Suffolk County Court Upholds Executive Compensation Regulations

In a decision reported last week, a Suffolk County State Supreme Court justice upheld Executive Order (EO) 38 and the Department of Health's (DOH) regulations limiting executive compensation and administrative costs. Meanwhile, LeadingAge New York is expecting a decision in the very near future on its lawsuit challenging these regulatory limits.

 In Concerned Home Care Providers v. DOH, Justice Edith Pines wrote: “Regulation by DOH of the amount and/or percentage of State funds or State-authorized payments that can be used to pay executive compensation and administrative expenses clearly fulfills its statutory mandate to regulate the financial assistance provided by the State in connection with public health care activities.” Pines concluded that the regulatory agencies did not engage in policy-setting that would otherwise be reserved for the State Legislature.

This decision comes less than four months after Justice Thomas Feinman of State Supreme Court, Nassau County struck down the regulations in Agencies for Children's Therapy Services v. NYS Department of Health.  Justice Feinman wrote, “The DOH’s rationale that compensation and expense caps will ‘ensure that taxpayers’ dollars are used properly, efficiently, and effectively to improve the lives of New Yorkers’ is unsubstantiated.” As a result of Feinman’s decision, the EO 38 rules are not currently in effect for business conducted in Nassau County.

LeadingAge NY is expecting a decision in the very near future on its lawsuit challenging the EO 38 regulatory limits on executive compensation and administrative costs. LeadingAge New York et al v. Shah was filed last fall in State Supreme Court, Albany County and is awaiting a decision by Justice George B. Ceresia, Jr. Given the importance of the issue and the divergent opinions among the courts so far, it is likely that the Appellate Division or even the Court of Appeals – the State’s highest court – will have the final word on the validity of EO 38 and the regulations.

The final regulations limiting spending on executive compensation and administrative costs became effective July 1, 2013 and were implemented Jan. 1, 2014 for most providers. LeadingAge NY and its Legal Services Committee will continue to closely monitor developments on the regulations and report them to members.

Contact: Dan Heim, dheim@leadingageny.org, 518-867-8866