NJ Codey Law Updates – The End of the In-Practice Pharmacy?

Recently, the Superior Court of New Jersey, Appellate Division, in an unpublished opinion (not to be used as precedent or be binding upon any court), upheld a determination by the New Jersey Board of Pharmacy that a medical practice may not own an in-practice pharmacy to which the physician owners refer patients.

The petitioner, owned by four medical doctors, had sought to open a pharmacy within its practice location that would be exclusively for patients of the practice. The Board of Pharmacy denied the practice’s application citing the Codey Law, N.J.S.A 45:9-22.5(a), which prohibits physicians from referring patients to health care services in which they hold an ownership interest unless an exception applies. The Codey Law definition of health care services includes pharmacies. According to the Board of Pharmacy, none of the Codey Law exceptions were applicable.

The petitioner raised numerous issues on appeal, including: 1) the in-office exception to the Codey Law was applicable, 2) the Board of Pharmacy acted beyond the scope of its authority in considering the Codey Law, which is under the authority of the Board of Medical Examiners, 3) denial of the application amounted to impermissible anti-competitive conduct, and 4) the doctrine of equitable estoppel required the Board of Pharmacy to approve the application. The Court rejected each argument.

Per the Board of Pharmacy and the Court, the Codey Law in-office exception was not applicable. The in-office exception provides that the Codey Law prohibitions do not apply to 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.  Neither “medical treatment” nor “procedure” is defined in the Codey Law, but the Board of Pharmacy and the Court determined that pharmacy services are neither “medical treatment” nor “procedure.” The Board had noted that its decision was consistent with the advisory opinions rendered by the Board of Medical Examiners, which, per the Board, state that a physician may own a pharmacy, but the physician may not refer patients to said pharmacy.

The Court determined that the Board of Pharmacy was within its rights to deny the pharmacy’s application based on violation of the Codey Law. The New Jersey Pharmacy statute allows the Board of Pharmacy to deny a pharmacy application if the conduct in said application is in violation of any federal state or local laws or regulations relating to the practice of pharmacy. The Court determined that the Codey Law reasonably relates to the practice of pharmacy as it explicitly defines pharmacies as health care services.

Likewise, the Court rejected the Petitioner’s anti-competition and equitable estoppel arguments. Interestingly, Petitioner’s equitable estoppel argument was based on an assertion that the Board of Pharmacy allowed another medical practice to operate an in-office pharmacy. The Board conceded it made a mistake in approving the arrangement, and it rescinded the permit issued to the medical practice identified by Petitioner.