After withdrawing nearly identical proposed legislation one day
earlier, on January 18, 2012, New York Governor Andrew Cuomo issued
an Executive Order directing certain New York
State agencies, including the Department of Health, to promulgate
regulations that limit the compensation of executives of entities
that receive state funding or payments from the state. Such
regulations must be promulgated within ninety days of the date of
the Executive Order.
The Executive Order calls for an overall compensation limit of
$199,999 per executive, but that limit may be adjusted by each
agency with the approval of the Director of the Budget, provided
that the compensation does not exceed Level I of the Federal
government executive compensation guidelines promulgated by the
U.S. Office of Personnel Management ("OPM"). Further, the
operative sentence calling for a compensation limit is qualified by
the phrase "to the extent practicable."
In addition to limiting executive compensation, the Executive
Order mandates that not less than seventy five percent of
"State financial assistance or State-authorized payments"
to a provider for operating expenses "shall be directed to
provide direct care or services rather than support administrative
costs." This percentage will rise by five percent per year,
and will rise to no less than eighty five percent no later than
April 1, 2015.
The express language of the Executive Order states that the
mandated regulations will apply to "providers of services that
receive reimbursement for services directly or indirectly from such
agency." At present, it is unclear which entities will fall
within the scope of the as yet unwritten regulations. Certain
entities that receive direct payment from agencies of the State,
such as Medicaid managed care plans, clearly appear to fall within
the scope of the language used in the Executive Order; for many
other entities, whether or not they will fall within the
regulations mandated by the Executive Order remains to be seen.
While the Executive Order will most certainly incite great
consternation among New York health care payers and providers, a
prudent advisor should counsel potentially covered entities against
overreaction. I suggest this for several reasons: first, the
Executive Order, and/or the regulations called for by the Executive
Order may be challenged, both by individual providers of services
and umbrella organizations. Second, the Executive Order contains
the intentionally fuzzy "to the extent practicable"
language. Third, individual commissioners may seek exceptions,
provided that they are within the Federal cap set by OPM. Finally,
it is arguable that the limits mandated by the Executive Order only
apply to funds originating with the State. That, as well as
creative tactics on the part of service providers and their
advisors, will most likely blunt the impact of the Executive Order
and the regulations promulgated thereunder.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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