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ATTENTION ALL NURSING HOMES! EXECUTIVE ORDER #38 WARNING!WINDY ROADS AHEAD FOR THE GRAVY TRAIN

Hello loyal readers! Executive Order #38 is the toast of the town in New York these days as it affects anyone that receives state funded revenue. You heard me right, ANYONE, not just the Nursing Home owners I singled out, so this is actually pretty important.

This post is not for the hard core tax lovers that frequent this blog. As with other financial regulatory issues, our firm was pushed to develop compliance plans for EO #38, so we did.

For all those that it will impact here is some premium high octane knowledge:

Are you in the cross-hairs:

Do you or your entity receive state funds or state authorized funds on average greater than $500,000 and is this money greater than 30% of the total money your entity makes? If yes then let's get crackin! Your deadline may have passed, which means you will be getting a lovely notice of non-compliance from NYS soon OR if your Cost report is due later, you may still have some time...

To those of you shrugging and saying "this does not apply to me," keep in mind that this applies to more than just Nursing Homes, and that the deadline to file the necessary paperwork was either June 29, 2015, or will be August 14, 2015, so pay attention!

To those of you who are shrugging and saying "NYS lost this in court and it all went away", nope that win is only for Nassau County providers, it IS under appeal, and most likely will rope them in soon as well. EO #38 is 100% in effect at this moment.

Executive Order #38, which applies to providers of program services funded by NYS became effective July 1, 2013. The idea is to place limits on administrative expenses and executive compensation for "covered providers." This means that provider entities like Nursing Homes, Home Health providers, or any other entity (like prison services) that receives State funding, or State-authorized (routed through the state) funding (i.e. Medicaid) are now limited in how much they can spend on Administrative expenses or executive pay. (Note: There is an exhaustive list of other State funded programs beside for those routed through the Department of Health.)

The limits:

Limits on Executive Compensation: You cannot spend so much of the money the State grants you on paying the CEO a boat load of money (and yes "shareholder/owners" it applies to you too), specifically:

  • Executive compensation (CEO, CFO or other top tier decision makers) cannot exceed $199,000 per year without obtaining a waiver.
  • If the Executive's compensation does exceed the $199,000 limit, then you need a good reason, which is an acceptable survey and comparison of the industry paying over the limit.
    Limits on Administrative Expenses: You cannot spend so much of the money the State grants you on expenses that have nothing to do with the actual service you provide, specifically:
  • Administrative expenses must not exceed a small percentage of the total expenses versus what is received by the State or State routed payments.
  • The percentage breakdowns have reduced each year from 25% in 2013, 20% in 2014 before settling at the now 15% in 2015.

So what is there to do? A TON. There are disclosures, and worksheets, and filings that must be made. If you are already in non-compliance you will receive a "30 day letter" demanding your compliance as a warning. This warning means you MUST submit a plan to correct your lack of compliance, and the plan must be detailed to NYS specifications.

What happens if I ignore it? Just like in the tax world things only will get worse. Redirection of funds, suspension or revocation of the license and/or contract you carry as a provider, penalties deemed appropriate (crack open that piggy-bank people).

What can you do? Call a professional that has developed a comprehensive methodology to assess your situation and produce a plan to meet this arduous task. My firm has spent significant time and hours to develop an analysis index, and step by step work plan to complete our clients' compliance needs. Find a professional who has done so already (or just call me if the mood strikes) you may need to restructure your corporate setup, and perform damage control. Either way hop to it because let me tell you this is not an easy Order to comply with nor implement, and it WILL ACTUALLY impact your ability to receive the funds that run your business.

Benjamin Goldburd is an Associate at Goldburd McCone LLP a boutique tax law firm in New York City.

For more information on these and other tax issues feel free to contact our offices at 212-302-9400, or on the web at www.goldburdmccone.com

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