Report 2011-113 All Recommendation Responses

Report 2011-113: Salinas Valley Memorial Healthcare System: Increased Transparency and Stronger Controls Are Necessary as It Focuses on Improving Its Financial Situation (Release Date: March 2012)

Recommendation #1 To: Salinas Valley Memorial Healthcare System

To provide members of the public with opportunities to meaningfully participate in board meetings regarding executive compensation matters, and to hold the board accountable for its decisions on these matters, the Health Care System should develop a formal policy that establishes a process for determining executive compensation, including retirement benefits, that clearly documents all executive compensation decisions.

6-Month Agency Response

The board adopted an executive compensation policy in July 2012 that defines the Health Care System's process for establishing executive compensation and requires that compensation, including benefits, for the CEO shall be approved by the board in open sessions of board meetings. Similarly, this policy requires that the board approve salary scales and benefits for executives other than the CEO in open sessions. The policy also specifies that the CEO has the authority to set salaries for other executives and must report the salaries he or she sets to the board. (See 2013-406, p. 81)

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Recommendation #2 To: Salinas Valley Memorial Healthcare System

To provide members of the public with opportunities to meaningfully participate in board meetings regarding executive compensation matters, and to hold the board accountable for its decisions on these matters, the Health Care System should clearly indicate compensation matters on the agendas for its board meetings.

6-Month Agency Response

The Health Care System's updated executive compensation policy requires that matters concerning compensation for the CEO or other executives must be specified in agendas and/or minutes for board meetings. In addition, review of the agendas for board meetings in May through August 2012 indicate that the Health Care System is following this policy. (See 2013-406, p. 82)

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Recommendation #3 To: Salinas Valley Memorial Healthcare System

To provide members of the public with opportunities to meaningfully participate in board meetings regarding executive compensation matters, and to hold the board accountable for its decisions on these matters, the Health Care System should discuss executive compensation matters only in open sessions of board meetings, except in the limited circumstances that allow for discussion in closed sessions.

6-Month Agency Response

The Health Care System's executive compensation policy specifies that the CEO's compensation, including benefits, the CEO's employment agreement, and salary scales and benefits for executive positions other than the CEO shall be approved by the board in open session, and discussion of these compensation matters may occur in closed session only in the limited circumstances specified in law. The Health Care System's board agendas and minutes for May through August 2012 indicate the board is adhering to its executive compensation policy. (See 2013-406, p. 82)

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Recommendation #4 To: Salinas Valley Memorial Healthcare System

To ensure that the terms of its CEO's employment and compensation are clear, and to aid the board in its oversight role, the Health Care System should engage its next permanent CEO in a written employment contract.

1-Year Agency Response

The Health Care System provided documentation that it hired a new permanent CEO effective April 2013 and used an employment contract that specified the terms of the CEO's employment and all compensation and benefits to which the CEO is entitled. Moreover, the Health Care System now requires employment contracts for all of its executives.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

According to the Health Care System's executive compensation policy, its permanent CEO, when hired, will be engaged in an employment agreement. In addition, in its six-month response, the Health Care System indicated that it now requires employment contracts for all of its executives, including the CEO, and that it executed an employment contract with its chief operating officer. Moreover, Chapter 322, Statutes of 2012 (Assembly Bill 2180), requires that a written employment agreement entered into with a hospital administrator by a local health care district include all material terms and conditions regarding compensation and benefits agreed to by the district and the hospital administrator. In addition, the governor vetoed Assembly Bill 2115 of the 2011–12 Regular Legislative Session on September 13, 2012. This bill if enacted, would have required, rather than permitted, local health care districts to enter into written employment agreements not to exceed four years when hiring a hospital administrator or CEO. (See 2013-406, p. 82)

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Recommendation #5 To: Salinas Valley Memorial Healthcare System

To help reduce its operating costs and improve its overall financial situation, the Health Care System should continue to try to modify its employee benefits, such as paid time off, so they are aligned with industry practice.

Annual Follow-Up Agency Response From October 2016

The SVMHS Board of Directors and Administrative Team wholly embraced Recommendation #5 and recognize that the future financial stability of SVMHS depends on its ability to reduce overall operating costs, including the alignment of employee benefit costs with industry standards.

The SVMHS employee population includes non-represented staff and staff represented by three different bargaining units.

In fiscal year 2013-2014, SVMHS contract bargaining with the California Nurses Association(CNA)(~600 employees) and International Union of Operating Engineers, Stationary Engineers Local No. 39 (Local 39)(~20 employees) resulted in both unions adopting a Paid Time Off (PTO) cap and lower accrual levels.

In fiscal year 2014-2015, SVMHS initiated contract bargaining with the National Union of Healthcare Workers (NUHW) (~700 employees), to better align the health plan and PTO with industry standards, in line with those presented to CNA and Local 39. In fiscal year 2015-2016, SVMHS and NUHW reached agreement on a new collective bargaining agreement with changes to the employee health plan (effective January 1, 2017) and PTO provisions (effective August 2016).

In fiscal year 2014-2015, health plan and PTO changes were outlined for the non-represented staff (~300 employees), consistent with those presented to CNA, Local 39 and NUHW. PTO caps were implemented in June 2015. Changes to the health plan and PTO accrual levels for non-represented staff were communicated in September 2016 and are effective January 2017.

Over the past three years, SVMHS has made significant progress in better aligning the employee health plan and PTO provisions for all employees, consistent with industry practice.

The SVMHS Administrative Team and Board of Directors will continue to monitor for cost saving opportunities, including maintaining benefit costs in alignment with industry practices.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

Annual Follow-Up Agency Response From September 2015

SVMHS, from the Board of Directors through the Administrative Team, wholly embraces Recommendation #5 and recognizes that the future financial stability of the health system depends on its ability to reduce overall operating costs, including the alignment of employee benefit costs with industry standards.

The SVMHS employee population includes non-represented staff and staff represented by three different bargaining units.

During fiscal year 2013-2014, SVMHS initiated contract bargaining with the California Nurses Association (CNA) and International Union of Operating Engineers, Stationary Engineers Local No. 39 (Local 39).

SVMHS provided proposals to CNA (~600 employees) and Local 39 (~20 employees) to better align the employee health plan and Paid Time Off (PTO) accruals with industry standards over a 3 to 4-year period.

While the health plan proposal was not adopted by either bargaining unit, the PTO provisions (cap and accrual level) were adopted by both. PTO caps were implemented on June 6, 2015 for non-represented staff and accrual levels are under revision.

In fiscal year 2014-2015, SVMHS initiated contract bargaining with the National Union of Healthcare Workers (NUHW) (~700 employees). SVMHS provided proposals to NUHW to better align the employee health plan and Paid Time Off (PTO) accruals with industry standards over a 3 year period. These proposals are in line with those presented to CNA and Local 39. Negotiations with NUHW are ongoing. In fiscal year 2014-2015, the health plan and PTO changes were outlined for the non-represented staff (~300 employees). Once changes to the health plan design are implemented with NUHW, commensurate changes will be made with non-represented staff.

The executive leadership team and Board of Directors continue to track progress toward the overall goal of reduced operating expenses, including aligning benefit costs with industry practice.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From October 2014

As a first step in addressing Recommendation 3, effective Fiscal Year 2011-12, SVMHS altered benefits available to non-represented employees by terminating the existing pension plan and creating a new plan (a 403b plan) with decreased costs accruing to SVMHS.

During Fiscal Year 2012-13, SVMHS focused on putting in place a new Chief Executive Officer (hired in April 2013) and a new Administrative Team (completed in August 2013). Since coming on board, the CEO and Administrative Team have devoted significant attention to building relationships with employees and their representatives that will facilitate making the changes required to better secure SVMHS's future.

This team also has further refined and continues to implement a strategy to carry forward additional cost savings related to benefits provided to all employees. In addition, the strategy addresses overall operational efficiencies through various labor and non-labor initiatives.

During fiscal year 2013-2014, SVMHS initiated contract bargaining with the California Nurses Association (CNA) and International Union of Operating Engineers, Stationary Engineers Local No. 39 (Local 39).

SVMHS provided proposals to CNA (~600 employees) and Local 39 (~20 employees) to better align the employee health plan and Paid Time Off (PTO) accruals with industry standards over a 3 to 4 year period.

Negotiations with CNA are ongoing.

Agreement was reached with Local 39 and ratified with the union's 21 members at SVMHS. The Agreement includes reduction in PTO accrual, dependent on implementation with CNA, and transfer of the SVMHS Local 39 employees to the Local 39 group health plan.

In fiscal year 2014-2015, the health plan and PTO changes were outlined for the non-represented staff (~300 employees). Once changes are implemented with CNA, commensurate changes will be made with non-represented staff.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

Annual Follow-Up Agency Response From October 2013

SVMHS, from the Board of Directors through the Administrative Team, wholly embraces Recommendation 3 and recognizes that the future financial stability of the health system depends on its ability to reduce overall operating costs, including the alignment of employee benefit costs with industry standards.

As a first step in addressing this objective, effective Fiscal Year 2011-12, SVMHS altered benefits available to non-represented employees by terminating the existing pension plan and creating a new plan (a 403b plan) with decreased costs accruing to SVMHS.

During Fiscal Year 2012-13, SVMHS focused on putting in place a new Chief Executive Officer (hired in April 2013) and a new Administrative Team (completed in August 2013). Since coming on board, the CEO and Administrative Team have devoted significant attention to building relationships with employees and their representatives that will facilitate making the changes required to better secure SVMHS's future.

This team also has further refined and continues to implement a strategy to carry forward additional cost savings related to benefits provided to all employees. In addition, the strategy addresses overall operational efficiencies through various labor and non-labor initiatives.

Admittedly, a goal of this nature cannot be achieved immediately and unilaterally. Opportunities to make progress arise through periodic negotiations of contract renewals with represented units. As SVMHS makes incremental progress towards the goal of overall and equitable reductions in employee benefit costs, the challenge for the hospital is to maintain stability, retain qualified employees, attract qualified candidates and meet the needs of the community.

California State Auditor's Assessment of Annual Follow-Up Status: Not Fully Implemented

1-Year Agency Response

The Health Care System stated that it recognizes the opportunity to improve the alignment of employee benefits to industry standards. It indicated that in light of current union contracts it is challenged with balancing nonunion benefits to union benefits to ensure it is able to retain qualified employees and candidates. The Health Care System stated that the executive leadership team and the board continue to evaluate opportunities to shift this variance between the Health Care System's employee benefits and industry practice.

California State Auditor's Assessment of 1-Year Status: Pending

6-Month Agency Response

In its six-month response, the Health Care System stated that in light of current union contracts, it is challenged with balancing nonunion benefits to union benefits to ensure it is able to retain qualified employees and candidates. Nonetheless, the Health Care System indicated that its executive leadership team and the board continue to evaluate opportunities to shift this variance between the Health Care System's employee benefits and industry practice. (See 2013-406, p. 83)

California State Auditor's Assessment of 6-Month Status: Pending

Recommendation #6 To: Salinas Valley Memorial Healthcare System

To ensure that the Health Care System, its board members, medical staff, employees, and consultants are engaged only in appropriate business relationships with respect to their economic interests, the Health Care System should engage an independent investigator to review the Health Care System's business relationships with entities that we identified as being economic interests of its board members and executives to determine whether any of the relationships violate applicable legal prohibitions and take appropriate corrective action if they do.

1-Year Agency Response

The Health Care System engaged a law firm to conduct an independent investigation of its relationships with business entities the state auditor identified as economic interests of the Health Care System's board members and executives. According to a general summary of the law firm's findings, it found that seven of the eleven relationships it examined did not violate any applicable legal prohibitions; for the other four relationships, they either had ceased or the affected employee or official no longer has a financial interest in the entity. Consequently, according to the law firm, no corrective action was required for any of the eleven relationships. The law firm also indicated that actions taken by the Health Care System in response to the state auditor's findings concerning conflicts of interest, along with the law firm's complete report to the Health Care System, will ensure that Health Care System officials and employees are more cognizant of conflict-of-interest issues and will utilize the systems and policies now in place to effectively avoid and address relationships that may raise concerns in this area.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The Health Care System engaged a law firm to conduct an independent investigation of its relationships with business entities we identified in our report as economic interests of the Health Care System's board members and executives. According to a general summary of the law firm's findings, it found that seven of the nine relationships it examined did not violate any applicable legal prohibitions; for the other two relationships, one of them had ceased and in the other the affected employee or official no longer has a financial interest in the entity. Consequently, according to the law firm, no corrective action was required for any of the nine relationships. However, the law firm also indicated it detected some issues during its investigation and analysis that raised concerns regarding the manner in which the Health Care System identified and addressed potential conflicts of interest. As a result of these issues, the law firm indicated it is working with the Health Care System to implement systems to address these concerns in order to prevent similar issues in the future. (See 2013-406, p. 83)

California State Auditor's Assessment of 6-Month Status: Partially Implemented

Recommendation #7 To: Salinas Valley Memorial Healthcare System

To ensure that the Health Care System, its board members, medical staff, employees, and consultants are engaged only in appropriate business relationships with respect to their economic interests, the Health Care System should implement the requirement in its recently updated conflict-of-interest policy that board members, medical staff, employees, and consultants disclose potential conflict-of-interest situations to their supervisors and the ethics and compliance officer, who shall review each situation and make a determination on the appropriate resolution.

6-Month Agency Response

According to the Health Care System, 24 individuals who submitted statements of economic interests for 2011 identified financial interests in their statements. The revenue integrity and compliance director determined based on her review of the 24 statements that 11 of them required further discussion between the individuals and either the revenue integrity and compliance director or the individuals' supervisors. Following these discussions, according to the revenue integrity and compliance director, she determined no actual violations of conflict-of-interest laws occurred in 2011. In addition, all 24 individuals understood that moving forward they needed to be alert for potential conflicts of interest associated with their identified financial interests. (See 2013-406, p. 83)

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Recommendation #8 To: Salinas Valley Memorial Healthcare System

To ensure that it has an up-to-date, approved conflict-of-interest code, the Health Care System should develop a protocol to file an action through the superior court to adopt a code if, in the future, the board of supervisors does not approve a code within six months of one being submitted to it by the Health Care System and if follow-up efforts with the board of supervisors prove unsuccessful.

6-Month Agency Response

The Health Care System amended its conflict-of-interest policy to specify that if the board of supervisors does not approve changes proposed by the Health Care System's conflict-of-interest code within six months of submission, then the Health Care System will seek legal counsel to consider potential superior court action to ensure action by the board of supervisors. (See 2013-406, p. 84)

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Recommendation #9 To: Salinas Valley Memorial Healthcare System

To help ensure that individuals designated by the Health Care System as needing to file statements of economic interests do so, the Health Care System should amend its conflict-of-interest policy to specify an individual as its filing officer, in accordance with guidelines of the Fair Political Practices Commission.

6-Month Agency Response

The Health Care System's amended conflict-of-interest policy specifies that its ethics and compliance officer, now called its revenue integrity and compliance director, serves as the filing officer for all positions designated in its conflict-of-interest code as needing to file statements of economic interests (designated filers). (See 2013-406, p. 84)

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Recommendation #10 To: Salinas Valley Memorial Healthcare System

To help ensure that individuals designated by the Health Care System as needing to file statements of economic interests do so, the Health Care System should amend its conflict-of-interest policy to delineate the steps its filing officer should take to ensure that all Health Care System board members, medical staff, employees, and consultants who are required to file statements of economic interests do so.

6-Month Agency Response

The Health Care System's amended conflict-of-interest policy delineates the steps that the revenue integrity and compliance director will take to ensure that designated filers submit their statements of economic interests, including sending reminders to all designated filers, following up when individuals do not submit their statements, and reporting noncompliance to the Health Care System's executive leadership. (See 2013-406, p. 84)

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Recommendation #11 To: Salinas Valley Memorial Healthcare System

To help ensure that individuals designated by the Health Care System as needing to file statements of economic interests do so, the Health Care System should amend its conflict-of-interest policy to specify penalties for failure to file.

6-Month Agency Response

The Health Care System amended its conflict-of-interest policy to specify that individuals submitting their statements late are subject to progressive discipline and a fine of $10 per day that the statements are late, up to a maximum fine of $100. In addition, the policy states that designated filers whose statements are not received within 30 days of their due dates will be referred to the Fair Political Practices Commission for noncompliance enforcement proceedings. (See 2013-406, p. 85)

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Recommendation #12 To: Salinas Valley Memorial Healthcare System

To help ensure the accuracy and completeness of filed statements of economic interests, the Health Care System's filing officer should follow state regulations for reviewing submitted statements, including verifying the cover sheet for completeness for all submitted statements.

6-Month Agency Response

The Health Care System's amended conflict-of-interest policy specifies that the revenue integrity and compliance director will review all submitted statements for overall completeness and general accuracy. In addition, in the Health Care System's six-month response, it indicated that in collecting and reviewing the statements for 2011, the revenue integrity and compliance director reviewed the cover sheets for all statements and ensured completion and submission of all appropriate schedules. (See 2013-406, p. 85)

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Recommendation #13 To: Salinas Valley Memorial Healthcare System

To ensure that it is not making gifts of public funds, the Health Care System should develop and implement a policy and written procedures to demonstrate how funds it provides to support entities and programs in the community further the Health Care System's public purposes.

6-Month Agency Response

The Health Care System adopted a community funding policy to ensure that all Health Care System resources provided to any individual, organization, or entity are expended for the public purpose of its mission of improving health care. This policy includes procedures the Health Care System is to follow in evaluating and approving requests for community funding, and specifies that all Health Care System decisions related to community funding will be made pursuant to these procedures. The Health Care System also provided in its six-month response documentation that demonstrates it is following its new community funding policy and procedures. (See 2013-406, p. 85)

California State Auditor's Assessment of 6-Month Status: Fully Implemented

Recommendation #14 To: Salinas Valley Memorial Healthcare System

To help ensure that the Health Care System has the information it needs to comply with state regulations regarding public disclosure of the disposition of event tickets, the Health Care System should develop and implement a policy and written procedures for tracking its distribution of event tickets. The procedures should ensure that the Health Care System follows state requirements for making pertinent public disclosures.

1-Year Agency Response

The Health Care System amended its community funding policy to specify that it will distribute any tickets and passes it receives in accordance with state regulations. It also developed a gift, ticket, and honoraria policy to ensure, among other things, that the distribution of tickets or passes by the Health Care System is in furtherance of a public purpose, such as promoting health, and that it complete and submit to the Fair Political Practices Commission required documentation for the distribution of each ticket or pass.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

Included in the Health Care System's community funding policy is a policy regarding the disposition of event tickets. The policy specifies that when the Health Care System receives tickets or other benefits in response to providing community funding, the benefits shall be provided to the Salinas Valley Memorial Hospital Foundation (foundation). The policy also indicates that the foundation is responsible for maintaining all records related to the distribution of all tickets and benefits. However, it does not appear that the Health Care System's policy regarding ticket disposition is adequate to ensure it complies with applicable state reporting requirements because, among other things, the policy does not ensure that the Health Care System's provision of tickets to the foundation will be publicly disclosed. (See 2013-406, p. 86)

California State Auditor's Assessment of 6-Month Status: Partially Implemented

Recommendation #15 To: Salinas Valley Memorial Healthcare System

To increase the transparency of its processes for awarding contracts that are not required by law to be selected using a competitive process, the Health Care System should require its employees to fully document the steps they take in selecting contractors and to describe how the selections result in the best value to the Health Care System.

1-Year Agency Response

The Health Care System developed a procurement manual that includes guidance and requirements for its employees to follow when making all organizational procurements, including contracts not required by law to be selected following a competitive process. The procurement manual requires that for these types of contracts that Health Care System employees follow a due diligence process that includes documenting how they chose the contractors and based their decisions on a best value standard.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The board adopted a revised procurement management policy in June 2012 that directed the Health Care System's executive leadership group to adopt a procurement manual that incorporates, clarifies, and coordinates all Health Care System procurement policies. The Health Care System is in the process of drafting a procurement manual that will include guidance and requirements for Health Care System employees to follow when making all organizational procurements. The guidance and requirements in the procurement manual will address the steps Health Care System staff should follow to document and describe how their selections of contractors result in the best value. The procurement manual is currently being completed and reviewed by legal counsel, with anticipated completion by the end of 2012. According to the revenue integrity and compliance director, the Health Care System started providing training at the department director level on the new procurement policies and procedures since May 2012. (See 2013-406, p. 86)

California State Auditor's Assessment of 6-Month Status: Partially Implemented

All Recommendations in 2011-113

Agency responses received after June 2013 are posted verbatim.