Executive Compensation and Administrative Expense Limitations Take Effect

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by Joshua Oppenheimer
(Assoc-ALB-GovLP)
OppenheimerJ@gtlaw.com

In January 2012, Governor Cuomo issued Executive Order 38, setting out a plan to limit New York State’s reimbursement for the administrative costs and the compensation paid to executives of not‐for‐profit and for‐profit service providers. Approximately 16 months later, 13 state agencies – including the Office of Alcoholism and Substance Abuse Services (“OASAS”) – announced final adoption of regulations implementing the Governor’s plan.  These regulations, which took effect on July 1, 2013, are likely to affect all Addiction Treatment Providers Association members.  Many affected entities, however, will not be required to comply with the restrictions until 2014 and will not have reporting obligations until 2015, as compliance begins with the first day of the “Covered Reporting Period” following July 1.

 

As a result of the OASAS regulations, substance abuse providers that are deemed “Covered Providers” are subject to limits on what may be paid to “Covered Executives” and the administrative expenses that may be incurred.  Generally, Covered Providers are prohibited from spending more than $199,000 of State Funds/State Authorized payments on any Covered Executive.  Moreover, no Covered Executive may receive more than $199,000 in compensation – regardless of the source of funds – unless, the compensation: (1) is no greater than the 75th percentile of compensation provided to comparable executives affiliated with comparable providers, consistent with the findings in a compensation survey recognized by DOB; 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.  Additionally, the Covered Provider’s Administrative Expenses must not exceed 25% during a Covered Reporting Period beginning between July 1, 2013 and June 30, 2014; 20% for a Covered Reporting Period beginning between July 1, 2014 and June 30, 2015; and 15% for a Covered Reporting Period beginning July 1, 2015 or thereafter.

 

There are some very narrowly tailored exceptions to these rules and, in certain circumstances, it may be appropriate for a Covered Provider to seek a waiver from the State.  The application of these rules is very fact sensitive and nuanced.  More information is available here: http://executiveorder38.ny.gov/, but if you have questions, please contact ATPA.

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