Amended in Assembly April 21, 2016

Amended in Assembly April 5, 2016

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 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 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. The bill would require specified information to be included in these reports, and would require 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
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
11medical care.

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
16hospitals.

17(h) In order to ensure equal opportunity and compensation
18among health care workers in California, it is necessary to
19understand compensation by job classification and by race,
20ethnicity, gender, sexual orientation, and gender identity.

21(i) It is the intent of the Legislature in enacting this act to ensure
22that compensation packages for chief executive officers, executives,
23managers, and administrators of for-profit and nonprofit hospitals
24are consistent with the goal of providing affordable, high-quality
25medical care to all Californians.

26(j) The intent of the Legislature in enacting this act is also to
27ensure that compensation packages for chief executive officers,
28executives, managers, and administrators of nonprofit hospitals,
29hospital groups, and affiliated medical entities are consistent with
30the charitable purposes of those nonprofits and are reasonable and
31not excessive in light of the substantial public benefit that the state
32tax exemption for nonprofit organizations conveys.

33(k) It is also the intent of the Legislature in enacting this act to
34ensure that compensation packages for employees of for-profit
35and nonprofit hospitals are not discriminatory based on race,
36 ethnicity, gender, sexual orientation, or gender identity.

37

SEC. 3.  

Chapter 2.17 (commencing with Section 1339.85) is
38added to Division 2 of the Health and Safety Code, to read:

 

P4    1Chapter  2.17. Hospital Executive Compensation
2Transparency Act of 2016
3

 

4

1339.85.  

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
15the following:

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
24foreign corporation.

25(D) A hospital group, which shall mean any group of two or
26more hospitals described inbegin delete paragraph (1) or (2)end deletebegin insert subparagraphs
27(A) to (C), inclusive,end insert
or any person, corporation, partnership,
28limited liability company, trust, or other entity that owns, operates,
29or controls, in whole or in part, any such group.

begin delete

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:

end delete
begin insert

P5    1
(E) A hospital-affiliated medication foundation, which shall
2mean a medical foundation, as described in subdivision (l) of
3Section 1206, that satisfies either or both of the following
4conditions:

end insert

5(i) The medical foundation is a disregarded entity of, or would
6be required to be designated as a related organization on Internal
7Revenue Service Form 990 (or its accompanying schedules or the
8successor of such forms or schedules) of, a hospital, hospital group,
9 hospital-affiliated physicians group, or a nonprofit corporation
10that owns, operates, or controls, in whole or in part, a hospital,
11hospital group, or hospital-affiliated physicians group.

12(ii) A majority of the medical foundation’s assets are owned by
13a hospital, hospital group, or hospital-affiliated physicians group
14or by a nonprofit corporation that owns, operates, or controls, in
15whole or in part, a hospital, hospital group, or hospital-affiliated
16physicians group, or the medical foundation owns a majority of
17the assets of a hospital, hospital group, or hospital-affiliated
18physicians group or of a nonprofit corporation that owns, operates,
19or controls, in whole or in part, a hospital, hospital group, or
20hospital-affiliated physicians group.

21(F) A hospital-affiliated physicians group, which shall mean
22any physicians group or medical group that begin delete is directly or indirectly,
23 including through one or more intermediaries, controlled or owned
24by, or controlled or owned by the same person or entity as, a
25hospital, hospital group, hospital-affiliated medical foundation, or
26a nonprofit corporation that owns, operates, or controls, in whole
27or in part, a hospital, hospital group, or hospital-affiliated medical
28foundation. A physicians group shall be deemed a
29hospital-affiliated physicians group if either or both of the
30following are true:end delete
begin insert satisfies either or both of the following
31conditions:end insert

32(i) The physicians group is a disregarded entity of, or would be
33required to be designated as a related organization on Internal
34Revenue Service Form 990 (or its accompanying schedules or the
35successor of such forms or schedules) of, a hospital, hospital group,
36or hospital-affiliated medical foundation or a nonprofit corporation
37that owns, operates, or controls, in whole or in part, a hospital,
38hospital group, or hospital-affiliated medical foundation.

39(ii) A majority of the physicians group’s assets are owned by a
40hospital, hospital group, or hospital-affiliated medical foundation
P6    1or a nonprofit corporation that owns, operates, or controls, in whole
2or in part, a hospital, hospital group, or hospital-affiliated medical
3foundation.

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

6(2) “Covered hospital or medical entity” shall not include any
7of the following:

8(A) Hospitals operated or licensed by the United States
9Department of Veterans Affairs or public hospitals as defined in
10paragraph (25) of subdivision (a) of Section 14105. 98 of the
11Welfare and Institutions Code, with the exception of hospitals
12owned or operated by a health care district organized pursuant to
13Chapter 1 (commencing with Section 32000) of Division 23.

14(B) Designated public hospitals, as described in subdivision (d)
15of Section 14166.1 of the Welfare and Institutions Code.

16(d) “Executive compensation reporting threshold” shall mean
17the total annual compensation from any source for work performed
18or services provided at or for the covered hospital or medical entity
19that is greater than two hundred fifty thousand dollars ($250,000)
20in a year.

21(e) (1) “Hospital executive” shall mean all persons whose
22primary duties are executive, managerial, or administrative at or
23for the covered hospital or medical entity, even if that person also
24performs or performed other duties.

25(2) “Hospital executive” shall include, but is not limited to,
26chief executive officers, chief executive managers, chief executives,
27executive officers, executive directors, chief financial officers,
28presidents, executive presidents, vice presidents, executive vice
29presidents, and other comparable positions.

30(3) The definition of “hospital executive” shall apply irrespective
31of whether the person exercising executive, managerial, or
32administrative authority is or was an employee of a covered
33hospital or medical entity or a nonprofit corporation that owns,
34operates, or controls, in whole or in part, a covered hospital or
35medical entity. The definition shall also apply to any person who
36exercises or exercised such authority even if the arrangements for
37such authority or for compensation or both are pursuant to a
38contract or subcontract.

39(4) “Hospital executive” shall include any person who held the
40duties described under this paragraph during the period covered
P7    1by the annual report, even if the person is postemployment or
2postservice.

3(5) “Hospital executive” shall not apply to medical or health
4care professionals whose primary duties are or were the provision
5of medical services, research, direct patient care, or other
6nonmanagerial, nonexecutive, and nonadministrative services.

7(f) “Office” means the Office of Statewide Health Planning and
8Development.

9(g) (1) “Total annual compensation” shall mean all
10remuneration paid, earned, or accrued in the course of a fiscal year
11for work performed or services provided, including the cash value
12of all remuneration (including benefits) in any medium other than
13cash, except as otherwise specified in paragraph (2), and including,
14but not limited to, all of the following:

15(A) Wages; salary; paid time off; bonuses; incentive payments;
16lump-sum cash payments; the fair market value of
17below-market-rate loans or loan forgiveness; housing payments;
18payments for transportation, travel, meals, or other expenses in
19excess of actual documented expenses incurred in the performance
20of duties; payments or reimbursement for entertainment or social
21club memberships; the cash value of housing, automobiles, parking,
22or similar benefits; scholarships or fellowships; the cash value of
23dependent care or adoption assistance or personal legal or financial
24services; the cash value of stock options or awards; payments or
25contributions for insurance, except as exempted in paragraph (2),
26to a Section 125 cafeteria plan or equivalent arrangement, to a
27health savings account, or for severance or its equivalent; and
28deferred compensation earned or accrued, even if not yet vested
29nor paid.

30(B) The total value in the aggregate of the compensation or
31payments authorized or paid under a severance or similar
32postservice or postemployment arrangement, to include the fair
33market value of all cash remuneration as well as the fair market
34value of all remuneration (including benefits) paid in any medium
35other than cash, as defined in paragraph (1), subject to the exclusion
36set forth in paragraph (2).

37(C) Payments, compensation, or remuneration for work
38performed or services provided at or for a covered hospital or
39medical entity even if made by a separate person or entity,
40including, but not limited to, any of the following:

P8    1(i) A for-profit or unincorporated entity.

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

3(iii) A trust or other entity that is controlled by the same person
4or persons who govern a covered hospital or medical entity.

5(iv) A supporting or supported organization within the meaning
6of Sections 509(a)(3) and 509(f)(3) of the Internal Revenue Code.

7(v) A disregarded entity of, or related organization as set forth
8within, the Internal Revenue Service Form 990 of a covered
9hospital or medical entity or a nonprofit corporation that owns,
10operates, or controls, in whole or in part, a covered hospital or
11medical entity.

12(D) Payment of compensation or remuneration by any person,
13corporation, partnership, limited liability company, trust, or other
14entity that a covered hospital or medical entity, or a nonprofit
15corporation that owns, operates, or controls, in whole or in part, a
16covered hospital or medical entity, participates in, belongs to, is
17a member of, or pays into shall be presumed compensation for
18work performed or services provided at or for the covered hospital
19or medical entity.

20(2) “Total annual compensation” shall not include the cost of
21health insurance or disability insurance or payments or
22contributions to a health reimbursement account.

23

1339.87.  

(a) On and after October 1, 2017, each covered
24hospital or medical entity shall submit an annual hospital executive
25compensation report to the office for every hospital executive
26whose total annual compensation met or exceeded the executive
27compensation reporting threshold. The report shall include all of
28the following information for the prior fiscal year:

29(1) The names, positions, or titles of each hospital executive
30and the aggregate total annual compensation for each hospital
31executive at or exceeding the executive compensation reporting
32threshold, including all of the information described under
33subdivision (g) of Section 1339.85, with a description of each
34entity that has contributed to the total annual compensation of each
35hospital executive, in any form, and the amount of such
36compensation.

37(2) A detailed breakdown of all wage and nonwage
38compensation.

P9    1(3) Identification of any benefit or remuneration excluded from
2the definition of total annual compensation pursuant to paragraph
3(2) of subdivision (g) of Section 1339.85.

4(4) A detailed breakdown of board compensation, which shall
5include all of the following:

6(A) The name of the publicly traded company, privately held
7company, or nonprofit organization that provided the board
8compensation.

9(B) The number of hours the hospital executive spent on matters
10related to their duties as a director of the publicly traded company,
11privately held company, or nonprofit organization for which the
12board compensation was received.

13(b) Consistent with the annual equal employment opportunity
14and compensation report on employees’ ethnicity, race, and sex
15by job category and compensation required by Part 1602 of Chapter
16XIV of Subtitle B of Title 29 of the Code of Federal Regulations,
17on or after October 1, 2017, and annually thereafter, each covered
18hospital or medical entity with 100 or more employees shall submit
19to the office all of the following information for the prior fiscal
20year:

21(1) The number of employees earning annual total compensation
22in 12 pay bands, as proposed by the federal Equal Employment
23Opportunity Commission in the Federal Register, Volume 81,
24Number 20, on February 1, 2016, on pages 5113 to 5121, inclusive,
25for each of the eight employee classifications defined in the office’s
26hospital annual financial data and by self-reported gender, ethnicity,
27and race, and voluntarily self-reported sexual orientation and
28gender identity.

29(2) The total number of hours worked by the employees included
30in each pay band described in paragraph (1).

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

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

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

P10   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(f) (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(g) 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

    97