Governor Seeks Restrictions on Range of Vendors

Rick Remington | June 10, 2010
Strict new rules on contracts with third-party agencies an effort to reduce money spent on ‘overhead expenses,’ says administration

The Christie administration is considering extending strict new contract restrictions to a range of vendors doing business with the state, reflecting the “spirit” of a regulatory proposal that has kicked up a storm among social-service providers that work with the Departments of Human Services and Children and Family Services.

“It comes from a simple belief that we should be paying for services, not overhead expenses,” said Michael Drewniak, press secretary to Gov. Chris Christie. “All of this grows out of the fact that there has not been management of third-party contracts.”

The restrictions, as proposed for social service providers, would among other things limit executive compensation, travel, tuition reimbursement and purchase of vehicles.

Asked if the restrictions could be imposed on vendors such as highway contractors, bond counsel and nonprofits, such as the insurer Horizon Blue Cross Blue Shield, Drewniak said, “I can’t say at this point. But it will reflect the spirit of the attempt we see elsewhere.”

He was referring to eight specific restrictions proposed by the Department of Human Services (DHS) and the Department of Children and Family Services (DCF) in late April for their contracts with social-service agencies effective July 1. Representatives of the agencies, who met Friday with members of the Governor’s staff, have objected to the restrictions as contrary to Christie’s pledge to reduce paperwork and bureaucracy.

“It really micromanages the agencies and will probably increase the workload of providers at a time when providers have little to no room for additional administrative costs,” said Lowell Ayre, executive director of the Alliance for the Betterment of Citizens with Disabilities. “In addition to which it’s now going to be the third year in a row there have been no contract increases.”

Providers Decry Impact

The regulations could have a devastating impact on the ability to recruit and retain staff to provide services to children, the disabled and the mentally ill, say the providers, arguing that their services have grown in value to New Jersey as state government empties hospitals and otherwise reduces its role in providing direct treatment to the mentally ill and special-needs populations.

The overall fiscal impact on particular agencies would depend on how much of their work is contracted through DHS and DCF; those that can draw on other sources, including other departments within state government, such as education or labor, would be better equipped to mitigate the impact.

The restrictions proposed by DHS and DCF would:

–Limit the amount of state funding that can be used for individual salaries, ranging from $141,000 at agencies with gross revenues in excess of $20 million, to $105,750 at agencies with gross revenues under $5 million. To cover salaries in excess of those amounts, the agencies would have to utilize other sources

–Prevent the use of state dollars to cover severance agreements in excess of two weeks

–Limit reimbursement for in-state travel to $250; any out-of-state travel more than 50 miles outside of New Jersey would require prior state approval

–Disallow any tuition reimbursement unless the courses are required as part of the contract or for professional certification

–Require state approval to buy or replace a vehicle; replacements would be allowed only in certain cases, such as when a vehicle has more than 125,000 miles, is more than 10 years old, is declared “totaled” in an accident, or “upon written request supported by sufficient documentation, the Departmental contracting authority determines that the vehicle is no longer road worthy and unsafe to drive.”

Representatives from a number of the impacted groups, including the NJ Center for Non-Profit Corporations, the NJ Association of Community Providers, the New Jersey Association of Mental Health Agencies and the New Jersey Alliance for Children, Youth and Families met Friday with representatives from the Governor’s office to press their case. The agency representatives said they had agreed not to discuss what happened in the meeting.

The DHS plans minor changes before the amendments take effect July 1, partly in response to feedback from the third-party agencies, said Ellen Lovejoy, a spokeswoman for the department. “We are doing some minor fine-tuning to the language to clarify certain aspects of the contract amendment, but we are not making any major changes that would be contrary to the department’s intent to be the careful and proper stewards of our limited public resources,” she said.

Misplaced Focus on Compensation?

Richard Mingoia, president and chief executive officer of Newark-based Youth Consultation Service, echoed others among the affected agencies in saying the controversy has focused too heavily, as well as mischaracterized, issues surrounding executive compensation.

“The thing is, it doesn’t just apply to CEOs, it applies to any employee,” Mingoia said. “For example, you have a chief financial officer of a large organization who is in most cases a Certified Public Accountant with advanced degrees in finance. I mean it’s very hard to find someone for that type of position for $141,000.

“You have organizations that have to hire people to provide a particular service,” he added. “If you want to pay them a wage that is competitive so that you can hire them, it just means the organization has to come up with other sources of income in order to do that.”

Asked how realistic that scenario was for nonprofits working on state contracts, Mingoia replied, “In today’s world? In my opinion, not very.”

In addition, he noted that while DHS and DCF are proposing a $141,000 salary cap, the Department of Education allows a $215,139 cap for its vendors. “So here we have another arm of state government doing in a sense the same thing, but using a scale that‘s, I guess you would say, more realistic based on an analysis they do on where salary scales are,” Mingoia said.

Threats to Tuition and Transportation

Officials at various social service agencies agreed that the most threatening provision was the proposed restriction on tuition reimbursement. In the competition against public schools, hospitals and nursing homes for qualified staff, the offer of tuition reimbursement is the most effective recruiting tool available to social-service agencies.

The vehicle replacement and purchase restrictions pose a particular issue for the disabilities community, said Ayre.

“That is a real problem,” he added, noting that many vans used in transporting people with disabilities are aging. “There are probably unsafe cars on the road.”

What especially galls the social service providers was news of the $24.3 million paid last year to 10 top executives at Horizon Blue Cross Blue Shield of New Jersey, including $7.8 million in bonuses for president and CEO William Marino. Noting that Horizon is a nonprofit that contracts with the state to provide coverage for New Jersey employees and for Medicaid managed care, they question why Horizon also would not be covered under the proposed regulations.

“That’s a significant concern to us, yes,” said Drewniak, when asked about the Horizon compensation controversy.

Lovejoy said the current Horizon and HMO contracts with the DHS differ because they are “fee-for-service arrangements for which we strike an all-inclusive rate for the service. Part of that rate would include an executive’s salary and other administrative costs.”

Lovejoy said the department has no plans now to adopt similar salary and administrative restrictions for the fee-for-service contracts. “As contracts are modified [to account for expanded services, higher costs, added client populations] with fee-for-service providers prospectively, DHS will monitor any requests for higher rates according to the policies set forth in the contract amendment,” she said.

Drewniak said the state was taking the approach that “not one size fits all. There will be plenty of room for change and revision. But no one should lose sight of the fact that more scrutiny is required of these vendors and the costs to the state and taxpayers.”