a crime or infraction, within the meaning of Section 17556 of
29the Government Code, or changes the definition of a crime within
30the meaning of Section 6 of Article XIII B of the California
31Constitution.



O

    99