DOH Regulations to be in Compliance with Court of Appeals Decision Regarding Limits on Executive Compensation

September 10, 2019

By: Craig W. Anderson and Hermes Fernandez

On September 4, 2019, NYS Department of Health (DOH) proposed to amend its regulations in order to clarify that the “soft cap” limits on executive compensation no longer apply to compensation provided to covered executives.

By way of background, Executive Order 38 (EO 38) and the regulations promulgated therewith placed limitations on expenses of covered providers who received state funds or state authorized payments.  These regulations – specifically sections 1002.3(a) and 1002.3(b) of Title 10 – imposed both a “hard” and a “soft” cap on annual compensation of “covered executives” (including directors, trustees, managing partners, officers and  any key employee whose overall compensation exceeds $199,000).  The hard cap prohibited covered executives from receiving compensation from state funds for any direct or indirect compensation above $199,000 each year.  The soft cap further limited executive compensation by penalizing covered executives who received compensation over $199,000, regardless the source of the funds, unless: 1) the covered provider obtained a waiver; 2) the compensation was not more than 75% greater than compensation of comparable executives; and 3) the compensation was reviewed and approved by the covered provider’s governing body (i.e., the board of directors).  

DOH’s authority in implementing the hard cap and soft cap were reviewed by the courts in LeadingAge New York, Inc., et al. v. Shah, et al.  Ultimately, the hard cap was viewed by the Court of Appeals to be an appropriate use of DOH’s authority, and is still in effect.  The soft cap, however, was deemed to be “an unauthorized excursion by DOH beyond the parameters set by the legislature” and was invalidated; this determination would effectively be memorialized upon formal adoption of the amendments to the regulations.  

DOH is accepting public comments on the proposed amendments until November 4, 2019. Should you have any questions regarding this information, please contact Hermes Fernandez, any of the attorneys in our Health Care Practice, or the attorney in the firm with whom you are regularly in contact.