Revisiting NY State Executive Order #38 and Nonprofit “Covered Provider” Status
Governor Andrew Cuomo enacted Executive Order #38 (EO 38) in 2013, which established limitations on administrative expenses and executive compensation paid by nonprofit Covered Providers receiving State Funds and State-Authorized Payments (SF/SAP). Essentially, any nonprofit that receives more than $500,000 a year from New York State agencies which also comprise 30% or more of their total revenues will determine if they are a “Covered Provider.”
EO38 LimitationsPursuant to the terms of EO 38, Covered Providers must comply with two thresholds:
- Administrative Expenses – Commencing July 1, 2015 and thereafter – Unless a waiver is granted, no more than 15% Administrative Expenses as a proportion of Covered Operating
- Expenses is permitted. Executive Compensation - Unless a waiver is granted, a Covered Provider may not use more than $199,000 in SF/SAP to provide Executive Compensation to any Covered Employee for the filing period. In addition, a Covered Provider may not provide Executive Compensation more than $199,000 using any sources of revenue IF either of two (2) situations apply:
- The Executive Compensation exceeds the 75th percentile of compensation provided to comparable executives; or
- The Executive Compensation was not reviewed and approved by the Covered Provider’s governing body, with certain conditions met
Reporting Period and Submission Deadline
The regulations provide for some flexibility in determining the entity’s Covered Reporting Period (CRP). In instances where the entity is required to submit an annual Cost Report, then the Reporting Period must follow the period covered by the Cost Report. If there is no cost report required from the provider, then the provider has the option to: a) choose the calendar year January 1 – December 31st, or b) choose their fiscal year as the time frame.
For those Covered Providers who elect to use the time period associated with their cost report, they must submit their EO38 filing 180 days after the cost report is officially submitted to New York State, which would be September 10, 2018. All other providers must submit 180 days after the close of the calendar or fiscal year.
Materials for Submission
- Determination Worksheet – This is an intake sheet which references current year and prior year financial information and confirms if the entity meets the definition of a Covered Provider.
- Disclosure Forms – The Covered Provider must disclose current proportion of Covered Expenses defined as Administrative. If the proportion exceeds the threshold (greater than 15%) then the entity must apply for a waiver. In addition, the Covered Provider must report Executive Compensation for everyone meeting the state’s definition for Covered Executive. If the Covered Provider is not in compliance with the limitations defined by the state, a waiver must be submitted for each executive out of compliance.
- Waivers – If applicable, the Covered Provider must respond to several questions established by the State to justify why the entity is not in compliance with either limitation (Administrative or Executive Compensation). If a waiver is approved, it is valid only for the information identified in the application and for the specific time period approved.
Penalties may include redirection of funding for program services; suspension modification or revocation of the provider’s licenses, certification or permission to provide services; suspension, modification, limitation or revocation of contracts or agreements with the provider; or other lawful actions or penalties deemed appropriate by the agencies.
For more information, please refer to the guidance which can be accessed here.
Providers, and the board of directors, should review the guidance and be familiar with the type of information requested by the State in the requisite format. Critical to this effort is understanding which revenue activity meets the SF/SAP definition established by the State. EO38 is an annual submission and no different than any other regulatory filing. As such, because funding could be in jeopardy if found non-compliant, the Board of Directors must ensure there is proper governance and review executive compensation on a routine basis.
Based upon the April 8, 2014 decision in Agencies for Children’s Therapy Services, Inc. v. New York State Department of Health, et al. (ACTS), covered providers conducting business in Nassau County need not file Executive Order 38 disclosures. For purposes of this notice, “conducting business” means having a place of business within Nassau County, providing program services or administrative services involving the use or receipt of State funds or State-authorized payments within Nassau County, or otherwise conducting business within Nassau County in relation to which executive compensation is paid. Please note that the ACTS decision is under appeal. Those affected by ACTS should periodically check the EO 38 website for updates regarding any changes to this notice.
For more information, please contact Peter Epp, Partner, Healthcare Industry Practice Leader, at email@example.com or 646-254-7411, or Aparna Mekala, Director, at firstname.lastname@example.org or 646-625-5701
This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.