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Cuomo cure for nonprofit excess exempts high-paid health execs

State cap on publicly funded salaries cuts out some of New York's biggest spenders

Many of New York’s nonprofit hospitals specialize in supersized pay — and new rules reining in publicly funded salaries are unlikely to change the equation.

Starting in July, following an executive order signed by Gov. Andrew Cuomo, the New York State Department of Health and a dozen other state agencies intend to cap employee compensation at $199,000 for organizations that receive 30 percent or more of their total annual revenue from state sources.

These organizations would also be barred from using more than 25 percent of their state money for administrative expenses, dropping to 15 percent by 2015.

Though the rules have gone through four different iterations over the last year and a half, one group has conspicuously remained out of its likely reach: highly paid administrators and clinical staff at hospitals.

Click to see the executive order from Gov. Andrew Cuomo capping nonprofit pay at $199,000 for state-funded staff.

Of New York City’s 31 nonprofit hospitals, IRS records show only eight receive 30 percent or more of their annual revenue from Medicaid, the largest source of state funding to hospitals.

Payments from Medicare, the massive federal health program for the elderly and disabled, do not count toward the state’s tally.

Even with other reported government funding factored in, at most 10 city hospitals will be subject to the executive pay rule.

The governor was spurred to action by publicity of outlandish executive salaries paid for by Medicaid funds at an organization serving the developmentally disabled.

Medicaid-funded salaries came under more fire from Congress, where the House Oversight committee counted 15 New York executives who brought in a half million dollars or more annually, largely paid for by the state and federal governments.

The hospitals that will be targeted by Cuomo’s salary cap sit in poorer neighborhoods and serve large volumes of patients who depend on Medicaid. They include Bronx-Lebanon Hospital Center, Interfaith Medical Center, Brookdale Hospital Medical Center and Wyckoff Heights Medical Center.

Yet most of the city’s highest-paid hospital employees work at nonprofit organizations that will be exempt under the new rules.

At Montefiore Hospital in the Bronx, CEO Steven Safyer received $1.4 million base compensation, $707,100 in bonuses, a $2.5 million payout from his deferred compensation plan and tens of thousands of dollars in other benefits in 2011. That year, Medicaid accounted for 27 percent of Montefiore’s revenue.

At Beth Israel Medical Center, physicians Mark Sultan, Mark Urken and Alejandro Berenstein were paid about $5 million, $3.7 million and $3 million respectively that year. Herbert Pardes, executive vice chairman of New York Presbyterian, took in $4.1 million, $1.8 million of which came in the form of a bonus. And Enrico Ascher, director of vascular surgery at Maimonides Medical Center, made $3.1 million.

As New York’s executive compensation rules emerged, other state-subsidized industries have successfully pressed for exemptions.

The first round of revisions excluded businesses and individuals that provide professional services. It also exempted companies, such as pharmacies or medical device suppliers, that make products instead of providing services. The most recent version, for which public comment ended last week, shifts researcher salaries from an administrative expense to a business one, further carving out space in budgets for pay packages. 

“The thing has been so gerrymandered that the big providers have gotten the outs that they’re looking for and won’t feel an impact,” said Doug Sauer, CEO of the New York Council of Nonprofits, a trade association whose members will be subject to the rules. (Sauer earned $140,000 in 2011.) 

The Greater New York Hospital Association, a trade organization, did not return multiple phone and email requests for comment. But the group broadcast its approval of the governor’s action in Cuomo’s announcement of the proposed regulations. “GNYHA agrees and supports his efforts to ensure that best practices and strong governance oversight are used in determining executive compensation,” read a statement from president and CEO Kenneth Raske.

The Department of Health did not comment on the rule under consideration. Gov. Cuomo’s office did not return phone calls requesting comment.

Even for hospitals that receive more than 30 percent of funds for state government —like Bronx-Lebanon Hospital Center, where President and CEO Miguel Fuentes made more than $1.7 million in 2011, according to tax records — there’s one last safety valve: state-approved waivers.

Should Bronx-Lebanon seek a waiver to protect Fuentes’ salary, the Department of Health will be able to consider the “nature, size and complexity” of the institution and how Fuentes is paid compared to his competitors.

While the rules are not yet finalized, nonprofit leaders suspect that in the end not many compensation packages will actually be cut.

“Hopefully, these regulations will reveal that 99.9 percent of nonprofit executives are paid correctly,” said Michelle Jackson, general counsel for the Human Services Council of New York, a group that represents nonprofits in the state.

In the city, 73 hospital employees, ranging from an assistant professor to hospital CEOs, earned more than $1 million in total annual compensation directly from their institutions, according to 2011 tax returns.

Compensation consultants and health industry spokespeople often argue that soaring pay for hospital executives is not only deserved but required to maintain top-of-the-line performance at world-renowned institutions. This is especially true now, they argue, as the sector undergoes a sea change via the Affordable Care Act. Hospital trustees do not see now as the time to change stewardship.

“I think one reason we are seeing some growth over the past couple years, believe it or not, is health care reform,” said Terry Brown, managing director of the Los Angeles office for Pearl Meyer and Partners, a health care compensation consulting firm.

Executives who formerly got flashy perquisites like luxury cars and club memberships are now instead receiving higher salaries, retirement packages and bonuses for improving quality of care, as hospitals are judged by how successfully they treat their patients.

“Organizations are afraid of losing executives before going into the new health care world that we’re going to enter,” said Brown. “There has been a lot of activity of putting programs in place to make sure those executives stay around for a couple of years.”

Highly paid hospital executives can’t rest easy quite yet. On Tuesday Attorney General Eric Scheniderman announced a package of bills to reform nonprofits – including an Executive Compensation Reform Act, sponsored by Sen. Carl Marcellino and Assemblyman Steve Englebright of Long Island, that would hold boards responsible for reviewing pay at the top.

Such a law could help the attorney general’s office exercise its existing authority to rein in excess, and to identify potentially outsize pay. When Cuomo served as attorney general, the then-CEO of the Wyckoff Heights Medical Center was chauffered in luxury cars by hospital security guards, and collected a $661,000 salary in 2010. The troubles only surfaced later as the hospital fell into financial ruin.

“The right way to fix problems of executive compensation is through better enforcement,” said Sean Delany, chair of government relations at the Nonprofit Coordinating Committee and executive director of Lawyers Alliance for New York. “It’s not easy to find the needle in the haystack. Enforcement is the right answer, but the enforcement agency in charge of this doesn’t have the right tools.”

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