Governor Cuomo’s Executive Order #38 (EO 38) has now been in place for just over five years and we often hear people ask if they still have to comply.  The answer is yes.  Those entities that provide program services in the amount of $500,000 and 30% of total annual revenue derived from State Funds or State-Authorized Payments (SF/SAP), are considered Cover Providers and need to comply with EO 38.  Once you determine you are a Covered Provider, there are two components of EO 38.  There have been some recent changes resulting from litigation that may make it easier to comply without requesting a waiver. 

The first component of EO 38 is the limit on Executive Compensation.  Prior to the October 18, 2018  New York State Court of Appeals decision, EO 38 provided “soft cap” and “hard cap” limitations on Covered Providers paying executive compensation directly or indirectly to a Covered Executive in an amount greater than $199,000 per year without obtaining a waiver.   The “soft cap” rules stated that if the Covered Executive’s compensation above the $199,000 limit is paid with non-SF/SAP, the provider would need to file a waiver, unless they could demonstrate that certain conditions were met.  These conditions include that the compensation falls below the 75th percentile in a chosen comparable compensation survey and the compensation has been reviewed and approved by the Covered Provider’s Board of Directors or equivalent governing body.   The New York State Court of Appeals decision eliminated these “soft cap” compliance requirements, citing that the Governor and the Department of Health do not have the power to adopt regulations placing caps on compensation paid to certain employees of Medicaid providers when such payments are made with non-State funds (e.g. payments from Medicare, private payors, or other third party sources).  It is important to note, that the “hard cap” requirements are still in play, meaning that SF/SAP cannot be used to pay compensation to Covered Executives in an amount greater than $199,000 per year without obtaining a waiver.

While this ruling does provide some reporting relief for providers who fall in the “soft cap” category, it does still require some diligent record keeping to ensure there is documentation in place to demonstrate that the compensation paid to Covered Executives in excess of the $199,000 limit is provided by payors or funding other than SF/SAP, and therefore compliant with the “hard cap” compliance requirements.   Additionally providers still need to complete the annual filing affirming that they are in compliance with the executive compensation provisions of this order and do not require a waiver.

The second component of EO 38 pertaining to limits on administrative expenses paid with SF/SAP has not changed and continues to be in effect.   The maximum allowable administrative expense percentage is 15% of total expenses.   It is important for providers to review the guidance and utilize the worksheets provided on the EO 38 website (www.executiveorder38.ny.gov) to calculate the percentage correctly.  In most cases, the calculation of program and administrative expenses is different than what is used for financial statements, cost reporting, and tax filing purposes.   Expenses per EO 38 guidance are categorized as program services, administrative, and other.  The other or non-covered operating expenses are excluded from the calculation.  

The state agencies covered by Executive Order 38 are:

  • Agriculture and Markets (AGMKTS)
  • Department of Corrections and Community Supervision (DOCCS)
  • Department of Health (DOH)
  • Department of State (DOS)
  • Division of Criminal Justice Services (DCJS)
  • Homes and Community Renewal (HCR)
  • Office for the Aging (NYSOFA)
  • Office for People with Developmental Disabilities (OPWDD)
  • Office of Alcoholism and Substance Abuse Services (OASAS)
  • Office of Children and Family Services (OCFS)
  • Office of Mental Health (OMH)
  • Office of Temporary and Disability Assistance (OTDA)
  • Office of Victim Services (OVS)

Providers should continue to familiarize themselves with the requirements of EO 38, as well as seek guidance from appropriate legal and accounting professionals, as necessary, to avoid penalties and other consequences associated with noncompliance.

Kelley DeMonte is a partner based out of our Rochester, NY office.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.


Recent Articles

View All Articles