California lawmakers on Wednesday approved a bill that would require taxpayer-funded health care districts to restrict lavish payouts to executives. The bill, authored by Assemblyman Luis A. Alejo, a Democrat from Salinas, would prohibit health care districts from giving financial perks to retiring administrators that are not available to other employees. The hospitals could no longer make inflated lump-sum payments exclusively to executives based on their performance or years of service, for example.
“This bill creates fair pension systems within health care districts and would prevent health care districts from providing unfair pay packages to their top executives,” Alejo said at the hearing on Wednesday.
The legislation was approved by the Assembly Committee on Local Government on Wednesday and will go to the Assembly floor for a vote late next week. If passed, the bill would go into effect Jan. 1, 2013.
Alejo introduced the legislation after the Salinas Valley Memorial Healthcare System gave Sam Downing, its outgoing chief executive officer, a $4.9 million retirement and severance package last year. Much of that money was awarded before he actually retired. In addition, he was entitled to receive annual pension payments of $115,000 when he retired.
The Los Angeles Times first reported on Downing’s package last year. A subsequent audit by the California State Auditor admonished the taxpayer-funded district for lavishing pay packages on top administrators. It also found that the district had questionable business relationships with firms tied to top executives and board members. Health care districts argue that Alejo’s bill would prevent them from recruiting talented leaders.
“These hospitals face many challenges in recruiting executives as it is,” said Amber Wiley, senior legislative advocate for the Association of California Healthcare Districts, which represents 70 such districts in the state. “It is imperative that we don’t disadvantage these hospitals as drastically as this bill would.” But union officials representing Salinas Valley health care workers scoffed at that assertion.
“This is a common sense proposal. It stems from the outrageous behavior we saw at the Salinas hospital,” said John Borsos, secretary-treasurer of the National Union of Health Care Workers, which represents about 800 nurses, pharmacists and other staff at the Salinas Valley Memorial Healthcare System. “The idea that a hospital district will be hindered by not being able to offer an outrageous severance package and multiple pension plans is ridiculous.”
Among the other groups opposing the bill are the California Hospital Association and the California Special Districts Association. Health care districts are facing increased scrutiny for their spending practices. The special districts were created after World War II, when the state allowed communities to levy taxes to build hospitals in rural and low-income areas.
A recent Bay Citizen investigation found that some districts that no longer run hospitals have amassed surpluses of tens of millions of dollars and diverted precious resources to administrative and overhead costs instead of helping the poor, for example. The investigation prompted a hearing last month by the Assembly Committee on Accountability and Administrative Review, a state watchdog committee. Lawmakers admonished districts for soaring administrative costs, dubious health programs such as yoga and for stockpiling money.
The Assembly Appropriations Committee passed a separate bill on Wednesday, also authored by Alejo, which would require health care districts to maintain written employment contracts with their hospital administrators. Downing, in Salinas, never had a formal employment contract even though he served as the district’s chief executive officer for 26 years. That bill is also scheduled to go to the Assembly floor late next week.