BILL ANALYSIS                                                                                                                                                                                                    ”



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          ASSEMBLY THIRD READING


          AB  
          2467 (Gomez)


          As Amended  May 31, 2016


          Majority vote


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Health          |11-6 |Wood, Bonilla, Burke, |Maienschein,        |
          |                |     |Campos, Chiu,         |Lackey, Olsen,      |
          |                |     |Dababneh, Gomez,      |Patterson,          |
          |                |     |                      |Steinorth, Waldron  |
          |                |     |                      |                    |
          |                |     |Roger HernŠndez,      |                    |
          |                |     |Nazarian, Rodriguez,  |                    |
          |                |     |Santiago              |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Appropriations  |14-6 |Gonzalez, Bloom,      |Bigelow, Chang,     |
          |                |     |Bonilla, Bonta,       |Gallagher, Jones,   |
          |                |     |Calderon, Daly,       |Obernolte, Wagner   |
          |                |     |Eggman, Eduardo       |                    |
          |                |     |Garcia, Roger         |                    |
          |                |     |HernŠndez, Holden,    |                    |
          |                |     |Quirk, Santiago,      |                    |
          |                |     |Weber, Wood           |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |








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          SUMMARY:  Establishes the Hospital Executive Compensation  
          Transparency Act of 2016 which requires covered hospitals or  
          medical entities, as defined, to submit an annual hospital  
          executive compensation report to the Office of Statewide Health  
          Planning and Development (OSHPD) which provides specified  
          information regarding executives earning over $300,000 per year;  
          and, for covered hospitals or medical entities with 100 or more  
          employees, requires the report to also include information  
          regarding the pay bands of various employee classifications, as  
          well as voluntarily self-reported information regarding  
          employees' gender, ethnicity, race, sexual orientation, and  
          gender identity, by job categories.  Specifically, this bill: 


          1)Requires, on and after October 1, 2017, each covered hospital  
            or medical entity to submit an annual hospital executive  
            compensation report (annual report) to OSHPD for every  
            hospital executive whose total annual compensation met or  
            exceeded the executive compensation reporting threshold  
            (EXCRT).  


          2)Requires the annual report to include all of the following  
            information for the prior fiscal year:


             a)   The names, positions, or titles of each hospital  
               executive and the aggregate total annual compensation for  
               each hospital executive at or exceeding the EXCRT, 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;


             b)   A detailed breakdown of all wage and nonwage  
               compensation;








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             c)   Identification of any benefit or remuneration excluded  
               from the definition of total annual compensation; and,


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


               i)     The name of the publicly traded company, privately  
                 held company, or nonprofit organization that provided the  
                 board compensation; and,


               ii)    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.


          3)Requires, consistent with the federal annual equal employment  
            opportunity and compensation report on employees' ethnicity,  
            race, and sex by job category and compensation, on or after  
            October 1, 2017, and annually thereafter each covered hospital  
            or medical entity with 100 or more employees to submit to the  
            Department of Public Health all of the following information  
            for the prior fiscal year: 


             a)   The number of employees earning annual total  
               compensation in 12 pay bands, as proposed by the federal  
               Equal Employment Opportunity Commission (EEOC) 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 OSHPD's hospital annual  
               financial data and by self-reported gender, ethnicity, and  
               race, and voluntarily self-reported sexual orientation and  








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               gender identity; and, 


             b)   The total number of hours worked by the employees  
               included in each pay band.


          4)Requires OSHPD, on and after January 1, 2018, to post the  
            annual hospital executive compensation report for each covered  
            hospital or medical entity on OSHPD's Internet Web site.   
            Requires the report to be submitted on the form or in the  
            format required by OSHPD.


          5)Requires the board of directors (BOD) of any nonprofit or  
            for-profit corporation that owns, operates, or controls, in  
            whole or in part, a covered hospital or medical entity to  
            approve the annual report before it is submitted to OSHPD, and  
            requires each director to act in good faith and with  
            reasonable care and inquiry in approving the annual report and  
            in ensuring the corporation complies with the requirements of  
            this bill.


          6)Requires the annual report for each covered hospital or  
            medical entity governed, owned, or controlled by a BOD, to  
            state that it was approved by the BOD, the date it was  
            approved, and contain an attestation under penalty of perjury  
            by an authorized representative of the covered hospital or  
            medical entity BOD, as specified.


          7)Specifies that any scheme or artifice that has the purpose of  
            avoiding the reporting requirements of this bill is a  
            violation of this bill.


          8)Specifies that payments, compensation, or remuneration by a  
            separate entity that is purported not to be for work performed  








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            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 is a violation of this bill.  


          9)Requires OSHPD to 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 bill.


          10)Defines board compensation as the total annual compensation  
            provided to each hospital executive by any publicly traded  
            company, privately held company, or nonprofit organization on  
            whose BOD hospital executive sits and from which the hospital  
            executive received total annual compensation of more than  
            $1,000.


          11)Defines covered hospital or medical entity as any of the  
            following:


             a)   A private nonprofit general acute care hospital;


             b)   An acute psychiatric hospital;


             c)   Any private for-profit general acute care hospital;


             d)   A hospital group, or any person, corporation,  
               partnership, limited liability company, trust, or other  
               entity that owns, operates or controls, in whole or in  
               part, any such group;


             e)   A hospital-affiliated medical foundation that is  








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               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 owned, operates, or controls, in whole or  
               in part, a hospital, hospital group, or hospital-affiliated  
               physicians group.  Specifies that a medical foundation will  
               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 the Internal Revenue Service (IRS) form  
                 900 (or its accompanying schedules or the successor of  
                 such forms or schedule) 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; and/or;


               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 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, is 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  








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               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 IRS 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; and/or, 


               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. 


          12)Exempts the following from the definition of a covered  
            hospital or medical entity:


             a)   Hospitals operated or licensed by the United States  
               Department of Veterans Affairs or public hospitals, with  
               the exception of hospitals owned or operated by a health  
               care district; and,










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             b)   Designated public hospitals, as defined.


          13)Specifies that EXCRT means 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  
            three hundred thousand dollars ($300,000) in a year.


          14)Specifies that hospital executive means 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.


          15)Specifies that hospital executive includes, but is not  
            limited to, chief executive officers (CEOs), chief executive  
            managers, chief executives, executive officers, executive  
            directors, chief financial officers (CFOs), presidents,  
            executive presidents, vice presidents, executive vice  
            presidents, and other comparable positions.


          16)Specifies that the definition of hospital executive applies  
            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.


          17)Specifies that the definition of hospital executive includes  
            any person who held the duties described in these provisions  
            during the period covered by the annual report, even if the  
            person is postemployment or post-service.








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          18)Specifies that the definition of a hospital executive does  
            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 non-managerial,  
            nonexecutive, and non-administrative services.


          19)Specifies that total annual compensation means 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, 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 insurance, except as  
               exempted in 20) below, 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  
               post-service or post-employment arrangement, to include the  
               fair market value of all cash remuneration as well as the  








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               fair market value of all remuneration (including benefits)  
               paid in any medium other than cash;


             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 the Internal Revenue Code Sections 509(a)(3)  
                 and 509(f)(3); or,


               v)     A disregarded entity of, or related organization as  
                 set forth within, the IRS 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  








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               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.


          20)Specifies that total annual compensation does not include the  
            cost of health insurance or disability insurance or payments  
            or contributions to a health reimbursement account.


          FISCAL EFFECT:  According to the Assembly Appropriations  
          Committee, staff and information technology costs to OSHPD of  
          $390,000 in year one, $240,000 in year two, and ongoing costs of  
          $110,000 to implement this bill (fee-supported by fee revenue  
          authorized pursuant to this bill).  One-time activities include  
          development of regulations, preparation of system requirements  
          and design documents, information technology system testing,   
          Ongoing activities include reviewing reports, researching which  
          unlicensed entities must report, contacting report entities with  
          missing or delinquent reports and addressing questions from the  
          public and policy makers.


          COMMENTS: According to the author, currently there is little  
          transparency over whether for-profit or non-profit hospitals use  
          taxpayer dollars to provide high-quality, affordable medical  
          care, or if funds are being diverted to exorbitant executive  
          compensation packages.  The author states that this bill ensures  
          more accountability and transparency in an otherwise opaque  
          environment.


          Rising healthcare costs.  The United States (U.S.) Census Bureau  
          has published new estimates of health spending based on their  
          Quarterly Services Survey, published on March 10, 2016.   
          Analysis of the survey data shows that health spending was 7.3%  
          higher in the first quarter of 2015 than in the first quarter of  








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          last year.  Hospital spending increased 9.2%.  A Kaiser Family  
          Foundation analysis of the data concludes that greater use of  
          health services, as well as more people covered by the Patient  
          Protection and Affordable Care Act appear to be responsible for  
          most of the increase, noting that people are beginning to use  
          more physician and outpatient services again as the economy  
          improves and that the number of days people spent in hospitals  
          also rose.


          Executive compensation.  According to the proponents of this  
          bill, little is known about what factors drive health care  
          costs, however they point to the fact that hospital executive  
          compensation has spiked in recent years.  According to the  
          healthcare industry publication "Payers & Providers," 66  
          executives at the state's three largest hospital systems (Sutter  
          Health, Dignity Health, and Kaiser Permanente) earned more than  
          $1 million each in 2013, up from 52 executives just two years  
          before.


          Publicly available information.


          1)Non-profit entities.  The IRS 990, officially, the "Return of  
            Organization Exempt from Income Tax" is an IRS form that  
            provides the public with financial information about a  
            non-profit organization.  It is often the only source of such  
            information.  Non-profit hospitals are required to file the  
            form 990 in order to maintain their non-profit/tax-exempt  
            status.  However, only the top 20 wage earners over $150,000  
            have to be identified on the forms, and due to differing  
            corporate structures of hospitals and hospital systems, the  
            data is not easily comparable.  For example, Kaiser is one  
            corporate entity with two branches, North and South.  Their  
            990 covers their hospitals and health plan, however their  
            medical group (the doctors) are a for profit entity, so their  
            salaries are not included on the 990.  Conversely, Dignity  
            Health (Dignity) files a single 990 for the entire system.   








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            The top 20 wage earners on Dignity's form are system-wide  
            employees, so their 990 excludes many CEOs.
            According a June 30, 2015 article published in the Chronicle  
            of Philanthropy, the IRS is working on a technology that  
            should allow it to release electronic version of the form 990  
            by early this year, which would make it much easier for the  
            public to search for information about non-profit finances and  
            operations.


          2)For-profit entities.  Publicly traded companies report  
            significant amounts of financial data to shareholders and the  
            government in their annual U.S. Securities and Exchange  
            Commission (SEC) filings.  Several documents that companies  
            are required to file include information about the company's  
                                                  executive compensation policies and practices including; the  
            company's annual proxy statement; the company's annual report;  
            and, registration statements filed by the company to register  
            securities for sale to the public.  The information is  
            available on the SEC's searchable database, EDGAR.


          3)Private for-profit entities.  Privately owned for-profit  
            hospitals are not required to report on their executive's  
            salaries.  Of the 105 for-profit hospitals in the state,  
            approximately 50 are not publicly traded, and do not report  
            salary information.


          Federal annual equal employment opportunity and compensation  
          report (EEO-1 Report).  The EEO-1 Report is a compliance survey  
          mandated by federal statute and regulations.  The survey  
          requires company employment data to be categorized by  
          race/ethnicity, gender and job category.  On January 29, 2016,  
          the EEOC announced proposed changes to its EEO-1 report, which  
          requires employers to submit employee W-2 earnings and hours  
          worked.  Under the proposal, all employers with at least 100  
          employees (not just federal contractors) would be required to  
          comply.  In addition, the proposed changes will require the  








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          submission of payroll data broken down by race/ethnicity, in  
          addition to gender.  The data would be made available to the  
          EEOC and the Office of Federal Contract Compliance Programs for  
          enforcement purposes.  The proposed rule was published on  
          February 1, 2016 and interested parties have 60 days to submit  
          comments.


          The EEOC proposing to change the reporting requirements to  
          include the data on employees' earnings and hours worked,  
          beginning in 2017.  The EEOC's proposed pay bands (which are  
          included in the reporting provisions of this bill) are as  
          follows:


          1)$19, 239 and under;


          2)$19,240 - $24, 439;


          3)$24,440 - $30,679;


          4)$30,680 - $38,999;


          5)$39,000 - $49,919;


          6)$49,920 - $62,919;


          7)$62,920 - $80,079;


          8)$80,080 - $101,919










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          9)$128,960 - $163,799;


          10)$163,800 - $207,999; and,


          11)$208,000 and over.


          The EEOC is prohibited from making public the employment data  
          derived from any of its compliance surveys.  The EEOC uses EEO-1  
          data to support civil rights enforcement and to analyze  
          employment patterns, such as the representation of female and  
          minority workers within companies, industries or regions.  The  
          EEOC is not proposing to require an employer to begin collecting  
          additional data on actual hours worked for salaried workers, to  
          the extent that the employer does not currently maintain such  
          information. 


          Self-reported employee information.  According to the Human  
          Rights Campaign (HRC) unlike other diversity categories, such as  
          race and gender, employers are not required to collect  
          statistics on the number of lesbian, gay, bisexual, and  
          transgender (LGBT) people they employ.  Employers have sought to  
          determine the number of their employees who identify as LGBT  
          while balancing privacy concerns.  Some employers use LGBT  
          employee group membership numbers to generate estimates, but  
          this method is limited by the scope of such voluntary groups  
          over a highly dispersed workforce.  More recently, employers  
          have gathered statistics through anonymous employee engagement  
          or satisfaction surveys, which can include upward of 100  
          questions, and through confidential and secure employee records.  
           In both cases, whether an employee discloses their gender  
          identity or sexual orientation is optional and voluntary and any  
          reporting or direct access to the data is designed to ensure  
          confidentiality of the employee.  In the HRC Corporate Equality  
          Index 2015 survey of 781 employers, 46% allow employees to  
          voluntarily disclose their sexual orientation and gender  








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          identity on anonymous surveys or confidential Human Resource  
          records, compared with 141 of the 519 employers (27%) in the  
          2008 survey and just 17% in the 2006 survey.


          The California State Council of the Service Employees  
          International Union (SEIU California) supports this bill,  
          stating, while California public hospitals (city, county, or  
          University of California) are already required to provide  
          complete salary information for all employees through the  
          Controller, which publicly reports these data, significant gaps  
          and inconsistencies exist for our understanding of  
          not-for-profit and for-profit hospitals.


          Hospitals which are publicly-traded must disclose executive  
          compensation for their CEO, CFO, and the next three top paid  
          employees company-wide to the SEC, which seldom capture their  
          California executives if the firm is national.  SEIU California  
          continues, with nonprofits, the public makes a significant  
          investment in the form of over a billion a year in tax  
          exemptions in California, but nonprofit hospitals must only  
          disclose their top five highest compensated employees, beyond  
          their officers and directors, which often obfuscates individual  
          hospital CEO compensation, particularly at large multi-facility  
          nonprofit hospital chains.  In each of these examples there has  
          already been established a compelling policy reason to  
          understand how top executives are being paid - for the sake of  
          understanding public investments, and informing private investor  
          decision-making - but the reporting requirements in each case  
          are different in scope and detail and ultimately become of  
          little use in very large nonprofit chains or national companies,  
          especially for national systems not based in California.  SEIU  
          California notes that, at issue for non-profit operated  
          hospitals is the need to better understand whether the state's  
          investment through tax breaks and others subsidies leads  
          hospitals to provide more charity care and community benefits,  
          or whether it simply serves as a mechanism to provide hospital  
          executives with more excessive pay.  SEIU California points to a  








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          2015 study published in Health Affairs that found that  
          California's nonprofit hospitals spent the same amount on  
          uncompensated care as for-profit hospitals, which suggests  
          greater accountability is warranted.  SEIU California concludes  
          this bill will align hospital executive compensation reporting  
          for all non-profit and for-profit hospitals, including investor  
          owned hospitals, and consolidate that reporting within OSHPD,  
          which already collects and reports a myriad of different  
          hospital financial data.


          The California Labor Federations states that increasing  
          transparency of CEO compensation at hospitals is a first step in  
          examining all cost drivers in health care, starting at the top  
          of the hospital chain, and given that the largest California  
          hospitals are non-profits, taxpayers should have access to the  
          compensation and other data about hospitals that they support  
          with tax breaks.


          The California Hospital Association (CHA) opposes this bill and  
          states that hospitals and health systems are not opposed to  
          transparency; many hospitals currently report much of the  
          information sought and it is available to the public, however  
          this bill only increases hospital costs and discloses private  
          compensation information without any justification.  CHA also  
          notes that the bill raises significant privacy concerns for a  
          broad array of employees, extending to exempt employees, not  
          just executives, thus nurse managers or information technology  
          personnel whose total compensation meets for exceeds $250,000  
          annually would be reported.  CHA notes that in many  
          organizations, particularly in urban areas, this reporting  
          threshold would reach deep into the organization.  The Hospital  
          Corporation of America states it is concerned about the  
          unintended consequences of public reporting of salaries, noting  
          that it could actually drive up labor costs where employees and  
          applicants use the salary information as benchmarks for the  
          myriad of hard to fill positions in health care.









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          The California Chamber of Commerce (the Chamber) states that  
          this bill inappropriately assumes that hospital executive  
          compensation is a major driver of overall health care spending.   
          The Chamber notes that hospital executives play a critical role  
          in ensuring that millions of Californians receive quality health  
          care services, even as cost pressures and increasing demand for  
          hospital services are making it harder and harder for many  
          hospitals to keep their doors open.




          Analysis Prepared by:                                             
                          Lara Flynn / HEALTH / (916) 319-2097  FN:  
          0003260