Assembly panel votes to audit Northern California hospital that gave CEO millions upon retirement

A state Assembly panel voted Wednesday to conduct an audit of a Salinas, Calif., public hospital that awarded its chief executive nearly $4 million in supplemental pension benefits.

The investigation of the Salinas Valley Memorial Healthcare District comes after the Los Angeles Times reported on the lucrative retirement package received by Samuel Downing, its former president and CEO. Downing, who retired last month, will be paid $3.9 million in addition to his $150,000 annual pension.

The audit was requested by Assemblyman Luis Alejo (D-Watsonville), whose district includes Salinas. Alejo said that the hospital “had a history of not functioning with transparency” and that he feared the executive compensation was coming at the cost of patient care.

“It raises a lot of red flags,” Alejo said in an interview after the vote. “Our state auditor will get us answers and tell us exactly what’s going on.”

Hospital representatives defended their compensation policies at Wednesday’s Joint Legislative Audit Committee hearing and said they welcomed the scrutiny.

“We were there to clarify the facts,” said Jim Gattis, president of the hospital’s board of directors. Gattis denied claims made by Alejo that there were potential conflicts of interest between the hospital and its board members.

The hospital is one of about 40 district hospitals in the state, which are public entities overseen by elected board members. Salinas Valley hospital has 269 beds and annual operating expenses of about $380 million. It receives $3.5 million in tax dollars each year, spokeswoman Adrienne Laurent said.

Downing started at the hospital in 1972 and became CEO in 1985. He was paid a base salary of $668,000 in recent years, along with other benefits, such as paid time off and a car allowance.

Hospital officials described Downing as a skilled and experienced leader and noted that his compensation was determined through the recommendation of an independent consultant.

The first in a series of boosts to his pension came in 2006, when the hospital reconfigured an executive benefit plan that had been in place since the 1980s. Downing received about $3 million in retirement payments from those accounts in 2009 but chose to keep working.

At that point, the hospital created a new “post-65” plan exclusively for Downing. Hospital officials said the plan would pay Downing an additional $893,000.

Over the same period, the hospital faced declining revenues and patient admissions. About 600 staff positions have been eliminated through layoffs and attrition since January 2010, and the hospital has been locked in contentious negotiations with the unions that represent its workers.

The hospital’s Medical Executive Committee submitted a vote of no-confidence in the administration to the board April 14, according to a memo obtained by The Times.

“The medical staff ... can no longer endorse the current administration’s leadership (particularly the CEO),” the memo stated. Downing announced his retirement the next day.

sam.allen@latimes.com