Home » 2013 Issues » May 29, 2013 » HLT-22-12-00012-A Limits on Executive Compensation and Administrative Expenses in Agency Procurements
HLT-22-12-00012-A Limits on Executive Compensation and Administrative Expenses in Agency Procurements
5/29/13 N.Y. St. Reg. HLT-22-12-00012-A
NEW YORK STATE REGISTER
VOLUME XXXV, ISSUE 22
May 29, 2013
RULE MAKING ACTIVITIES
DEPARTMENT OF HEALTH
NOTICE OF ADOPTION
I.D No. HLT-22-12-00012-A
Filing No. 517
Filing Date. May. 14, 2013
Effective Date. Jul. 01, 2013
Limits on Executive Compensation and Administrative Expenses in Agency Procurements
PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:
Action taken:
Addition of Part 1002 to Title 10 NYCRR.
Statutory authority:
Social Services Law, section 363-a(2); Public Health Law, sections 201(1)(o), (p), 206(3) and (6); and Not-For-Profit Corporation Law, section 508
Subject:
Limits on Executive Compensation and Administrative Expenses in Agency Procurements.
Purpose:
Ensure State funds and State authorized payments are expended in the most efficient manner and appropriate use of funds.
Substance of final rule:
The revised rule would add a new Part 1002 to 10 NYCRR titled Limits on Administrative Expenses and Executive Compensation.
There has been a minor change to the proposed regulation as follows:
Edit to the definition of Executive Compensation in Section 1002.1(g) and a clarification in provision on Limits on Executive Compensation in Section 1002.3.
Section 1002.1 Contains definitions for purposes of this Part, including definitions for administrative expenses, covered operating expenses, covered executive, covered provider, executive compensation, program services, program services expenses, related organization, reporting period, State-authorized payments, and State funds. The regulations have been amended since the last Notice of Revised Rulemaking to specifically include those providing early intervention services among the defined “covered providers.”
Section 1002.2 Limits on Administrative Expenses. Contains limits on the use of State funds or State-authorized payments for administrative expenses.
The restriction will apply to subcontractors and agents of covered providers which meet the specified criteria.
The restriction will apply to covered providers receiving State funds or State-authorized payments from county or local governments, rather than directly from a State agency, pursuant to specified criteria.
The revised regulation addresses how the restriction will apply in the event that a covered provider has multiple sources of State funds or State-authorized payments.
Section 1002.3 Limits on Executive Compensation. Contains restrictions on executive compensation provided to covered executives.
The restriction will apply to subcontractors and agents of covered providers which meet the specified criteria.
The restriction will apply to covered providers receiving State funds or State-authorized payments from county or local governments, rather than directly from a State agency, pursuant to specified criteria.
The revised rule addresses the application of this limit if the covered provider has multiple sources of State funds or State-authorized payments.
Section 1002.4 Waivers. Processes are established for covered providers to seek waivers of the limit on administrative expenses and the limits on executive compensation.
Section 1002.5 Reporting by Covered Providers. Covered providers are required to report information on an annual basis for each covered reporting period.
Section 1002.6 Penalties. A process is established for the imposition of penalties in the event of non-compliance with the limit on administrative expenses or the limits on executive compensation.
A copy of the full text of the regulatory proposal is available on the Department of Health website (www.health.ny.gov).
Final rule as compared with last published rule:
Nonsubstantive changes were made in sections 1002.1(g) and 1002.3(b)(2).
Revised rule making(s) were previously published in the State Register on
April 10, 2013 and March 13, 2013.
Text of rule and any required statements and analyses may be obtained from:
Katherine Ceroalo, DOH, Bureau of House Counsel, Reg. Affairs Unit, Room 2438, ESP Tower Building, Albany, NY 12237, (518) 473-7488, email: regsqna@health.state.ny.us
Revised Regulatory Impact Statement
Changes made to the last published rule do not necessitate revision to the previously published Regulatory Impact Statement (“RIS”) for the proposed new Part 1002.
The revisions to the last published rule merely provide clarifications in the text and correct technical errors (i.e., grammar), which requires no change to the Regulatory Impact Statement.
Revised Regulatory Flexibility Analysis
Changes made to the last published rule do not necessitate revision to the previously published Regulatory Flexibility Analysis for Small Businesses and Local Governments (“RFASBLG”) for the proposed new Part 1002.
The revisions to the last published rule merely clarify the text and correct technical errors (i.e., grammar), which requires no change to the Regulatory Flexibility Analysis for Small Businesses and Local Governments.
Revised Rural Area Flexibility Analysis
Changes made to the last published rule do not necessitate revision to the previously published Rural Area Flexibility Analysis (“RAFA”) for the Third Amendment to the proposed new Part 1002.
The revisions to the last published rule merely clarify the text and correct technical errors (i.e., grammar), which requires no change to the Rural Area Flexibility Analysis.
Revised Job Impact Statement
Changes made to the last published rule do not necessitate revision to the previously published Job Impact Statement (“JIS”) for the proposed new Part 1002.
The revisions to the last published rule merely clarify the text and correct technical errors (i.e., grammar), which requires no change to the Job Impact Statement.
Assessment of Public Comment
The Department published a Second Notice of Revised Rulemaking on March 13, 2013 for the addition of a new Part 1002 to 10 NYCRR, and a Third Notice of Revised Rulemaking for the proposed regulations on April 10, 2013. This Assessment of Public Comment addresses comments received for both Notices.
Comment: The revised regulations clarify many aspects of the regulations as previously proposed, but do not alter the basic potentially counterproductive framework previously proposed.
Response: The regulations have been amended to provide additional clarity, and to accommodate different reporting periods and business structures. The proposed regulations are structured to address the underlying policy concerns while minimizing burdens on affected entities. The Department intends to work with other state agencies and with the affected community to minimize any burdens or confusion, to enhance the ability to continue providing high quality service and to enhance consistent implementation of the rules across all entities.
Comment: The revised effective dates should be further extended to allow nonprofits time to come into compliance, and to allow the Division of the Budget to identify, provide, or recognize relevant compensation surveys. The proposed grandfathering of contracts remains insufficient. The current effective date, and proposed waiver application deadlines, make it difficult for a nonprofit to know whether it should seek a waiver or whether it should address excess compensation in the event a waiver is denied. A nonprofit's ability to recoup excess compensation, if necessary in light of a waiver denial, is limited as both a practical and a legal matter. The effective date of the compensation provisions should be tied to the organization’s first reporting period six months after the later of (1) publication of the final regulations or (2) identification by the appropriate state agency and the Director of the Division of the Budget of compensation surveys for the same program service sector and the same or comparable geographic area.
Response: Providers have been aware of the proposed regulations for a substantial period. They have had an opportunity to consider measures to facilitate compliance, including adding provisions to their employment contracts to provide for adjustments, if needed. Further, the regulations have been changed to accommodate providers having different fiscal years, thereby facilitating compliance, and making it easier for waiver applications to make use of more reliable financial information. A covered provider that faces an obstacle to compliance with the executive compensation restrictions may request a waiver.
Prior to the effective date, guidance will be provided regarding acceptable surveys and comparability factors that must be taken into consideration for determining compensation, and additional information regarding how this information will be identified, provided or recognized will also be provided.
After the delay in the effective date contained in the most recent revisions to the regulations, the Department does not believe that further delay of the effective date is necessary or warranted.
Comment: Some commenters noted that the changes to the regulations have addressed many of their previously expressed concerns.
Response: The Department confirms that public comments were taken into account in developing and amending the proposed regulations.
Comment: The regulations should allow entities to rely upon executive compensation committees, and to delegate decisions regarding executive compensation to such committees. The ability to do so is recognized under federal regulations and the State’s Not-for-Profit Corporations Law. Not allowing the use of such committees under the proposed State regulations will require affected nonprofits to materially alter their procedures with respect to review and approval of executive compensation.
Response: The regulation has been modified in response to public comment.
Comment: It remains unclear whether public benefit corporations are within the definition of “covered provider.” The failure to treat provider systems as a single entity for purposes of applying the “covered provider” definition is similarly problematic.
Response: The regulation was revised to provide additional clarity with regard to the definition of “covered provider.”
Comment: One commenter criticized the absence of revisions to the previously-issued Regulatory Flexibility Analysis with respect to small businesses.
Response: The Department believes that, given the nature of the rule and its expected impacts, the assessment documents comply with the State Administrative Procedures Act.
Comment: The revised effective dates as reflected in the 2d Notice of Revised Rulemaking should be revised to July 1, 2015 for all providers, regardless of whether compensation is being paid pursuant to an existing contract. Doing so would treat all providers equally, and would allow providers to pursue a waiver prior to when the limits become effective.
Response: Timeframes were modified in the previous version and remain unchanged in the adopted text. The regulations as currently proposed recognize that some entities may be bound by existing contracts or be subject to different fiscal years.
Comment: The regulations as revised define “executive compensation” differently than the IRS.
Response: The Department is aware that there are differences between the IRS rules and the revised regulations. While the Department has tailored these regulations to the IRS rules where appropriate, certain important differences remain to provide additional and more effective restrictions on the use of funds for excessive compensation.
Comment: The revisions do not address the treatment of individual cost-sharing and applied income amounts, or monies received by “downstream” providers, particularly from managed care plans, under the definition of “state funds” and “state authorized payments.”
Response: The regulations were revised, as reflected in the Second Notice of Revised Rulemaking, to clarify the treatment of health insurance premiums, including SSI. The Department declines to further revise the regulation, and revisions consistent with what was requested would frustrate the underlying policy goals of the regulation.
Comment: The sentence added to section 1002.2(e) of the regulations, as revised pursuant to the 2nd Notice of Proposed Rulemaking, which provides that “However, the definition and interpretation of terms in this Part shall not be affected or limited by the definition or interpretation of terms in other regulations or agreements”, will result in overly restrictive and duplicative limits. The provision should be sufficient without the addition of the new final sentence.
Response: The language does not result in duplicative terms, nor does it result in limitations more stringent than the greater of those imposed by these regulations or the other relevant contract, grant or other agreement. The additional sentence, by its terms, clarifies that the interpretation of these regulations, and the definitions contained in them, control with regard to their application, notwithstanding that other regulations may define or interpret similar terms differently for purposes of those other regulations.
Comment: The regulations as revised continue to provide insufficient protection for private/proprietary information.
Response: The regulations specifically acknowledge that submissions may be exempt from release under FOIL. Since materials cannot be made confidential for FOIL purposes by regulation, the regulation could not be amended to authorize additional exclusions. If some information provided is legitimately confidential under FOIL exceptions, the Department will treat it appropriately provided the submitting entity identifies it as such upon submission. The Department declines to amend the regulation to provide that such information is confidential in all cases, as such determinations are made on a case by case basis under FOIL.
