New Jersey Court Rules that Physician Practices Cannot Open Pharmacies

For more information about this blog post, please contact Khaled J. KleleRyan M. MageeBrianna J. SantolliConnor Breza, or Labinot Alexander Berlajolli

The New Jersey Appellate Division recently issued a ruling upholding a determination by the New Jersey Board of Pharmacy (the “Board”) against a medical practice. The controversy stemmed around a 2019 decision of the Board that denied the application of Oncology and Hematology Specialists, P.A., a New Jersey medical practice (the “Petitioner”), to register, open, and operate an in-office pharmacy for its practice. 

The Board’s reasoning for the denial was that the Petitioner’s ownership of such a pharmacy would violate the New Jersey Codey Law, N.J.S.A. 45:9-22.5(a). New Jersey’s Codey Law bars medical practitioners from referring patients to health care services where the practitioners hold “a significant beneficial interest.”  Because the Petitioner planned to open a pharmacy for its practice to which it would refer its own patients, the Codey Law was implicated and thus an exception would have to apply for it to be permissible under the law. Despite Petitioner’s arguments to the contrary, the Board found that Petitioner’s plans for a pharmacy did not fall within an exception, including the exception for medical treatments in a practitioner’s office, because in the Board’s opinion, a pharmacy does not provide medical treatment.  

The Petitioner appealed the Board’s decision, arguing that the Board erred by failing to recognize that pharmacies provide medical treatment and by acting beyond the scope of its authority in considering the Codey Law, which falls under the authority of the  Board of Medical Examiners. Petitioner further argued that the Board's denial of the application amounted to impermissible anti-competitive conduct, and further that the doctrine of equitable estoppel required the Board to approve Petitioner's application. The Appellate Division rejected each of Petitioner’s claims and affirmed the findings of the Board. 

Overall, this holding clearly demonstrates the state of the law in New Jersey surrounding the ownership of pharmacies by physicians in connection with their medical practices. Providers should be aware of the broad applicability of the New Jersey Codey Law as it applies to referrals to entities that a provider has an interest in and structure their practices and businesses accordingly.