New York Nursing Home Spending Rules: Reconcile the 70%, 40% and Excess Revenue Tests

Determine which legal and reporting branch applies

New York's spending framework contains two spending tests and a separate excess-revenue calculation. A single “direct-care percentage” cannot answer all three. Public Health Law 2828 requires at least 70% of defined revenue for direct resident care and 40% for resident-facing staffing, with the staffing amount included in direct care.

Before calculating, establish the reporting year, facility type, applicable exclusions and any approved waiver or demonstration treatment. The 2024 enacted chapter amendment modifies the 2023–2026 temporary-staffing demonstration and requires supporting documentation. A qualifying low-agency-use branch can change the revenue treatment, and specified agency-use reductions can affect remittances. Do not apply the standard example below to a demonstration participant without that review.

The adopted regulation, current statute, reporting instructions and actual state determination must be read together. Older adopted text is not a substitute for later statutory amendments.

Establish current applicability without overstating enforcement

A June 2024 New York appellate decision modified the lower-court order to declare that the statute was not unconstitutional on its face and otherwise affirmed it. That decision does not resolve every later or facility-specific proceeding. It does show why the existence of litigation alone is not evidence that the spending rules were suspended.

The October 2026 HHS OIG review describes New York's three calculations and reports state officials' statement that no funds had been recouped for these threshold failures as of June 2026. That is a dated enforcement observation, not a promise that no later recovery will occur. Have the responsible legal and reimbursement reviewers identify any actual order, notice or approved exception affecting the facility's reporting period.

Build one denominator for the two spending tests

The current statute excludes the capital portion of Medicaid reimbursement, specified assessment reimbursement and federal COVID-19 expense grants from the spending-revenue definition. Other facility-specific exclusions or exceptional circumstances require the applicable authority; they should not be invented from an account's label.

Assume a fictional standard-branch facility has $10.6 million in otherwise relevant operating revenue, including $300,000 of Medicaid capital reimbursement, $200,000 of specified assessment reimbursement and $100,000 of qualifying federal COVID-19 grant revenue. The supported spending denominator is $10 million after those exclusions.

The reviewer retains each exclusion's source and confirms it was included in the starting balance. Subtracting a grant already excluded from the revenue extract would understate the denominator. A general-ledger “other income” total cannot establish the legal classification of every item within it.

Apply the agency deduction to nested expenses

Assume the facility has $7.2 million in direct resident care before the specified agency adjustment. This includes $4.3 million in resident-facing staffing, of which $1 million is the applicable contracted RN, LPN and CNA cost population. The statute deducts 15% of that contracted population from both spending calculations.

Both spending tests pass on these assumed facts. The $4.15 million staffing figure is part of the $7.05 million direct-care figure; adding them would double count staffing. The $150,000 adjustment is applied within each test, not deducted twice from the direct-care numerator.

Classification still matters. Administrative, capital, debt-service and other excluded costs cannot be moved into direct care merely to achieve the ratio. Preserve account-to-cost-center mappings and review related-party or inactive-employee amounts under the statutory expense limitations.

Keep the excess-revenue screen separate

For an independent statutory illustration, assume the reviewed operating revenue relevant to that screen is $10 million and total eligible operating and non-operating expenses are $9.4 million. Excess revenue is $600,000. The statute's expense-based 5% comparison is $470,000, producing a $130,000 amount above that screen before any applicable adjustment.

The ratio is approximately 6.38% of expenses, not 6% of revenue. The excess-revenue calculation must not automatically reuse the spending denominator or ignore the exact definitions in the governing determination. The adopted regulation at 10 NYCRR 415.34(e)(1)(i) instead describes a threshold of 5% of total operating revenue. On the same simplified figures, that revenue-based comparison would be $500,000 and the amount above it $100,000. This $30,000 difference is material: preserve both calculations and reconcile the applicable statute, regulation, reporting year and state notice with qualified review. The $130,000 calculation here is a statutory screen, not a prescribed state remittance.

The example therefore passes the two spending tests but flags an excess-revenue issue for review. It does not establish a $130,000 payable amount for a real facility. Verify the state notice, demonstration reductions, exclusions, waivers and any applicable judicial relief before determining actual remittance treatment.

Deliver an explainable review package

The finished file contains the applicability decision, revenue bridge, nested expense mapping, agency deduction, three independent results and the reconciliation to any state notice. Keep uncertain classifications visible with their amount and owner rather than burying them in a final percentage.

In a platform evaluation, ask the reviewer to remove an unsupported revenue exclusion and recalculate all affected tests without changing unrelated expense records. The useful result is a traceable financial analysis and a clearly bounded state-response decision, not a generic compliance badge.