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CAP ON STATE MEDICAID FUNDS USED FOR ADMINISTRATIVE COSTS AND EXECUTIVE PAY PROPERLY PROMULGATED BY DEPARTMENT OF HEALTH, CAP ON EXECUTIVE PAY FROM ALL SOURCES EXCEEDED DOH’S REGULATORY AUTHORITY.

The Third Department, in a full-fledged opinion by Justice Peters, over a partial concurrence/dissent, determined the Department of Health’s (DOH’s) regulations placing caps on expenditure of state Medicaid funds for administrative costs and executive pay were properly promulgated. However, placing a cap on executive pay from all sources (called the “soft cap”) was deemed to exceed the Department of Health’s authority (disagreeing with the 2nd Department):

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On balance, the Boreali factors weigh heavily in favor of DOH. Accordingly, we conclude that the subject regulations, to the extent that they place a limit on administrative costs and executive compensation paid for by state funds and state-authorized payments, do not violate the separation of powers doctrine… .

We reach a different conclusion, however, with regard to the soft cap provision … . The soft cap provision … restricts executive compensation paid from all sources except under certain circumstances. Absent a waiver, covered providers may not pay covered executives more than $199,000 from “any” sources of funding without incurring penalties unless (1) the amount of compensation is less than “the 75th percentile of that compensation provided to comparable executives in other providers of the same size and within the same program service sector and the same or comparable geographic area” based on a compensation survey recognized by the Division of the Budget, and (2) the amount has been reviewed and approved by the covered provider’s board of directors or equivalent governing body, and such review “include[d] an assessment of appropriate comparability data” … .

Applying the Boreali analysis, we part company with the [2nd] Department and find that … DOH exceeded its authority in adopting the soft cap portion of 10 NYCRR part 1002. First, by attempting to regulate executive compensation from all sources, DOH was acting on its own ideas of sound public policy. Relatedly, inasmuch as the soft cap provision ventures outside DOH’s legislative mandate to manage the efficient and effective use of taxpayer money for health care and related services, DOH was not engaged in mere interstitial rulemaking … . Finally, DOH has no special expertise in administering regulations governing the overall executive compensation or competence in regulating corporate governance as such. Matter of Leadingage N.Y., Inc. v Shah, 2017 NY Slip Op 05136, 3rd Dept 6-22-17

 

MEDICAID (CAP ON STATE MEDICAID FUNDS USED FOR ADMINISTRATIVE COSTS AND EXECUTIVE PAY PROPERLY PROMULGATED BY DEPARTMENT OF HEALTH, CAP ON EXECUTIVE PAY FROM ALL SOURCES EXCEEDED DOH’S REGULATORY AUTHORITY)/ADMINISTRATIVE LAW (MEDICAID, DEPARTMENT OF HEALTH, CAP ON STATE MEDICAID FUNDS USED FOR ADMINISTRATIVE COSTS AND EXECUTIVE PAY PROPERLY PROMULGATED BY DEPARTMENT OF HEALTH, CAP ON EXECUTIVE PAY FROM ALL SOURCES EXCEEDED DOH’S REGULATORY AUTHORITY)/DEPARTMENT OF HEALTH (MEDICAID, CAP ON STATE MEDICAID FUNDS USED FOR ADMINISTRATIVE COSTS AND EXECUTIVE PAY PROPERLY PROMULGATED BY DEPARTMENT OF HEALTH, CAP ON EXECUTIVE PAY FROM ALL SOURCES EXCEEDED DOH’S REGULATORY AUTHORITY)/EXECUTIVE COMPENSATION (MEDICAID, CAP ON STATE MEDICAID FUNDS USED FOR ADMINISTRATIVE COSTS AND EXECUTIVE PAY PROPERLY PROMULGATED BY DEPARTMENT OF HEALTH, CAP ON EXECUTIVE PAY FROM ALL SOURCES EXCEEDED DOH’S REGULATORY AUTHORITY)

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