In December, the New York State Education Department (“SED”) released a 59 page report to the Governor, State Comptroller, and New York State Legislature outlining the preschool special education system and recommendations on how to improve the system. While this does not provide any definitive guidance on how the preschool special education sector will be funded for 2016 and forward, it does provide some insight into the initial thoughts that SED has on the subject, and the direction we can expect to see things moving.
SEIT Services: The New York State Legislature has mandated that SEIT move to a fee for service basis rather than a mandated tuition rate, however, the legislature did not mandate how such a system would be implemented nor did they outline what such a system should look like. In its report, SED outlined 3 proposals:
- Remaining with a cost based tuition rate, similar to what is in place now, with the rate developed based upon delivered units and not mandated units. In such a model, each provider’s rate would need to be modified to develop a provider specific rate that is based off delivered services not mandated. The rate would still get reconciled annually, similar to how it is reconciled now.
- A provider specific fixed fee for service rate which is not cost based. Under this methodology, providers would still need to complete a CFR, but the rate would not undergo an annual reconciliation. SED would still explore recoupments for inappropriate spending by a provider or could potentially adjust a provider’s rate on a prospective basis if the provider underspent its rate in a particular year. This would effectively remove any ability to generate long-term profitability from a provider’s SEIT program.
- A regional fixed fee for service rate which is not cost based. Similar to provider specific fixed rate, providers would still need to complete a CFR and there would not be a reconciliation of the rate. SED could explore readjusting the rate prospectively if the overall rate for a region were to decline from one year to the next. If a regional rate is used, it could have a significant impact, positive or negative, for a provider. As a result, in establishing a regional rate, a phase-in may be implemented for fiscal 2016 (e.g. a provider’s rate cannot fluctuate by more than 10%).
All three of these models would be delivery based as mandated. Other issues identified by SED which could be considered in developing new SEIT rates, especially with respect to the first bullet, are:
- Revisiting the minimum billable units. Right now SEIT staff must spend at least 66% of their time providing direct service, otherwise SED will modify SEIT units of service, thus driving down rates. SED is looking at whether this percentage should be regionalized to allow providers in rural areas more flexibility for travel time.
- In its report, SED stated that SEIT teacher salaries are much higher than classroom staff. This is attributable to many providers paying their staff only for direct service time and not for indirect time. In order to bring SEIT staff salaries “more in line,” SED has suggested holding SEIT teacher’s compensation to a regional average.
- Reducing non-direct care screens for SEIT programs to some amount less than 30%
- Altering median salaries for executives based upon size and complexity of organizations, similar to how Executive Order 38 allows agencies to look at salary studies to justify compensation. This would be very beneficial for large multi-agency providers, but could have a negative impact on small, stand-alone agencies.
How these methodologies and identified issues will ultimately shake-out in the final SEIT rates are anybody’s guess right now.
Preschool Self-Contained and Integrated Classrooms: The current reimbursement has several flaws in it. The current rate structure doesn’t adequately consider: fluctuations in enrollment; significant differences in classroom needs of children and related classroom ratios; related service needs of children; the difficulty for programs to attract typically functioning children; and numerous other concerns. In its open forum, SED heard the fields concerns, and outlined in its report, several ideas that should be considered in whatever model is selected, as well as 3 methodologies for calculating rates. These methodologies include:
- A cost based reimbursement system similar to the one that currently exists with potential modifications to provide consideration to some of the issues identified during the open forum process such as:
- An enrollment adjustment factor that would consider in the reconciliation fluctuations in enrollment, up or down, similar to those implemented last year within the school-age reimbursement methodology.
- Elimination of the reconciliation process when the difference between the prospective rates and final reconciliation rates are within 1% of each other, either way
- As outlined under the SEIT section, potentially modifying executive compensation based upon the complexity of the program run by a provider.
- Potentially revising 1:1 aide, 1:1 nurse, and 1:1 interpreter rates to better reflect the costs providers are actually incurring
- A budget based rate that would allow providers more flexibility to change funding requests from one contract period to another depending on the educational and related services to be provided in accordance with its program approval. This would provide programs with a better alignment of funding with program and educational needs. Under this approach, SED is considering specific cost parameters in the areas of direct classroom expenses, support services, clinical services, non-personnel expenses, administrative expenses, and property costs. The per-student FTE rate would be reconciled annually. This would be similar to grant based contracts (such as UPK) where a specific budget is remitted and approved, and if the full grant isn’t appropriately expended, funds would need to be returned.
- A rebased tuition rate using mandated services to build-in required costs. This would be a regional rate, but it would be more of an add-on rate where based open the classroom ratios and IEP mandate requirements, a provider what get a regional rate that covers various cost categories such as: instructional classroom staffing; related service or clinical staffing; direct care support staffing; Administrative support staffing and OTPS; non-direct-care support staffing; other than personnel services; and property costs. Under this methodology, student FTE utilization would need to be considered to account for the volatility of student volumes throughout the year. This methodology would not necessarily need a reconciliation with SED, however SED would rebase rates on a regular basis to account for changes in regional costs as reported on CFR’s.
As mentioned earlier, SED recognizes that programs are having a difficult time attracting typically developing children into integrated programs. As such, many programs have had to offer discounted rates to attract students. SED is considering several options to the current OCFS offset rate including:
- Allowing the offset to occur on a combined basis, considering both full-day and half-day programs in determining offsetting revenue. Under this approach, if a program is generating revenue in excess of the OCFS offset in its half-day program and its full-day revenue from typically developing children is below the OCFS offset, the excess in the half-day program would be used to reduce the shortfall in the full-day program.
- Limiting offset to the lower of the OCFS offset or actual costs to provide services to the typically functioning children in the classroom. If this approach is implemented, SED would need to establish standards as to what costs represent the costs associated with providing services to typically functioning children.
- Utilizing the OCFS offset for the county where the program operates as opposed to the county where an agency’s corporate offices are located.
- Limiting the offset to actual costs as outlined in the second bullet above without consideration to the OCFS offset.
The NYS Legislature will now need to evaluate SED’s report and determine which approach/approaches make the most sense, with any decisions to take effect July 1, 2015. Whether any of this will include any level of trend factors for fiscal 2016 is uncertain. All that is certain is that there will be some level of change over the next few months and providers will have a short amount of time to digest these changes and implement them.
Kenneth R. Cerini, CPA, CFP, FABFA
Ken is the Managing Partner of Cerini & Associates, LLP and is the executive responsible for the administration of our not-for-profit and educational provider practice groups. In addition to his extensive audit experience, Ken has been directly involved in providing consulting services for nonprofits and educational facilities of all sizes throughout New York State in such areas as cost reporting, financial analysis, Medicaid compliance, government audit representation, rate maximization, board training, budgeting and forecasting, and more.