Proposed Regulations
NEW YORK STATE DEPARTMENT OF HEALTH
Return to Public Health Forum



Proposed Rule Making:
Addition of Part 1002 to Title 10
(Limits on Executive Compensation and Administrative Expenses in Agency Procurements)


Publication Date: 05/30/2012Comment Period Expiration: 07/16/2012
Proposed Text and Statements:

SUMMARY OF EXPRESS TERMS

The Department proposes regulations to implement Governor Cuomo's Executive Order 38, which sets forth standards for executive compensation paid by, and administrative expenses paid to, covered providers receiving state funds or state authorized payments. The regulations define key terms including “administrative expenses,” “program services expenses,” and “covered provider,” and provide standards to be used in determining whether a covered provider's executive compensation and administrative costs are within certain limits. The regulations further provide means for waivers with regard to the executive compensation and administrative cost limits under limited circumstances and subject to specific criteria. Finally, the regulations provide for review of decisions denying requests for waiver, penalties for failure to comply with applicable limitations, and covered entity reporting obligations.
Pursuant to the authority vested in the Commissioner of Health pursuant to section 363-a(2) of the Social Services law and sections 201(1)(o), 201(1)(p), 206(3) and 206(6) of the Public Health Law, Title 10 (Health) of the Official Compilation of Codes, Rules and Regulations of the State of New York (NYCRR) is amended to add a new Part 1002, to be effective January 1, 2013, following publication of a Notice of Adoption in the New York State Register, to read as follows:

PART 1002

LIMITS ON ADMINISTRATIVE EXPENSES AND EXECUTIVE COMPENSATION
(Statutory Authority: Social Services Law section 363-a(2) and Sections 201(1)(o), 201(1)(p), 206(3) and 206(6) of the Public Health Law)

Sec.
1002.1 Applicability.
1002.2 Definitions.
1002.3 Limits on administrative expenses.
1002.4 Limits on executive compensation.
1002.5 Waivers.
1002.6 Reporting.
1002.7 Enforcement and penalties.

1002.1 Applicability

This Part shall be applicable to covered providers as defined in section 1002.2 of this Part which receive, pursuant to contract or other agreement with the department or with another governmental agency, State funds from the department or payments of funds that are not State funds but which are distributed or disbursed upon approval of the department or by another governmental entity upon such approval or by virtue of the provider having approval to operate from the department.

1002.2 Definitions

For purposes of this Part:

(a) Administrative expenses are those expenses incurred in connection with the covered provider’s overall management and necessary overhead that cannot be attributed directly to the provision of program services.

(1) Such costs include but are not limited to the following: (b) Covered operating expenses shall mean program services expenses and administrative expenses authorized pursuant to applicable agency program regulations, contracts or other rules that govern reimbursement with State funds or State-authorized payments, and shall not include: (c) Covered executive is a director, trustee, managing partner, or officer whose salary and/or benefits, in whole or in part, are administrative expenses, and any employee whose salary and/or benefits, in whole or in part, are administrative expenses and whose executive compensation during the reporting period equaled or exceeded $199,000. In the event that a covered provider contracts with a related entity for administrative or program services, the covered executives of the related entity shall also be considered “covered executives” of the covered provider.

(d) Covered provider is an entity or individual that:
The following providers shall not be considered covered providers: (e) Executive compensation shall include all forms of reportable cash and noncash payments or benefits given directly or indirectly to a covered executive, including but not limited to salary and wages, bonuses, dividends and other financial arrangements or transactions such as personal vehicles, meals, housing, personal and family educational benefits, below-market loans, payment of personal or family travel, entertainment, and personal use of the organization’s property, except that mandated benefits (e.g., Social Security, worker’s compensation, unemployment insurance and disability insurance), and health insurance premiums and pension contributions consistent with those provided to a covered provider’s non-covered executive employees shall not be included in the calculation of executive compensation.
(f) Department means the New York State Department of Health.
(g) Program services are those services rendered by a covered provider or its agent directly to and for the benefit of members of the public (and not for the benefit or on behalf of the State or the awarding agency) that are paid for in whole or in part by State funds or State-authorized funds. Program services shall not include:
(1) policy development or research; or
(2) staffing or other assistance to a State agency or local unit of government in such agency’s or government’s provision of services to members of the public.
(h) Program services expenses are those expenses incurred by a covered provider or its agent in direct connection with the provision of program services.

(1) Such expenses include but are not limited to the following: (2) Program services expenses do not include:
(i) Related entity shall mean any entity that meets one of the following tests:
(j) Reporting period shall mean the calendar year or, where applicable, the fiscal year used by a provider. For those providers who file a cost report, the reporting period shall be the same for the submission of the cost report and the submission of disclosure reporting pursuant to section 1002.6 of this Part.
(k) State-authorized payments refer to those payments of funds that are not State funds but which are distributed or disbursed upon a New York state agency’s approval or by another governmental unit within New York State upon such approval or to a provider by virtue of the provider having a State license in New York State to operate the program for which such payments are being made. For purposes of this regulation, State-authorized payments shall not include any payments solely for the following purposes: (l) State funds are those funds appropriated by law in the annual state budget pursuant to Article VII, Section 7 of the New York State Constitution. For purposes of this Part, State funds shall not include any payments solely for the following purposes: 1002.3 Limits on Administrative Expenses (a) Limits on Allowable Administrative Expenses. For the period commencing January 1, 2013, no less than seventy-five percent of the covered operating expenses paid for with State funds or State-authorized payments shall be program services expenses rather than administrative expenses. This percentage shall increase by five percent each year until it shall be no less than eighty-five percent for the calendar year 2015 and for each calendar year thereafter.
(b) Subcontractors and Agents of Covered Providers. The restriction on allowable administrative expenses in subdivision (a) shall apply to subcontractors and agents of covered providers that are related entities if and to the extent that such a subcontractor or agent has received State funds or State-authorized payments from the covered provider during the reporting period. Covered providers shall promptly report to the funding or authorizing agency the identity of such subcontractors and agents, along with any other information requested by that agency or by the department or its designee.
(c) Covered Providers Receiving State Funds or State-Authorized Payments From County or Local Government. The restriction on allowable administrative expenses pursuant to this section shall apply to covered providers whose contract or agreement is with, or which receives State funds or State-authorized payments directly from, a county or local unit of government rather than directly from a state agency. The department or its designee, rather than the county or local unit of government, shall be responsible for obtaining the necessary reporting from and compliance by such covered providers, and shall issue guidance to affected county and local governments to set forth the procedures by which the department or its designee shall do so. (d) Covered Providers with Multiple Sources of State Funds or State-Authorized Payments. If a covered provider receives State funds or State-authorized payments from multiple sources, the provider’s compliance with the restriction on allowable administrative expenses in subsection A shall be determined based upon the total amount program services expenses and administrative expenses paid for by such funding received from all of such sources. As set forth in section 1002.6, the covered provider shall report all of such State funds and State-authorized payments, and the expenses paid for by such funding, in the form and at the time specified by the department or its designee.
(e) Other Limits on Administrative Expenses. If the contract, grant, or other agreement is subject to more stringent limits on administrative expenses, whether through law or contract, such limits shall control and shall not be affected by the less stringent limits imposed by these regulations.

1002.4 Limits on Executive Compensation (a) Limits on Executive Compensation. For the period commencing January 1, 2013, except if a covered provider has obtained a waiver pursuant to section 1002.5 of this Part, neither a covered provider nor a related entity shall use State funds or State-authorized payments for executive compensation given directly or indirectly to a covered executive in an amount greater than $199,000 per annum, provided, however, that the department shall have discretion to adjust this figure annually based on appropriate factors and subject to the approval of the Director of the Division of the Budget.
(b) For the period commencing January 1, 2013, except if a covered provider has obtained a waiver pursuant to section 1002.5 of this Part, where a covered provider’s or a related entity’s executive compensation given to a covered executive is greater than $199,000 per annum (including not only State funds and State-authorized payments but also any other sources of funding) and (c) Program Services Rendered by Covered Executives. The limit on executive compensation pursuant to this Section shall not be applied to limit reimbursement with State funds or State-authorized payments for reasonable compensation paid to a covered executive for specific program services rendered by the executive outside of his or her managerial or policy-making duties. Documentation of such program services rendered shall be provided to the department or its designee upon request. (d) Covered Providers with Multiple Sources of State Funds or State-Authorized Payments. If a covered provider or related entity receives State funds or State-authorized payments from multiple sources, the provider’s compliance with the limits on executive compensation in subdivision (a) shall be determined based upon the total amount of such funding received and the reimbursements received from all sources of State funds or State-authorized payments. As set forth in section 1002.6 of this Part, the covered provider shall report all of such State funds and State-authorized payments in the form specified by the department or its designee. (e) Subcontractors and Agents of Covered Providers. The limits on executive compensation in subdivision (a) and (b) shall apply to subcontractors and agents of covered providers that are related entities if and to the extent that such a subcontractor or agent has received State funds or State-authorized payments from the covered provider during the reporting period. Covered providers shall promptly report to the funding or authorizing agency the identity of such subcontractors and agents, along with any other information requested by that agency or by the department or its designee. (f) Other Limits on Executive Compensation. If the contract, grant, or other agreement is subject to more stringent limits on executive compensation, whether through law or contract, such limits shall control and shall not be affected by the less stringent limits imposed by these regulations.

1002.5 Waivers
(a) Waivers for Limit on Executive Compensation. The department or its designee and the Director of the Division of the Budget may grant a waiver to the limits on executive compensation in section 1002.4 of this Part for executive compensation for one or more covered executives during the reporting period upon a showing of good cause. To be considered, an application for such a waiver must comply with this subsection in its entirety. (b) Waivers for Limit on Reimbursement for Administrative Expenses. The department or its designee and the Director of the Division of the Budget may grant a waiver to obtain reimbursement for administrative expenses incurred during the reporting period in excess of the limit set forth in section 1002.3 upon a showing of good cause. To be considered, an application for such a waiver must comply with this subsection in its entirety.
(c) Denial of Waiver Request.
(1) If the department or its designee and the Director of the Division of the Budget propose to deny a request for waiver made pursuant to section 1002.5 of this Part, the applicant shall be given written notice of the proposed denial, stating the reason or reasons for such proposed denial. Such notice shall be sent by certified mail and shall be a final determination to be effective thirty (30) days from the date of the notice, unless reconsideration is requested;
1002.6 Reporting.
(a) Reporting by Covered Providers. Beginning after the effective date of this regulation, covered providers shall submit a completed disclosure report form for each reporting period. Such form shall be submitted in the manner and form specified by the department or its designee. Covered providers shall further provide the information requested in that form, and any other information requested, upon the request of the department or its designee at any time during the term of or prior to the execution of any contract or agreement with such provider.
(b) Covered providers receiving State funds or State-authorized payments from county or local government must report directly to the department as required by this section. The county or local government shall advise such covered providers of their obligation to report directly to the department under this section, but shall not be responsible for receiving or forwarding such reports to the department.
(c) Failure to Report. A covered provider’s failure to submit a completed disclosure report form, or to provide additional or clarifying information at the request of the department or its designee, may result in the termination or non-renewal of a contract or agreement for State funds or State-authorized payments.

1002.7 Penalties.
(a) Notice of Preliminary Determination of Non-Compliance. Whenever it is determined that a covered provider may not be in compliance with the requirements of Sections 1002.3 or 1002.4 of this Part and has not obtained a waiver, the provider shall be notified in writing of the basis for that determination. Such notice shall provide the covered provider with an opportunity and a procedure to submit additional or clarifying information within fifteen (15) days of the provider’s receipt of such notice to demonstrate compliance with this Part. Failure to submit additional or clarifying information within the required time period shall result in the determination of non-compliance becoming final.
(b) Corrective Action Period. If the determination of non-compliance becomes final as set forth in subdivision (a) or if the department or its designee determines, after reviewing and considering any information submitted by the covered provider, that such provider is not in compliance with the requirements of sections 1002.3 or 1002.4 of this regulation, the provider shall receive notice of such determination and a notice to cure. Such notice shall allow the covered provider a period of not less than six months to correct the violation(s) identified (the “corrective action period”) prior to additional enforcement action or penalties being imposed, and shall require that the covered provider submit within fifteen (15) business days a corrective action plan (“CAP”) for approval by the department or its designee
(c) Corrective Action Plan. Within thirty (30) days of receipt of the covered provider’s CAP, the department or its designee shall either approve such CAP or request clarification or alterations. The covered provider shall make such alterations to the CAP as may be reasonably required by the department or its designee. Once the CAP has been approved and the covered provider notified, and unless otherwise provided in the approved CAP, the covered provider shall have six months to complete the CAP and comply with this Part.
(d) Failure to Cure. At the conclusion of the period for implementation of an approved CAP, the department or its designee may request information from the covered provider to determine whether the CAP has been fully and properly completed. If it has been so completed, the matter shall be considered closed and no further action on the part of the department or the provider shall be required. If the department or its designee determines that the CAP has not been fully and properly implemented within the designated corrective action period, the department or its designee shall provide written notice to the provider and may take one or more of the following actions, taking into account the seriousness of the violations, the nature of the provider’s services, and the provider’s efforts to correct the violations, if any:
(e) Opportunity for Appeal. Within ten (10) days of receipt of a final determination of noncompliance and notice of proposed sanctions, a covered provider may request an administrative appeal by submitting a written request to the name and address set forth in the notice. The request must include a detailed explanation of the legal and factual bases for the provider’s challenge to the determination and all documentation in support of the provider’s position. If a request for an administrative appeal is not made within the required ten days, the determination of noncompliance shall become final and the proposed sanction shall be imposed. Unless the department seeks to impose a sanction for which an administrative hearing is otherwise required by statute or regulation, the covered the provider’s appeal shall be limited to an administrative review of the record. Following the review, the covered provider shall be provided with a final written determination setting forth the findings of fact and conclusions of law that support the determination. If the provider is found to be non-compliant, the proposed sanction may be imposed forthwith.

Regulatory Impact Statement

Statutory Authority:
The authority for the promulgation of these regulations is contained section 363-a(2) of the Social Services law and in sections 201(1)(o), 201(1)(p), 206(3) and 206(6) of the Public Health Law.

Legislative Objectives:
This rule furthers the proper use of funds in furtherance of the Department's oversight of the various programs and procurements for which it pays, or authorizes payment.

Needs and Benefits:
The New York State Department of Health is proposing to adopt the following regulation because the State of New York directly or indirectly funds with taxpayer dollars a large number of tax exempt organizations and for-profit entities that provide critical services to New Yorkers in need and the goal is to ensure that taxpayers' dollars are used properly, efficiently, and effectively to improve the lives of New Yorkers. In certain instances, providers of services that receive State funds or State-authorized payments have used such funds to pay for excessive administrative costs or inflated compensation for their senior executives, rather than devoting a greater proportion of such funds to providing direct care or services to their clients. Such abuses involving public funds harm both the people of New York who are paying for such services, and those persons who must depend upon such services to be available and well-funded. These regulations, which are required by Executive Order No. 38, will ensure that State funds or State-authorized payments paid by this agency to providers are not used to support excessive compensation or unnecessary administrative costs.

Costs:
The costs of implementing this rule to affected providers is anticipated to be minimal as most, if not all, of the information that must be reported by such providers is already gathered or reported for other purposes. The costs to the agency of such implementation is expected to be very limited as well, and efforts to ensure efficient centralization of certain aspects of such implementation are underway.

Paperwork/Reporting Requirements:
The proposed regulatory amendments will require limited additional information to be reported to the agency by providers receiving State funds or State-authorized payments. To the extent feasible, such reporting shall be made electronically to avoid unnecessary paperwork costs.

Local Government Mandates:
The proposed regulatory amendments do not anticipate any additional mandates.

Duplication:
This proposed rule does not duplicate, overlap, or conflict with any State or federal statute or rule. However, the proposed rule seeks to minimize the reporting requirements faced by providers by building upon those requirements in the federal internal revenue code that require certain tax-exempt organizations to report information concerning their executive compensation and administrative costs.

Alternatives:
Executive Order #38 requires the adoption of this proposed regulation.
Federal Standards:
These amendments do not conflict with federal standards.

Compliance Schedule:
This rule takes effect January 1, 2013.

Contact Person:

Katherine Ceroalo
NYS Department of Health
Bureau of House Counsel, Regulatory Affairs Unit
Corning Tower Building, Room 2438
Empire State Plaza
Albany, NY 12237
(518) 473-7488
(518) 486-4834-FAX
REGSQNA@health.state.ny.us


REGULATORY FLEXIBILITY ANALYSIS FOR
SMALL BUSINESSES AND LOCAL GOVERNMENTS

A Regulatory Flexibility Analysis for Small Businesses and Local Governments is not being submitted with this notice because the proposed rule will not impose any adverse economic impact on small businesses, nor will it impose new reporting, record keeping or other compliance requirements on small businesses or local governments.


RURAL AREA FLEXIBILITY ANALYSIS

A Rural Area Flexibility Analysis is not being submitted with this notice because the proposed rule will not impose any adverse economic impact on rural areas.


JOB IMPACT STATEMENT

A Job Impact Statement is not being submitted with this notice because it is evident from the subject matter of the regulation that it will have no impact on jobs and employment opportunities.