Non-profit Pay Headed Under the Microscope After Medicaid Ordeal in New York

New York state is putting hospitals and other health care organizations under investigation to see if they overpaid top executives and board members. The announcement of this task force and investigation follows on the coat tails of the story of the Levy brothers and the Medicaid money they were paid as executives of a Medicaid-financed nonprofit organization serving the developmentally disabled.

According to reports, Philip and Joel Levy each had luxury cars paid for with public money. Philip H. Levy apparently charged the organization $50,400 for his daughter’s living expenses one year when she attended graduate school at New York University, which helped her buy a co-op apartment in Greenwich Village.

When asked how this was even possible, Thomas A. Maul, former commissioner of the state’s Office of Mental Retardation and Developmental Disabilities commented “They’re bigger than government in some ways… That isn’t what our system was supposed to be.”

An article in the New York Times relayed the story of investigations into inflated salaries at the Young Adult Institute (Y.A.I.), the adult home care organization run by the Levy brothers. According to the article, a group of fund-raisers would work year round organizing large annual events to raise significant moneys for the organization. When it came time for the organization to seek reimbursement from Medicaid, however, those same fund raisers became account workers at the Y.A.I.

The fraud didn’t stop there. Y.A.I. also submitted false documents asserting that all of its group home regional directors were licensed social workers, and in doing so, were able to inflate reimbursements for their salaries from Medicaid

The fraud came to a screeching halt when prosecutors from the United States attorney’s office for the Southern District of New York, and the New York attorney general’s office brought a federal false claims lawsuit under seal in 2009 against the organization for the practices. The nonprofit group’s longtime budget director, Richard Faden, who was involved in the preparation of the documents, became a whistle blower and told prosecutors that for years expenses had been pumped up on annual financial reports to win higher reimbursements from Medicaid. Y.A.I. agreed to pay $18 million in restitution and penalties to settle the false claims action, denying wrongdoing and saying it had made errors “under the complex cost-reporting rules that apply to Y.A.I.’s residential services.”

Although a similar task force began earlier this year focusing solely on Medicaid, New York Governor Andrew M. Cuomo announced in August that he has created a new task force to investigate executive and administrator compensation levels at not-for-profits that receive taxpayer support from the state. New York State Inspector General Ellen Biben, Secretary of State Cesar A. Perales, the Medicaid Inspector General Jim Cox, and the Superintendent of the Department of Financial Services Benjamin Lawsky will lead the task force.

“Not-for-profits that provide services to the poor and the needy have a special obligation to the taxpayers that support them. Executives at these not-for-profits should be using the taxpayer dollars they receive to help New Yorkers, not to line their own pockets. This task force will do a top-to-bottom review, not only to audit current compensation levels, but also to make recommendations for future rules to ensure taxpayer dollars are used to serve and support the people of this state, not pay for excessive salaries and compensation,” Governor Cuomo said.

Governor Cuomo continued, “There is a whole range of compensation levels and extremes that have existed for too long and must be reviewed. The use of taxpayer dollars must be scrutinized at every level.”

New York’s Medicaid system is the most expensive in the country. About 1,926 people who worked at New York not-for-profits that received taxpayer money from state mental health agencies, were paid yearly salaries of $100,000 or more, according to the state’s budget department. The average salary was $168,555, and all the salaries added up to $324.6 million.