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Appeals Court Partially Annuls Executive Order #38 Regulations

On June 22, 2017, the New York State Appellate Division, Third Department issued a decision in the matter of LeadingAge New York et al v. Shah, a case we brought with other groups challenging Executive Order (EO) #38 and the associated regulations. Like the State Supreme Court’s ruling, the Third Department’s decision annulled the “soft cap” portion of the EO #38 regulations – which caps executive compensation paid from all funding sources – but upheld the “hard cap,” which limits executive compensation paid from state funds.

In a dissenting opinion, Third Department Judge Mulvey agreed with the majority on the annulment of the soft cap, but argued that the hard cap is also unconstitutional and therefore the EO #38 regulations should be annulled in their entirety.

The Third Department’s decision conflicts with earlier decisions issued by the Second Department upholding the regulations in their entirety, making it likely that this matter will go to the New York State Court of Appeals for review, absent a resolution with the State.

By way of review, State Supreme Court, Albany County had issued a decision in our case on Nov. 13, 2015. In that decision, Acting State Supreme Court Justice Denise Hartman upheld provisions of the EO #38 regulations that limit the use of state funds or state-authorized funds for administrative expenses and executive compensation (i.e., the “hard cap”). However, the Court ruled against aspects of the EO #38 regulations that impose limits on the use of both state and non-state funds for executive compensation. The Court declared that the “soft cap” aspect of the regulations exceeded the Department of Health’s (DOH) authority and, therefore, violated the separation of powers doctrine. Based on the Court’s “split decision” with respect to the challenge to the EO #38 regulations, both sides appealed to the Appellate Division, Third Department.

LeadingAge NY will be discussing the prospect of further appellate review with its legal counsel, the Legal Services Committee, the LeadingAge NY Board, and the other litigants in our case. We will keep members posted on further developments.

In the meantime, the regulations and filing requirements associated with EO #38 remain in effect throughout the state, except for Nassau County, where an earlier Supreme Court decision had stayed their implementation. As this issue of Intelligence goes to press, the EO #38 website still indicates that the stay remains in effect in Nassau County. For Medicaid providers, the due date for EO #38 filings is the due date associated with the provider’s cost report.

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