A state judge has declined to dismiss a challenge to the Cuomo administration’s 2013 regulations that prohibit state funds from underwriting salaries of executives at private healthcare providers who make more than $199,000 a year.

Albany Supreme Court Justice George Ceresia Jr. (See Profile) found that plaintiffs sufficiently showed that the state regulations may violate provisions of the business corporation and the limited liability company laws. Those statutes give private companies power to “hire and fix compensation for officers, directors and employees,” Ceresia noted.

He also found that the state rules may be arbitrary and capricious since they apply to healthcare and service providers but not other recipients of health-related public funding, such as pharmacies and medical suppliers.

Under the regulations, healthcare providers face the loss of Medicaid and other public health funding if they violate salary and administrative cost rules.

Ceresia ruled in the consolidated actions: Matter of LeadingAge N.Y. v. Shah, 5333-13, and Matter of Coalition of New York State Public Health Plans v. State Department of Health, 5352-13.

David Luntz, principal at Hinman Straub and Cornelius Murray, shareholder at O’Connell & Aronowitz, both in Albany, represented LeadingAge. Partners Andrew Frackman and Abby Rudzin of O’Melveny & Myers argued for the New York State Public Health Plans.

Assistant Attorney General Douglas Goglia defended the state.

Ceresia’s ruling ran counter to Suffolk County Supreme Court Justice Emily Pines’ (See Profile) reading of the state regulations in Concerned Home Care Providers v. New York State Dept. of Health, 015593-2013. She held that the state public health and social services laws allow enforcement of the state’s restrictions (NYLJ, Aug. 7).

The plaintiffs are appealing Pines’ ruling.