IN THE MATTER OF THE APPLICATION OF SUMMIT MEDICAL GROUP, D/B/A SMG PHARMACY TO OPERATE A PHARMACY IN THE STATE OF NEW JERSEY (NEW JERSEY BOARD OF PHARMACY)

• Court: New Jersey Superior Court Appellate Division
• Decided: May 12, 2020
• Docket: A-1116-18T1
• Status: Unpublished

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION This opinion shall not "constitute precedent or be binding upon any court." Although it is posted on the internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-1116-18T1

IN THE MATTER OF THE APPLICATION OF

SUMMIT MEDICAL GROUP, d/b/a SMG PHARMACY

TO OPERATE A PHARMACY IN THE STATE OF NEW JERSEY. _____________________________

Argued telephonically December 3, 2019 – Decided May 12, 2020

Before Judges Hoffman, Currier and Firko.

On appeal from the New Jersey Board of Pharmacy.

Richard J. Cino argued the cause for appellant Summit Medical Group (Jackson Lewis, PC, attorneys; Richard J. Cino and Carla D. Macaluso, of counsel and on the briefs; Joshua D. Allen, on the briefs).

Jodi Claire Krugman, Deputy Attorney General, argued the cause for respondent New Jersey Board of Pharmacy (Gurbir S. Grewal, Attorney General, attorney; Jason Wade Rockwell and Melissa H. Raksa, Assistant Attorneys General, of counsel; Jodi Claire Krugman, on the brief). Fox Rothchild LLP, attorneys for amicus curiae Regional Cancer Care Associates, LLC (R. James Kravitz, of counsel and on the brief; A. William Henkel, on the brief).

PER CURIAM

Summit Medical Group (SMG) appeals from the final agency decision of

the State Board of Pharmacy (the Board) denying its application for a specialty

pharmacy license. SMG filed an application seeking to establish a pharmacy

practice located in the same building where SMG conducts its oncology practice.

The pharmacy was to be wholly owned by the physicians who own SMG's

medical practice and would have exclusively filled prescriptions written by

SMG physicians for SMG patients. In denying SMG's application, the Board

concluded the proposed pharmacy would violate the Codey Law,1 which

prohibits physicians from referring patients to health care services in which they

maintain a financial interest. SMG asserts the Board acted arbitrarily,

capriciously, and unreasonably in denying its license. We affirm.

I

1 N.J.S.A. 45:9-22.4 to -22.9. A-1116-18T1 2 We discern the following facts from the agency record. On November 24,

2017, SMG filed an application for a permit to operate a specialty pharmacy

located on the ground floor of the building where SMG conducts its oncology

practice. SMG's application set forth the history of its practice as the "largest

and oldest physician-owned multispecialty practice in New Jersey." SMG also

advised it recently entered a partnership with MD Anderson Cancer Center to

create Summit Medical Group MD Anderson Cancer Center.

SMG explained the pharmacy was to be wholly owned by the same group

of physicians who hold an ownership interest in SMG's medical practice. The

pharmacy would fill prescriptions exclusively written by SMG physicians for

SMG patients.

SMG requested that the proposed pharmacy be designated as a specialty

pharmacy under N.J.A.C. 13:39-4.16. SMG explained that the pharmacy was to

be "closed door," that is, limited to SMG patients who elect to use its services

but not open to the general public. The proposed pharmacy would only dispense

medications needed by patients according to oncologic treatment protocols and

would not dispense any other medications prescribed for the patients by other

physicians for other conditions. SMG also offered to post a notice and obtain

A-1116-18T1 3 an additional acknowledgment from the patient that he or she understood the

prescription may be filled at any pharmacy.

SMG asserted that an on-site pharmacy would help provide oversight of

its patients and assist in compliance with drug regimes. It also suggested an in-

house pharmacy would decrease the amount of time required to obtain

medications and provide for coordination of insurance claims and expedite any

necessary interventions for the patients.

SMG's application also indicated that revenue generated by the pharmacy

would not be used to pay the referring physicians, thereby intending to ensure

the proposed pharmacy would operate in a manner that did not violate the

Board's anti-steering provisions, N.J.S.A. 13:39-3.10. Instead, pharmacy profits

would be allocated as general operating income and used for the development

of additional clinical programs to support oncology patients, such as integrated

behavioral health specialists to provide supportive therapy, social workers t o

assist with linkage to social services, and cancer care navigators to assist patients

with coordinating their complex care.

Following an initial review of the application, the Board requested

additional information from SMG. Specifically, the Board requested that SMG

A-1116-18T1 4 address whether the proposed ownership structure and operation of the

pharmacy would violate the Codey Law, or the federal Stark Law.2

In response, SMG submitted a February 22, 2018 letter for the Board's

consideration, attaching several exhibits, including two advisory opinions of the

New Jersey Board of Medical Examiners. The letter acknowledged that a

pharmacy is a "health care service" within the meaning of the Codey Law,

N.J.S.A. 45:9-22.4, and that the physicians of SMG would have a financial

interest in the pharmacy as that term is set forth in the statute. Nevertheless, the

letter emphasized the proposed pharmacy would fall within an exception to the

Codey Law, which allows for "a medical treatment or a procedure that is

provided at the practitioner's medical office and for which a bill is issued directly

in the name of the practitioner or the practitioner's medical office." N.J.S.A.

45:9-22.5c(1).

In supporting its contention, SMG explained the pharmacy would bill

under the same tax identification number (TIN) as its medical practice. It further

argued that the proposed pharmacy would, for all purposes, be fully owned

within SMG's medical practice. In doing so, SMG indicated that the staff of the

2 42 U.S.C. § 1395nn.

A-1116-18T1 5 pharmacy, including pharmacists, would be directly employed by SMG; the

assets of the pharmacy would be owned by SMG; and bills for pharmaceuticals

would be in SMG's name and billed under SMG's TIN.

The matter proceeded to a Board review and discussion at the August 22

and September 29, 2018 Board meetings. Several SMG representatives,

including Becky Levy, SMG's general counsel, and Laura Balsamini, SMG's

Director of Pharmacy Services, appeared before the Board to discuss the new

cancer center and answer questions concerning the pharmacy permit application.

At the September meeting, Levy read a prepared statement in which she noted

that the Board had previously granted a pharmacy permit to a physician-owned

medical practice. She also emphasized SMG's position that the proposed

pharmacy would fall within what is referred to as the "extension of practice" or

"in-house" exception to the Codey Law. Levy maintained that an in-house

pharmacy would enhance patient care and optimize patient outcomes.

Following deliberations, after considering all the materials presented,

including oral argument, the Board voted to deny SMG's application for a

specialty pharmacy license at the conclusion of its September 27, 2018 meeting.

In its October 24, 2018 order and decision, the Board found that granting SMG's

A-1116-18T1 6 permit under the circumstances would endorse a practice structure that is in

violation of New Jersey law.

In its analysis, the Board noted that SMG conceded its physicians would

have a significant beneficial interest in the proposed pharmacy, and that only

SMG physicians would be writing prescriptions. The Board therefore concluded

the proposed pharmacy and its operation fell squarely within the strictures of the

Codey Law. Moreover, the Board noted there would be no question that a

"referral" would occur, for the purposes of the Codey Law, when the pharmacy

would fill prescriptions written by SMG physicians, who also own the

pharmacy. As the Board explained, "To suggest otherwise would make

meaningless the statutory inclusion of a pharmacy as a 'health care service'

pursuant to N.J.S.A. 45:9-22.4."

The Board also addressed SMG's reliance on two prior advisory opinions

issued by the Board of Medical Examiners. It explained that the opinions, which

supported the "extension of practice" exemption, involved referrals made by

physicians to a sleep study service and to an ambulatory surgical center, entities

where the referring physicians held a significant financial stake. However, the

Board noted those referrals were recognized as "medical treatments" or "medical

procedures" provided by practitioners at the practitioner's medical office, and

A-1116-18T1 7 explicitly exempt under the statute. N.J.S.A. 45:9-22.5c(1). In contrast, the

Board noted that pharmacies provide neither "medical treatments" nor "medical

procedures."

In addressing SMG's proposed financial structure, the Board observed that

reimbursements for physician-dispensed medications differed from those

dispensed by a pharmacy, so "there would appear to be a direct financial

incentive for SMG physicians to prescribe (where the physicians secure

additional profits from being owners of the pharmacy at which the prescription

is filled) rather than to dispense directly to patients." The Board nevertheless

declined to reach a conclusion if the pharmacy's proposed structure would

violate the Codey Law's additional requirements because it found the "in-house"

exemption inapplicable.

In denying SMG's application, the Board considered SMG's position that

allowing a pharmacy to operate on-site may provide significant convenience and

benefits to its patients. However, the Board found it "unclear just how

significant those benefits may be, given that the patients will still have to fill all

prescriptions that are not oncology related at other pharmacies."

On November 8, 2018, SMG filed its notice of appeal. On February 13,

2019, SMG filed a motion to supplement the record on appeal to include

A-1116-18T1 8 application of another registered pharmacy and publications illustrating the

importance of an oncology pharmacy. On April 5, 2019, after considering

opposition filed by the Board, we denied SMG's motion. On July 17, 2019,

Regional Cancer Care Associates, LLC filed a motion to intervene as amicus

curiae, which we granted.

II

On appeal, SMG argues the Board acted arbitrarily, capriciously, and

unreasonably in denying its application for a specialty pharmacy license. SMG

contends the Board erred in its statutory interpretation of the plain language of

the Codey Law because pharmacies can provide "medical treatment."

Specifically, SMG contends that its pharmacy would qualify as a so-called "in-

house" exception because the restriction on the referral of patients does not

apply to "medical treatment or a procedure that is provided at the practitioner's

medical office for which a bill is issued directly in the name of the practitioner

or the practitioner's medical office[.]" N.J.S.A. 45:9-22.5(c)(1). Amicus curiae,

Regional Cancer Care Centers, urges us to reverse, asserting the Board

"misinterpreted and overstepped its authority by invoking the Cody Law" as the

basis for its decision.

A-1116-18T1 9 The Board counters that under the plain language of the Codey Law,

pharmacies do not provide "medical treatment." The Board further maintains our

Legislature "intended that any self-referrals to a pharmacy would be a violation

of the Codey Law."

Our review of a final decision of an administrative agency is limited.

Russo v. Bd. of Trs., Police & Firemen's Ret. Sys., 206 N.J. 14, 27 (2011) (citing

In re Herrmann, 192 N.J. 19, 27 (2007)). The agency's decision should be upheld

"unless there is a clear showing that it is arbitrary, capricious, or unreasonable,

or that it lacks fair support in the record." Ibid. (quoting Herrmann, 192 N.J. at

27-28). "The burden of demonstrating that the agency's action was arbitrary,

capricious or unreasonable rests upon the [party] challenging the administrative

action." In re Arenas, 385 N.J. Super. 440, 443-44 (App. Div. 2006) (citations

omitted).

"We recognize that agencies have 'expertise and superior knowledge . . .

in their specialized fields.'" Hemsey v. Bd. of Trs., Police & Firemen's Ret.

Sys., 198 N.J. 215, 223 (2009) (alteration in original) (quoting In re License

Issued to Zahl, 186 N.J. 341, 353 (2006)). We therefore accord deference to the

"agency's interpretation of a statute" it is charged with enforcing. Thompson v.

Bd. of Trs., Teachers' Pension & Annuity Fund, 449 N.J. Super. 478, 483 (App.

A-1116-18T1 10 Div. 2017) (quoting Richardson v. Bd. of Trs., Police & Firemen's Ret. Sys.,

192 N.J. 189, 196 (2007)).

"A reviewing court 'may not substitute its own judgment for the agency's,

even though the court might have reached a different result.'" In re Stallworth,

208 N.J. 182, 194 (2011) (quoting In re Carter, 191 N.J. 474, 483 (2007)). Under

the arbitrary, capricious, and unreasonable standard, our scope of review is

guided by three major inquiries: (l) whether the agency's decision conforms with

relevant law; (2) whether the decision is supported by substantial credible

evidence in the record; and (3) whether, in applying the law to the facts, the

administrative agency clearly erred in reaching its conclusion. Ibid.

Guided by these principles, we consider whether the Board's decision was

arbitrary, capricious, unreasonable, or unsupported by substantial credible

evidence in the record.

III

The Board is charged with enforcing the New Jersey Pharmacy Practice

Act.3 N.J.S.A. 45:14-42. "The board may deny, suspend, revoke, restrict or

refuse to renew a permit for a pharmacy practice site that does not comply with

3 N.J.S.A. 45:14-40 to -82. A-1116-18T1 11 the provisions of this act or any rule or regulation promulgated pursuant to this

act." N.J.S.A. 45:14-69(g).

A "pharmacist" is "an individual currently licensed by this State to engage

in the practice of pharmacy." N.J.S.A. 45:14-41. A "pharmacy practice site" is

"any place in this State where drugs are dispensed or pharmaceutical care is

provided by a licensed pharmacist, but shall not include a medical office under

the control of a licensed physician." Ibid. "Dispensing" is "the procedure

entailing the interpretation of a practitioner's prescription order for a drug,

biological or device, and pursuant to that order the proper selection, measuring,

compounding, labeling and packaging in a proper container for subsequent

administration to, or use by, a patient." Ibid.

The Codey Law provides, in part, that "[a] practitioner shall not refer a

patient or direct an employee of the practitioner to refer a patient to a health care

service in which the practitioner, or the practitioner's immediate family, or th e

practitioner in combination with the practitioner's immediate family has a

significant beneficial interest[.]" N.J.S.A. 45:9-22.5; see also N.J.A.C. 13:35-

6.17(b). The statute's definition of "[h]ealth care service" expressly includes a

pharmacy. N.J.S.A. 45:9-22.4. A "significant beneficial interest" is

any financial interest; but does not include ownership of a building wherein the space is leased to a person at

A-1116-18T1 12 the prevailing rate under a straight lease agreement, payments made by a hospital to a physician pursuant to a hospital and physician incentive plan, or any interest held in publicly traded securities.

[N.J.S.A. 45:9-22.4.]

The so-called "in-house" exception to the Codey Law provides that the

restrictions on referrals do not apply to a "medical treatment or a procedure that

is provided at the practitioner's medical office and for which a bill is issued

directly in the name of the practitioner or the practitioner's medical office."

N.J.S.A. 45:9-22.5(c)(1).

We first note that SMG's specialty pharmacy structure is clearly

prohibited under the plain language of the Codey Law. As proposed, SMG

would exclusively refer its patients to a "health-care service" which its

physicians wholly own. Therefore, SMG was required to demonstrate its

proposed pharmacy met one of the statute's express exceptions.

With regard to the "in-house" exception, the Board concluded "[t]he

dispensing of a medication by a pharmacist, pursuant to a validly written

prescription, is neither a medical treatment nor a medical procedure." Given our

deferential standard of review, we do not find the Board acted arbitrarily,

capriciously, or unreasonably in reaching its conclusion.

A-1116-18T1 13 While neither the statute nor its related regulations define "medical

treatment," as used in N.J.S.A. 45:9-22.5(c)(1), the term has been defined in

other contexts. See, e.g., Kemp v. State, Cty. of Burlington, 147 N.J. 294, 300

(1997); Kutten v. Sun Life Assur. Co. of Canada, 759 F.3d 942 (8th Cir. 2014).

See also Webster's Ninth New Collegiate Dictionary 1257; Webster's II New

Riverside University Dictionary 1230. Our Supreme Court has defined

"treatment" to include "all the steps taken to effect a cure of an injury or disease;

including examination and diagnosis as well as application of remedies." Kemp,

147 N.J. at 300-01.

In contrast, pharmacies are engaged in the practice of "compounding,

dispensing and labeling . . . drugs." N.J.S.A. 45:14-41. SMG's proposed

pharmacy would dispense drugs to patients of the oncology practice. Dispensing

drugs involves interpreting a prescription and ensuring the drug is properly

measured, packaged, and labeled. Ibid. Pharmacists do not examine patients,

nor do they evaluate the symptoms of a patient's disease. Ibid. In other words,

pharmacists and pharmacies are not involved in the "medical treatment" of a

patient; rather, they are the means by which patients receive access to their

treatment needs.

A-1116-18T1 14 We find the agency record contains substantial credible evidence

supporting the Board's conclusion that the proposed pharmacy would violate the

restrictions of the Codey Law. The Board's decision to deny SMG's application

was neither arbitrary, capricious, nor unreasonable.

Affirmed.

A-1116-18T1 15