Legislation to press California non-profit hospitals to fulfill their charity care obligation in exchange for the substantial public financing they receive through their tax exempt status passed its first hurdle Tuesday in the California Assembly Health Committee overcoming opposition from California’s biggest hospital corporations and its allies.

AB 975, jointly authored by Assembly members Bob Wieckowski of Fremont and Rob Bonta of Oakland, won broad support in the committee hearing from nurse members of the California Nurses Association who attended the hearing in a sea of red scrubs.

The nurses were joined by the California Labor Federation, California Alliance for Retired Americans (CARA), and the Greenlining Institute. The bill is also backed by Board of Equalization member Betty Yee and a number of other labor and community groups.

Lobbying against the bill were some of California’s biggest and wealthiest hospitals and hospital chains, including Kaiser Permanente, Sutter, and Cedars-Sinai, who, according to a report by CNA last year have racked up hundreds of millions of dollars each in government subsidies beyond what they provide in charity care. Also joining the opposition to protect hospital profits were two leading hospital industry allies, the California Chamber of Commerce and SEIU-UHW.

AB 975 would establish uniform standards for transparency and accountability on charity care and community benefit for private, non-profit hospitals and require private hospitals to justify their non-profit exemption if their operating revenues exceed 10 percent of their operating expenses. County hospitals, other public facilities, and small rural hospitals are exempted.

“We congratulate the committee members who voted for this important bill,” said CNA Co-President Malinda Markowitz, RN.

“Hospitals that are genuinely meeting their obligation should welcome this bill which promotes public accountability and transparency. Those who fall short, and their champions, should explain to California patients, taxpayers, and communities what they have to fear. And they should provide the assurance that they are not exploiting their tax exempt status as a shelter to roll up big profits while providing minimal return in care to California,” Markowitz said.

Wieckowski explained that the bill would increase transparency and establish consistent methodology to assess if nonprofit hospitals were doing what they should be doing.

Non-profit hospitals that exceed the 10 percent would now have the burden of proof of showing that they are providing enough community benefit to justify not having to pay sales and property taxes, he said.

“We're worried about them not delivering a benefit to their community. Right now, we don't have transparency," said Wieckowski. “We don't believe there's teeth in the current system."

"I do think there is a benefit to be gained here,” said Assembly member Susan Bonilla. “It would be a mistake to see this bill as in any way discouraging the good work of our nonprofit hospitals." The intent is "not to go after the good actors, but to say there are bad actors out there, and this bill applies to them."

In testimony to the committee, CNA counsel Pam Allen noted that “this bill was written in response to recommendations made by the State Auditor in 2007 and again last year in reports documenting concerns about the lack of standard methodology non-profit hospitals must follow when reporting community benefits. The lack of a standard has resulted in wide variation in reporting community benefits, making it difficult to assess the value of what hospitals provide in exchange for their tax exemptions.

“It is not enough to simply require nonprofit hospitals to develop a plan for charity care and report the charity care provided using their own methodologies. With the growing consolidation and concentration of wealth in the healthcare system in California, it is good public policy to require fairness and transparency in charity care reporting,” Allen said.

The committee also passed a second CNA-backed bill to require the state Department of Managed Health Care to provide public notice and information about new managed care applicants.

AB 578, authored by Assembly member Roger Dickinson of Sacramento coincides with the implementation of the federal Affordable Care Act. One result of the ACA is that more healthcare insurance companies and other industry players are seeking to cash in on the lucrative profits of enrolling additional members who are required to buy insurance.

Insurers, including hospitals moving to set up their own insurance operations to participate in the ACA-required health exchanges, would be covered by the public notice and transparency provisions of the bill. AB 578 would also direct the DMHC to invite written public comment and hold a public hearing prior to approval of an application.