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January 20, 2012

Providers of Health Care and Human Services Face Dramatic Reductions in State Funding for Operating Expenses

Governor Cuomo has issued an Executive Order and has proposed legislation as part of his 2012-2013 budget that would place tight controls on both executive compensation and on provider administrative expenses. The Executive Order impacts both not-for-profit and for-profit health and human services agencies. State funding, including contracts, Medicaid, and State Aid deficit financing would not be provided to support the compensation of any executive whose compensation exceeds $199,000 per annum. This will be particularly burdensome on health and human services agencies that rely heavily on State programs, such as Medicaid, or State contracts as their source of income.

A second element of the Governor's initiative requires that a minimum of 75% of a provider's income be expended for direct care or services to their clients, rather than administrative costs, increasing in 5% increments to 85% by April 1, 2015. Failure of a provider to comply would be grounds for termination or non-renewal of an agency's contract or continued support of a provider.

There is authority for waivers from these limitations upon a showing of good cause. The state administrative agency, subject to the approval of the Director of the Budget, would be authorized to consider waiver applications from providers. There are also other possible easements, but it is not clear how readily such waivers or easements might be granted.

The Executive Order requires the affected State agencies to promulgate implementing regulations within 90 days (April 16, 2012).

There are several potential legal, legislative and federal regulatory hurdles that we believe must be addressed in order for The Executive Order to be implemented. For further information, please contact David Glasel or Eugene Laks.

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