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) ( 2020 )

NOT FOR PUBLICATION WITHOUT THE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.
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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
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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
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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.
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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
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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
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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
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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.
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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.
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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.
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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
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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.
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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.
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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.
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