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. The bill would require specified information to be
begin delete the report, and include a requirementend delete 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:
This act shall be known and may be cited as the
2Hospital Executive Compensation Transparency Act of 2016.
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
P3 1California are often excessive, unnecessary, and inconsistent with
2the provision of high-quality, affordable medical care, by diverting
3funds that could be used to expand access to affordable medical
4care for all Californians.
5(f) Chief executive officers, executives, managers, and
6administrators at hospitals, hospital groups, and affiliated medical
7entities who are also compensated for their positions on boards of
8directors of publicly traded companies, privately held companies,
9and nonprofit organizations risk spending time away from their
10primary responsibilities to the detriment of high-quality, affordable
12(g) In order to properly assess the scope of excessive
13compensation packages in the nonprofit hospital sector and to
14inform policy decisions related to escalating health care costs, it
15is necessary to understand excessive compensation among private
22 It is the intent of the Legislature in enacting this act to ensure
23that compensation packages for chief executive officers, executives,
24managers, and administrators of for-profit and nonprofit hospitals
25are consistent with the goal of providing affordable, high-quality
26medical care to all Californians.
28 The intent of the Legislature in enacting this act is also to
29ensure that compensation packages for chief executive officers,
30executives, managers, and administrators of nonprofit hospitals,
31hospital groups, and affiliated medical entities are consistent with
32the charitable purposes of those nonprofits and are reasonable and
33not excessive in light of the substantial public benefit that the state
34tax exemption for nonprofit organizations conveys.
Chapter 2.17 (commencing with Section 1339.85) is
40added to Division 2 of the Health and Safety Code, to read:
For purposes of this chapter, the following definitions
5shall have the following meanings:
6(a) “Annual hospital executive compensation report” refers to
7the report described in Section 1339.87.
8(b) “Board compensation” shall mean the total annual
9compensation provided to each hospital executive by any publicly
10traded company, privately held company, or nonprofit organization
11on whose board of directors a hospital executive sits and from
12which the hospital executive received total annual compensation
13of more than one thousand dollars ($1,000).
14(c) (1) “Covered hospital or medical entity” shall mean any of
16(A) A private nonprofit general acute care hospital, as defined
17in subdivision (a) of Section 1250.
18(B) An acute psychiatric hospital, as defined in subdivision (b)
19of Section 1250.
20(C) Any private for-profit general acute care hospital that is
21licensed under subdivision (a) or (b) of Section 1250 and operated
22within the state for profit under Division 1 (commencing with
23Section 100) of Title 1 of the Corporations Code, including by a
25(D) A hospital group, which shall mean any group of two or
26more hospitals described in paragraph (1) or (2) or any person,
27 corporation, partnership, limited liability company,
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28other entity that owns, operates, or controls, in whole or in part,
29any such group.
30(E) A hospital-affiliated medical foundation, which shall mean
31a medical foundation, as defined in subdivision (f) of Section 1206,
32that is directly or indirectly, including through one or more
33intermediaries, controlled or owned by, or controlled or owned by
34the same person or entity as, a hospital, hospital group,
35hospital-affiliated physicians group, or nonprofit corporation that
36owns, operates, or controls, in whole or in part, a hospital, hospital
37group, or hospital-affiliated physicians group. A medical
38foundation shall be deemed a hospital-affiliated medical foundation
39if either or both of the following are true:
P5 1(i) The medical foundation is a disregarded entity of, or would
2be required to be designated as a related organization on Internal
3Revenue Service Form 990 (or its accompanying schedules or the
4successor of such forms or schedules) of, a hospital, hospital group,
5 hospital-affiliated physicians group, or a nonprofit corporation
6that owns, operates, or controls, in whole or in part, a hospital,
7hospital group, or hospital-affiliated physicians group.
8(ii) A majority of the medical foundation’s assets are owned by
9a hospital, hospital group, or hospital-affiliated physicians group
10or by a nonprofit corporation that owns, operates, or controls, in
11whole or in part, a hospital, hospital group, or hospital-affiliated
12physicians group, or the medical foundation owns a majority of
13the assets of a hospital, hospital group, or hospital-affiliated
14physicians group or of a nonprofit corporation that owns, operates,
15or controls, in whole or in part, a hospital, hospital group, or
16hospital-affiliated physicians group.
hospital-affiliated physicians group, which shall mean
18any physicians group or medical group that is directly or indirectly,
19 including through one or more intermediaries, controlled or owned
20by, or controlled or owned by the same person or entity as, a
21hospital, hospital group, hospital-affiliated medical foundation, or
22a nonprofit corporation that owns, operates, or controls, in whole
23or in part, a hospital, hospital group, or hospital-affiliated medical
24foundation. A physicians group shall be deemed a
25hospital-affiliated physicians group if either or both of the
26following are true:
27(i) The physicians group is a disregarded entity of, or would be
28required to be designated as a related organization on Internal
29Revenue Service Form 990 (or its accompanying schedules or the
30successor of such forms or schedules) of, a hospital, hospital group,
31or hospital-affiliated medical foundation or a nonprofit corporation
32that owns, operates, or controls, in whole or in part, a hospital,
33hospital group, or hospital-affiliated medical foundation.
34(ii) A majority of the physicians group’s assets are owned by a
35hospital, hospital group, or hospital-affiliated medical foundation
36or a nonprofit corporation that owns, operates, or controls, in whole
37or in part, a hospital, hospital group, or hospital-affiliated medical
39(G) A health care district organized pursuant to Chapter 1
40(commencing with Section 32000) of Division 23.
P6 1(2) “Covered hospital or medical entity” shall not include any
2of the following:
3(A) Hospitals operated or licensed by the United States
4Department of Veterans Affairs or public hospitals as defined in
5paragraph (25) of subdivision (a) of Section 14105. 98 of the
6Welfare and Institutions Code, with the exception of hospitals
7owned or operated by a health care district organized pursuant to
8Chapter 1 (commencing with Section 32000) of Division 23.
9(B) Designated public hospitals, as described in subdivision (d)
10of Section 14166.1 of the Welfare and Institutions Code.
11(d) “Executive compensation reporting threshold” shall mean
12the total annual compensation from any source for work performed
13or services provided at or for the covered hospital or medical entity
14that is greater than two hundred fifty thousand dollars ($250,000)
15in a year.
16(e) (1) “Hospital executive” shall mean all
17primary duties are executive, managerial, or administrative at or
18for the covered hospital or medical entity, even if that person also
19performs or performed other duties.
20(2) “Hospital executive” shall include, but is not limited to,
21chief executive officers, chief executive managers, chief executives,
22executive officers, executive directors, chief financial officers,
23presidents, executive presidents, vice presidents, executive vice
24presidents, and other comparable positions.
25(3) The definition of “hospital executive” shall apply irrespective
26of whether the person exercising executive, managerial, or
27administrative authority is or was an employee of a covered
28hospital or medical entity or a nonprofit corporation that owns,
29operates, or controls, in whole or in part, a covered hospital or
30medical entity. The definition shall also apply to any person who
31exercises or exercised such authority even if the arrangements for
32such authority or for compensation or both are pursuant to a
33contract or subcontract.
34(4) “Hospital executive” shall include any person who held the
35duties described under this paragraph during the period covered
36by the annual report, even if the person is postemployment or
38(5) “Hospital executive” shall not apply to medical or health
39care professionals whose primary duties are or were the provision
P7 1of medical services, research, direct patient care, or other
2nonmanagerial, nonexecutive, and nonadministrative services.
3(f) “Office” means the Office of
Statewide Health Planning and
5(g) (1) “Total annual compensation” shall mean all
6remuneration paid, earned, or accrued in the course of a fiscal year
7for work performed or services provided, including the cash value
8of all remuneration (including benefits) in any medium other than
9cash, except as otherwise specified in paragraph (2), and including,
10but not limited to, all of the following:
11(A) Wages; salary; paid time off; bonuses; incentive payments;
12lump-sum cash payments; the fair market value of
13below-market-rate loans or loan forgiveness; housing payments;
14payments for transportation, travel, meals, or other expenses in
15excess of actual documented expenses incurred in the performance
16of duties; payments or reimbursement for entertainment or social
17club memberships; the cash value of housing, automobiles, parking,
18or similar benefits; scholarships or fellowships; the cash value of
19dependent care or adoption assistance or personal legal or financial
20services; the cash value of stock options or awards; payments or
begin delete insuranceend delete except as exempted in
22paragraph (2), to a Section 125 cafeteria plan or equivalent
23arrangement, to a health savings account, or for severance or its
24equivalent; and deferred compensation earned or accrued, even if
25not yet vested nor paid.
26(B) The total value in the aggregate of the compensation or
27payments authorized or paid under a severance or similar
28postservice or postemployment arrangement, to include the fair
29market value of all cash remuneration as well as the fair market
30value of all remuneration (including benefits) paid in any medium
31other than cash, as defined in paragraph (1), subject to the exclusion
32set forth in paragraph (2).
33(C) Payments, compensation, or remuneration for work
34performed or services provided at or for a covered hospital or
35medical entity even if made by a separate person or entity,
36including, but not limited to, any of the following:
37(i) A for-profit or unincorporated entity.
38(ii) A corporation, partnership, or limited liability company.
39(iii) A trust or other entity that is controlled by the
40or persons who govern a covered hospital or medical entity.
P8 1(iv) A supporting or supported organization within the meaning
2of Sections 509(a)(3) and 509(f)(3) of the Internal Revenue Code.
3(v) A disregarded entity of, or related organization as set forth
4within, the Internal Revenue Service Form 990 of a covered
5hospital or medical entity or a nonprofit corporation that owns,
6operates, or controls, in whole or in part, a covered hospital or
8(D) Payment of compensation or remuneration by any person,
9corporation, partnership, limited liability company, trust, or other
10entity that a covered hospital or medical entity, or a nonprofit
11corporation that owns, operates, or controls, in whole or in part, a
12covered hospital or medical entity, participates in, belongs to, is
13a member of, or pays into shall be presumed compensation for
14work performed or services provided at or for the covered hospital
15or medical entity.
16(2) “Total annual compensation” shall not include the cost of
17health insurance or disability insurance or payments or
18contributions to a health reimbursement account.
(a) On and after October 1, 2017, each covered
20hospital or medical entity shall submit an annual hospital executive
21compensation report to the office for every hospital executive
22whose total annual compensation met or exceeded the executive
23compensation reporting threshold. The report shall include all of
24the following information for the prior fiscal year:
25(1) The names, positions, or titles of each hospital executive
26and the aggregate total annual compensation for each hospital
27executive at or exceeding the executive compensation reporting
28threshold, including all of the information described under
29subdivision (g) of Section 1339.85, with a description of each
30entity that has contributed to the total annual compensation of each
31hospital executive, in any form, and the amount of such
33(2) A detailed breakdown of all wage and nonwage
35(3) Identification of any benefit or remuneration excluded from
36the definition of total annual compensation pursuant to paragraph
37(2) of subdivision (g) of Section 1339.85.
38(4) A detailed breakdown of board compensation, which shall
39include all of the following:
P9 1(A) The name of the publicly traded company, privately held
2company, or nonprofit organization that provided the board
4(B) The number of hours the hospital executive spent on matters
5related to their duties as a director of the publicly traded company,
6privately held company, or nonprofit organization for which the
7board compensation was received.
27 On and after January 1, 2018, the office shall post the annual
28hospital executive compensation report for each covered hospital
29or medical entity on the office’s Internet Web site.
31 The annual report shall be submitted on the form or in the
32format required by the office.
34 (1) The board of directors of any nonprofit or for-profit
35corporation that owns, operates, or controls, in whole or in part, a
36covered hospital or medical entity shall approve the annual report
37before it is submitted to the office.
38(2) Each director shall act in good faith and with reasonable
39care and inquiry in approving the annual report and in ensuring
40that the corporation complies with the requirements of this section.
P10 1(3) For each covered hospital or medical entity governed, owned,
2or controlled by a board of directors, the annual report shall state
3that it was approved by the board of directors and set forth the date
4of such approval, and shall be attested to under penalty of perjury
5by an authorized representative of the covered hospital or medical
6entity board of directors.
8 (1) Any scheme or artifice that has the purpose of avoiding
9the reporting requirements established by this section shall
10constitute a violation of this section.
11(2) Payments, compensation, or remuneration by a separate
12entity that is purported not to be for work performed or services
13provided at or for a covered hospital or medical entity, but that is
14disproportionate to its purported purpose so as to evade the annual
15hospital executive compensation reporting requirements specified
16in this section, shall constitute a violation of this section.
18 The office shall establish and assess reasonable fees, to be
19submitted with each annual report, to cover only the reasonable
20costs of implementing and ensuring compliance with this section
21and each activity authorized or required by this section.
No reimbursement is required by this act pursuant to
23Section 6 of Article XIII B of the California Constitution because
24the only costs that may be incurred by a local agency or school
25district will be incurred because this act creates a new crime or
26infraction, eliminates a crime or infraction, or changes the penalty
27for a crime or infraction, within the meaning of Section 17556 of
28the Government Code, or changes the definition of a crime within
29the meaning of Section 6 of Article XIII B of the California