Court Partially Invalidates Executive Comp Regulations

On October 18, 2018, the New York Court of Appeals struck down a $199,000 cap on executive compensation for healthcare executives, saying the State Department of Health exceeded its authority. The Court upheld a related cap on executive compensation for healthcare organizations that receive state funding.  The case is Leading Age New York Inc. v Shah, N.Y., No. 93, 10/18/18. The caps derive from Gov. Andrew Cuomo’s Executive Order 38, promulgated in January 2012.

The regulations provided a “hard cap” and “soft cap” on executive compensation for service providers that receive more than $500,000 in state funds or state-authorized payments (for example, Medicaid payments) over a two-year period and also receive at least 30% of their in-state revenues from the State.

Under the hard cap, such providers cannot use state money to pay their executives more than $199,000 per year or pay administrative costs that exceed 15% of total expenses. Under the soft cap, the same limit was placed on executive salaries regardless of whether the funding source for such compensation was public or private revenues.  The Court of Appeals upheld the hard cap but struck down the soft cap.

In considering compensation for healthcare executives in New York State, companies must continue to evaluate the applicability of Executive Order 38 related to the hard cap, which remains in place after the Court’s decision.