OMH-22-12-00019-RP Limits on Administrative Expenses and Executive Compensation

3/13/13 N.Y. St. Reg. OMH-22-12-00019-RP

NEW YORK STATE REGISTER

VOLUME XXXV, ISSUE 11

March 13, 2013

RULE MAKING ACTIVITIES

OFFICE OF MENTAL HEALTH

REVISED RULE MAKING

NO HEARING(S) SCHEDULED

 

I.D No. OMH-22-12-00019-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 513 to Title 14 NYCRR.

Statutory authority:

Mental Hygiene Law, sections 7.09, 7.15(a) and (b), 31.04, 31.05(a), 41.03, 41.15, 41.18, 41.44 and 43.02; Executive Order No. 38; and Not for Profit Corporation Law, section 508

Subject:

Limits on Administrative Expenses and Executive Compensation.

Purpose:

To implement Executive Order No. 38 to limit administrative expenses and executive compensation of providers of services.

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 of Mental Health 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 persons in New York State who are in need of mental health services. These regulations, which are required by Executive Order No. 38, will ensure that State funds or State-authorized payments paid to providers of services by the New York State Office of Mental Health are used predominantly to provide direct care and services to persons in need of mental health services.

The New York State Office of Mental Health has twice previously proposed a new 14 NYCRR Part 513 titled Limits on Administrative Expenses and Executive Compensation. After receiving and reviewing public comment on the most recently proposed rule, the New York State Office of Mental Health is now issuing a revised rule titled Limits on Administrative Expenses and Executive Compensation as follows:

Section 513.1 provides the background and intent of the revised rule, which is to implement Executive Order No. 38, issued by Governor Andrew Cuomo on January 18, 2012.

Section 513.2 sets forth the statutory authority for the promulgation of the rule by the Office of Mental Health (hereinafter the “Office”), including a new reference to Section 508 of the Not-For-Profit Corporation Law.

Section 513.3 contains definitions for purposes of this Part, including revised definitions of administrative expenses, covered executive, covered provider, executive compensation, program services expenses, reporting period, State-authorized payments and State funds, and a new definition of covered reporting period.

Section 513.4 contains limits on the use of State funds or State-authorized payments for administrative expenses. The revised regulation provides that both the restriction and the reporting requirements in section 513.7 will apply to subcontractors and agents of covered providers which meet the specified criteria, but that a covered provider will not be held responsible for a subcontractor’s or agent’s failure to comply. The regulation also addresses the responsibility of the Office or its designee to obtain reporting and compliance from covered providers receiving State funds or State-authorized payments from county or local governments or entities contracting on their behalf, and how the restriction will apply in the event that a covered provider has multiple sources of State funds or State-authorized payments.

Section 513.5 contains limits on executive compensation provided to covered executives. The revised regulation provides that both the restriction and the reporting requirements in section 513.7 will apply to subcontractors and agents of covered providers which meet the specified criteria, but that a covered provider will not be held responsible for a subcontractor’s or agent’s failure to comply. The regulation also addresses the responsibility of the Office or its designee to obtain reporting and compliance from covered providers receiving State funds or State-authorized payments from county or local governments or entities contracting on their behalf, and how the restriction will apply in the event that a covered provider has multiple sources of State funds or State-authorized payments.

Section 513.6 sets forth the process and criteria for covered providers to seek waivers of the limit on administrative expenses and the limits on executive compensation. The revised regulation provides that applications for waiver must be filed no later than concurrent with the timely submission of the covered provider’s E.O. 38 Disclosure Form pursuant to section 513.7 for the reporting period for which the waiver is requested.

Section 513.7 specifies the annual reporting requirements for covered providers, revising the submission date for the E.O. 38 Disclosure Form to no later than one hundred eighty (180) days following the reporting period, unless otherwise authorized.

Section 513.8 establishes the process for the imposition of penalties in the event of non-compliance with the limit on administrative expenses or the limits on executive compensation.

The complete text of the regulatory proposal is available at: http://www.omh.ny.gov/omhweb/policy_and_regulations/.

Revised rule making(s) were previously published in the State Register on

October 31, 2012.

Revised rule compared with proposed rule:

Substantial revisions were made in Part 513.

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

Sue Watson, NYS Office of Mental Health, 44 Holland Avenue, Albany, NY 12229, [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: Sections 7.09 and 31.04 of the Mental Hygiene Law grant the Commissioner of the Office of Mental Health the power and responsibility to adopt regulations that are necessary and proper to implement matters under his or her jurisdiction, and to set standards of quality and adequacy of facilities, equipment, personnel, services, records and programs for the rendition of services for adults diagnosed with mental illness or children diagnosed with emotional disturbance, pursuant to an operating certificate.

Section 7.15(a) of the Mental Hygiene Law charges the Commissioner with the responsibility for promoting, establishing, developing, coordinating and conducting programs and services for the benefit of persons with mental illness within the funding available for such purposes.

Section 7.15(b) of the Mental Hygiene Law provides the Commissioner with the authority to cooperate and enter into agreements with other state, local and federal departments or agencies in fulfilling his or her responsibilities.

Section 31.05(a) of the Mental Hygiene Law establishes the criteria for the issuance of an operating certificate, including that the premises, equipment, personnel, records, and program are adequate and appropriate to provide services for persons with mental illness.

Section 41.03 of the Mental Hygiene Law provides that the meaning of operating costs shall be in accordance with and subject to the regulations of the Commissioner of Mental Health.

Sections 41.15 and 41.18 of the Mental Hygiene Law provide that the Commissioner of Mental Health has the authority to approve the net operating costs of programs incurred pursuant to an approved local services plan that are eligible for state aid.

Section 41.44 provides that the Commissioner may provide state aid to local governments and to voluntary agencies within amounts available therefor and subject to regulations established by him or her.

Section 43.02 of the Mental Hygiene Law provides that the Commissioner has the power to establish standards and methods for determining rates of payment made by government agencies pursuant to Title 11 of Article 5 of the Social Services Law for services, other than inpatient services, provided by facilities, including hospitals, licensed by the Office of Mental Health.

Section 43.02(b) of the Mental Hygiene Law requires operators of facilities licensed by the Office of Mental Health to furnish such financial, statistical and program information as the Commissioner may determine to be necessary.

Executive Order No. 38 directs the Commissioner of each Executive State Agency that provides State financial assistance or State-authorized payments to providers of services, including the Office of Mental Health, to promulgate regulations and take any other actions within the agency’s authority, including amending agreements with such providers, to address the extent and nature of a provider’s administrative costs and executive compensation that shall be eligible to be reimbursed with State financial assistance or State-authorized payments for operating expenses. Executive Order No. 43 extends the time for agencies to comply with Executive Order No. 38.

Section 508 of the Not-For-Profit Corporation Law provides that a corporation whose lawful activities involve among other things the charging of fees or prices for its services or products shall have the right to receive such income and, in so doing, may make an incidental profit but that all such incidental profits must be applied to the maintenance, expansion or operation of the lawful activities of the corporation, and in no case shall be divided or distributed in any manner whatsoever among the members, directors, or officers of the corporation.

2. Legislative Objectives: Article 7 of the Mental Hygiene Law provides that the Office of Mental Health and its Commissioner shall plan and work with local governments, voluntary agencies and all providers and consumers of mental health services in order to develop an effective, integrated, comprehensive system for the delivery of all services to persons with mental illness and to create financing procedures and mechanisms to support such a system of services to ensure that persons with mental illness in need of services received appropriate care and treatment.

This regulation serves to comply with Executive Order No. 38 and furthers the legislative policy of providing high quality mental health services to individuals with mental illness in a cost-effective manner.

3. Needs and Benefits: The Office of Mental 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. The goal of this regulation 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.

4. Costs:

(a) cost to State government: The costs to State government are expected to be very limited, and efforts to ensure efficient centralization of certain aspects of such implementation are underway.

(b) cost to local government: There are no costs anticipated to local government.

(c) cost to regulated parties: The costs to regulated parties are 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.

5. Local Government Mandates: These regulatory amendments will not result in any additional imposition of duties or responsibilities upon county, city, town, village, school or fire districts.

6. 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.

7. Duplication: The 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: No alternatives were considered. Executive Order No. 38 requires the adoption of this proposed regulation.

9. Federal Standards: The regulatory amendments do not conflict with 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 July 1, 2013.

Revised Regulatory Flexibility Analysis

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

Revised Rural Area Flexibility Analysis

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

Revised Job Impact Statement

A Revised 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.

Assessment of Public Comment

A Notice of Revised Rule Making was published in the State Register on October 31, 2012. The Office of Mental Health (OMH) received comments associated with the revised rule making during the public comment period. The issues and concerns raised in the comments are fully set forth in OMH’s Assessment of Public Comments, which is available at OMH’s website at www.omh.ny.gov/omhweb/policy_and_regulations/, and have been grouped according to the part of the revised proposed rule they address. Because many commenters addressed concerns that applied to all of the agencies that proposed regulations to implement Executive Order 38 (the “Participating Agencies”), the responses to comments provided by each of those agencies are incorporated by reference into OMH’s responses. OMH’s response is provided for each issue or concern.

Commenters objected to the intended scope of the regulations, as well as to the applicability of the regulations to specific payment streams, such as State funds (as opposed to State-authorized payments) and payments through municipal or county contracts. OMH believes that the scope and applicability of the regulations is appropriate to address the targeted problems of excessive administrative costs and inflated compensation.

Clarification was requested concerning certain defined terms in the proposed regulation. In response, and taking into account suggestions submitted, changes were made to the definitions of the following terms: administrative expenses, covered executive, covered provider, executive compensation, program services expenses, reporting period, State-authorized payments and State funds. For purposes of determining whether an entity or individual is a covered provider, each quantitative threshold is now based on the covered reporting period and the year prior to the covered reporting period. A new definition was added for covered reporting period.

Some commenters stated that the proposed limits on administrative expenses were burdensome and unnecessary, could interfere with effective and efficient administration of covered providers, and could result in underinvestment in organizational growth. Commenters were concerned that the revised regulations create complicated new definitions and reporting requirements which could significantly increase administrative costs. Commenters requested that the State periodically re-evaluate the impact of the limitation on administrative expenses to guard against these and other adverse effects. With respect to executive compensation, commenters expressed concern that the $199,000 salary cap and 75th percentile limitation will adversely affect providers’ ability to recruit quality leadership and will eventually depress the maximum salary permitted under the regulations.

OMH believes that the limits in the regulations provide a necessary and appropriate benchmark to ensure that State funds or State-authorized payments paid by OMH to providers are not used to support excessive compensation or unnecessary administrative costs. The Participating Agencies and the Division of the Budget (DOB) plan to monitor and assess the impact of the regulations and make periodic adjustments as needed. In addition, the Participating Agencies will maintain online guidance to assist providers in complying with the new regulations.

Numerous comments concerned the availability and identification of acceptable compensation surveys on which providers could rely. The Participating Agencies are developing with DOB a list of acceptable compensation surveys.

The effective dates of provisions in the proposed regulations have been revised to clarify: (a) covered reporting period; (b) submission of waiver applications regarding executive compensation; (c) submission of waiver applications regarding administrative expenses; and (d) reporting periods.

The full Assessment of Comments is available on the OMH website at: www.omh.ny.gov/omhweb/policy_and_regulations/.