By: Paul R. Dorf, APD, CRI


The purpose of this document is to provide a summary of the 149 pages of the preliminary regulations effective July 1, 2013.  This is not intended to replace or capture all of the aspects of these regulations, but rather, to identify the most significant features as they relate to two (2) areas: Executive Compensation and Administrative Expenses.  Please refer to the full text of the document for complete information.


Determining Covered Provider Status

These regulations cover both Not-For-Profit and For-Profit organizations who receive New York State Funds or State-Authorized Payments (SF/SAP); however, there are certain exemptions that should be noted.  These consist of:

  1. Government Exemptions – certain agencies are not considered to be Covered Provider and are exempt.
  2. Covered Reporting Period (CRP) – Three (3) CRPs have been identified: (1) July 1, 2013 to June 30, 2014; (2) July 1, 2014 to June 30, 2015, and (3) July 1, 2015 and thereafter.
  3. Program Services – If services were not performed during the applicable periods the organization would not be a Covered Provider subject to these regulations.
  4. Other Exemptions – Based on specific products or services provided, such as those through specific agencies (i.e., DOH or OCFS), an organization would be exempt.
  5. Amount of SF/SAP Funds Received – $500,000 annually, or average of $500,000 over the Covered Reporting Period (CRP) and prior year.  If this threshold is not met, the organization would not be a Covered Provider.
  6. Percentage of SF/SAP Revenue – The percentage of total revenue must equal or exceed 30% of the organization’s total in-state revenue during the CRP or previous year, or it would not be a Covered Provider.


Compliance with Administrative Expense Limitations

Administrative Expenses, not associated with a specific program, must not exceed specified percentages of total revenue, as follows:

CRP beginning July 1, 2013 to June 30, 2014 = must not exceed 25% of all expensive

CRP beginning July 1, 2014 to June 30, 2015 = must not exceed 20% of all expensive

CRP beginning July 1, 2015 or thereafter = must not exceed 15% of all expensive

A Program Services Expense and Administrative Expenses Worksheet has been provided to assist organizations in determining which expenses are Administrative Expenses and which are not covered, since they are Program Service Expenses.  The definitions must be reviewed and the instructions should be followed carefully.


Covered Provider Status Determination:

Since only qualified Covered Providers are required to file, it is suggested that a Covered Provider Determination Worksheet be used to determine an individual’s/entity’s status.  It is recommended that all supporting documentation including EO #38 worksheets and source documents should be maintained.


Compliance with Executive Compensation Limitations

Covered employees include compensated directors, trustees, managing partners, officers, and key employees whose total compensation exceeds $199,000 during a CRP.  Individuals in related organizations in administrative functions are also included as Covered Employees.  Note: only the top ten (10) executives should be included.  Individuals fulfilling administrative functions directly attributable to clinical and programs are not included.

An Executive Compensation Worksheet has been provided in order to calculate the individual’s compensation.  This follows the IRS definitions of components of Executive Compensation, as required in Schedule J of the Form 990.  The Worksheet also provides a column to deduct any program-related compensation that should be excluded from the calculation.  Compensation which is set by contract entered into prior to July 1, 2012 is not subject to the limitations until the earlier of April 1, 2015 or the term of the contract.  Compensation includes all forms of compensation deemed to be Executive Compensation.  These include:

  1. Salary and wages
  2. Bonus Compensation
  3. Dividends
  4. Other cash payments
  5. Personal vehicles
  6. Housing
  7. Below-market loans
  8. Payment of personal travel, family travel and entertainment
  9. Personal use of organization’s property
  10. Other non-cash benefits
  11. Unique executive deferred compensation and retirement plan contributions
  12. Total of 1 through12

Providers are urged to maintain all records pertaining to the review of Executive Compensation in excess of $199,000.  This includes comparability factors, material from the review, rationale used to determine the appropriateness of compensation provided, meeting minutes, date and terms of approved compensation arrangements, and independence of the review process, as well as recusal of individuals with conflicts of interest.  In addition, the Provider must maintain identification of all revenue sources.

It is important to note that “Executive Compensation from all sources or revenue may exceed $199,000 so long as it remains below the 75th percentile AND was approved by the Provider’s governing body, with certain requirements met.”  “If a Covered Executive receives more than $199,000 in Executive Compensation, is below the 75th percentile of comparable executives and received governing body approval, the Covered Provider would be considered compliant.”


Determining Comparability

The Regulations identify 17 Factors of Comparability, although they indicate that there may be other comparators.  It should be noted that some of this data would be extremely difficult to obtain; therefore, we suggest that comparisons be made with New York State peers, based on information that can be obtained from their websites and Form 990s.  The identified comparability factors are as follow:

  1. Similarity to other organizations in type(s) of services rendered
  2. Similarity to other organizations in scope of services rendered (i.e., number of individuals served)
  3. Similarity to other organizations in size of annual budget
  4. Similarity to other organizations in number of employees
  5. Similarity to other organizations in geographic location of physical locations (e.g., offices, service area)
  6. Similarity to other organizations in geographic location of services rendered
  7. Availability of similar services within the geographic region
  8. Similarity to other executives in education levels
  9. Similarity to other executives in credentials/skills
  10. Similarity to other executives in tenure of experience
  11. Similarity to other executives in depth of experience in the field
  12. Similarity to other executives in length of time in similar positions
  13. Similarity to other executives in work schedule and level of FTE
  14. Similarity to other executives in experience in the position
  15. Similarity to other executives in in performance on the job
  16. Similarity to other executives in functional comparability
  17. Economic climate at the time the compensation was agreed to


EO #38 Disclosure Form

The EO #38 Disclosure Form must be submitted no later than 180 days after the close of the CRP.  There is no provision for a late submission or for requesting a filing extension.

In the event that the Administrative Expenses or Executive Compensation exceeds the limitations, a waiver application may be submitted, which must be submitted at the same time as the EO #38 Disclosure Form.  If a Covered Provider exceeds the limitation and a waiver is not granted, it may be required to submit a corrective action plan, and ultimately be subject to penalties.


Waiver Applications

The waiver application may be submitted any time before, but not later than, the date of submission of the EO #38 Disclosure Form.  If preliminary data is used in the submission, additional, final data may be required and approval will be conditional on submission of that data.  Failure to provide a required EO #38 Disclosure Form or to provide additional or clarifying information may result in determination of noncompliance.  Data that is required includes the following:

Administrative Expenses Waiver Application Requirements

  1. Covered Operating Expenses
  2. Administrative Expenses and Percentages
  3. Program Services Expenses and Percentages
  4. Rationale for exceeding the limits
  5. A description of the unavoidability of such expenses
  6. Provide evidence of the impact not paying such expenses would have on the Covered Provider
  7. A description of the control process utilized
  8. A description of any alternative funding sought

Executive Compensation Waiver Application Requirements

  1. Covered Executive’s name
  2. Position/title
  3. Executive Compensation provided to the Covered Executive
  4. Executive Compensation derived from SF/SAP
  5. A description of compensation provided to comparable executives
  6. A description of how essential the executive is the Covered Provider
  7. A description of the compensation review process
  8. Disclosure of whether the compensation exceeds the 75th percentile of comparable executives, and if so, by how much and a description of the rationale for providing such compensation
  9. A description of the qualifications of the executive
  10. A description of any recruiting alternatives pursued


Plans of Corrective Action and Penalties

Once the Provider has submitted its EO #38 Disclosure Form, the State will have up to 60 days to respond; if a Covered Provider is found to be in non-compliance, then a Notice of Determination of Non-Compliance will be sent, outlining the basis for the determination.  The Provider is then required to submit a Corrective Action Plan (CAP) within 30 days, after which a Notice of Cure will be issued to the Provider.  The Provider then has at least six (6) months in which to act on the CAP and correct any violations, unless an alternative time frame is approved.  Assuming that the State is satisfied with the response, the matter will be closed; if the CAP is not properly implemented, the State will issue a Notice of Failure to Cure.  This will indicate the reasons for determination and modifications to the CAP or they may issue a Notice of Sanctions Due to Non-Compliance, with an opportunity to appeal.  The Provider may then file a Request for Appeal to a Notice of Sanctions Due to Non-Compliance within thirty (30) days of receipt of the Notice.

Subsequent to the State review, if it finds that the Provider remains non-compliant, the Notice of Determination shall become final and a Notice to Cure will be issued, whicharticulates the basis for the determination on non-compliance and prescribes a corrective action in which to correct the noted violations.


Penalties and Failure to Cure

If it is determined that a CAP was not fully and properly implemented, a Notice of Failure to Cure will be issued to the Provider, which identifies the violations and the seriousness of those violations.  Such actions include modifications to the CAP or the CAP’s implementation period, or issuance of a Notice of Sanctions Due to Non-Compliance.  The Notice of Failure to Cure shall identify the potential sanctions that may be levied against the Provider; these include:

  1. Redirection of SF/SAP for Program Services;
  2. Suspension, modification, limitation, or revocation of the Provider’s license(s), certification, or permission to provide Program Services;
  3. Suspension, modification, limitation, or revocation of contracts or other agreements with the Covered Provider; and/or
  4. Any other lawful actions or penalties deemed appropriate by the State agencies, including letters of reprimand, findings of non-responsibility, and referral to investigation or law enforcement officials for potential investigation/legal action.

Although these regulations pertain primarily to Not-For-Profit and For-Profit organizations operating in New York State, any organization receiving SF/SAP funds from New York State is considered a potential Covered Provider regardless of where they are located, until proven exempt.  CRI would be happy to discuss how EO #38 may impact your organization, and as appropriate, we will refer appropriate legal counsel to you.