Court of Appeals Affirms Lower Court’s Decision Striking Down “Soft Cap” on Executive Compensation

October 24, 2018


On October 18, 2018, the New York Court of Appeals, in a 4-3 decision, affirmed an Appellate Division decision striking down the so-called “soft cap” and affirming the “hard cap” limitations on executive compensation under the NYS Department of Health (“DOH”) regulations implementing Executive Order # 38 (“EO 38”).  Specifically, the Court of Appeals upheld the regulations on covered providers, such as hospitals licensed under Article 28 of the Public Health Law, which imposed limits on administrative expenses and executive compensation to the extent funded by “state funds” – the so-called “hard cap” – (which include funds in the State budget to pay for State funded program services, e.g., Cystic Fibrosis Program, Early Intervention Program) or “state-authorized payments” (which include funds that are distributed or disbursed upon a New York State agency’s approval, e.g., Medicaid payments) (collectively, “State Funds”).   The Court invalidated the EO 38 regulations which placed limitations – the so-called “soft cap” – on the covered provider’s use of non-State Funds, e.g., private funds, funds from commercial payors, etc., for executive compensation.

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