California Ballot Initiatives Seek to Limit Hospital Executive Salaries and Prices

Two ballot initiatives in California tap into public frustration about the high cost of medical care and confusion about the difference between hospital charge master prices and the actual price for care.

The two initiatives are the Fair Healthcare Pricing Act of 2014 and the Charitable Hospital Executive Compensation Act of 2014. The first would prohibit hospitals from charging more than 25 percent above the actual cost of providing patient care, and the second would make it illegal for executives at nonprofit California hospitals to earn more than the President of the United States. (Currently the president earns $450,000 per year, which when adjusted for inflation, is one of the lowest amounts earned by any U.S. president.)

Last May, when the Centers for Medicare and Medicaid Services (CMS) first published hospital charges from the cost reports facilities must submit to the agency, the American Hospital Association (AHA) expressed concern that the media and the public would misinterpret these amounts as the actual prices charged for care. In addition, the charge master data could provide public relations fodder for groups with competing interests to hospitals, which may be what is happening in California.

The two initiatives are backed by the Service Employees International Union-United Healthcare Workers West (SEIU-UHW), which has run 30-second television ads in favor of the initiatives and sought the endorsement of lawmakers. It contends that California hospitals charge on average 320 percent above the cost of care, but bases its figures on the California Office of Statewide Health Planning and Development’s list of charge master amounts.

Since charge master amounts typically are used as starting points in the negotiation of actual rates with payors and do not reflect actual hospital charges, these initiatives are “very dangerous and deceptive initiatives,” said Jan Emerson Shea, vice president of external affairs at the California Hospital Association (CHA) in an interview with Kaiser Health News.

The ballot initiative system in California requires a fairly low threshold for circumventing the normal legislative process and putting a new law up for direct vote by the public. To be added to a ballot, a proposed law requires valid signatures amounting to 5 percent of the number of people who voted for governor in the last gubernatorial election and a $200 filling fee that is refunded if the initiative makes it onto the ballot. Currently these amount of signatures needed is 504,760, or about 1.3 percent of the state’s total population.

Once on the ballot, the proposal will become law if it receives a simple majority of yes votes among those who voted yes or no on the initiative.

Should voters approve the initiatives, their impact will be closely watched. California hospitals have long engaged in cost shifting to make up for higher operating costs than hospitals in other states, as well as Medi-Cal rates that are some of the lowest in the country.  In addition, the hospitals compete for executive talent in a state with some of the highest overall executive compensation rates in the country.