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State law that boosted human services funding has helped provider CEOs more than direct-care workers

May 30, 2017 2 comments

A 2008 state law, which substantially raised funding to corporate agencies running group homes for people with disabilities, has resulted in only minimal increases in wages for direct-care workers in those facilities, according to a new report from the SEIU Local 509, a Massachusetts state employee union.

Since the law known as Chapter 257 took effect, the average hourly wage for direct-care workers rose by about 14.8 percent to just $13.60 in Fiscal Year 2016, according to the SEIU report, which was released last week (and got little media coverage, btw).

In contrast, the report noted, the law helped boost total compensation for CEOs of the corporate providers by 26 percent, to an annual average of $239,500.

According to the SEIU, raising wages of direct-care workers employed by provider agencies was a key goal of Chapter 257, and yet those workers “are still struggling to earn a living wage” of $15 per hour. The union contended that the funding increases made possible by Chapter 257 “did not come with any accountability measures, leaving it up to the private agencies to determine their own spending priorities.”

The SEIU report found that human services providers in the state received a total of $51 million in net or surplus revenues (over expenses) in Fiscal 2016, which would have been more than enough to raise the wages of all direct-care workers to the $15-per-hour mark.  Yet, the providers have chosen not to do so.

Last week, the state Senate approved a budget amendment that would require human services providers to spend as much as 75 percent of their state funding each year in order to boost the pay of their direct-care workers to $15 per hour.  The amendment had not been approved in the House, so it will now go to a House-Senate conference committee.

The SEIU report provides confirmation of a report by COFAR in 2012 that direct-care workers in the Department of Developmental Services’ contracted system had seen their wages stagnate and even decline in recent years while the executives running the corporate agencies employing those workers were getting double-digit increases in their compensation.

In January 2015, a larger COFAR survey of some 300 state-funded providers’ nonprofit federal tax forms found that more than 600 executives employed by those companies received some $100 million per year in salaries and other compensation. By COFAR’s calculations, state taxpayers were on the hook each year for up to $85 million of that total compensation.

The SEIU report stated that during the past six years, the providers it surveyed paid out a total of $2.4 million in CEO raises. The highest total CEO compensation in the union’s survey was that of Seven Hills Foundation’s CEO who received a total of $797,482 in Fiscal 2016.  Seven Hills received $125 million in state funding that year, with most of that funding coming from DDS.

The SEIU report stated that the average direct-care employee at Seven Hills makes just $12.47 per hour, more than a dollar less than the average wage for workers across all the organizations analyzed in its report.

Vinfen, the third largest provider in the state, provided its CEO with a total of $387,081 in compensation in Fiscal 2016. Vinfen spent a total of $1.7 million on compensation for its top five executives in that fiscal year.

The potential for double-digit increases in CEO compensation was not mentioned by provider-based advocacy organizations that  actually sued the then Patrick administration in 2014 to speed up the implementation of higher state funding under Chapter 257.

According to the plaintiffs in the lawsuit, the higher state funding was needed quickly in order to keep up with the rising costs of heat, rent and fuel, and to increase wages to direct-care staff in order to reduce high staff turnover.

In comments in support of the provider lawsuit in 2014, one key provider lobbyist contended that time was of the essence in boosting provider funding. “…Every day that full implementation (of Chapter 257) is delayed, the imbalance and the unfairness grows,” the lobbyist said.

Yet, according to the SEIU, the providers made 3.2 percent, 2.7 percent and 2.3 percent respectively in surplus revenues on average in the Fiscal 2014, 2015 and 2016 fiscal years. The imbalance that existed was actually between executive-level salaries and direct-care wages in those provider organizations.

As a result of the lawsuit, both the Patrick administration and the incoming Baker administration approved major funding increases to the provider-run group-home line item in the DDS budget, even as it was becoming clear the state was facing major budget shortfalls in the 2015 fiscal year.

“This all suggests,” last week’s SEIU report concluded, “that the amount of state funding is not at issue in the failure to pay a living wage to direct care staff, but rather, that the root of the problem is the manner in which the providers have chosen to spend their increased revenues absent specific conditions attached to the funding.”

Compensation of provider executives in MA reaches $100 million

January 28, 2015 Leave a comment

More than 600 executives employed by corporate human service providers in Massachusetts received some $100 million per year in salaries and other compensation, according to our updated survey of the providers’ nonprofit federal tax forms.

By our calculations, state taxpayers are on the hook each year for up to $85 million of that total compensation.

We reviewed the federal tax forms for some 300 state-funded, corporate providers, most of which provide residential and day services to persons with developmental disabilities.

The following is a summary chart of our latest survey results (click on the chart to enlarge):

Vendor survey summary chart 1.22.15

For the complete survey chart, click here.

We first released our survey about a year ago, when we found that more than 550 executives working for some 250 state-funded corporate providers of services to people with developmental disabilities in Massachusetts received a total of $80.5 million in annual compensation.

COFAR has also previously raised concerns that increasing amounts of money going to provider executives have not translated into higher pay for direct-care workers in Massachusetts.

The latest survey reports on 635 executives who received total annual compensation of $102.4 million and average annual compensation per employee of $161,231.  The survey was based on provider tax forms filed in either the 2011 or 2012 tax years.  Those tax forms are available online at www.guidestar.org.

The survey sample included 100 CEO’s and presidents, making an average of $210,227 in salaries and benefits; and 107 executive directors receiving an average of $130,835 in compensation.  As the chart above shows, the survey also included 67 chief financial officers, 31 chief operating officers, 100 vice presidents, 110 directors, and 120 other officers, all earning, on average, over $100,000 a year.

A state regulation  limits state payments to provider executives to $158,101, as of fiscal year 2013. Money earned by executives above the state cap is supposed to come from sources other than state funds.

Based on this regulation, we calculated that provider executives are eligible for up to $85 million a year in state funding to cover those total salary and benefits costs.  Our calculation was based on identifying the companies paying executives at or above the state threshold of $158,101, and assuming that amount as the maximum state payment for each of those companies’ executives.

Among the top-paying providers in our latest survey was the May Institute, which paid two employees a total of $999,221 in the 2012 tax year.  Both employees were listed as president and CEO of the provider.  The May Institute’s federal tax form shows that one of the two employees, Walter Christian, worked for the company until December 2012 and received a total of $725,674 in salary and benefits in that tax year, which started on July 1, 2012. Christian was replaced as president and CEO by Lauren Solotar, who received a total of $273,547 in that same tax year, which ended on June 30, 2013.

Despite the regulation capping compensation payments by the state, the state auditor reported in May 2013 that the state had improperly reimbursed the May Institute, a corporate provider to the Department of Developmental Services, for hundreds of thousands of dollars paid to company executives in excess of that cap. COFAR had previously reported in 2011 that the state may have paid Christian and other executives of the May Institute more than the state’s regulatory limit on individual executive salaries.

The following charts show the top earning presidents/CEO’s and executive directors in our latest survey and the number of those executives holding each title in each company:

Pres.CEO top 10

Executive directors top 10

Most of the providers surveyed are under contract to the Department of Developmental Services, which manages or provides services to people with intellectual disabilities who are over the age of 22.  The providers operate group homes and provide day programs, transportation and other services to tens of thousands of intellectually disabled persons in the DDS system.

As we have noted, the state’s priority has been to boost funding dramatically to corporate residential providers, in particular, while at the same time slowly starving state-operated care, including state-run group homes and developmental centers, of revenue.

Funding to DDS corporate residential providers rose past the $1 billion mark for the first time in the current fiscal year.  The line item was increased by more than $140 million –or more than 16 percent—over prior-year spending in fiscal 2015 dollars.  At the same time, both the former governor’s and the legislative budgets either cut or provided much more meager increases for most other DDS line items.

More financial information about nonprofit corporate providers, including compensation of executives, can be found at www.guidestar.org.

State audit confirms salary overpayments to DDS provider

The state improperly reimbursed the May Institute, a corporate provider to the Department of Developmental Services, for hundreds of thousands of dollars paid to company executives in excess of a regulatory cap on their salaries, according to the state auditor

The auditor’s findings confirm concerns we raised in April and May 2011 that the state may have paid Walter Christian, the CEO, and other executives of the May Institute more than the state’s approximately $143,000 regulatory limit on individual executive salaries. 

The auditor also found that Christian was improperly paid roughly $140,000 for a home health aide for his wife, day care fees for a grandson, the use of a minivan in Georgia, and a separate vehicle that he used when visiting Massachusetts.  Christian, who retired in January, had been living in Georgia for a decade while running the Massachusetts-based company, according to the audit report. 

Our blog posts in 2011 specifically noted that the May Institute appeared to be under-reporting Christian’s and other executive salaries as well as the number of people receiving those salaries, on Uniform Financial Reports (UFRs) submitted to the state Operational Services Division.  

The two posts also noted that the same under-reporting of salaries appeared to be the case with Vinfen and Seven Hills, two other DDS providers.  The state auditor focused solely on the May Institute, however. 

The state auditor’s report noted that a state regulation capped state reimbursements to providers for salaries and other compensation paid to their executives at $143,986 in FY 2010 and $149,025 in FY 2011.  Providers can pay their executives more than those amounts in salaries and other compensation, but the state is permitted to reimburse the providers only up to the threshold amount in a given year.  The state attempts to keep track of those payments via the UFR’s, which the providers are required to submit to the Operational Services Division on a yearly basis. 

We noted in our April 2011 post that the May Institute’s UFR listed only Christian and one other executive as making over the state salary threshold in 2009.  Yet, a federal tax form, which was filed by the May Institute with the IRS for the same fiscal year, listed 13 individuals in the company as making over $150,000 each. 

An OSD official maintained at the time that the state agency allows the state to pay costs in excess of the salary limit for clinicians working for providers.  However, COFAR’s May 2011 post noted that all 13 May Institute employees who made over $150,000 were not listed on the IRS form as clinicians, but as executive-level employees, starting at senior vice presidents on up to the president and CEO.  

In its report, the state auditor also found that several May Institute employees who were paid over the threshold amounts were managers and not clinicians. 

We think this report by the state auditor lends strong support to our call for a comprehensive, independent study of outsourcing of care by DDS.  The auditor’s findings also support the need for more funding for state-operated group homes for the developmentally disabled as an alternative to provider-operated residences.

But as I noted in a previous post, House leaders last month rejected budget amendments that would have both authorized a study of the DDS system and restored cuts made by the House Ways & Means Committee in the governor’s budget for state-operated residences.  There is one more chance for these amendments coming up in the Senate, of course. 

We applaud the state auditor for examining the May Institute’s payments to its executives.  We hope, though, that Auditor Suzanne Bump expands her review to include additional providers in the wake of our concern that this is a potentially wider problem than just one company.

We need to take a larger view on monitoring human services vendors

April 10, 2012 Leave a comment

Alleged state credit card misuse and other financial irregularities at the Life Focus Center of Charlestown are the latest in a series of mini-scandals involving human service contractors to the Department of Developmental Services and other state agencies.

A few months ago, we learned of  financial improprieties at the Merrimack Special Education Collaborative.  Also during the past year, we heard about  the Northeast Center for Youth and Families.  And then there was Adlife Healthcare and the Greater Lawrence Community Action Council

The problem is that  in uncovering all of these mini-scandals, the state’s auditing agencies and the media seem to be focusing on the trees and overlooking the larger problem of the forest.  The approach has been decidedly piecemeal — the steady release of individual audits of individual vendors, with the details of the previous audit forgotten as soon as the next one is issued. 

As we’ve maintained many times, the state has a serious problem in monitoring its $2.6 billion human services contracting system.  A more systematic approach to dealing with it is needed than we’ve seen so far.  While state legislators appear to be interested in  cracking down on welfare recipients who use electronic benefit or EBT cards, there seems to be no such impetus to examine the widespread potential for corruption by human services contractors.

To be fair, two state lawmakers, Reps. Kevin Kuros and Sheila Harrington, last year called for legislative hearings following the Merrimack Collaborative and Greater Lawrence Community Action Council audits.  This, however, led The Nonprofit Quarterly’s investigative writer Rick Cohen to suggest that there needs to be a wider investigation:

into why the Commonwealth of Massachusetts is so deficient in its oversight of state-subsidized nonprofits that years of dysfunction and misspending could go unnoticed.

Do you suppose these hearings have yet been scheduled, by the way?  The answer would be no, according to an aide to Harrington.

State Auditor Suzanne Bump last September asked for legislation that would give her agency authority to subpoena records of nonprofits that contract with the state.  But it isn’t clear whether Bump or Attorney General Martha Coakley, whose office is investigating the Adlife Healthcare case, are taking as broad a view of the nonprofit monitoring problem as we think they should.

The Life Focus of Charlestown audit by Bump’s office illustrates problems that crop up over and over again in the vendor system.  In her March 7 report on the company, Bump stated that the audit identified $129,982 in unallowable expenses related to state-funded contracts and $1.1 million in undocumented employee compensation expenses.

Among the specific problems alleged in the audit:

  • For 114 days in which Life Focus billed DDS $239,969, there were no block schedules or other records to substantiate these billings. 
  • During fiscal years 2009 and 2010, the company’s executive director and deputy director charged 1,291 expenses totaling $123,173 against the company’s corporate credit cards.  A total of $28,436 in credit card expenses were questionable in that they were either inadequately documented or did not appear to be directly related to program activities.
  • Hundreds of thousands of dollars were spent on consulting services done by family members of company staff without competitive bidding or signed contracts.

Interestingly, a defense used by Life Focus to the audit findings was that none of these alleged problems was identified in a previous DDS licensure survey of the company.  In fact, an October 21, 2010 DDS licensure report for the Life Focus Center  called the Center “a viable and thriving community resource,”  and cited the organization for only minor problems in its operations.

However, in our view, that clean bill of health that the DDS license staff gave Life Focus may say more about the inability of the state to monitor its vendors adequately than it does about this particular company.   Moreover, it was apparently only after Bump’s audit was released that DDS started to crack down on the vendor. 

The Boston Herald reported  that DDS Commissioner Elin Howe sent a March 27 letter to the Life Focus Center’s Board of Directors, expressing “significant concerns” about Bump’s audit findings and the reportedly continuing unchecked use by John Millerick, the executive director, of the company credit card.  This is apparently the second letter Howe has written to the Board in the wake of the audit.

Howe and DDS have yet to show much concern over the larger problem of oversight of all of the department’s vendors. 

Meanwhile, while Life Focus’s Board chairman resigned in the wake of Bump’s audit, The Herald also reported that the company had hired Rasky Baerlein Strategic Communications, a PR firm, to protect the company’s image.  Whether the state pays for that cost or not, it’s money that will not be going toward direct care services.

DDS vendor executives not sharing the pain of their workers

February 13, 2012 2 comments

Direct-care workers in the state’s contracted human services system have seen their wages stagnate in recent years, but the executives who run the largely nonprofit contractor agencies that employ those workers do not appear to have been feeling that same pain.

We examined compensation to both CEOs and direct-care workers in a sample of 30 service vendors to the Department of Developmental Services, both large and small, from around the state in Fiscal Years 2008 and 2011.  This information is available in Uniform Financial Reports, which are submitted to the state Operational Services Division by the vendors and are posted online by the OSD at www.mass.gov/ufr

The CEO compensation of our sample increased by an average of 16.6 percent during the four year period while the direct-care salaries decreased by an average of 2.17 percent during that time.  (See Vendor Compensation Table.) 

Among the 30 vendors, the average CEO compensation in FY 08 was $197,068.  It increased to an average of $229,872 in FY 11.  In FY 08, the average direct care salary for the sample was $33,508.  It decreased to $32,780 in FY 11.   In FY 11, direct-care workers were earning an average of 14 percent of what the CEOs of those vendors were earning, down from 17 percent in FY 08.

Among the sample, nine CEOs received compensation increases in the four year period reviewed while the direct care workers employed by those same vendors actually saw their wages cut.  In two of those cases, the CEOs received increases exceeding 100 percent. 

That many CEOs have taken hefty pay increases and the direct-care workers have gotten little or nothing, or in many cases decreases, raises  questions about repeated calls from the vendors to add $28 million to a state budget reserve fund to increase those direct care salaries.

If the Association of Developmental Disabilities Providers and its member vendors are really concerned about their direct-care workers’ pay, why have these companies given raises only to their CEOs?  Should the state be called upon to bear the entire burden of raising direct-care wages?

“The vendors appear to have it in their own power to give their direct-care workers increases,  but they’ve chosen not to,” said Colleen Lutkevich, COFAR executive director.   “Instead, they’re looking to the Legislature.”

If the Legislature does step in to fund the direct-care salary reserve account, it will not be at the urging of Governor Patrick.  Despite the ADDP’s appeals, the governor’s budget for the coming fiscal year proposes zero for the reserve fund.

Note: We were not able to use data from one of the vendors, Massachusetts Mentor, Inc.   Massachusetts Mentor is a subsidiary of NMH Holdings, Inc., a for-profit corporation that provides residential and other services for intellectually disabled persons in 36 states.  NMH Holdings was incorported in Delaware, according to its audited financial statements, though it actually appears to be headquartered in Massachusetts.  (NMH Holdings appears to be referred to as The Mentor Network on its national website.)

Massachusetts Mentor’s  UFR  and other reports filed with the state OSD employ what appears to be an unusual method of listing only partial salaries of top executives.  The compensation listed is apparently the amounts of the executives’ salaries that are attributed to Massachusetts.  For instance, total compensation for Edward Murphy, CEO of both Mass. Mentor and The (national) Mentor Network, was listed as only $14,830 in FY 10, in a filing with OSD).  (The company does not appear to have filed a UFR report in Massachusetts for FY 11.)  Murphy is a former commissioner of both Mental Health and Youth Services in Massachusetts.

Greg Torres, chairman of the Board of Directors for both Mass. Mentor and The Mentor Network, earned a total of $2,484 in compensation in FY 10, according to the OSD filing.  Torres, a former chief of staff of the Massachusetts Senate Ways and Means Committee, is also currently president of MassINC, the nonprofit civic think tank in Massachusetts that publishes CommonWealth magazine.  (CommonWealth frequently advocates for more transparency in governmental finances and operations.)

Also working for Mass. Mentor is Gerald Morrissey, a former commissioner of DDS in Massachusetts.  Morrissey’s total compensation as a vice president at Mass. Mentor was listed in the FY 10 OSD filing as $5,113.  None of these clearly partial compensation listings could be reliably compared with other CEO and direct-care compensation in Massachusetts.

NMH Holdings earned more than $1 billion in revenues in FY 10, according to filings with OSD, while Massachusetts Mentor took in $3.7 million from DDS and $19.4 million from the Department of Social Services in FY 10, according to its UFR report.

Calls and emails to OSD with questions about Mass. Mentor’s and NMH Holdings’ partial compensation listings for their executives were not returned.