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AB-2467 Health facilities: executive compensation.(2015-2016)

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AB2467:v96#DOCUMENT

Amended  IN  Assembly  May 31, 2016
Amended  IN  Assembly  April 21, 2016
Amended  IN  Assembly  April 05, 2016

CALIFORNIA LEGISLATURE— 2015–2016 REGULAR SESSION

Assembly Bill
No. 2467


Introduced by Assembly Member Gomez

February 19, 2016


An act to add Chapter 2.17 (commencing with Section 1339.85) to Division 2 of the Health and Safety Code, relating to health facilities.


LEGISLATIVE COUNSEL'S DIGEST


AB 2467, as amended, Gomez. Health facilities: executive compensation.
Existing law provides for the licensure and regulation of health facilities, including general acute care hospitals, by the State Department of Public Health.
This bill would require covered hospitals and medical entities, as defined, to annually submit to the Office of Statewide Health Planning and Development an executive compensation report for every executive whose annual compensation exceeds a specified threshold. 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   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

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

SEC. 2.

 The Legislature finds and declares all of the following:
(a) The public has a direct and immediate interest in ensuring its money is spent efficiently and wisely. Through direct cash payments and exemptions from paying taxes, nonprofit hospitals receive billions in taxpayer funds.
(b) The compensation packages of chief executive officers, executives, managers, and administrators of hospitals, hospital groups, and affiliated medical entities that operate under nonprofit corporate status are often excessive, unnecessary, and inconsistent with the corporations’ charitable purposes, as revealed by compensation surveys and other sources.
(c) Payment of excessive compensation to executives, managers, and administrators undermines the purposes of nonprofit corporations because it results in fewer funds being available for their charitable purposes, and it is often the case that the hospitals, hospital groups, and affiliated medical entities that pay the most excessive compensation also provide less charitable care than comparable institutions that pay reasonable compensation to their executives, managers, and administrators.
(d) Existing requirements of law do not adequately ensure that assets held for charitable purposes are not instead used to enrich executives, managers, and administrators of nonprofit hospitals, hospital groups, and affiliated medical entities through payment of excessive compensation.
(e) The compensation packages for chief executive officers, executives, managers, and administrators of for-profit hospitals in California are often excessive, unnecessary, and inconsistent with the provision of high-quality, affordable medical care, by diverting funds that could be used to expand access to affordable medical care for all Californians.
(f) Chief executive officers, executives, managers, and administrators at hospitals, hospital groups, and affiliated medical entities who are also compensated for their positions on boards of directors of publicly traded companies, privately held companies, and nonprofit organizations risk spending time away from their primary responsibilities to the detriment of high-quality, affordable medical care.
(g) In order to properly assess the scope of excessive compensation packages in the nonprofit hospital sector and to inform policy decisions related to escalating health care costs, it is necessary to understand excessive compensation among private hospitals.
(h) In order to ensure equal opportunity and compensation among health care workers in California, it is necessary to understand compensation by job classification and by race, ethnicity, gender, sexual orientation, and gender identity.
(i) It is the intent of the Legislature in enacting this act to ensure that compensation packages for chief executive officers, executives, managers, and administrators of for-profit and nonprofit hospitals are consistent with the goal of providing affordable, high-quality medical care to all Californians.
(j) The intent of the Legislature in enacting this act is also to ensure that compensation packages for chief executive officers, executives, managers, and administrators of nonprofit hospitals, hospital groups, and affiliated medical entities are consistent with the charitable purposes of those nonprofits and are reasonable and not excessive in light of the substantial public benefit that the state tax exemption for nonprofit organizations conveys.
(k) It is also the intent of the Legislature in enacting this act to ensure that compensation packages for employees of for-profit and nonprofit hospitals are not discriminatory based on race, ethnicity, gender, sexual orientation, or gender identity.

SEC. 3.

 Chapter 2.17 (commencing with Section 1339.85) is added to Division 2 of the Health and Safety Code, to read:
CHAPTER  2.17. Hospital Executive Compensation Transparency Act of 2016

1339.85.
 For purposes of this chapter, the following definitions shall have the following meanings:
(a) “Annual hospital executive compensation report” refers to the report described in Section 1339.87.
(b) “Board compensation” shall mean the total annual compensation provided to each hospital executive by any publicly traded company, privately held company, or nonprofit organization on whose board of directors a hospital executive sits and from which the hospital executive received total annual compensation of more than one thousand dollars ($1,000).
(c) (1) “Covered hospital or medical entity” shall mean any of the following:
(A) A private nonprofit general acute care hospital, as defined in subdivision (a) of Section 1250.
(B) An acute psychiatric hospital, as defined in subdivision (b) of Section 1250.
(C) Any private for-profit general acute care hospital that is licensed under subdivision (a) or (b) of Section 1250 and operated within the state for profit under Division 1 (commencing with Section 100) of Title 1 of the Corporations Code, including by a foreign corporation.
(D) A hospital group, which shall mean any group of two or more hospitals described in subparagraphs (A) to (C), inclusive, 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 medication foundation, which shall mean a medical foundation, as described in subdivision (l) of Section 1206, that satisfies either or both of the following conditions:
(i) The medical foundation is a disregarded entity of, or would be required to be designated as a related organization on Internal Revenue Service Form 990 (or its accompanying schedules or the successor of such forms or schedules) of, a hospital, hospital group, hospital-affiliated physicians group, or a nonprofit corporation that owns, operates, or controls, in whole or in part, a hospital, hospital group, or hospital-affiliated physicians group.
(ii) A majority of the medical foundation’s assets are owned by a hospital, hospital group, or hospital-affiliated physicians group or by a nonprofit corporation that owns, operates, or controls, in whole or in part, a hospital, hospital group, or hospital-affiliated physicians group, or the medical foundation owns a majority of the assets of a hospital, hospital group, or hospital-affiliated physicians group or of a nonprofit corporation that owns, operates, or controls, in whole or in part, a hospital, hospital group, or hospital-affiliated physicians group.
(F) A hospital-affiliated physicians group, which shall mean any physicians group or medical group that satisfies either or both of the following conditions:
(i) The physicians group is a disregarded entity of, or would be required to be designated as a related organization on Internal Revenue Service Form 990 (or its accompanying schedules or the successor of such forms or schedules) of, a hospital, hospital group, or hospital-affiliated medical foundation or a nonprofit corporation that owns, operates, or controls, in whole or in part, a hospital, hospital group, or hospital-affiliated medical foundation.
(ii) A majority of the physicians group’s assets are owned by a hospital, hospital group, or hospital-affiliated medical foundation or a nonprofit corporation that owns, operates, or controls, in whole or in part, a hospital, hospital group, or hospital-affiliated medical foundation.
(G) A health care district organized pursuant to Chapter 1 (commencing with Section 32000) of Division 23.
(2) “Covered hospital or medical entity” shall not include any of the following:
(A) Hospitals operated or licensed by the United States Department of Veterans Affairs or public hospitals as defined in paragraph (25) of subdivision (a) of Section 14105. 98 of the Welfare and Institutions Code, with the exception of hospitals owned or operated by a health care district organized pursuant to Chapter 1 (commencing with Section 32000) of Division 23.
(B) Designated public hospitals, as described in subdivision (d) of Section 14166.1 of the Welfare and Institutions Code.
(d) “Executive compensation reporting threshold” shall mean the total annual compensation from any source for work performed or services provided at or for the covered hospital or medical entity that is greater than two hundred fifty thousand dollars ($250,000) three hundred thousand dollars ($300,000) in a year.
(e) (1) “Hospital executive” shall mean all persons whose primary duties are executive, managerial, or administrative at or for the covered hospital or medical entity, even if that person also performs or performed other duties.
(2) “Hospital executive” shall include, but is not limited to, chief executive officers, chief executive managers, chief executives, executive officers, executive directors, chief financial officers, presidents, executive presidents, vice presidents, executive vice presidents, and other comparable positions.
(3) The definition of “hospital executive” shall apply irrespective of whether the person exercising executive, managerial, or administrative authority is or was an employee of a covered hospital or medical entity or a nonprofit corporation that owns, operates, or controls, in whole or in part, a covered hospital or medical entity. The definition shall also apply to any person who exercises or exercised such authority even if the arrangements for such authority or for compensation or both are pursuant to a contract or subcontract.
(4) “Hospital executive” shall include any person who held the duties described under this paragraph during the period covered by the annual report, even if the person is postemployment or postservice.
(5) “Hospital executive” shall not apply to medical or health care professionals whose primary duties are or were the provision of medical services, research, direct patient care, or other nonmanagerial, nonexecutive, and nonadministrative services.
(f) “Office” means the Office of Statewide Health Planning and Development.
(g) (1) “Total annual compensation” shall mean all remuneration paid, earned, or accrued in the course of a fiscal year for work performed or services provided, including the cash value of all remuneration (including benefits) in any medium other than cash, except as otherwise specified in paragraph (2), and including, but not limited to, all of the following:
(A) Wages; salary; paid time off; bonuses; incentive payments; lump-sum cash payments; the fair market value of below-market-rate loans or loan forgiveness; housing payments; payments for transportation, travel, meals, or other expenses in excess of actual documented expenses incurred in the performance of duties; payments or reimbursement for entertainment or social club memberships; the cash value of housing, automobiles, parking, or similar benefits; scholarships or fellowships; the cash value of dependent care or adoption assistance or personal legal or financial services; the cash value of stock options or awards; payments or contributions for insurance, except as exempted in paragraph (2), to a Section 125 cafeteria plan or equivalent arrangement, to a health savings account, or for severance or its equivalent; and deferred compensation earned or accrued, even if not yet vested nor paid.
(B) The total value in the aggregate of the compensation or payments authorized or paid under a severance or similar postservice or postemployment arrangement, to include the fair market value of all cash remuneration as well as the fair market value of all remuneration (including benefits) paid in any medium other than cash, as defined in paragraph (1), subject to the exclusion set forth in paragraph (2).
(C) Payments, compensation, or remuneration for work performed or services provided at or for a covered hospital or medical entity even if made by a separate person or entity, including, but not limited to, any of the following:
(i) A for-profit or unincorporated entity.
(ii) A corporation, partnership, or limited liability company.
(iii) A trust or other entity that is controlled by the same person or persons who govern a covered hospital or medical entity.
(iv) A supporting or supported organization within the meaning of Sections 509(a)(3) and 509(f)(3) of the Internal Revenue Code.
(v) A disregarded entity of, or related organization as set forth within, the Internal Revenue Service Form 990 of a covered hospital or medical entity or a nonprofit corporation that owns, operates, or controls, in whole or in part, a covered hospital or medical entity.
(D) Payment of compensation or remuneration by any person, corporation, partnership, limited liability company, trust, or other entity that a covered hospital or medical entity, or a nonprofit corporation that owns, operates, or controls, in whole or in part, a covered hospital or medical entity, participates in, belongs to, is a member of, or pays into shall be presumed compensation for work performed or services provided at or for the covered hospital or medical entity.
(2) “Total annual compensation” shall not include the cost of health insurance or disability insurance or payments or contributions to a health reimbursement account.

1339.87.
 (a) On and after October 1, 2017, each covered hospital or medical entity shall submit an annual hospital executive compensation report to the office for every hospital executive whose total annual compensation met or exceeded the executive compensation reporting threshold. The report shall include all of the following information for the prior fiscal year:
(1) The names, positions, or titles of each hospital executive and the aggregate total annual compensation for each hospital executive at or exceeding the executive compensation reporting threshold, including all of the information described under subdivision (g) of Section 1339.85, with a description of each entity that has contributed to the total annual compensation of each hospital executive, in any form, and the amount of such compensation.
(2) A detailed breakdown of all wage and nonwage compensation.
(3) Identification of any benefit or remuneration excluded from the definition of total annual compensation pursuant to paragraph (2) of subdivision (g) of Section 1339.85.
(4) A detailed breakdown of board compensation, which shall include all of the following:
(A) The name of the publicly traded company, privately held company, or nonprofit organization that provided the board compensation.
(B) The number of hours the hospital executive spent on matters related to their duties as a director of the publicly traded company, privately held company, or nonprofit organization for which the board compensation was received.
(b) Consistent with the annual equal employment opportunity and compensation report on employees’ ethnicity, race, and sex by job category and compensation required by Part 1602 of Chapter XIV of Subtitle B of Title 29 of the Code of Federal Regulations, on or after October 1, 2017, and annually thereafter, each covered hospital or medical entity with 100 or more employees shall submit to the office all of the following information for the prior fiscal year:
(1) The number of employees earning annual total compensation in 12 pay bands, as proposed by the federal Equal Employment Opportunity Commission in the Federal Register, Volume 81, Number 20, on February 1, 2016, on pages 5113 to 5121, inclusive, for each of the eight employee classifications defined in the office’s hospital annual financial data and by self-reported gender, ethnicity, and race, and voluntarily self-reported sexual orientation and gender identity.
(2) The total number of hours worked by the employees included in each pay band described in paragraph (1).
(c) On and after January 1, 2018, the office shall post the annual hospital executive compensation report for each covered hospital or medical entity on the office’s Internet Web site.
(d) The annual report shall be submitted on the form or in the format required by the office.
(e) (1) The board of directors of any nonprofit or for-profit corporation that owns, operates, or controls, in whole or in part, a covered hospital or medical entity shall approve the annual report before it is submitted to the office.
(2) Each director shall act in good faith and with reasonable care and inquiry in approving the annual report and in ensuring that the corporation complies with the requirements of this section.
(3) For each covered hospital or medical entity governed, owned, or controlled by a board of directors, the annual report shall state that it was approved by the board of directors and set forth the date of such approval, and shall be attested to under penalty of perjury by an authorized representative of the covered hospital or medical entity board of directors.
(f) (1) Any scheme or artifice that has the purpose of avoiding the reporting requirements established by this section shall constitute a violation of this section.
(2) Payments, compensation, or remuneration by a separate entity that is purported not to be for work performed or services provided at or for a covered hospital or medical entity, but that is disproportionate to its purported purpose so as to evade the annual hospital executive compensation reporting requirements specified in this section, shall constitute a violation of this section.
(g) The office shall establish and assess reasonable fees, to be submitted with each annual report, to cover only the reasonable costs of implementing and ensuring compliance with this section and each activity authorized or required by this section.

SEC. 4.

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