New York Executive Order 38 and State Agency Regulations on State-Funded Executive Compensation
New York Executive Order 38, “Limits on State-Funded Administrative Costs and Executive Compensation,” which Governor Cuomo issued in May 2013, promises to affect both business and non-profit entities that receive taxpayer dollars to provide healthcare services to New Yorkers. Executive Order 38 required thirteen State agencies to promulgate regulations, all of which took effect July 1, 2013, restricting covered providers’ use of certain State money (including Medicaid payments) to pay administrative costs and executive compensation. “Covered providers” include hospitals, nursing homes, home care service agencies, certified home health agencies, and similar health care providers that receive more than a certain amount of State funds per year.
The Executive Order and regulations impose two restrictions on executive compensation. First, State money cannot be the sole source of funding for executive compensation (including salary, wages, bonuses, dividends, distributions, and payments for personal vehicles, housing, or other expenses) in an amount greater than $199,000 annually. Second, State money cannot contribute at all to executive compensation greater than $199,000 annually unless certain requirements are met. Penalties for failing to satisfy these requirements, without obtaining a waiver, could include the loss of State funding and the revocation, modification, or suspension of the covered provider’s license to provide program services.
Executive Order 38 and its accompanying regulations have spawned lawsuits challenging their validity and enforceability, which have been brought by both non-profit and for-profit providers in Nassau, Suffolk, and Albany counties. The courts considering these issues have so far reached different conclusions – the Suffolk County Supreme Court upheld both Executive Order 38 and the regulations, but the Nassau County Supreme Court invalidated them because it found a violation of the constitutional separation of powers doctrine.
Currently, the State has made clear that – despite the pending legal challenges – it intends to enforce Executive Order 38 and the regulations issued by all thirteen State agencies, and that all covered providers, except those that conduct business solely in Nassau County, are expected to submit proof of compliance. Until New York’s appellate courts resolve these conflicting decisions, entities that could be deemed “covered providers” are advised to consult the State’s Executive Order 38 website, http://executiveorder38.ny.gov, which contains a Guidance Document, a FAQ section, interactive worksheets, and waiver applications.
For more information about Executive Order 38, see our client advisory on this topic, or contact Laura Monaco at (212) 758-7754, or any other attorney at the Firm.