Amended in Assembly April 5, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 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 amended, 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. begin insert The bill would also require each covered hospital or medical entity with 100 or more employees to annually report compensation information by employee classification and by gender, ethnicity, race, sexual orientation, and gender identity, as self-reported by its employees. end insert The bill would require specified information to be included in begin delete the report, and include a requirement end delete begin insert these reports, and would require end insert 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:

SECTION 1.  

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

SEC. 2.  

The Legislature finds and declares all of the following:

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

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

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

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

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

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

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

begin insert

(h) In order to ensure equal opportunity and compensation
among health care workers in California, it is necessary to
understand compensation by job classification and by race,
ethnicity, gender, sexual orientation, and gender identity.

end insert begin delete

(h)

end delete

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

begin delete

(i)

end delete

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

begin insert

(k) It is also the intent of the Legislature in enacting this act to
ensure that compensation packages for employees of for-profit
and nonprofit hospitals are not discriminatory based on race,
ethnicity, gender, sexual orientation, or gender identity.

end insert

SEC. 3.  

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

 

Chapter  2.17. Hospital Executive Compensation
Transparency Act of 2016

 

1339.85.  

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(i) A for-profit or unincorporated entity.

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

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

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

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

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

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

1339.87.  

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

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

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

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

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

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

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

begin insert

(b) Consistent with the annual equal employment opportunity
and compensation report on employees’ ethnicity, race, and sex
by job category and compensation required by Part 1602 of
Chapter XIV of Subtitle B of Title 29 of the Code of Federal
Regulations, on or after October 1, 2017, and annually thereafter,
each covered hospital or medical entity with 100 or more
employees shall submit to the office all of the following information
for the prior fiscal year:

end insert begin insert

(1) The number of employees earning annual total compensation
in 12 pay bands, as proposed by the federal Equal Employment
Opportunity Commission in the Federal Register, Volume 81,
Number 20, on February 1, 2016, on pages 5113 to 5121, inclusive,
for each of the eight employee classifications defined in the office’s
hospital annual financial data and by self-reported gender,
ethnicity, and race, and voluntarily self-reported sexual orientation
and gender identity.

end insert begin insert

(2) The total number of hours worked by the employees included
in each pay band described in paragraph (1).

end insert begin delete

(b)

end delete

begin insert (c) end insert  On and after January 1, 2018, the office shall post the annual
hospital executive compensation report for each covered hospital
or medical entity on the office’s Internet Web site.

begin delete

(c)

end delete

begin insert (d) end insert  The annual report shall be submitted on the form or in the
format required by the office.

begin delete

(d)

end delete

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

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

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

begin delete

(e)

end delete

begin insert (f) end insert  (1) Any scheme or artifice that has the purpose of avoiding
the reporting requirements established by this section shall
constitute a violation of this section.

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

begin delete

(f)

end delete

begin insert (g) end insert  The office shall establish and assess reasonable fees, to be
submitted with each annual report, to cover only the reasonable
costs of implementing and ensuring compliance with this section
and each activity authorized or required by this section.

SEC. 4.  

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