Department of Health – Detail on Health Exchange, Compensation, MRT

On Tuesday, January 17, 2012, Governor Andrew Cuomo released his proposed budget for State Fiscal Year (SFY) 2012-13.  The following is a summary of the Executive Budget presentation and a very quick review of the appropriation and Article VII bills. Additional analysis and memorandum will follow on various topics as briefings take place and additional research is undertaken.


Budget Overview

Again this year, New York is facing a challenging fiscal environment.  The Executive Budget eliminates a General Fund budget deficit of $3.5 billion in 2012-13 and substantially lowers the budget gaps projected in future years. The gap-closing plan consists of $2 billion in savings by controlling State spending and $1.5 billion in new resources from tax reforms approved in December 2011.  A majority of the gap-closing plan, totaling $1.14 billion, is generated from state agency savings. These include further reductions in State agency operations through strict controls on attrition and hiring; enterprise-wide consolidation of procurement, information technology, and workforce management functions; and a range of operational measures to improve efficiency.  The remaining $756 million in savings is achieved through local assistance program savings initiatives, with most of the savings coming from the elimination of automatic “cost of living” increases and trend factors in 2012-13 for all health and human service providers.

Additionally, the Executive Budget continues the two-year commitment made in 2011-12 to fund School Aid at a level consistent with the growth in NYS personal income and Medicaid at the long-term average growth in the medical component of the Consumer Price Index (CPI). In 2012-13, State funding for both programs increases by approximately 4 percent from 2011-12.

Below is a brief outline of the Governor’s proposed SFY 2012-13 Executive Budget impacting the health care sector:

Health Benefit Exchange

•The Governor’s Executive Budget proposal includes language to establish the New York Health Benefit Exchange.  The language included in the budget is nearly identical to that of A. 8514(Morelle)/S. 5849 (Seward) which passed the Assembly during the 2011 Session but failed to advance to the Senate floor.  In fact, there are no major substantive differences between the 2011 bill and the Governor’s proposal, simply some technical changes and some timeframe adjustments. For example, the Senate and Assembly are directed to make their recommendations for Board of Directors (“Board”) membership within 30 days of enactment, as opposed to 60 in last year’s bill, and the Board is to have its first meeting within 14 days of all directors being appointed, as opposed to 30 days in last year’s bill.  Additionally, studies required by the Bill are due in August of this year as opposed to the April 2012 deadline imposed by the 2011 bill.


•The Executive Budget generally tracks the minimum requirements of federal law in establishing the Exchange and to a significant degree adopts provisions from the NAIC Model Exchange Act.  It creates a governance structure but to a large extent defers the more contentious policy issues (e.g. active purchaser, additional benefits, viable market outside the exchange, merger of the markets) to future legislation.  The Exchange is established as a public benefit corporation to be directed by a nine member Board of Directors.  The Board would be comprised of the Commissioner of Health, the Superintendent of Insurance (later to be renamed  the Superintendent of Financial Services) and seven additional Directors appointed by the Governor, two of whom will be appointed upon recommendation of the Temporary President of the Senate and two upon recommendation of the Speaker of the Assembly.


•The proposal also establishes five Regional Advisory Committees (“RACs”) representing the New York City region, the metropolitan suburban region, the northern region, the central region and the western region.  The Board will determine which counties make up each region.  All members of the RACs are appointed by the Governor, with two per RAC upon the recommendation of the majority in each house of the Legislature, and serve three year terms.

Limitations on Not for Profits Administrative Expenses and Executive Compensation

The Executive Budget contains broad language impacting not-for-profits that receive payments or financial assistance from the state (e.g. Medicaid or any other source of state funding). The language authorizes all state agencies, including but not limited to, the Department of Health, State Education and other human service agencies, that operate, license, certify, or fund providers of services to limit state payments to be used for administrative expenses, executive compensation and to “adjust” payments made by the state in those instances in which the agency believes the not for profit is not meeting “performance metrics”.

Specifically, the proposal has three key elements:


•Payment Adjustments Based on Performance Metrics.  The language requires agencies to develop performance metrics and calculate annual adjustments to established payments based on such metrics.  The performance metrics shall include, but are not limited to: the actual costs of providing services, the percentages of administrative costs, the determination and levels of executive compensation and such other criteria as the agency may determine.  These adjustments would be subject to federal approvals and restrictions as well as the review and approval of the director of the budget. This provision is effective April 1, 2013.


•Administrative Expenses Cap.  State agencies are granted the authority to develop an administrative expenses cap which requires that no less than 75% of state financial assistance or state-authorized payments be directed toward the provision of direct care or services and not the administrative expenses of the not-for-profit entity (as such terms are to be defined by the State agency).  This provision is effective April 1, 2012.


•Limits on Executive Compensation.   State agencies are also granted the authority to prohibit the use of state funds to be used for purposes of payments to any executive to amounts in excess of $199,000 annually, unless expressly permitted by the relevant State agency. This amount may be adjusted annually, but in no event shall such amount exceed that provided for by the U.S. Office of Personnel Management in its Rates of Basis Pay for the Executive schedule.  As drafted, it does not appear that the $199,000 is a “hard salary cap” but instead appears to limit the use of State funds that can be contributed toward executive compensation. Thus, other non-state revenue can be used to supplement executive compensation for amounts in excess of $199,000. This provision is effective April 1, 2012.


Failure to comply with this provision subjects providers, in the sole discretion of the relevant Commissioner, to termination or non-renewal of the program’s contract. The proposal does provide, upon a showing of good cause, for a waiver of the executive compensation provisions by the relevant State agency Commissioner with the approval of the Director of the State Division of Budget.


Medicaid Redesign Team Phase II – Implementation

Last year, the Medicaid Redesign Team (“MRT”) was tasked by Governor Cuomo to find ways to reduce costs and increase quality and efficiency in the Medicaid program.  In Phase 1, the MRT developed a package of reform proposals that achieved the Governor’s Medicaid budget target, and introduced significant structural reforms to bend the Medicaid cost curve. In Phase 2, the MRT was directed to create a coordinated plan to ensure that the program could function within a multi-year spending limit and improve program quality. To achieve this goal, ten Workgroups were created to focus on specific health care issues.  These Workgroups, which were comprised of industry stakeholders, met during the summer and fall to develop a series of recommendations.

The following recommendations, as recommended by the MRT Workgroups, were included in the Governor’s proposed budget.

Basic Benefit Review Workgroup

The Workgroup’s charge was to conduct a thorough examination of the current list of covered benefits in the Medicaid program and to develop a series of recommendations to modify the benefit package.

The proposed budget includes the following recommendations from this Workgroup:



  • Tobacco Cessation Counseling by Dentists.  This proposal would expand Medicaid reimbursement to dentists for providing tobacco cessation counseling, effective April 1, 2012.  This action would cost $4.25 million (state share) in SFY 2012-13. This action will be implemented administratively.


  • Medicaid coverage of Harm Reduction Counseling and Services.  This proposal would authorize Medicaid reimbursement for harm reduction counseling and services to reduce or minimize the adverse consequences associated with drug use, when ordered by a physician, physician assistant, nurse practitioner, or licensed midwife, effective April 1, 2012.   This action would provide $410,000 (gross) and $210,000 (state share) in new Medicaid funding in SFY 2012-13. This proposal was recommended by the Health Disparities Workgroup.


  • Hepatitis C Services.  This proposal would provide Medicaid coverage for Hepatitis C wrap-around coverage services to promote  care coordination and integration when such services are ordered by a physician, physician assistant, nurse practitioner, or licensed midwife, effective April 1, 2012.   Services include, but are not limited to, client outreach, identification and recruitment, education and counseling, coordination of care and adherence to treatment, assistance in obtaining appropriate entitlement services, peer support, and other supportive service as needed and authorized, effective April 1, 2012.  This action would provide $2.1 million (gross) and $1.05 million (state share) in new Medicaid funding in SFY 2012-13. This proposal was recommended by the Health Disparities Workgroup.

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