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Gov. Cuomo caps executive pay, administrative costs for state-funded providers

January 23, 2012
by Dennis Grantham, Editor-in-Chief
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Salary excesses at one New York provider bring new regulations for all

On Jan. 18, Gov. Andrew Cuomo signed a New York State executive order that in 2013 will cap the salaries of senior executives and impose limits on administrative spending at New York organizations (tax-exempt and for-profit) that provide state-funded services related to physical and mental health, addiction treatment, developmental disabilities, aging, child and family services, and criminal justice and victim services.

"This Executive Order will prevent public funds from being diverted to excessive compensation and unnecessary administrative costs, and will ensure that taxpayer dollars are being used to help New Yorkers in need," Cuomo stated.

The executive order requires that:

  • No less than 75% of state financial assistance to a provider be used to cover the costs of direct care or services, rather than administrative costs. The percentage will rise 5% annually until April 2015, when it will be set at 85% thereafter.
  • State reimbursements used to provide executive compensation at a provider agency shall not exceed $199,000 unless approved by the commissioner of the associated state agency and the director of the state budget. However, the state’s budget director is quoted in a report at cityandstateny.com saying that provider organizations could pay executives more by using sources other than state reimbursements.
  • Provider organizations who fail to comply may have their contractsterminated or not renewed.
  • State commissioners will collect and report provider compliance annually.

According to the cityandstateny.com report, the executive order results from the recommendations of a provider compensation task force appointed by Cuomo last year on the heels of New York Times story that questioned the oversight of Medicaid-funded group homes. The Times reported that two executives of Young Adult Institute (YAI), an NYC-based provider of developmental disability services, collected over $1 million in salary in 2009. The two executives, brothers Joel and Philip Levy, resigned from that YAI in June 2011, prior to the publication of the Times story.

YAI officials declined comment for this story.  However, Crains New York Business reported in September that YAI responded by announcing that it would turn over the YAI board, reduce executive compensation, and eliminate bonuses.  The affair “cast a shadow over a vital and proud organization,” said YAI board chairman Eliot Green.

Survey shows salary-cap compliance no problem for most providers

In the field of behavioral health, million-dollar compensation, even for executives at the largest community behavioral health agencies, is essentially unheard of. A 2010 salary survey, conducted by the National Association of Addiction Treatment Providers (NAATP) and the National Council, showed that of 655 reporting agencies, 579 reported CEO compensation at or below $200,000 annually, while 173 agencies paid their CEOs $100,000 or less.

The 2011 version of the same salary survey reported average CEO compensation of $114,247 and offered salary figures to demonstrate that workers in the specialty area of behavioral healthcare are consistently underpaid relative to comparably-qualified employees in other sectors of healthcare.

“We must bring employment ‘parity’ to behavioral health, ending the second class status of employees working in mental health and addiction organizations,” said National Council CEO Linda Rosenberg in the text of that survey report.

While it appears that few behavioral health agency executives have much to fear from the executive compensation caps in Governor Cuomo’s executive order, the requirement to limit provider agency administrative costs to 15% percent of reimbursements by April 2015 could be a different story. 

The governor’s order restricting administrative spending bears some similarity to the medical loss ratio (MLR) provisions in the Patient Protection and Affordable Care Act, which require that between 80 and 85% of the health care premiums collected by the nation’s private insurance companies be spent on health care services and health care quality improvements rather than on administrative or salary-related costs.

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