BILL NUMBER:S6621

TITLE OF BILL:  An act to amend the not-for-profit corporation law, in
relation to a medicaid billing prohibition

PURPOSE:

This bill would limit the amount a not-for-profit corporation can bill
the New York State medical assistance program, if the not-for-profit
compensates an executive, director, officer or employee of the
corporation, or any subcontractor, an excessive rate, in order to
ensure that state funds are appropriately used for direct care and
services.

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.