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Reaping Millions in Nonprofit Care for Disabled

Medicaid money created quite a nice life for the Levy brothers from Flatbush, Brooklyn.

Adam Gault | Getty Images

The brothers, Philip and Joel, earned close to $1 million a year each as the two top executives running a Medicaid-financed nonprofit organization serving the developmentally disabled.

They each had luxury cars paid for with public money. And when their children went to college, they could pass on the tuition bills to their nonprofit group.

Philip H. Levy went as far as charging the organization $50,400 for his daughter’s living expenses one year when she attended graduate school at New York University. That money paid not for a dorm room, but rather it helped her buy a co-op apartment in Greenwich Village.

The rise of the Levy brothers, from scruffy bearded social workers in the 1970s to millionaires with homes in the Hamptons, Sutton Place and Palm Beach Gardens, reveals much about New York’s system for caring for the developmentally disabled — those with conditions like cerebral palsy, Down syndrome and autism.

The state spends, by far, more than any other caring for this population: $10 billion this year, and roughly 20 cents of every dollar spent nationally.

More than half of that money goes to private providers like the Levys, with little oversight of their spending.

And the providers have become so big and powerful that they shape much about how the system operates, from what kinds of care are emphasized to how much they will be paid for it.

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

The organization run by the Levys, the Young Adult Institute Network, has been among the most aggressive, and is now the largest operator of group homes for the state, collecting more than $1 billion from Medicaid over the past decade and running homes with a total of 700 beds, along with day programs, a school, dental care and transportation for the developmentally disabled.

The organization and the Levys have earned many admirers in the field for the quality and range of their programs. They are known for recruiting and keeping good employees, many of whom spend decades with the organization.

But their spending is seldom scrutinized, and, even when state officials turn up questionable expenses, there are few consequences.

The state, of course, has a financial interest in maintaining and expanding the programs, which bring more federal money and more jobs, especially to areas upstate, where many of the nonprofit organizations are major employers.

At the end of June, two days after The New York Times asked about the spending for his daughter’s apartment, Philip Levy, 60, abruptly retired as chief executive. Joel M. Levy, 67, also departed in June, after serving as a $250,000-a-year part-time consultant following his departure from the chief executive’s position in 2009.

A spokesman said the changes were unrelated to the inquiry by The Times.

Filling a Vacuum

Philip and Joel Levy were running Saturday night bingo games to support a tiny program for 15 developmentally disabled people in the early 1970s when their whole world changed.

In 1972, Geraldo Rivera, then a young reporter at WABC-TV, found his way inside the Willowbrook State School on Staten Island, a state-run institution that housed some 5,000 developmentally disabled residents in deplorable conditions. His footage showed naked children huddled on floors, feces smeared on walls, and an attendant oddly grinning through the darkness.

Public outrage exploded. A lawsuit brought by a parents group, the New York State Association for Retarded Children, resulted in a court order that forced the state to quickly move thousands of people into smaller community homes.

The state released a wave of public money and turned to nonprofit providers, which opened more than 100 group homes from 1976 through 1979. The Young Adult Institute, founded by a psychologist and his wife in 1957, emerged as a leader, opening and operating a dozen group homes.

The Levy brothers were determined to be a part of the revolution in care, and ascended at the Young Adult Institute, eventually taking over the top jobs in 1979: Joel as executive director and Philip as associate executive director. Their ambition to expand sometimes conflicted with the views of the network’s board of directors, made up mostly of parents of children with developmental disabilities, who felt that the organization should remain small and focused on their children.

Over the years, the parents were replaced by professionals from other fields who supported growth.

“They were the most entrepreneurial folks that I ever met,” said Barbara B. Blum, who was in charge of the deinstitutionalization effort for New York. “When we were under court order to provide all kinds of services, the Levy brothers recognized the fact that there really was a vacuum, and they walked into it.”

Ms. Blum credited the brothers with persuading first-rate dentists, doctors and other medical professionals — “who wouldn’t have touched some of the folks at Willowbrook,” she said — to treat developmentally disabled people.

The Young Adult Institute joined with other nonprofit providers to form a lobbying group, and, as the programs and spending multiplied, the relationship between the state and the providers gradually shifted.

The providers gained more sophistication, expertise and power.

The providers and officials from the Office of Mental Retardation and Developmental Disabilities — now called the Office for People With Developmental Disabilities — met monthly to agree on new programs, expansion of existing programs and reimbursement rates. Then, together with the agency officials, they would lobby the Legislature and the governor’s office for the money.

The providers became powerful advocates for the people in their care, and savvy strategists, alert to opportunities to increase financing.

In the early 1980s, Paul J. Castellani, a former official at the state agency, was overseeing the design of an algorithm that determined reimbursement rates for each developmentally disabled individual, based on his or her level of impairment. The formula was supposed to be closely held. But state officials suspected that a consultant to the providers had learned that vision problems greatly increased the rates paid.

Suddenly, the nonprofit providers began reporting a big increase in the number of individuals in their care who had trouble seeing. “We called it the day everyone went blind,” said Mr. Castellani, the author of a book about the New York system of caring for the developmentally disabled.

The Levys were especially resourceful. As state financing for creating new group homes slowed in the early 1990s, they expanded into other services for developmentally disabled people, including a preschool and kindergarten, medical clinics and a jobs program. In 1998, revenue at their organization topped $100 million for the first time.

That year, the state resumed its effort to establish group homes, offering a new wave of financing for nonprofit groups to develop them, even as other states shifted their focus to less expensive care, like helping people find and stay in apartments of their own. The Young Adult Institute was again among the biggest developers, adding some 250 beds in group homes over the next decade.

And its group homes tend to be among the most expensive run by nonprofit providers, at least according to the documents the organization submits to Medicaid.

Inflated Costs

On the 11th floor inside the Young Adult Institute’s busy West 34th Street headquarters in Manhattan, a team of fund-raisers works year-round to plan the organization’s biggest annual events: a gala dinner at the Pierre hotel off Fifth Avenue that attracts celebrities like Al Roker and Harry Smith, and a Central Park fun run and walk.

Wallet
Wallet

But at the end of each year, from 1999 to 2010, when it came time for the organization to seek its Medicaid reimbursements, those fund-raising employees suddenly became group home administrative workers on accounting records, allowing for federal reimbursement of their salaries, according to federal prosecutors.

Prosecutors also said the organization submitted documents falsely asserting that all of its group home regional directors were licensed social workers — again inflating reimbursements for their salaries from Medicaid.

The prosecutors, from the United States attorney’s office for the Southern District of New York, with assistance from the New York attorney general’s office, brought a federal false claims lawsuit under seal in 2009 against the organization for the practices, which were brought to their attention by a whistle-blower, Richard Fagan, the nonprofit group’s longtime budget director. Mr. Fagan, who was involved in the preparation of the documents, told prosecutors that for years expenses had been pumped up on annual financial reports to win higher reimbursements from Medicaid.

Last January, the organization agreed to pay $18 million in restitution and penalties to settle the suit, denying wrongdoing and saying it had made errors “under the complex cost-reporting rules that apply to Y.A.I.’s residential services.” A spokesman last week added that the organization had decided that the settlement would be less costly and disruptive than protracted litigation.

In June, the nonprofit group submitted a plan to the state, saying it would repay the money in part by keeping its executive salaries flat for a period of years. Last month, the state rejected that proposal, saying it expected executive pay to be reduced.

Records show that, over the years, the organization and other providers have had remarkable success in winning appeals for higher Medicaid reimbursements from the state, resulting in more than $100 million in additional spending on group home care in the state over the past decade.

The nonprofit groups have wide latitude in appeals. If they can show they lost money, they can apply for more financing for, say, a resident who requires extra attention for behavioral problems or develops a medical issue, or for expenses like utilities that exceed their budget.

The appeals system generally receives little scrutiny. But in 1995, the Commission on Quality of Care and Advocacy for Persons With Disabilities, a state watchdog agency, released a report that found deep flaws in the process, including that the Young Adult Institute and six other nonprofit groups had been granted rate appeals to cover “excessive administrative costs.”

The report was not received warmly by the nonprofit providers and their allies in Albany. The following year, the commission’s budget was slashed by the Legislature.

The Young Adult Institute won more than $1 million in Medicaid appeals over the past seven years for a single group home — a residence on East 35th Street — one of the most expensive homes of its kind in the state. For care of the 28 developmentally disabled people housed there, whose needs are among the most acute in the nonprofit system, the organization received $7.2 million in 2010, or $700 per person per night.

Over all, the organization’s rates for group homes at the intermediate care level, which require higher levels of care and supervision, rose by 48 percent from 2004 to 2010. Rates for similar group homes run by nonprofit providers around the state increased by 37 percent during the same period, while inflation was 15 percent.

‘Medicaid Moguls’

Mr. Castellani, the former Office of Mental Retardation and Developmental Disabilities official, calls them “Medicaid moguls” — the nonprofit executives who have prospered while providing services to 135,000 developmentally disabled people in New York.

At the top of the class are the executives at the Young Adult Institute. No organization in the field in New York has paid its executives as well. Four of its executives received compensation in excess of $500,000 in 2009; none of its competitors had more than one executive at that level, according to a review by The Times of tax returns of the 100 largest providers.

That year, the last for which tax filings are available, Joel Levy collected more than $1 million and Philip was close behind, with $916,647. The chief operating officers, Thomas Dern and Stephen Freeman, earned $551,682 and $578,938.

Similar-sized nonprofit groups in New York pay an average salary to chief executives of $493,000, according to the Economic Research Institute, an executive compensation consulting company that advises companies, nonprofit groups and the Internal Revenue Service.

The Young Adult Institute also pays for its top executives to lease vehicles for personal and professional use. Accounting obtained by the state showed leases for two Lexuses and a Volvo. A spokesman declined to provide details about the cars, except to say the executives are allowed to select their own vehicles within certain price ranges.

Marcella C. Fava, who led the organization’s board for more than 20 years, said the compensation was based on the findings of companies that specialize in compensation analyses.

She said the companies surveyed salaries among nonprofit organizations within the field, but also made allowances for the Young Adult Institute’s “singular” size and complexity.

“Our retention programs have worked,” she said, speaking of the broader management. “We’ve got a more experienced management team than, I think, any other agency.”

Linda M. Lampkin, research director of the Economic Research Institute, was puzzled by Ms. Fava’s explanation, saying her organization’s database of tax returns filed by every nonprofit organization in the country shows nothing close to the Levys’ compensation.

“If you look at what others are being paid, I don’t know where their comparisons are coming from, because I can’t find anything,” she said.

At the Young Adult Institute, there were other elements of compensation within those big numbers, like the tuition compensation: for eight years ending in 2004, the organization directly covered the costs of college for children of several senior-level executives, including Philip Levy and Mr. Freeman.

The existence of the tuition program was discovered in 2009 by the state’s Commission for Quality Care during a limited review of the organization in response to a tip. The results were never publicly released but were obtained by The Times under the state’s Freedom of Information Law.

After The Times discovered property records showing the purchase of the co-op apartment for Philip Levy’s daughter, the organization confirmed that the money from the tuition program had been used to buy her the West 12th Street home.

The Young Adult Institute spokesman declined to say how much was spent on education expenses, but in its final year, the program provided $132,611 to cover tuition for four children of three executives, including Philip Levy.

Ms. Fava said it was viewed as an attractive benefit for top executives. Several were confronting big college tuition bills at about the same time.

“This seemed to be a really nice retention tool,” Ms. Fava said. “It had a quality to it, we’re going to help you pay for your kids’ college. So, sure, we could have increased their salary or given them a bonus. But this had a nicer, you know, cultural component to it.”

The report also noted that a Young Adult Institute affiliate, the New York League for Early Learning, had paid the Levy brothers consulting fees of about $50,000 a year from 2007 through 2009, on top of their salaries. And it questioned other expenses, including lunches and dinners for executives and the $1,468 that Philip Levy spent to stay for two nights at the Beverly Hills Hotel in 2008, which he said was for a meeting with a possible donor.

The commission, which has no enforcement powers, suggested that the organization’s board “consider carefully” whether certain expenditures “are compatible with the obligation of the board to act as a faithful steward of public funds.” More than 95 percent of the organization’s revenue comes from government sources, primarily Medicaid.

In June, two days after The Times e-mailed a Young Adult Institute spokesman seeking more detail about the tuition program, the Levy brothers ended their employment there. The organization announced the departures two weeks later in a press release, saying Philip Levy was retiring, but quoting him as saying he was looking forward “to a new stage of my career.” The spokesman, Jesse Derris, said that Joel Levy’s departure as a consultant had been expected, and that Philip Levy had been unable to come to terms on a new contract with the group’s board.

The Levys appear to be financially well prepared for the next phase of their lives. Each received deferred compensation totaling about $1.8 million in 2008 and 2009.

Courtney Burke, commissioner of the Office for People With Developmental Disabilities, last week took a step toward reining in high executive salaries at the nonprofit groups. She sent a one-page letter to them on Tuesday seeking their assistance to develop “a consistent and rational model of compensation.”

“Given the heightened concerns about the growth of Medicaid and Medicare, this compensation guidance should be established sooner rather than later,” she wrote.

A spokesman for Ms. Burke said that if the providers were unable to agree on an approach, her office had the authority to write compensation standards into state regulations and contracts with providers.

Whatever concerns exist about executive compensation, the Young Adult Institute clearly has fans among families of developmentally disabled people.

Margaret Puddington said her 30-year-old son, Mark, had been participating in its programs for several years before he moved into a Young Adult Institute group home four years ago. Ms. Puddington said the organization excelled at hiring caring people, investing in training and supervising programs.

“Mark loves his life,” she said. “I don’t know what higher compliment there could be. He loves his staff. He loves his housemates. He loves his activities. They watch over him very, very carefully all the time.”

During an interview at his office in May, Philip Levy declined to discuss his compensation or that of his brother. He repeatedly said how much he loved his work and said the public money had been well spent on services.

There was no indication during the interview that he would depart weeks later. “I think one of the things New York has to do is puff out its chest a bit and say, ‘We are incredibly proud that we created the best system of care for people with developmental disabilities anywhere in this country,’ ” he said.

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