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Court of Appeals Annuls “Soft Cap” on Executive Compensation

The New York State Court of Appeals, the state’s highest court, has invalidated the “soft cap” of $199,000 on executive compensation imposed by Executive Order #38 (EO #38). A summary of the decision prepared by our general counsel, Hinman Straub, together with a copy of the Court’s decision, is available here.

In LeadingAge New York et al v. Shah, we and other groups challenged EO #38 and the resulting regulations which cap executive compensation and administrative costs. Our litigation and a companion case, Coalition of New York State Public Health Plans et al. v. New York State Department of Health et al., were heard on Sept. 5th. The Court’s majority opinion annuls the “soft cap” portion of the EO #38 regulations – which caps executive compensation paid from all funding sources – but upholds the “hard cap” – which limits executive compensation paid from State funds and State-authorized payments. The Court also upheld the cap on administrative costs, which limits those expenses paid with State funds and State-authorized payments incurred in connection with management overhead, but which are not attributable directly to provision of program services.

In doing so, the Court of Appeals affirmed the June 2017 order of the New York State Appellate Division, Third Department in our case. The decision by the Third Department had conflicted with earlier decisions issued by the Second Department upholding the regulations in their entirety, which made it likely that the Court of Appeals would take the case and resolve the conflict.

Given that the soft cap was invalidated, the Department of Health (DOH) may need to amend the regulations, including the reporting requirements. DOH may also be issuing further guidance regarding compliance with the regulations as modified by the Court of Appeals. The regulations include a waiver process for providers seeking an exception to the compensation limits that remain following the Court of Appeals’ decision. LeadingAge NY will follow up with members on future changes to EO #38 filing and waiver requirements.

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