1. COMPANIONSHIP EXEMPTION & EXECUTIVE ORDER 38
Philip Rosenberg
Home Care Association of New York State
December 4, 2013

2. History of EO 38 Rules
August 2, 2011: NY Times article profiling abusive compensation practices of developmental disability provider participating in the Medicaid Program.
August 3, 2011: Governor Cuomo creates a task force to investigate compensation levels at not-for-profit entities that receive taxpayer support from the State.
August 25, 2011: The task force sends letters to not-for-profit organizations requesting that they respond to questions about their compensation practices.

3. History (cont’d)
January 17, 2012: Governor Cuomo releases his Executive Budget that includes the following:
Requires at least 85% of every public dollar be spent on direct services;
Caps reimbursement for executive compensation at $199k;
Allows for excess compensation to be a basis to reject a provider.
January 18, 2012: Governor Cuomo signs Executive Order 38. It requires 13 state agencies (including DOH) to promulgate regulations within 90 days.

4. History (cont’d)
March 2012: The Legislature approves the budget without the proposed limits on administrative costs and executive compensation.
April 2012: Governor Cuomo signs Executive Order 43 which extends Executive Order 38.
May 30, 2012: Proposed Regulations are released.
October 31, 2012: Proposed Regulations are revised
March 13, 2013: Proposed Regulations are revised again.
April 10, 2013: Proposed Regulations are revised again.

5. History (cont’d)
May 29, 2013: Final Regulations are released under NYCRR Part 1002
June 2013: “Preliminary Guidance,” in the form of a page document, is released. See

6. EO Rules have Two Parts:
Limits on Executive Compensation
2. Limits on “Administrative Expenses”

7. IS THE ENTITY A COVERED PROVIDER?
Question Numero Uno:
IS THE ENTITY A COVERED PROVIDER?

8. $500k/30% Test
1. Did the entity receive an average amount of more than $500,000 in State Funds (“SFs”) or State Authorized Payments (“SAPs”) in the covered reporting period and the year prior to the covered reporting period? AND 2. Does at least 30% or more of the entity’s annual in-state revenues in the covered reporting period AND the year prior to the covered reporting period come from SFs or SAPs.

13. What happens if the entity is a Covered Provider?
If the entity is a Covered Provider, it must comply with the Executive Compensation and Administrative Expense Limitations.

14. Executive Compensation Limit: No. 1 Limit on Use of SFs /SAPs
Executive Compensation is limited to $199,000 per year if SF or SAP is used to pay the compensation.
Note: When a Provider submits its EO 38 Disclosure Form, the Provider must demonstrate that it did not use more than $199k in SF/SAP to provide Executive Compensation to any Covered Executive during the Covered Reporting Period.

15. Who is an Executive? AND What is covered compensation?
Elements
Who is an Executive? AND What is covered compensation?

16. Covered Executives
Covered Executive = A compensated Director, Trustee, Managing Partner or Officer whose salary/benefits are administrative expenses and any Key Employee whose salary and/or benefits are administrative expenses and whose compensation exceeds $199, Clinical and program personnel are exempt 2. If the number of Key Employees exceeds 10, count only the top 10 paid employees

17. Covered Executives: Exclusions
Clinical and program personnel (e.g. nursing directors) are excluded as Covered Executives.
The Preliminary Guidance also provides that compensation paid to non-clinicians may be excluded to the extent the compensation is paid to the executive to render program services.
Program services are those services rendered by a Covered Provider to the public.

18. Imputed Covered Executives: Related Organizations
If a Covered Provider pays a Related Organization to perform administrative or program services and if more than 30% of the Related Organization’s executive(s)’ covered compensation is derived from SFs or SAPs, the Related Organization's executive(s) shall be considered covered executive(s) of the Covered Provider.

19. What is a Related Organization?
Defined under the IRS Rules
Generally a RO includes:
Parent
Subsidiary
Brother/sister organization
Supported or supporting organization under 509(a)(3) of the Tax Code

20. Subcontractors
The compensation limits shall apply to a subcontractor/agent if the subcontractor/agent would meet the definition of a covered provider but for the fact that it has received SF or SAPs from the covered provider rather than directly from the State.

21. What kind of compensation do you count?
Salary
Bonuses
Dividends
Distributions
Perks (cars, housing, personal travel expenses)
Contributions to Executive Compensation Deferral Comp Plans

22. What Is Executive Compensation?
Executive compensation includes all forms of cash and noncash payments or benefits given directly or indirectly to a covered executive, including but not limited to salary and wages, bonuses, dividends, distributions to a shareholder/partner from the current reporting period’s earnings where such distributions represent compensatory or guaranteed payments or compensatory partnership profits allocation or compensatory partnership equity interest for services rendered during such reporting period, and other financial arrangements or transactions such as personal vehicles, housing, below-market loans, payment of personal or family travel, entertainment, and personal use of the organization’s property, reportable on a covered executive’s W-2 or 1099 form, except that mandated benefits (e.g., Social Security, worker’s compensation, unemployment insurance and short-term disability insurance), and other benefits such as health and life insurance premiums, and retirement and deferred compensation plan contributions that are consistent with those provided to the covered provider’s other employees shall not be included in the calculation of executive compensation…

26. What kind of Compensation is Excluded?
Mandated benefits
Certain other benefits that are provided to the Covered Provider’s other employees.

27. Executive Compensation Limit No
Executive Compensation Limit No. 2 Limit on Compensation funded by all Sources
If a covered provider pays a covered executive more than $199,000 from All Sources (including SFs and SAPs but also other sources), then…
The compensation may not exceed the 75th percentile of compensation paid to comparable executives, AND
The compensation must be reviewed and approved by the provider’s governing body (which must include two independent members) OR
The agency must obtain a waiver

28. Comparability
Comparability may be determined based on an existing compensation survey. Alternatively a covered provider may conduct its own compensation survey.

29. Comparability Factors
The Guidance lists Comparability Factors
The Factors include similarity to other organizations with respect to the following:
Types of services
Scope of services
Annual budget
Number of employees
Geographic region
Similarity to other executives in education, skills, tenure, experience, work schedule and performance

30. Board or Board Committee must consider the comparability information in assessing reasonableness of compensation.

31. Waiver Process
Identify executive, compensation and comparable compensation.
Explain reason for the waiver
Describe the extent to which the organization may be unable to provide Program Services at current levels without exceeding the executive compensation limit.
Describe compensation review process
List qualifications of executive
Discuss recruiting alternatives

32. Waiver Process
Waiver is due no later than 180 days following the Provider’s reporting period.
May apply at any time in advance of submission if it anticipates exceeding executive compensation limits.
Waiver form is online.
Waiver is typically for one year unless a longer period is granted upon a showing for good cause.

33. Waiver Timing
Unless additional information has been requested, DOH is required to make a decision within 60 days after the submission of the waiver application.

34. Waiver Appeal
If the waiver is denied, an applicant may request a reconsideration hearing within 30 days.

35. ADMINISTRATIVE EXPENSE LIMITATIONS

36. Limits on Administrative Expenses
For covered reporting periods beginning on or after July 1, 2013 to June 30, 2014, no more than 25% of a covered provider’s covered operating expenses paid for with SFs or SAPs may be administrative expenses.

37. Limits on Administrative Expenses
: NO MORE THAN 20%
2015+:
NO MORE THAN 15%

38. Covered Operating Expenses Administrative Expenses Program Services Expenses

39. Administrative Expenses are costs incurred
Administrative Expenses are costs incurred in connection with overall management and overhead, including:
Accounting
Personnel
Billing
Management

40. Administrative Expenses
Administrative Expenses do NOT include:
Capital expenses
Property rentals, mortgage or maintenance
Taxes or payments in lieu of taxes
Equipment rental, depreciation interest expenses
Non-recurring or unanticipated expenses greater than $10k (e.g., litigation)
Salaries/benefits of staffing performing research

41. Program Services Expenses are:
Those expenses authorized and allowable under the rules that govern reimbursement with SFs or SAPs that are incurred in connection with the provision of program services.
Examples:
Salaries/benefits of staff providing particular program services and supervisory personnel whose work is attributable to a specific program
Salaries/benefits of Q/A personnel
Expenses incurred in connection with a particular program (e.g. travel to a patient’s home)

47. EO 39 Disclosure Form

48. EO 38 Disclosure Form Due within 180 days after the reporting period.
Form not yet finalized

49. Notice of Non-Compliance
If the provider fails to submit the required form or it is determined that the provider is out of compliance, the provider will receive a Notice of Determination of Non-Compliance.
Provider may submit additional information within 30 days of receipt of the Notice.
If no submission, the Notice is final. If provider submits information, a determination will be made after review.

50. Corrective Action
After final Notice of Non-Compliance, the provider will have an opportunity to cure.
Provider must submit a Corrective Action Plan
The CAP may be accepted or modified by Agency.

51. Notice of Failure to Cure
If it is determined that the CAP is not fully implemented, the provider will receive a Notice of Failure to Cure.
The Notice may include a Notice of Sanction Due to Non-Compliance.

52. Sanctions Redirection of SF/SAP from Program Services
Suspension, modification, limitation or revocation of provider’s license.
Suspension, modification, limitation or revocation of contracts.
Any other lawful actions or penalties

53. Appeal

54. Will the Rules under EO 38 really go into Effect?
Said another way, do you really need to worry about EO 38?

55. At the moment…YES! (i.e., You need to worry.)

56. But…
There are Challenges to the Constitutionality of EO38 in Suffolk County and Albany County

57. Prepare
In the meantime, pay attention to your obligations under the EO 38 Rules

58. Consider Your Options under the EO38 Rules