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New York Agencies Make Additional Revisions to Proposed Regulations Relating To Compensation and Administrative Expenses

In May of 2012, 13 New York State agencies proposed regulations to limit the State’s reimbursement for the administrative costs and executive compensation of not-for-profit and for-profit service providers. Revisions were made on October 2012 and, five months later, the agencies proposed additional amendments on March 13, 2013. The revised proposal does not include many amendments, but the changes made are noteworthy. This GT Alert is an update to the summaries provided in our November 2012 and May 2012 Alerts.

The revised regulations include a new defined term “Covered Reporting Period,” as well as several amendments that adjust when the administrative cap and executive compensation limitations take effect. Although the prior draft indicated that the limits would apply to the 2013 calendar year, as the regulations are now drafted, they will not take effect until July 1, 2013. Even then, the relevant limitations would not apply until “the first day of each provider’s respective covered reporting period.” Some of the agencies have further clarified that, where the Covered Provider is required to file a Cost Report, the dates of the covered reporting period shall be the same as the dates of the corresponding Cost Report.

These dates are relevant in calculating which years are to be used when measuring whether an entity is a Covered Provider, compliance with the executive compensation and administrative expense limitations, and determining when disclosure reports are due. Thus, as illustrated below, due to the definitions of Covered Reporting Period and Reporting period, if the entity’s fiscal year begins on January 1, it would: use the 2013 and 2014 calendar years to measure whether the entity meets the definition of Covered Provider; be required to comply with limitations beginning on January 1, 2014; and file disclosure reports within 180 days after the close of the 2014 calendar year, unless it files a Cost Report on another date. If the covered provider’s reporting period begins sometime before then (August 1, for example) the administrative expenditure and executive compensation limits would apply beginning with that new period.

For an Entity that Operates on a Calendar Year (Will differ for fiscal year entities)
2013 and 2014 Measuring Years to Determine Whether Entity is a “Covered Provider”
2014 First Covered Reporting Period; First Year Covered Provider is Subject to
June 2015 Date by Which Covered Providers Required to File Disclosure Form for
2014; If Covered Provider is Required to File a Cost Report, then
Disclosure Form Must be Filed with Cost Report.

What types of contracts are subject to the regulations?

The analysis of whether a contract is subject to the limitations imposed by the regulations remains relatively unchanged. Service contracts and other agreements that result in the payment of “State Funds” or “State-authorized Payments” (SF/SAP) (i.e. payments that are disbursed pursuant to authorization from a State agency or other New York governmental entity) in exchange for providing “Program Services,” will be subject to the regulations. All of the exceptions that were previously proposed remain, and the new regulations clarify that SF/SAP shall not include “direct payments . . . or provision of vouchers or other items of monetary value that may be used to secure specific services selected by the individual, or health insurance premiums including but not limited to New York State Health Insurance Program (NYSHIP) premium payments, or Supplemental Security Income (SSI) payments to or on behalf of individual members of the public.”

What entities are subject to the regulations?

“Covered Providers” are subject to the limitations and reporting obligations imposed by the regulations. The amended regulations clarify that subcontractors and agents of Covered Providers may be required to comply with both the limitations and reporting requirements. Generally, a Covered Provider is any government contractor providing Program Services that:

a) receives an annual average payment of more than $500,000 in State Funds or State-authorized Payments “during the covered reporting period and the year prior,” and
b) at least 30% of the provider’s total annual New York revenues during the year prior to therelevant reporting period are derived from State Funds or State-authorized Payments.

Although not in other agencies’ regulation, the regulation proposed by the Department of Health (DOH) explicitly states that entities and individuals that receive funds “directly from a managed care organization subject to the oversight of the department shall be deemed” to have received SF/SAP. The DOH regulation also includes an “exclusive” list of the types of facilities and entities that may be considered Covered Providers for purposes of the DOH regulation; namely:

  • hospitals
  • advanced life support services
  • nursing homes
  • first response services
  • home care services agencies
  • adult day health care
  • licensed home care agencies
  • health maintenance organizations and other entities authorized pursuant to Article 44 of the Public Health Law
  • certified home health agencies
  • residential health care facilities
  • long term home health care programs
  • intermediate care facilities
  • AIDS home care programs
  • assisted living programs
  • hospice residences
  • independent practice associations (IPAs) or management contractors that are Related Organizations of covered providers
  • assisted living residences
  • enhanced assisted living residences
  • ambulance services

The proposed regulation continues to require subcontractors and agents of Covered Providers who provide program or administrative services and would otherwise have been deemed a Covered Provider, but for the fact that it received SF/SAP from a private entity and not directly from the government, to comply with the regulations. Because the list of Covered Providers in the DOH regulation is now exclusive, if a certain type of subcontractor or agent is not listed, it would not be subject to the regulation. Subcontractors and agents who otherwise meet the definition of Covered Provider are still subject to the executive compensation and administrative expenditure limitations, and must also comply with the reporting obligations. The proposal clarifies, however, that a Covered Provider shall not be held responsible if its subcontractor fails to comply with these requirements.

Which individuals affiliated with a covered entity are subject to the compensation limitations?

Individuals who meet the definition of a “Covered Executive” are subject to the compensation limitations. This term remains relatively unchanged, and includes any “compensated director, trustee, managing partner, or officer whose salary and/or benefits” are at least partially related to the management of the program, as well as any “key employee whose salary and/or benefits” are at least partially related to the management of the program, if the employee’s compensation is at least $199,000. The regulation continues to use the Internal Revenue Service’s (IRS) definitions in determining whether someone is a director, trustee, officer or key employee and still provides that if there are more than 10 key employees who meet this definition of Covered Executive, the Covered Provider is required to report only the top 10 highest paid key employees; the remaining key employees are not deemed to be Covered Executives. Additionally, individuals who serve as “[c]linical and program personnel . . . [who fulfill] administrative functions that are nevertheless directly attributable to and comprise program services shall not be considered covered executives,” even if they make more than $199,000.

Finally, the regulations still provide that if a Covered Provider pays a “Related Organization” (as such term is defined by the IRS) to provide administrative or programmatic services, the Covered Executives of the related entity will be subject to the regulations “if more than 30% of such Covered Executive’s compensation is derived from” SF/SAP received from the related Covered Provider. The latest proposed regulation clarifies that this Related Organization is not automatically subject to the administrative expense limitations, just because it has individuals who are deemed Covered Executives. This provision recognizes that individuals who derive only a small amount of compensation from the indirect SF/SAP should be excluded from the scope of the regulation, but continues to create an anomaly because a similarly situated individual working for a Covered Provider, whose compensation is derived from less than 30% of New York activities, is nonetheless covered.

What types of compensation are covered?

The regulations continue to cover virtually all compensation provided to a Covered Executive that it is “reportable on a Covered Executive’s W-2 or 1099 form,” but excludes mandated benefits (such as Social Security, worker’s compensation, unemployment insurance and disability insurance) and benefits such as health and life insurance premiums and pension contributions, to the extent that such benefits are substantially equal to the benefits provided to people at the organization who are not deemed to be Covered Executives. This revised version of the regulation also clarifies that “distributions to a shareholder/partner” are treated as compensation only if they “represent compensatory or guaranteed payments or compensatory partnership profits allocation or compensatory partnership equity interest for services rendered during . . . the reporting period.” Thus, it appears that profits distributed to partners or shareholders, as reported on a K-1 or other forms, may not be considered executive compensation, if the payments are unrelated to services that are performed.

Limits on Executive Compensation

The executive compensation limits imposed on Covered Providers remain unchanged. A Covered Provider may still not use SF/SAP to provide compensation greater than $199,000 to any Covered Executive, and is still prohibited from paying any Covered Executive in excess of $199,000, regardless of the sources of funding. The only exception to the overall cap continues to be if the compensation: (1) is not greater than the 75th percentile of compensation provided to comparable executives affiliated with comparable providers, consistent with the findings in a compensation survey acknowledged by the State; and (2) has been approved by the Covered Provider’s board of directors or other governing body, including at least two independent directors or members. The new version of the regulation includes no changes to the survey process. There are some changes, however, as to when the limitation takes effect, as well as its application to downstream contracts and the regulation’s effect on Covered Executives with existing contracts.

As noted above, the limitations apply to all Covered Providers beginning “on the first day of [the relevant] . . . reporting period,” after July 1, 2013. The revised regulation continues to include a grandfathering clause, however, which now exempts contracts between Covered Providers and Covered Executives that were effective prior to July 1, 2012. If the term of the contract, however, extends beyond April 1, 2015, or if the contract is going to be renewed after its completion date, then the Covered Provider will need to seek a waiver if the compensation package does not comply with the regulation.

Limit on Administrative Expenses

No substantive revisions were made to the administrative cap proposals, although just as with the executive compensation provision, the effective date for this requirement has been delayed. For reporting periods after July 1, 2013, Covered Providers may spend no more than 25% of the SF/SAP paid to the provider for administrative costs. The cap still increases by 5% each year until 2015, at which time Covered Providers will be required to spend at least 85% of the State payments for “Covered Operating Expenses.”

The Waiver Process

Although there has been no change to the standards that shall be applied in determining whether a waiver should be granted, the regulation has been amended to allow a Covered Provider to request a waiver on behalf of “one or more positions,” and the timing of when the application must be submitted has changed. Pursuant to the latest proposal, waiver requests must be submitted “no later than concurrent with the timely submission of the covered provider’s” disclosure form. Although Covered Providers may want to seek waivers earlier, it will be considered timely if filed at any point until the date when the relevant disclosure report is due. The revised regulations also clarify that information provided during the waiver process, which is not already publicly available, will not be disclosed pursuant to the Freedom of Information Law (FOIL).

Disclosure obligations

The disclosure forms are still being developed, but the language of the regulation remains unchanged. The only revision is that the regulation now states that Covered Providers are required to file the Disclosure Form within 180 days following the close of the relevant reporting period. Covered Providers who are required to file a Cost Report, however, will be required to file the Disclosure Form at the same time that the Cost Report is due.


No changes were made to the penalty provisions.


This Alert, in connection with those published during last spring and fall, highlights the major revisions to the proposed executive compensation and administrative expense regulations. Questions still remain, and the 13 agencies are accepting comments on these revised proposed regulations until April 12, 2013. The regulations may still change based on the comments that are submitted, however it is clear that the Executive is attempting to imminently complete this process and implement the regulations.

©2022 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume III, Number 84

About this Author

Harold Iselin, Greenberg Traurig Law Firm, Albany, Government Policy, Health Care and Insurance Litigation Attorney

Harold N. Iselin is an attorney in the firm's Albany office. He focuses his practice on governmental affairs and health care matters, representing diverse clients before the executive branch and state legislature. Additionally, he handles complex civil litigation matters, litigating a broad range of civil cases.

Prior to joining the firm, Harold was a trial attorney in the U.S. Department of Justice from 1984 to 1986, following which he became Assistant Counsel to the Governor of New York with responsibility for transportation, education,...

Joshua Oppenherimer, Greenberg Traurig Law Firm, Albany, Government Policy Attorney

Joshua L. Oppenheimer focuses his practice on New York State governmental affairs and issues relating to governmental ethics, lobbying laws and campaign finance. He represents clients before the New York State legislative and executive branches, focusing on legislation and regulation involving health, environmental, labor, and transportation policy, as well as racing and gaming issues.

Josh also has wide-ranging experience advising clients on compliance with the complex federal, state and local laws that govern political activity, lobbying, and...