Caps the amount of money certain corporations are allowed to bill the New York state medical assistance program

Summary of provisions

Section one amends the not-for-profit corporation law by adding a new section 715-c which prohibits any not-for-profit corporation, or affiliate thereof, which pays any executive, director, officer or employee of the corporation, or any subcontractor, an amount greater than $199,000 per annum, from billing the New York state medical assistance program any amount in excess of one hundred million dollars. For-profit corporations would not be affected by this new law.

Section two provides that the bill would take effect on July 1, 2014, or on the thirtieth day after it becomes law, whichever is later.

Justification

By their very definition, not-for-profit corporations are meant to exist for the benefit of the public, rather than for the financial benefit of an individual or stockholders. Due to their unique purpose, federal and state laws provide not-for-profit corporations with various tax incentives, including in some cases exemption from taxes. Many not-for-profits serve noble purposes and do strive to accomplish public good. Unfortunately, others have found ways to take advantage of the special treatment offered to them under the law, and fail to provide the public benefit that they are chartered to provide.

Offering excessive compensation to an executive is one way that bad acting not-for-profits take advantage of our system. According to a Congressional report, executive salaries at Medicaid-funded not-for-profits in New York seem to be particularly excessive. One executive was found to be making $2.8 million dollars annually, 14 others were making over $500,000, and more than 100 others were making over $200,000, according to the House Committee on Oversight and Government Reform. New York State currently spends more money than any other state in the nation on Medicaid, and excessive executive compensation is surely a contributing factor.

In January 2012, Governor Cuomo issued Executive Order #38, which was meant to set limits on state-funded administrative costs and executive compensation. The Executive Order recognizes that "in certain instances providers of services that receive State funds or State-authorized payments have used such funds to pay for excessive administrative costs and outsized compensation for their senior

executives, rather than devoting a greater proportion of such funds to providing direct care or services to their clients". While the executive order enacted a regulatory salary cap of $199,000, it also directed state agencies to promulgate rules and regulations pertaining to executive compensation and the cap. Pursuant to this order, "safe harbor" provisions were included in the relevant Health Department regulations. According to the regulations promulgated, so long as the compensation offered is lower than the 75th percentile of compensation provided to executives of comparable covered providers of the same size, program service sector, and geographic area, executive compensation can exceed the regulatory cap of $199,000 per year. This cyclical regulation allows excessive executive compensation to build off of the excessive executive compen sation of others in the same field.

Excessive executive compensation in the Medicaid field are particularly egregious because the increased costs associated with services are borne by the taxpayers. Abuse in the Medicaid field is compounded when the corporation is operating under the auspice of a not-for-profit, and also receiving special treatment under our tax laws. By limiting the amount of money that not-forprofits can bill Medicaid when the not-for-profit has revenue in excess of 1 million dollars annually, we can help ensure that tax payers aren't funding excessive compensation packages.

Legislative history

New bill

Fiscal implications

None to the state

Effective date

This bill shall become effective on July 1, 2014, or on the thirtieth day after becoming law, whichever date is later.