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January Seventeen 2012 TO: FROM: RE: Chief Executive Officers (New York State) Kenneth E.

Raske, President Governor Cuomo Releases Proposed 2012-13 New York State Budget


New York Governor Andrew Cuomo today released his proposed budget for State fiscal year (SFY) 2012-13, which begins on April 1, 2012. A press release describing the budget is attached. The mid-year update to the financial plan had forecast a $350 million deficit for 2011-12 and a $3.5 billion deficit for 2012-13. The Division of the Budget (DOB) now expects the 2011-12 budget to end in balance, and tax reforms enacted in December generated $1.5 billion in net new revenue for 2012-13, reducing next years deficit to $2 billion. The proposed budget closes the remaining $2 billion deficit mainly through spending cuts. The Governor estimates that his proposed cuts and agency streamlining initiatives will hold year-over-year State operations spending growth to only 1.9%. The Governors budget also contains major infrastructure and economic development initiatives, as outlined in the Governors State of the State Address earlier this month. Below is a preliminary description of the Governors budget proposals. GNYHA will provide more details as they become available. Medicaid Global Cap and State Takeover of Local Medicaid Spending Growth As you know, last years budget included permanent restraint on the rate of growth in New York State Department of Health (DOH) Medicaid spending. Specifically, the law restricts the rate of growth to the 10-year rolling average of the medical component of the consumer price index, which for 2012-13 is approximately 4%. The statute caps DOH Medicaid spending at $15.3 billion in the current fiscal year and $15.9 billion next year, requires DOH and DOB to monitor monthly spending, and authorizes DOH to take action if spending is projected to exceed the cap. While the annual restraint on growth is permanent, the authorization for DOH to take unilateral action to reduce spending to remain within the cap expires on March 31, 2013. The Governors budget would extend these so-called superpowers through March 31, 2014, and set the cap for 2013-14 in statute at $16.6 billion.

The Governor also proposes a complete State takeover of local government Medicaid spending growth by calendar year 2015. Specifically, the current 3% growth cap would be reduced to 2% in 2013, 1% in 2014, and 0% in 2015, which the Governor estimates would cost $1.2 billion over five years. He also proposes a more aggressive schedule for the planned State takeover of Medicaid administration. While the DOH Medicaid spending cap is increased to account for the additional State costs associated with the State takeover of local Medicaid spending growth, it is not adjusted to account for the influx of Medicaid beneficiaries when the expansions under the Affordable Care Act (ACA) begin in January 2014. Removal of Hospital Management The Governors budget again contains a provision to allow DOH to remove managers of hospitals, diagnostic and treatment centers, and adult care facilities and appoint a temporary operator. DOH may take this action when the Commissioner determines there have been significant management failures, including, but not limited to administrative, operational or clinical deficiencies or financial instability in a facility that seriously endanger the life, health or safety of residents or patients or jeopardize existing or continued access to necessary services within a community. This broad language was rejected by the Legislature last year. What is new in this years proposed budget is a provision dealing with the board members of not-for-profit health facilities, reflecting the recommendations of the Medicaid Redesign Team (MRT) Brooklyn work group chaired by Steven Berger. Specifically, DOH may suspend or limit an operating certificate for a not-for-profit corporation due to repeated violations of law and regulation, the indictment on felony charges of any member of the corporations board of directors, or action by the Attorney General to remove a board member. DOH may limit the operating certificate to apply only to the remaining board members. If a suspension or limitation may jeopardize access to necessary services, DOH may appoint temporary board members so the corporation can continue to function. MRT Recommendations GNYHA understands that DOH plans to implement many of the recommendations passed by the MRT as part of its Phase 2 work group process. Only provisions that require statutory change were detailed in the budget documents released today, but DOH will release additional information later this week identifying all of the specific recommendations it plans to implement this year. GNYHA will send additional information when the full list of MRT recommendations to be implemented this year is released. It is possible that some of the MRT recommendations not included for implementation this year may be incorporated into the States request for a Federal waiver related to the savings generated from MRT activities and reforms. Hospital Provisions The hospital provisions included in the proposed budget are described below:

Payment rates. As a reminder, the SFY 201112 budget included provisions to eliminate the trend factor for hospital services and to continue the 2% across-the-board cut to feefor-service payments through SFY 2012-13. Quality provisions. The proposed budget continues the $51 million potentially preventable readmissions and complications (PPR/PPC) cut, as well as the exemption for behavioral health PPRs through March 31, 2013. The budget would also authorize DOH to implement a Medicaid serious adverse events policy for ambulatory surgery services occurring in hospital outpatient, office-based, or ambulatory surgery settings. Charity care. The proposed budget does not include specific language to modify the Indigent Care Pool allocations to comply with Federal priorities for distributing Medicaid DSH funds under the ACA. However, as recommended by the MRTs Payment Reform Work Group, it is expected that a work group will be named to evaluate this issue and make specific recommendations for inclusion in the enacted budget.

The proposed budget also: mandates the electronic reporting of HCRA assessments such as the cash receipt assessments and the hospital quality contribution. specifies that savings from hospital and nursing home closures and bed downsizings will be dedicated to supportive housing development. implements a primary care service corps loan repayment program. authorizes the DOH Commissioner to promulgate regulations regarding the distributions of the Empire Clinical Research Investigators Program (ECRIP) grant program as of April 1, 2013.

Health Benefit Exchange The proposed budget includes authorization for the establishment of a New York State Health Benefit Exchange (Exchange). The budget language reflects the agreement negotiated between the Assembly and the Senate last spring that passed the Assembly but was not taken up by the Senate. The proposed Exchange functions are largely those specifically required under the ACA, and the Exchange would not have the authority to engage in selective contracting, nor would it have broad regulatory authority over the insurance markettwo provisions from the Governors initial Exchange proposal that GNYHA strongly opposed. Key provisions of the budget proposal include: Governance. An Exchange Board of Directors is proposed, comprised of nine voting members appointed by the Governor including, ex officio, the DOH Commissioner and the Superintendent of Insurance. Leaders of the Senate and the Assembly will each recommend two appointments. Board members must have expertise in individual health coverage, small business coverage, benefits administration, health care finance, health

care delivery systems, or purchasing coverage. The chair of the Exchange board will be appointed by the Governor but must be confirmed by the Senate. Exchange Functions. The Exchange would be required to make qualified health plans available; certify health plans; assign ratings to plans; standardize the format of benefit materials; operate a toll-free information hotline; maintain a Web site with standardized plan information; make available a calculator to allow individuals to determine the cost of coverage after subsidies; make grants to navigators; provide information on government program eligibility; determine exemptions from the individual mandate; operate a Small Business Health Options Program; and consult with regional advisory committees and stakeholder groups. Exchange Studies and Recommendations. The budget would require the Exchange to conduct studies and/or make recommendations on a number of major policy issues including: What to do about State benefit mandates not included in the ACAs essential benefits package Standardization of benefits inside and outsides the Exchange Whether to require that small group and individual coverage be sold only through the Exchange and whether to merge these markets for premium rating purposes The advantages and disadvantages of the Exchange functioning as an active purchaser, selective contractor, or insurance clearinghouse Whether to establish a Basic Health Plan Offering of health savings accounts within the Exchange Financial self-sustainability of the Exchange Integration of public programs and the Exchange The role of the Exchange in decreasing disparities in health care services

Many of these studies have already been initiated by the State. The budget provides that Exchange cannot take any action based on these studies without additional legislative authority. These reports are due by August 1, 2012. Regional Advisory Committees. The proposed budget establishes five regional advisory committees as follows: New York City, Metropolitan suburban, Northern, Central, and Western. Each committee will have five members who must represent the interests of consumers, providers, insurers, small business, brokers, or labor. The Senate and Assembly will recommend one appointment apiece to each regional committee. The budget proposal also stipulates that if the Supreme Court determines the ACA unconstitutional or if it is repealed by Congress, the Legislature must convene within 180 days to consider appropriate legislative action. Executive Compensation The proposed budget includes provisions to require State agencies, including DOH, the Office of Mental Health, and others to, as of April 1, 2013 and annually thereafter, calculate

adjustments to provider payments based on performance metrics determined by the agencies commissioners. These metrics would include the actual cost of providing such services, the percentages of administrative costs, and the determination and levels of executive compensation, among others. The annual adjustments would be subject to any Federal restrictions and the review and approval of the budget director. In addition, as of April 1, 2012, these agency commissioners would be authorized to promulgate regulations or otherwise address provider administrative costs and executive compensation eligible to be reimbursed with State financial assistance or State-authorized payments for operating expenses. Under such regulations the DOH Commissioner, for example, must require that providers receiving reimbursements from DOH comply with requirements that 1) no less than 75% of the State financial assistance or State-authorized payments for operating expenses will be directed to direct care or services, rather than administration, and 2) to the extent practicable, reimbursement will not be provided for compensation paid to any provider executive in excess of $199,000 per year. Agency commissioners would have the discretion to adjust this figure annually subject to the budget directors approval within certain defined parameters. The budget language allows providers a waiver from compliance with these requirements for good cause subject to the approval of the State agency and budget director. GNYHA has long worked on executive compensation issues on behalf of our members, and will continue to do so throughout the budget process. Long Term Care The proposed budget contains several provisions that pertain to nursing homes, home health agencies, assisted living programs, and other long term care services providers. Key long term care provisions, many of which relate to the implementation of proposals made by the MRT, include the following: Eliminating the requirement, enacted in last years budget, that in order for a nursing home to receive bed reservation payments, at least 50% of its eligible residents must be enrolled in a Medicare Advantage Plan, and authorizing the DOH Commissioner to establish, effective April 1, 2012, rates for bed reservation payments for residents over 21 years of age that will achieve aggregate savings of at least $40 million. Allowing for the re-investment of Medicaid savings from hospital and nursing home closures or bed decertifications to expand supportive housing and related services. Repealing Social Services Law Section 461-l(3)(i), which had allowed the establishment of new assisted living program beds following the decertification of an equal or greater number of nursing home beds. Allowing assisted living programs to contract with multiple long term home health care programs, certified home health agencies and/or other qualified providers.

Permitting licensed home care service agencies that contract with local districts to temporarily serve Medicaid recipients who transition to fee-for-service from managed care or managed long-term care. Requiring managed care plans and managed long-term care plans to offer the consumerdirected personal care program to their enrollees. Eliminating the requirement that an applicant seeking to operate managed long-term care plans be a hospital, licensed or certified home care agency, health maintenance organization, or not-for-profit organization with a history of providing or coordinating health care and long-term care services to elderly and disabled persons. Prohibiting spouses or parents from refusing to contribute any available income or assets toward the costs of health care services being provided to a spouse or family member to reduce unnecessary Medicaid financing of long-term care services.

Certificate of Need (CON) Reform The proposed budget amends the State law passed last summer that created a process for providers to notify DOH of their plans to undertake certain projects including repair and maintenance projects, non-clinical infrastructure projects, and one-for-one equipment replacements, in lieu of prior review and DOH approval. The proposed budget clarifies that repair and maintenance projects with a total project cost of less than $6 million will not require even written notice. Separately, GNYHA and HANYS are pursuing additional reforms of the States CON program to further reduce the number of projects that require prior approval and streamline the review of projects that will remain subject to review. GNYHA will thoroughly analyze the proposed budget and share more information with you in the days to come. Attachment cc: Government Affairs Chief Financial Officers

State of New York | Executive Chamber Andrew M. Cuomo | Governor For Immediate Release: January 17, 2012

GOVERNOR CUOMO'S 2012-13 EXECUTIVE BUDGET AND REFORM PLAN OUTLINES VISION TO CONTINUE BUILDING A NEW NEW YORK Governor Andrew M. Cuomo today unveiled his 2012-13 Executive Budget and Reform Plan, which expands on the historic reforms enacted last year to continue building a New New York. As a result of the tough decisions and bipartisan cooperation of the past year, the State is able to close the current deficit without broad cuts, new taxes, fees or gimmicks. In addition, the Governor's Executive Budget proposes major reforms to reduce the cost of government for taxpayers, implements accountability in our schools to put students first, and puts the State in a position to leverage billions of dollars in private sector investment to grow the economy and create jobs. "Because of the tough choices and the historic reforms we achieved last year, we are able to propose a pro-growth budget, tackle broad fiscal reform, drive accountability in our schools to put students first, and leverage tens of billions of dollars of new investment to create jobs without significant cost to the taxpayer," Governor Cuomo said. "Through fiscal discipline and working in partnership with the private sector, we are making New York a pro-growth State once again. This budget represents the next step in our plan to transform New York State." The Governor's Executive Budget closes the current $2 billion budget deficit with no new taxes or new fees. It also proposes sweeping mandate relief and pension reform that will save taxpayers and local governments billions of dollars and launches historic education reform to put students ahead of the education bureaucracy. The Executive Budget also lays the groundwork for an innovative $25 billion economic development agenda, funded largely by leveraging billions in private sector investment rather than by taxpayer dollars. The State operating budget increases by less than 2 percent while honoring the two-year commitment made in 2011-12 to increase School Aid and Medicaid funding at approximately 4%. Highlights of the plan include: Closing the current budget gap with no new taxes, fees or gimmicks, and including zero growth in State agency spending; Eliminating automatic spending inflators and implementing reforms throughout the

budget to ensure that spending increases for service providers reflect performance and actual cost; Allocating $1.3 billion in State investment designed to spur a total of $25 billion from other sources to launch and accelerate major infrastructure projects and create thousands of jobs; Creating a plan for the State to take over 100% of the costs of Medicaid growth that will be phased in over three years, saving local governments $1.2 billion over the next five years; Creating a pension reform plan that will save State taxpayers and local governments outside New York City $83 billion, and will save New York City $30 billion over the next 30 years; and Increasing school aid by $805 million, including $250 million linked to improved academic performance and management efficiency, and implementation of an enhanced teacher evaluation process. Due to the structural reforms enacted in last year's budget as well as the reforms proposed in this budget, the budget gap in 2013-14 is projected at $715 million. That is the lowest "first out-year" budget gap in two decades. The Executive Budget recommendations cut the projected four-year deficit by more than half, from $16.4 billion to $7.4 billion. The Executive Budget includes: All Funds spending of $132.5 billion in the fiscal year that begins April 1, 2012, a decrease of $225 million from 2011-12. The back-to-back decline in All Funds spending represents the first time in decades that this has occurred. State Operating Funds spending of $88.7 billion, an increase of $1.7 billion, or 1.9 percent. State Operating Funds exclude federal funds and long-term capital spending.

Financial Plan
The financial plan outlined by the Governor is based on the principles of fiscal discipline and reality-based budgeting that do not include using new taxes, fees, or one-shot gimmicks. State agency operations growth is held flat, while local assistance programs grow by 2.6%. Maintain fiscal discipline: The $3.5 billion budget gap identified in December is closed through $2 billion in spending reductions in the Executive Budget proposed today, and $1.5 billion in revenues from the middle-class tax reforms enacted last year that made the tax code more fair and equitable. Even with 4% increases in education and Medicaid spending, and a 2.6% increase in Aid to Localities, there will be a net reduction in All Funds spending. Zero growth in State agency spending is achieved by redesigning State agency operations to reduce duplication, redundancy and waste. Eliminate and reform automatic growth inflators: Last year, the Governor brought reality back to the definition of "deficit" in Albany by eliminating certain automatic inflators and pegging increases in education and Medicaid spending to rational and affordable measures of growth. These actions saved New York billions of dollars and helped to stabilize the State's finances. The 2012-13 financial plan works to further control automatic cost growth and tie

growth to rational measures. For 2012-13, inflators like cost of living adjustments will be kept flat and reforms will be introduced to ensure that spending increases in future years reflect performance and actual cost.

Economic Development
The 2012-13 Executive Budget funds a comprehensive and coordinated blueprint for economic development. The plan is designed to create jobs in New York State through public-private partnerships that leverage State resources to generate billions of dollars in economic growth, improve the State's infrastructure and support regionally-based economic strategies. Leverage State assets to spur billions in private sector investment and create thousands of private sector jobs: The Executive Budget lays the groundwork for an innovative $25 billion economic development agenda, funded largely by leveraging billions in private sector investment rather than taxpayer dollars. The New York Works Fund and Task Force will coordinate $1.3 billion in State funding to spur up to $25 billion in investment from other sources, including private companies, the federal government, and authorities, to allow major projects to move forward that will create jobs and improve the State's infrastructure. To accelerate select infrastructure projects with maximum economic impact, the Governor's plan will use provisions from the Design Build legislation, which was passed in the 2011 December extraordinary session, that will allow projects to begin now and reduce costs by hundreds of millions of dollars. A Second Round of Regional Economic Development Awards: The budget includes a new round of $200 million in competitive resources for the Governor's Regional Economic Development Councils. Of this total amount, $130 million is capital funding included in the New York Works program and $70 million comes from Excelsior Tax Credits. The Councils have transformed the State's economic development approach from a top-down model to a bottom-up, community-based one. The second round of awards will allow each region to continue shaping its own economic destiny.

Reimagining Government
The Executive Budget builds on Governor Cuomo's work to reinvent state government to perform more efficiently and better protect taxpayer money. The Executive Budget provides additional funding for the work of the Regional Economic Development Councils, and advances SAGE commission proposals to reverse decades of bureaucratic growth and refocus agencies' operations in ways that benefit service recipients and taxpayers alike. The Governor is also proposing sweeping structural reforms to relieve local governments of State mandates that drive up local costs. These reforms, which address the largest cost-drivers for local governments, will help municipal leaders meet the pressures of the prolonged economic downturn, and will help local governments meet the goals of the property tax cap. Healthcare Redesign: The Executive Budget calls for continued reforms to make the State's health system perform better and cost less. By enacting the Health Exchange, 1 million uninsured New Yorkers will gain coverage. It will reduce costs to individuals who purchase coverage directly by 66% and small businesses by 22%, all financed by the federal government at no cost

to New York. Reduce burden on counties by taking over Medicaid growth costs: Medicaid growth is a major cost driver for counties. In 2006, the State capped the amount of Medicaid cost growth that counties have to pay. Currently, the cap is 3% of growth; all growth over 3% is paid by the State. To provide significant fiscal relief to counties and to New York City, the State will phase in a 100% takeover of the costs of Medicaid growth. In the 2013 fiscal year, the county cap will fall to 2% of Medicaid growth; in county fiscal year 2014, the county share will be reduced to 1%. Starting in county fiscal year 2015, the State will pay 100% of the costs of Medicaid growth. The takeover by the State of a greater share of local Medicaid expenses will save counties and New York City $1.2 billion over the next five years. Enact pension reform: Next to Medicaid, pension costs are the most significant burden on local governments. The Governor called for a new tier in the State pension system that will save the State and local governments outside of New York City $83 billion and New York City $30 billion over the next 30 years. The new pension plan would have progressive contribution rates between 4% and 6% with shared risk/reward for employees and employers to account for market volatility. It includes a voluntary option for Defined Contribution following the TIAA-CREF model. Employees taking this Defined Contribution will vest in this system after one year. This option will be portable. No current employees will be affected by the Governor's pension reform plan. Aid to Local Governments: In addition to these reforms, the Executive Budget provides $715 million to local governments in unrestricted operating aid, and an additional $79 million in grants to promote greater efficiency. The budget also reforms the Early Intervention program to reduce counties' administrative burdens and cut their costs by $99 million over five years, and reforms the Preschool special education program to reduce costs for counties outside of New York City by $150 million over five years. The Executive Budget does not include any cuts to Early Intervention or Preschool special education services.

Reforming the State's Education System

The Executive Budget includes major reforms to the State's public education system that are aimed at bolstering student achievement and improving efficiency for the taxpayer. Increase in School Aid: The budget includes a total increase of $805 million in School Aid, including $250 million for performance grants linked to improved academic performance and management efficiency. High need school districts will receive 76 percent of the 2012-13 allocated increase and 69 percent of total school aid. The additional aid is linked to implementation of an enhanced teacher evaluation process. Teacher Evaluation System: The Governor announced that the State Education Department and school employee unions will have 30 days to agree on a new effective teacher evaluation system or the Governor will propose an evaluation system in the 30 day budget amendments. Schools will be given one year to implement the system or risk forfeiting an increase in education aid in the 2012-13 and 2013-14 school budgets.

Program Overview
Environment and Energy: This year's Executive Budget maintains services at current levels for parks, environment and agricultural programs, and makes capital investments to strengthen infrastructure and improve energy management. The Executive Budget continues to support critical programs, including the Environmental Protection Fund, which will be maintained at $134 million, the same level as in 2011-12. As part of the New York Works program to accelerate capital infrastructure projects statewide, the Budget includes $102 million in new funding for DEC to advance flood control, coastal erosion and critical dam safety projects, and $94 million for the large backlog of capital rehabilitation and improvement needs in 48 State parks and historic sites as well as the ski facilities operated by the Olympic Regional Development Authority. Health Care: The Executive Budget reflects the continuation of the Medicaid spending cap enacted in 2011-12 and recommends a 4% funding increase consistent with its provisions. To achieve savings needed to address the State's budget gap, the Budget recommends $19.2 million in reductions to public health and aging programs, including $3.5 million in savings from administrative efficiencies. Higher Education: Consistent with the provisions in the NYSUNY 2020 Challenge Grant Program, the Executive Budget maintains General Fund operating support for SUNY and CUNY colleges at prior-year levels. The Executive Budget also accommodates authorized 2012-13 tuition increases by providing $113.2 million in additional spending authority for SUNY and $66.6 million for CUNY. The Executive Budget maintains base operating aid funding for community colleges at 2011-12 levels of $2,122 per full-time equivalent student. Human Services: The Executive Budget provides funding for core supportive services for needy populations, limits spending growth to address the State's fiscal challenges, and implements measures to improve program performance. In child care, the Executive Budget increases General Fund support for child care subsidies by $93 million to offset a reduction in funding through the Federal Temporary Assistance for Needy Families (TANF) program. Mental Hygiene: The Executive Budget supports significant and fundamental reforms that will strengthen the oversight of care provided to individuals in institutions and community residences. It also makes investments to improve the accountability of mental hygiene agencies, and reforms the payment process for not-for-profit providers. These proposals result in mental hygiene system funding of $8.2 billion in 2012-13, an annual spending increase of $85 million, or 1.0 percent. Public Safety: The Executive Budget advances key initiatives to enhance public safety, including expanding the DNA database to include all crimes and improving emergency response and preparedness, while supporting recovery from Hurricane Irene and Tropical Storm Lee and continuing to lower the cost of ongoing operations. The budget includes $4.6 billion to protect New York's residents.

Revenue Actions and Tax Reform: This budget includes no new or increased taxes or fees. The Executive Budget proposes tax enforcement and loophole closing actions to ensure that all individuals pay their fair share of tax liabilities. The budget includes $1.5 billion in net revenues in 2012-13, reflecting fair tax reform enacted in December that implemented a new tax bracket for higher income earners, cut taxes for middle class New Yorkers to the lowest level in 58 years, and increased the overall fairness of the tax system. Transportation: The Executive Budget makes strategic and accelerated investments in the State's highway and bridge infrastructure including a new $1.16 billion in New York Works State and federal capital funds that will create jobs and improve the transportation system to support business and economic expansion. The New York Works program will accelerate capital investment, building upon core transportation funding, to provide a total DOT capital program of nearly $4.5 billion in 2012-13, including highways, bridges, rail, aviation, non-MTA transit, and DOT facilities. Funding for local highway and bridge projects under the Consolidated Highway Improvement Program is maintained at $402.8 million. The MTA's capital program will receive $770 million in new State support over a multi-year period to help fund the MTA's $22.2 billion 2010-14 program. ###