AGE-22-12-00011-RP Limits on Administrative Expenses and Executive Compensation

10/31/12 N.Y. St. Reg. AGE-22-12-00011-RP

NEW YORK STATE REGISTER

VOLUME XXXIV, ISSUE 44

October 31, 2012

RULE MAKING ACTIVITIES

OFFICE FOR THE AGING

REVISED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. AGE-22-12-00011-RP

Limits on Administrative Expenses and Executive Compensation

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following revised rule:

Proposed Action:

Addition of Part 6656 to Title 9 NYCRR.

Statutory authority:

Elder Law, section 201(3)

Subject:

Limits on Administrative Expenses and Executive Compensation.

Purpose:

To implement guidelines regarding placing limitations on Administrative Expenses and Executive Compensation.

Substance of revised rule:

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. The goal of this proposed rule is to ensure that taxpayers' dollars are used properly, efficiently, and effectively to improve the lives of New Yorkers. It is imperative that New York State and the New York State Office for the Aging ensure that state funds and state authorized funds are optimized for the purpose of providing services to those individuals who are in need of them. Utilizing state funds and state authorized funds primarily for the provision of direct care and services helps to guarantee that such funds are providing the greatest benefit to older New Yorkers. These regulations, which are required by Executive Order No. 38, will ensure that State funds or State-authorized payments paid by the New York State Office for the Aging to providers are used predominantly to provide direct care and services to older New Yorkers. In order to achieve these goals, the New York State Office is proposing a new Part 6656.

Section 6656.1 of the regulations sets forth the entities that are covered by the proposed rule.

Section 6656.2 sets forth the definitions that are applicable to the proposed rule.

Section 6656.3 outlines the limits on administrative expenses. Specifically, this section details the percentage of state funds and state authorized funds that must be used to cover program services. This section also details the fact that subcontractors of covered entities are also subject to these proposed regulations. Section 6656.3 also enumerates the fact that the New York State Office for the Aging is responsible for the covered provider's reporting under and compliance with the proposed regulations.

Section 6656.4 details the limits on executive compensation. Subsections (a) and (b) of section 6656.4 outline how executive compensation will be limited and what methods will be used to determine that compensation limit. Subsections 6656.4 (c), (d) and (e) further detail the factors that will be considered when determining the limits on executive compensation.

Section 6656.5 sets forth the factors and procedures under which waiver of the executive compensation limits and waiver of the reimbursement for administrative expenses will be considered. Subsection (c) of section 6656.5 details the procedure to be followed in the event a request for a waiver of the executive compensation limits and/or reimbursement of administrative expenses is denied.

Section 6656.6 enumerates the reporting procedures that must be followed by the covered entities. This section also outlines the potential penalties for the failure to report.

Section 6656.7 provides the procedure for penalizing and the potential penalties for non-compliant covered entities. This section details the steps that will be taken if non-compliance is suspected. These steps include a preliminary determination of non-compliance, a corrective action period, the filing, review and acceptance of a corrective action plan, the ramifications of a failure to cure the non-compliance issues and the appeal procedure.

Revised rule compared with proposed rule:

Substantial revisions were made in sections 6656.1, 6656.2, 6656.3, 6656.4, 6656.5, 6656.6 and 6656.7.

Text of revised proposed rule and any required statements and analyses may be obtained from

Stephen Syzdek, Office for the Aging, 2 Empire State Plaza, Albany, NY 12223, [phone], email: [e-mail]

Data, views or arguments may be submitted to:

Same as above.

Public comment will be received until:

30 days after publication of this notice.

Revised Regulatory Impact Statement

1. Statutory Authority – Section 201(3) of the New York State Elder Law allows the Director of the New York State Office for the Aging with the advice of the advisory committee for the aging to promulgate, adopt, amend or rescind rules and regulations necessary to carry out the provisions of Article II of the Elder Law.

Governor Cuomo's Executive Order #38 directs each state agency to promulgate regulations to address the extent and nature of administrative costs and executive compensation that providers of NYSOFA programs are reimbursed with State financial assistance or State-authorized payments for operating expenses.

2. Legislative Objectives – It is the objective of the New York State Legislature to ensure that NYSOFA administer programs and utilize program funds in the most effective and efficient manner possible for the benefit of older New Yorkers. This proposed regulation seeks to meet that legislative objective.

3. Needs and Benefits – The New York State Office for the Aging 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. It is imperative that New York State and the New York State Office for the Aging ensure that state funds and state authorized funds are optimized for the purpose of providing services to those individuals who are in need of them. Applying state funds and state authorized funds primarily to providing direct care and services helps to guarantee that such funds are providing the greatest benefit to older New Yorkers. These regulations, which are required by Executive Order No. 38, will ensure that State funds or State-authorized payments paid by the New York State Office for the Aging to providers are used predominantly to provide direct care and services to older New Yorkers.

4. Costs – The costs of implementing this rule to affected providers is anticipated to be minimal since 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 implementation are expected to be very limited as well, and efforts to ensure efficient centralization of certain aspects of such implementation are underway.

5. Paperwork – 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.

6. Local Government Mandates – The proposed rule does not impose any new program, service, duty or responsibility upon any city, county, town, village, school district or other special district.

7. 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.

8. Alternatives – Executive Order #38 and Executive Order #43 requires the adoption of this proposed regulation.

9. Federal Standards – This rule does not exceed Federal standards.

10. Compliance Schedule – The rule will become effective upon adoption. The implementation date establishing the limits on administrative expenses and executive compensation will be April 1, 2013.

Revised Regulatory Flexibility Analysis and Rural Area Flexibility Analysis

The Office for the Aging has determined that changes made to the last published rule do not necessitate revision to the previously published Regulatory Flexibility Analysis and Rural Area Flexibility Analysis.

Revised Job Impact Statement

The New York State Office for the Aging has determined that this proposed rule will not have a substantial adverse impact on jobs. This proposed rule is designed to address executive compensation and administrative costs of those providers of program services that receive State fund or State-authorized payments paid by the New York State Office for the Aging.

Assessment of Public Comment

A Notice of Proposed Rule Making was published in the State Register on May 30, 2012.

All comments received were reviewed and evaluated. Many of the concerns expressed in the comments have been addressed by revisions to the various sections of the proposed regulation. Suggestions from others were determined to be contrary to the goals of the proposed rulemaking.

A number of comments objected generally to the underlying concept of the regulations, stating that the proposed regulation is overly broad in its authority and burdensome in its requirements. The Office for the Aging believes that the proposed limitations in the regulation further the legitimate goal of ensuring that public funds are properly expended and the use of such funds is properly monitored.

Clarification was requested concerning certain defined terms in the proposed regulation, in particular with respect to their intended scope. In response, and taking into account suggestions submitted, changes were made to the definitions of the following terms: administrative expenses, covered provider, covered executive, executive compensation, program services expenses, related entity, State-authorized payments and State funds.

Some commenters stated that the proposed limits on administrative expenses were burdensome and unnecessary, because they would interfere with existing contracts, because they were possibly duplicative of existing state and federal rules, or they will not enhance the protections already provided by restrictions from State reimbursement rates. Clarification was requested as to what will constitute administrative and program expenses. The proposed regulation has been revised to incorporate an allocation methodology for these two expenses.

There were a wide range of comments and suggestions on the definition of "executive compensation." They covered such topics as: (a) general concerns about application of the definition, (b) exclusions, (c) limitations and application of the definition, and (d) suggestions about surveys and their use. A summary of the comments and suggestions follows:

(a) General concerns regarding the regulation include that it: is too broad since it regulates use of funding sources not emanating from the state; is unrealistic, problematic and intrusive to operations; will adversely affect candidate pools, incumbents, service delivery and the ability of providers to meet the challenges and changes in the health care system; is intrusive to the for-profit sector where executive compensation is a private matter; is faulty in that it will institutionalize abuses through comparability data; and is duplicative as executive compensation is already controlled at the State and federal levels through rate setting, IRS rules and reporting, and the Not-For-Profit Corporation Law. Other comments stated that the regulation would encroached on the State Attorney General's regulation and enforcement; is arbitrary in its establishment of the thresholds of $500,000 and 30%; was exclusive of larger corporations; and inappropriately used a percentile standard that will gradually diminish compensation levels and lead to the existence of two levels of compensation. Commenters also suggested that covered providers subject to penalty should be allowed to submit documentation in advance of penalty review.

(b) Other comments focused on exclusions for not-for-profits and for not-for-profit long term care and senior services providers and an elimination of the 75th percentile threshold.

(c) Still other letters related to limitations and application of the definition of "executive compensation." They suggested that executive compensation rules should only be applied to non-State funds or to State and State-authorized funds. The applicability of the rules with regard to contributions of other non-covered entities should be clarified. Also, letters received argued that the period covered by the limits on executive compensation should not begin on January 1, 2013, the executive compensation limits should be revisited periodically to adjust for changes, and the role of executives in the assurance of program services should be recognized.

(d) Commenters recommended several approaches to determining reasonable compensation, such as the use of recognized surveys or independent commissioned surveys or identification and recognition of specific compensation surveys to establish comparisons. It was suggested that surveys should allow for regional and geographic variations. Further, commenters suggested that the regulation also should address instances where a board or governing body does not exist.

The regulation was revised to address the comments on: the period to be covered by the limits on executive compensation, an annual review of the $199,000 cap and the adjustment thereof, the consideration of the availability of a governing body as alternate to the covered provider's board of directors, the submission of contemporaneous (but not prospective) documentation for penalty review, the recognition of supervisory services of executives as program services, the allocation methodology for reporting administrative and program service costs, the recognition of specific clinical and program personnel as providers of program services, and a method for subcontractors to be advised of the receipt of State or State-authorized funds from a covered provider.

The regulation was not revised to limit the rule to non-State funds, to exclude for-profits from being covered by the regulations, or to alter the 75th percentile threshold because these revisions would compromise the goal of the regulation. Eliminating the executive compensation requirements would eviscerate one of the key objectives of the executive order: limiting the extent of such compensation paid by covered providers that rely to a significant degree upon public funds for their program and administrative services funding. The Office for the Aging is proposing to adopt this 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 taxpayer dollars are used properly, efficiently and effectively to improve the lives of New Yorkers. In certain instances, service providers 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 provide a benchmark to 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. In part because of the funding of resources, their restriction is necessary to accomplish these objectives.

Some comments stated that the proposed waiver process is overly complex and lacking objective criteria. The revised regulation provides greater flexibility in the filing of a waiver application and also has pushed back the implementation date.

Comments received also criticized the proposed reporting requirements suggesting that they require providing information related to administrative and program expenses in a manner inconsistent with other current reporting obligations. The regulation has been amended to conform some of the requirements to those with which many covered providers must already comply, including provisions incorporating the definitions applicable with non-profits under the IRS Code.

Other submissions asked when penalties for excess compensation would be assessed, what the type of penalties would be imposed, and about the level of severity.

Commenters also requested details on the criteria for making penalty determination.

Changes have been made to the Penalties section in the revised text, including extending the time for submissions, a corrective action plan (CAP) and a request for an administrative appeal to 30 calendar days.

The full Assessment of Comments is available on the Office for the Aging website at www.aging.ny.gov