Can Maine pass a law capping how much hospital executives are paid, and how would the state actually enforce that?

Subject

Whether the Maine Legislature can cap hospital executive pay, and what enforcement mechanisms would work if it did. Issued by AG Aaron M. Frey on January 30, 2024 in response to a request from the Health and Human Services Committee chairs. The committee was looking back at L.D. 1321 (which would have limited hospital executive pay to no more than five times the median pay of the hospital's full-time RNs) and considering similar legislation for the next session.

Plain-English summary

Two Maine legislators asked the AG whether a state law capping hospital executive pay would be legal, and if so, how the state could actually enforce it. The AG's answer, in short: the Legislature probably can do this if it wants to, and there are at least three workable enforcement options.

On legality, the AG looked at the only really comparable example: New York. In 2012, then-Governor Cuomo issued an executive order capping pay for executives at health care providers receiving state funds at $199,000. The Department of Health wrote regulations to back it up. Hospitals sued. The case went up through the New York courts and ended with a split result. The cap was upheld where it limited the use of state funds for executive pay. It was struck down where it tried to limit non-state funds, because at that point the agency was acting beyond what the legislature had authorized. The due process challenge fell out of the case early; hospitals could not show a vested property interest in Medicaid reimbursements. The AG noted that LeadingAge is not a perfect precedent for Maine because the New York fight was about agency authority, not legislative authority. In Maine, a cap would come straight from the Legislature, so the agency-authority question would not arise.

The AG also flagged a Los Angeles ballot initiative that tried to cap hospital executive pay at the President's salary. A trial court let it onto the ballot, but California then passed SB 525, which preempted local pay-cap ordinances at covered healthcare facilities through 2029.

The AG's bottom line on legality: there is no controlling precedent that forecloses a hospital pay cap, hospitals in the New York case did not pursue their constitutional challenges past the trial court, and a state law cap would be legally defensible. The opinion expressly assumes the cap would be prospective only. Trying to apply a cap to existing employment contracts would create due process problems.

On enforcement, the AG offered three options:

1. Hospital licensure. All Maine hospitals must be licensed by DHHS under 22 M.R.S. §§ 1811-1833. The Legislature can make compliance with a pay cap a condition of licensure, and hospitals would have to disclose executive compensation in initial and renewal applications.

2. MaineCare participation. The Legislature can make pay-cap compliance a condition of participating in MaineCare (Maine's Medicaid program). To do this, DHHS would have to amend its State Plan and get the amendment approved by CMS. The AG warned that a hospital could theoretically opt out of MaineCare to dodge the cap, though noted all Maine hospitals currently participate.

3. Direct cause of action. The Legislature can simply create a statutory cause of action and let the AG enforce it in court, with statutory penalties on the books for violations.

The AG was careful to add: he was not recommending that the Legislature impose a cap. He was answering the legal questions the committee asked.

What this means for you

If you are a Maine legislator considering a hospital pay-cap bill

The opinion gives you a green light on legality, with conditions. Stick with prospective application; do not try to reach into existing employment contracts. Pick an enforcement vector that fits the bill's design. Tying it to licensure is the most direct approach because every Maine hospital needs a license. Tying it to MaineCare adds federal review steps (CMS State Plan Amendment) and creates an exit ramp (a hospital could end MaineCare participation), so factor that into the design. A direct cause of action with statutory penalties is the cleanest enforcement mechanism if you want courts in the loop.

The opinion reads as legally permissive, not constitutionally bulletproof. AG Frey hedged that LeadingAge providers abandoned their constitutional claims after the trial court dismissed them, which "may indicate" the providers didn't see merit in those theories. That is a sober read of the litigation history, not a ringing endorsement. If a Maine cap is enacted, expect lawsuits, expect new constitutional theories that LeadingAge plaintiffs did not run, and write the bill with a clear severability clause.

If you are a hospital executive or sit on a hospital board

A future Maine pay-cap law is legally plausible based on this opinion. If a bill moves, watch for: whether it is prospective only, whether it is tied to licensure or MaineCare, what compliance reporting it requires, and whether it carries statutory penalties or AG enforcement authority. Existing employment contracts are likely safe under the AG's framing, but new contracts and renewals would be exposed.

If you advise hospitals or healthcare organizations

This is a non-binding AG opinion, not a court ruling. It signals the AG's office's litigation posture. If a cap statute is enacted and challenged, expect the AG to defend it on the legality theory laid out here. Constitutional challenges that did not get fully litigated in LeadingAge (substantive due process, takings, equal protection on a hospital-by-hospital basis) are not foreclosed for future plaintiffs.

If you cover Maine healthcare policy

The opinion is a roadmap to how a 2024 or later legislature could draft a hospital pay-cap bill that the AG's office considers defensible. Key signals to watch: prospective-only language, the choice between licensure and MaineCare as enforcement hook, and whether the AG is named as the enforcement authority.

Background and statutory framework

Maine has not yet capped hospital executive compensation. The committee's request grew out of L.D. 1321 from the prior session, which would have limited a hospital executive's pay to no more than five times the median compensation of the hospital's full-time registered professional nurses. That bill received an "ought not to pass" report. The committee chairs (Senator Baldacci, who chairs HHS, and Representative Meyer) asked AG Frey to weigh in on legality and enforcement before the next session.

There is no Maine statute currently on the books capping hospital executive pay. Maine hospitals are licensed by the Department of Health and Human Services under Title 22, sections 1811 through 1833 of the Maine Revised Statutes. Maine hospitals also participate in MaineCare, the state's Medicaid program. Both of those frameworks create natural enforcement hooks because compliance with state law can be made a condition of either.

The most directly comparable legal development is the LeadingAge litigation in New York. That fight ran from 2014 through 2018 and ended with the New York Court of Appeals affirming a split result: state funds could be capped under properly authorized regulations, but capping a provider's non-state funds required a clearer legislative grant of authority. The plaintiffs' constitutional claims (due process, takings, separation of powers as applied) did not survive past the trial court. Whether they were dropped on the merits or for strategic reasons is not clear from the opinion.

The Los Angeles ballot initiative the AG mentioned would have capped covered hospital executive pay at the President's salary (then $450,000 per Title 3 U.S.C. § 102). The California Hospital Association sued to keep it off the ballot, lost on the threshold challenge, and the initiative went on the March 2024 ballot. California then passed SB 525, which preempted local healthcare pay caps through 2029, so even a passing initiative may not be enforceable.

Common questions

Can Maine actually cap hospital executive pay?

According to this opinion, yes, the Legislature probably has the authority to do that, especially if the cap applies only going forward and not to people already under contract. There is no court ruling that says a state cannot do this. The closest litigation, in New York, did not foreclose the idea; it limited a state agency's authority to do it without legislative backing, which is not Maine's situation if the Legislature passes the law itself.

Why does the AG keep saying "prospective only"?

Because applying a cap to people already under contract could be challenged as an unconstitutional impairment of contract or a due process violation. The AG flagged that explicitly in footnote 3. Caps that apply only to new contracts and renewals are on safer constitutional ground.

What enforcement options would actually work?

Three are laid out in the opinion. The state can require compliance as a condition of licensure (every Maine hospital needs DHHS licensure under 22 M.R.S. §§ 1811-1833). The state can require compliance as a condition of MaineCare participation, though that requires DHHS to amend its State Plan and CMS to approve. Or the Legislature can create a statutory cause of action and let the AG enforce it in court with monetary penalties.

Could a hospital just opt out of MaineCare to dodge the cap?

In theory, yes. The AG acknowledged this risk for the MaineCare-conditions route. In practice, all Maine hospitals currently participate in MaineCare, and exiting MaineCare would mean walking away from a major revenue source. But the option exists, which is why licensure may be a more durable enforcement hook.

Did the AG recommend that Maine cap hospital executive pay?

No. The opinion is explicit on this. AG Frey said he was "simply expressing my opinion that the Legislature arguably has the authority to do so and outlining various enforcement options." The decision whether to legislate is the Legislature's.

What about the LeadingAge case in New York? Did it really say states can do this?

Sort of. LeadingAge let New York cap how state funds could be used (so a provider can't use Medicaid dollars to pay an executive over the cap), but blocked the agency from capping how non-state funds were used because the legislature hadn't authorized that. The fight was over agency authority, not constitutional limits on legislatures. A Maine law passed directly by the Legislature would not face the same agency-authority issue.

Could a hospital sue to block a Maine pay cap on constitutional grounds?

Probably yes. Plaintiffs in the LeadingAge case raised due process and other constitutional theories but did not pursue them past the trial court. The AG read that history as suggesting limited merit, but a future plaintiff could raise theories the LeadingAge plaintiffs abandoned, especially if the cap reaches non-state funds or applies retroactively. The opinion does not foreclose those challenges; it just says the cap would be "legally defensible," meaning the AG would defend it.

What was L.D. 1321?

A prior-session Maine bill that would have limited hospital executive pay to no more than five times the median compensation of the hospital's full-time registered professional nurses. The HHS Committee voted "ought not to pass" on it. This opinion was written because the same committee was thinking about a different version of the bill for a future session.

Citations

The opinion's central authorities, drawn directly from its text:

• Federal precedent referenced: Title 3 of the United States Code § 102 (Presidential salary, referenced in the LA ballot initiative).
• New York regulations: 10 NYCRR § 1002.3 (2013); 10 NYCRR § 1002.3(b).
• Maine licensure statute: 22 M.R.S. §§ 1811-1833 (hospital licensure as a possible enforcement vector).
• New York LeadingAge litigation chain: In re LeadingAge N.Y., Inc. v. Shah, No. 5352-13, 2014 WL 4207061 (N.Y. Sup. Ct. Aug. 13, 2014); LeadingAge New York, Inc. v. Shah, 56 Misc. 3d 594, 53 N.Y.S.3d 804 (N.Y. Sup. Ct. 2015); 153 A.D.3d 10, 58 N.Y.S.3d 651; 32 N.Y.3d 249, 114 N.E.3d 1032 (2018).
• Los Angeles ballot litigation: California Hospital Assoc. v. Wolcott, No. 23STCP00760 (Apr. 4, 2023, Cal. Sup. Ct., L.A. Cty.).

The opinion also references California SB 525 (2023) and Maine L.D. 1321 (prior session), noted as background but not as legal citations.

Source

• Landing page: https://www.maine.gov/legis/lawlib/lldl/agops/agops.htm
• Original PDF: https://lldc.mainelegislature.org/Open/AG/Opinions/2024/ag_20240130.pdf

Original opinion text

MAINE STATE LEGISLATURE

    The following document is provided by the
   LAW AND LEGISLATIVE DIGITAL LIBRARY

at the Maine State Law and Legislative Reference Library
http://legislature.maine.gov/lawlib

Reproduced from scanned originals with text recognition applied
(searchable text may contain some errors and/or omissions)
2024-01
REGIONAL O1-FICES
84 11,\RLOW ST. 2ND FLOOR
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AARON M. FREY
ATTORNEY GENERAL 125 PRESU�IPSCOT ST., Sum, 26
PORTLAND, MAINE 04103
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STATE OF MAINE
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                                                      January 30, 2024



The Honorable Joseph M. Baldacci
The Honorable Michele Meyer
Committee on Health and Human Services
100 State House Station
Augusta, ME 04333-0100

Dear Senator Baldacci and Representative Meyer:

        I am writing in response to your letter requesting my thoughts regarding the legality of
capping executive pay at hospitals and the means by which such a cap could be enforced. As you
note, last session the Committee on Health and Human Services considered L.D. 1321, "An Act
to Address Income Disparity in Health Care by Limiting the Compensation of Hospital
Executives." This bill would have limited hospital executive pay to no more than five times the
median compensation of the hospital's full-time registered professional nurses. While the
Committee voted "ought not to pass" on the bill, you indicate that the Committee may consider
other legislation limiting hospital executive pay in the upcoming session. You ask for my opinion
regarding the legality of capping executive pay at hospitals and how such a cap could be
implemented and enforced.

        With respect to the legality of capping executive pay at hospitals, the only reported
decisions I am aware of relate to an executive order issued by New York's governor in 2012
directing the Department of Health ("DOH") and other state agencies to promulgate regulations
requiring that at least 75 percent of state funds be used for direct care and prohibiting using state
funds for executive compensation in excess of $199,000 per year. The DOH adopted regulations
imposing these limits on health care providers. 10 NYCRR § 1002.3 (2013). The DOH regulations
went beyond the executive order by capping executive compensation at $199,000 regardless of the
funding source. Id. at § 1002.3(b). This cap could be exceeded, though, if 1) the compensation
did not exceed the 75 th percentile of the compensation provided to comparable executives in
comparable facilities in the same geographic area, or 2) the compensation was reviewed and
approved by the provider's governing body following an assessment of "appropriate comparability
data." Id.

        Various providers challenged the regulations in state court, alleging, among other things,
that the DOH regulations violated the separation of powers principle and their due process rights.

The Honorable Joseph M. Baldacci
The Honorable Michele Meyer
January 30, 2024
Page 2

The trial court dismissed the plaintiffs' due process claim because they were "unable to establish
a 'vested property interest' in Medicaid reimbursements." In re LeadingAge N. Y., Inc. v. Shah,
No. 5352-13, 2014 WL 4207061, at *6 (N.Y. Sup. Ct. Aug. 13, 2014). Subsequently, the trial
court held that the DOH regulations limiting the use of state funds for executive compensation
were valid but that the regulations limiting the use of both state and non-state funds for executive
compensation were invalid because they were promulgated in excess of the DOH's statutory
authority. LeadingAge New York, Inc. v. Shah, 56 Misc. 3d 594, 610, 53 N.Y.S.3d 804, 817 (N.Y.
Sup. Ct. 2015). Subsequently, both the Appellate Division and the Court of Appeals affirmed.
153 A.D.3d 10, 58 N.Y.S.3d 651; 32 N.Y.3d 249, 114 N.E.3d 1032 (2018). Neither of the
appellate courts addressed the due process claim, and it may be that the plaintiffs did not appeal
the dismissal of that claim.

   The LeadingAge case is not particularly instructive because the primary issue litigated was

whether a state agency had sufficient legislative authority to impose compensation caps. Here, on
the other hand, any cap would be imposed directly by the Legislature and issues of agency
authority would not be relevant.

    Because you mention it in your letter, I also want to briefly discuss a citizen initiative in

Los Angeles to cap hospital executive compensation. Essentially, under this initiative, the
compensation of executives at hospitals and certain other healthcare facilities "shall not exceed the
total compensation for the President of the United States, currently $450,000, as set forth in section
102 of Title 3 of the United States Code." The California Hospital Association filed a lawsuit to
stop the initiative from being placed on the ballot, arguing that the initiative made a false statement
regarding the amount of the President's compensation. The court rejected this argument.
California Hospital Assoc. v. Wolcott, No. 23STCP00760 (Apr. 4, 2023, Cal. Sup. Ct., L.A. Cty.).
It appears that the initiative will be placed on the March 5, 2024 ballot.

     Without any relevant legal precedent, it is impossible to assess with certainty the legality

of legislation capping hospital executive pay. Although the providers in LeadingAge initially made
a due process challenge to compensation limits, they apparently abandoned it after it was dismissed
by the trial court. This may indicate that the providers did not see sufficient merit in bringing due
process or other constitutionally-based claims. In any event, in the absence of any precedent
clearly foreclosing legislation capping hospital executive compensation, it is my view that such
legislation would be legally defensible.

(Footnote 1: On October 8, 2021, New York's current governor issued an order discontinuing a number of prior executive orders, including the 2012 order limiting executive compensation.)

(Footnote 2: On October 13, 2023, California's governor signed into law Senate Bill No. 525, establishing a statewide minimum wage for covered healthcare workers and prohibiting local governments from enacting or enforcing ordinances limiting compensation at covered healthcare facilities through the end of 2029. So even if the Los Angeles initiative passes, state law may prevent its enforcement.)

(Footnote 3: This assumes that any such legislation would be prospective only and would not apply to existing employment agreements. Applying legislation limiting executive compensation to existing employment agreements could raise due process issues.)

The Honorable Joseph M. Baldacci
The Honorable Michele Meyer
January 30, 2024
Page 3

   As to enforcement, there are at least three options. First, all hospitals in the state must be

licensed by the Maine Department of Health and Human Services ("DHHS"). See 22 M.R.S. §§
1811-1833. Compliance with compensations caps could be made a condition of licensure. This
could be implemented by requiring hospitals to provide information about their executive
compensation as part of initial licensure and all license renewal proceedings.

    Second, hospitals could be required to comply with executive compensation caps as a

condition of participating in the MaineCare program. To implement such a requirement, though,
DHHS would likely need to update its "State Plan," and have the amendment approved by the
federal Centers for Medicare & Medicaid Services. Further, while to my knowledge all hospitals
in Maine currently participate in the MaineCare program, a hospital could potentially choose to
end its participation to avoid imposition of compensation caps.

   Third, the law could create a cause of action for violations of the compensation limits and

authorize the Attorney General to bring enforcement actions in state court. The law could direct
the court, if it finds a violation, to assess specific monetary penalties.

   To be clear, I am not recommending that the Legislature impose caps on hospital executive

compensation. In responding to your questions, I am simply expressing my opinion that the
Legislature arguably has the authority to do so and outlining various enforcement options should
the Legislature decide to limit hospital executive compensation.

     I trust this information is helpful. Please let me know if I can be of further assistance on

this issue.

                                                  Very truly yours,



                                                 Aaron M. Frey
                                                 Attorney General