Amended in Assembly May 31, 2016

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.

P3    1(e) The compensation packages for chief executive officers,
2executives, managers, and administrators of for-profit hospitals in
3California are often excessive, unnecessary, and inconsistent with
4the provision of high-quality, affordable medical care, by diverting
5funds that could be used to expand access to affordable medical
6care for all Californians.

7(f) Chief executive officers, executives, managers, and
8administrators at hospitals, hospital groups, and affiliated medical
9entities who are also compensated for their positions on boards of
10directors of publicly traded companies, privately held companies,
11and nonprofit organizations risk spending time away from their
12primary responsibilities to the detriment of high-quality, affordable
13medical care.

14(g) In order to properly assess the scope of excessive
15compensation packages in the nonprofit hospital sector and to
16inform policy decisions related to escalating health care costs, it
17is necessary to understand excessive compensation among private
18hospitals.

19(h) In order to ensure equal opportunity and compensation
20among health care workers in California, it is necessary to
21understand compensation by job classification and by race,
22ethnicity, gender, sexual orientation, and gender identity.

23(i) It is the intent of the Legislature in enacting this act to ensure
24that compensation packages for chief executive officers, executives,
25managers, and administrators of for-profit and nonprofit hospitals
26are consistent with the goal of providing affordable, high-quality
27medical care to all Californians.

28(j) 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.

35(k) It is also the intent of the Legislature in enacting this act to
36ensure that compensation packages for employees of for-profit
37and nonprofit hospitals are not discriminatory based on race,
38ethnicity, gender, sexual orientation, or gender identity.

39

SEC. 3.  

Chapter 2.17 (commencing with Section 1339.85) is
40added 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 in subparagraphs (A) to (C), inclusive,
27or any person, corporation, partnership, limited liability company,
28trust, or other entity that owns, operates, or controls, in whole or
29in part, any such group.

30(E) A hospital-affiliated medication foundation, which shall
31mean a medical foundation, as described in subdivision (l) of
32Section 1206, that satisfies either or both of the following
33conditions:

34(i) The medical foundation is a disregarded entity of, or would
35be required to be designated as a related organization on Internal
36Revenue Service Form 990 (or its accompanying schedules or the
37successor of such forms or schedules) of, a hospital, hospital group,
38 hospital-affiliated physicians group, or a nonprofit corporation
39that owns, operates, or controls, in whole or in part, a hospital,
40hospital group, or hospital-affiliated physicians group.

P5    1(ii) A majority of the medical foundation’s assets are owned by
2a hospital, hospital group, or hospital-affiliated physicians group
3or by a nonprofit corporation that owns, operates, or controls, in
4whole or in part, a hospital, hospital group, or hospital-affiliated
5physicians group, or the medical foundation owns a majority of
6the assets of a hospital, hospital group, or hospital-affiliated
7physicians group or of a nonprofit corporation that owns, operates,
8or controls, in whole or in part, a hospital, hospital group, or
9hospital-affiliated physicians group.

10(F) A hospital-affiliated physicians group, which shall mean
11any physicians group or medical group that satisfies either or both
12of the following conditions:

13(i) The physicians group is a disregarded entity of, or would be
14required to be designated as a related organization on Internal
15Revenue Service Form 990 (or its accompanying schedules or the
16successor of such forms or schedules) of, a hospital, hospital group,
17or hospital-affiliated medical foundation or a nonprofit corporation
18that owns, operates, or controls, in whole or in part, a hospital,
19hospital group, or hospital-affiliated medical foundation.

20(ii) A majority of the physicians group’s assets are owned by a
21hospital, hospital group, or hospital-affiliated medical foundation
22or a nonprofit corporation that owns, operates, or controls, in whole
23or in part, a hospital, hospital group, or hospital-affiliated medical
24foundation.

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

27(2) “Covered hospital or medical entity” shall not include any
28of the following:

29(A) Hospitals operated or licensed by the United States
30Department of Veterans Affairs or public hospitals as defined in
31paragraph (25) of subdivision (a) of Section 14105. 98 of the
32Welfare and Institutions Code, with the exception of hospitals
33owned or operated by a health care district organized pursuant to
34Chapter 1 (commencing with Section 32000) of Division 23.

35(B) Designated public hospitals, as described in subdivision (d)
36of Section 14166.1 of the Welfare and Institutions Code.

37(d) “Executive compensation reporting threshold” shall mean
38the total annual compensation from any source for work performed
39or services provided at or for the covered hospital or medical entity
P6    1that is greater than begin delete two hundred fifty thousand dollars ($250,000)end delete
2begin insert three hundred thousand dollars ($300,000)end insert in a year.

3(e) (1) “Hospital executive” shall mean all persons whose
4primary duties are executive, managerial, or administrative at or
5for the covered hospital or medical entity, even if that person also
6performs or performed other duties.

7(2) “Hospital executive” shall include, but is not limited to,
8chief executive officers, chief executive managers, chief executives,
9executive officers, executive directors, chief financial officers,
10presidents, executive presidents, vice presidents, executive vice
11presidents, and other comparable positions.

12(3) The definition of “hospital executive” shall apply irrespective
13of whether the person exercising executive, managerial, or
14administrative authority is or was an employee of a covered
15hospital or medical entity or a nonprofit corporation that owns,
16operates, or controls, in whole or in part, a covered hospital or
17medical entity. The definition shall also apply to any person who
18exercises or exercised such authority even if the arrangements for
19such authority or for compensation or both are pursuant to a
20contract or subcontract.

21(4) “Hospital executive” shall include any person who held the
22duties described under this paragraph during the period covered
23by the annual report, even if the person is postemployment or
24postservice.

25(5) “Hospital executive” shall not apply to medical or health
26care professionals whose primary duties are or were the provision
27of medical services, research, direct patient care, or other
28nonmanagerial, nonexecutive, and nonadministrative services.

29(f) “Office” means the Office of Statewide Health Planning and
30Development.

31(g) (1) “Total annual compensation” shall mean all
32remuneration paid, earned, or accrued in the course of a fiscal year
33for work performed or services provided, including the cash value
34of all remuneration (including benefits) in any medium other than
35cash, except as otherwise specified in paragraph (2), and including,
36but not limited to, all of the following:

37(A) Wages; salary; paid time off; bonuses; incentive payments;
38lump-sum cash payments; the fair market value of
39below-market-rate loans or loan forgiveness; housing payments;
40payments for transportation, travel, meals, or other expenses in
P7    1excess of actual documented expenses incurred in the performance
2of duties; payments or reimbursement for entertainment or social
3club memberships; the cash value of housing, automobiles, parking,
4or similar benefits; scholarships or fellowships; the cash value of
5dependent care or adoption assistance or personal legal or financial
6services; the cash value of stock options or awards; payments or
7contributions for insurance, except as exempted in paragraph (2),
8to a Section 125 cafeteria plan or equivalent arrangement, to a
9health savings account, or for severance or its equivalent; and
10deferred compensation earned or accrued, even if not yet vested
11nor paid.

12(B) The total value in the aggregate of the compensation or
13payments authorized or paid under a severance or similar
14postservice or postemployment arrangement, to include the fair
15market value of all cash remuneration as well as the fair market
16value of all remuneration (including benefits) paid in any medium
17other than cash, as defined in paragraph (1), subject to the exclusion
18set forth in paragraph (2).

19(C) Payments, compensation, or remuneration for work
20performed or services provided at or for a covered hospital or
21medical entity even if made by a separate person or entity,
22including, but not limited to, any of the following:

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

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

25(iii) A trust or other entity that is controlled by the same person
26or persons who govern a covered hospital or medical entity.

27(iv) A supporting or supported organization within the meaning
28of Sections 509(a)(3) and 509(f)(3) of the Internal Revenue Code.

29(v) A disregarded entity of, or related organization as set forth
30within, the Internal Revenue Service Form 990 of a covered
31hospital or medical entity or a nonprofit corporation that owns,
32operates, or controls, in whole or in part, a covered hospital or
33medical entity.

34(D) Payment of compensation or remuneration by any person,
35corporation, partnership, limited liability company, trust, or other
36entity that a covered hospital or medical entity, or a nonprofit
37corporation that owns, operates, or controls, in whole or in part, a
38covered hospital or medical entity, participates in, belongs to, is
39a member of, or pays into shall be presumed compensation for
P8    1work performed or services provided at or for the covered hospital
2or medical entity.

3(2) “Total annual compensation” shall not include the cost of
4health insurance or disability insurance or payments or
5contributions to a health reimbursement account.

6

1339.87.  

(a) On and after October 1, 2017, each covered
7hospital or medical entity shall submit an annual hospital executive
8compensation report to the office for every hospital executive
9whose total annual compensation met or exceeded the executive
10compensation reporting threshold. The report shall include all of
11the following information for the prior fiscal year:

12(1) The names, positions, or titles of each hospital executive
13and the aggregate total annual compensation for each hospital
14executive at or exceeding the executive compensation reporting
15threshold, including all of the information described under
16subdivision (g) of Section 1339.85, with a description of each
17entity that has contributed to the total annual compensation of each
18hospital executive, in any form, and the amount of such
19compensation.

20(2) A detailed breakdown of all wage and nonwage
21compensation.

22(3) Identification of any benefit or remuneration excluded from
23the definition of total annual compensation pursuant to paragraph
24(2) of subdivision (g) of Section 1339.85.

25(4) A detailed breakdown of board compensation, which shall
26include all of the following:

27(A) The name of the publicly traded company, privately held
28company, or nonprofit organization that provided the board
29compensation.

30(B) The number of hours the hospital executive spent on matters
31related to their duties as a director of the publicly traded company,
32privately held company, or nonprofit organization for which the
33board compensation was received.

34(b) Consistent with the annual equal employment opportunity
35and compensation report on employees’ ethnicity, race, and sex
36by job category and compensation required by Part 1602 of Chapter
37XIV of Subtitle B of Title 29 of the Code of Federal Regulations,
38on or after October 1, 2017, and annually thereafter, each covered
39hospital or medical entity with 100 or more employees shall submit
P9    1to the office all of the following information for the prior fiscal
2year:

3(1) The number of employees earning annual total compensation
4in 12 pay bands, as proposed by the federal Equal Employment
5Opportunity Commission in the Federal Register, Volume 81,
6Number 20, on February 1, 2016, on pages 5113 to 5121, inclusive,
7for each of the eight employee classifications defined in the office’s
8hospital annual financial data and by self-reported gender, ethnicity,
9and race, and voluntarily self-reported sexual orientation and
10gender identity.

11(2) The total number of hours worked by the employees included
12in each pay band described in paragraph (1).

13(c) On and after January 1, 2018, the office shall post the annual
14hospital executive compensation report for each covered hospital
15or medical entity on the office’s Internet Web site.

16(d) The annual report shall be submitted on the form or in the
17format required by the office.

18(e) (1) The board of directors of any nonprofit or for-profit
19corporation that owns, operates, or controls, in whole or in part, a
20covered hospital or medical entity shall approve the annual report
21before it is submitted to the office.

22(2) Each director shall act in good faith and with reasonable
23care and inquiry in approving the annual report and in ensuring
24that the corporation complies with the requirements of this section.

25(3) For each covered hospital or medical entity governed, owned,
26or controlled by a board of directors, the annual report shall state
27that it was approved by the board of directors and set forth the date
28of such approval, and shall be attested to under penalty of perjury
29by an authorized representative of the covered hospital or medical
30entity board of directors.

31(f) (1) Any scheme or artifice that has the purpose of avoiding
32the reporting requirements established by this section shall
33constitute a violation of this section.

34(2) Payments, compensation, or remuneration by a separate
35entity that is purported not to be for work performed or services
36provided at or for a covered hospital or medical entity, but that is
37disproportionate to its purported purpose so as to evade the annual
38hospital executive compensation reporting requirements specified
39in this section, shall constitute a violation of this section.

P10   1(g) The office shall establish and assess reasonable fees, to be
2submitted with each annual report, to cover only the reasonable
3costs of implementing and ensuring compliance with this section
4and each activity authorized or required by this section.

5

SEC. 4.  

No reimbursement is required by this act pursuant to
6Section 6 of Article XIII B of the California Constitution because
7the only costs that may be incurred by a local agency or school
8district will be incurred because this act creates a new crime or
9infraction, eliminates a crime or infraction, or changes the penalty
10for a crime or infraction, within the meaning of Section 17556 of
11the Government Code, or changes the definition of a crime within
12the meaning of Section 6 of Article XIII B of the California
13Constitution.



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