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Amendments to Public Health Law Require Resident Health Care Facilities to Spend 70% of Revenue on “Direct Resident Care,” Cap Facility Profits at 5%, and Limit Executive Pay

Written by: T. Andrew Graham, Esq., Anthony Venditto, Esq., and Evan O’Hara, Esq.

In February of 2021, Governor Andrew Cuomo announced that, as part of his effort to enact sweeping nursing home reform legislation, he would not sign a budget for the 2022 fiscal year into law unless it included legislation requiring nursing home facilities to invest revenue into patient care.  As a result of these efforts, New York State’s recently passed 2022 Enacted Budget contains Mental Health and Hygiene Bill A3007-a/S2507-a.  The Bill amends New York State Public Health Law, in part, by creating Section 2828 titled “Residential health care facilities; excess revenue”, and Section 2828-a titled “Excess revenues for management salaries”.  Here are the major highlights of these two new statute sections:

    1. Revenue Spending Requirements – The Amendment requires 70% of a facility’s revenue be spent on “direct resident care,” with a further requirement that 40% of the revenue be spent specifically on “resident-facing staffing.”
    1. Calculating Expenditures – Beginning in January of 2022, facilities will be required to deduct 15% of costs associated with “resident-facing staffing” services that are contracted out to third parties when calculating how much revenue is spent on “direct resident care.”
    1. Failing to Meet the Minimums – If a facility fails to meet the minimum requirements for “resident-facing staffing” or “direct resident care” expenditures, it will be required to spend the amount of money needed to the meet the minimum requirements in a manner to be determined by Department of Health regulations by October 1st of the following year.
    1. Capping Facility Profits at 5% – The Amendment also effectively places a cap on facility profits by requiring any revenue in excess of 5% of a facility’s total operating and non-operating expenses be spent in a manner to be determined by Department of Health regulations by October 1st of the following year. If a facility fails to spend the excess revenue by that time, the revenue shall be payable to the State of New York within one month.  The Department can collect excess revenue by methods including deductions or offsets from payments made pursuant to Medicaid programs.
    1. Definitions Under the Statute – Section 2828 contains several definitions relating to terms used above, specifically:
      • “Revenue” means the total operating revenue from all payer sources reported in the facility’s cost reports submitted to the Department;
      • “Expenses” includes all operating and non-operating expenses before extraordinary gains, but expressly excludes related party transactions to the extent they exceed fair market value, and compensation for employees who are not actively engaged in or providing services at the facility;
      • “Direct Resident Care” excludes capital depreciation, rent and leases, fiscal services, and administrative services; and,
      • “Resident Facing Staffing” shall include all staffing expenses in the ancillary and programs services categories on exhibit h of the residential health care reports as in effect on February 15, 2022.
    1. Cap on Management Salaries – Section 2828-a places restrictions on salaries for executive and managerial positions which do not involve direct resident care by allowing the Department to set salary limits for those positions based on the number of beds at a facility, and states that regardless of the number of beds at a facility, no such salary shall exceed $250,000. It also states that a facility shall not expend more than 15% of its expenses on executive or managerial salaries.

We are monitoring developments on this and will provide updates periodically.  For any questions related to the above, or other changes in the law impacting health care providers, please contact us here.