Combatting Agency Overreach in Healthcare Law and Policy

Thoughtful agency rule- and policymaking in healthcare, informed by medical science and stakeholder input, is a good and necessary thing. Agency rule- and policymaking in the absence of such guidance is not. Not only may it be unlawful, but it can easily become a public health hazard. A recent decision from New York’s Appellate Division, Third Department underscores this point well, in addition to highlighting the importance of the judiciary’s role as a check on agency abuses of power in the healthcare space.

Specifically, in North Shore Hematology-Oncology Associates, P.C. d/b/a New York Cancer & Blood Specialists v. New York State Department of Health and New York State Department of Education (Dkt. No. CV-23-0517) (“NYCBS Matter”), the Appellate Division held that the New York Department of Health’s (NYDOH) newly-crafted definition of the term “oncologic protocol”—a term that, for decades prior to the new definition, had permitted oncologists to in-office dispense medications to their cancer patients beyond the default statutory 72-hour supply limit— was “irrational” and owed no deference by virtue of the agency’s “expertise” since there was “no evidence…any such expertise was genuinely exercised…in arriving at the definition.” Id. at 4-5.

This critically important decision for both providers and patients alike was the culmination of years of litigation by a determined New York oncology practice and careful but zealous advocacy. Members of the healthcare bar should take heed—Article 78 proceedings against the government to combat harmful policy- or rulemaking can work. And where provider and patient interests align, this author would argue there is an imperative—both from a best practices and a moral standpoint—to file one.

Background to the Decision

Physician Dispensing in New York State: New York State’s physician-dispensing law is codified at NY Education Law §6807. Broadly, the statute prohibits “prescriber[s] who [are] not the owner of a pharmacy or who [are] not in the employ of such owner, [from]…dispens[ing] more than a seventy-two hour supply of drugs” unless one of nine exceptions apply. Id. at (2)(a).

Since the petition in the NYCBS Matter was an oncology practice, at issue in that case was the final exception to §6807—drugs dispensed “pursuant to an oncological…protocol.” Id. at (2)(a)(9) (emphasis added); NYCBS Matter at 2. The “oncological protocol” exemption was added to §6807 in 1990, L. 1990, ch 18, §1,2 eff June 1, 1990, and, for the next 31 years, it had no legal definition. NYCBS Matter at 2.

Then, in June of 2021, the NYDOH quietly and without fanfare slipped one into the middle of a Medicaid policy “update to the New York State Medicaid Fee-For-Service Guidelines.” See id.; see also (the “Medicaid Manual”) at pp 22. The agency’s definition of “‘oncological protocol”—or, as it was referred to in the manual, the “oncologic protocol—was a “written set of instructions to guide the administration of chemotherapy, immunotherapy, hormone therapy, [or] targeted therapy to patients for the treatment of cancer or tumors’ that does not extent to ‘protocols that cover drugs prescribed to relieve side effects of these therapies or to relieve distressing symptoms (such as nausea or pain).’” NYCBS Matter at 2 (quoting Medicaid Manual at 22) (brackets in the original).

Notably, the new definition of the “oncologic protocol” (DOP) was stylized in the Medicaid Manual as a “Policy” and not a rule. Medicaid Manual at 22. As such, NYDOH never submitted the DOP for public notice and comment, as would otherwise be required for a new agency rule (or rule change) per Article IV, §8 of the NY State Constitution and Sections 202-203 of the New York State Administrative Procedure Act. NYCBS Matter at 3. In real world terms, this meant that oncologists could administer, for example, chemotherapy in their office, but could only dispense a very limited quantity of hydration or anti-emetics to deal with the cruel and potentially deadly nausea and vomiting that is a natural consequence of such medications.

The Article 78 Petition. NYCBS filed an Article 78 petition in September of 2021, seeking “an order nullifying th[e DOP as a] de facto rule [that is]: an arbitrary and capricious violation of (1) the [SAPA]; and (2) Article IV, §8 of the [NY] Constitution for lack of public notice and comment; (3) and as unconstitutionally vague.” NYCBS Matter, Trial Level, Verified Petition (Index No.: 908289-21) (NYSCEF No. 1) (the “petition”). Additionally, NYCBS sought to void the DOP on the grounds that it was arbitrary and capricious for lack of a rational basis. Id. at ¶42-55.

On this latter point, NYCBS highlighted that there was no evidence that respondents had relied on any authority other than §6807 itself, and that the DOP’s decoupling of supportive therapies from what it refers to as drugs “for the treatment of cancer or tumors” ran contrary to authoritative compendia routinely relied upon by oncologists and even Medicare, including the National Comprehensive Cancer Network Guidelines (“NCCN Guidelines”). Id. at ¶22-25, 52.

By way of example, the Article 78 petition noted that NCCN’s “Guidelines for Management of Immunotherapy-Related Toxicities” recommended “various treatments to be used to maintain the health of a patient undergoing immunotherapy for cancer, which can result in harmful toxicities such as ‘dermatological toxicity’ or ‘musculoskeletal toxicity[,]’ conditions for which the guidelines suggest medications such as ‘oral antihistamines’ or steroids such as ‘prednisone.’” Id. at ¶60. The petition then asked—“Are these medications managing a potentially life-threatening ‘side effect[,]’ in the words of the DOP, of immunotherapies utilized to treat cancer or are they an integral part of it, and how is NYDOH to make this determination in any given case?”

Instead of receiving a satisfactory answer to this question from the state, the litigation revealed that, in fact, the State had failed to consult a single oncologist when crafting the rule or cite to a single authoritative compendium.

The absence of due diligence or rationale on the state’s part here was highlighted by the filing of multiple friends of the court or “amici” by another New York oncology practice and the Community Oncology Alliance, which filings included Affidavits by seasoned oncologists. These oncologists opined on the lack of clinical evidence, logic or medical literature supporting the concept of disentangling supportive therapies from drugs “treat[ing] cancer or tumors[,]” as the DOP required. See NYCBS Matter, Trial Level, Amici Affidavits (Index No.: 908289-21) at NYSCEF No.s 65, 79.

Ultimately, the trial court ruled against NYCBS on all counts. Regarding the question of the DOP’s rationality, the trial court found for the State, circumventing the thornier medical science issue and, instead, relying simply on the State’s contention that the DOP was necessary “to prevent patient steering and lack of pharmacy choice for consumers.” See NYCBS Matter, Trial Level, Judgment (Index No.: 908289-21) at NYSCEF No. 88.

While the Appellate Division rejected petitioner’s arguments that the DOP was an unpromulgated rule, it nevertheless ruled in petitioner’s favor since the court agreed that—even as an agency “policy” or “interpretive statement”—it lacked a rational basis. NYCBS Matter at 3-5.

First, the three-judge panel surveyed the evidence and authorities the state conceded they relied upon in crafting the DOP, which consisted of unspecified “consult[ations] with [NY]SED staff [and]…conduct[ing] legal research and…research[ing] standards relevant to dispensing and oncologic protocols.” Id. at 4.

Next, the court considered the record created by NYCBS below, which it found to be “replete with evidence of industry guidelines and authoritative medical literature strongly suggesting that respondents’ definition may inhibit the provision of adequate healthcare to oncology patients…includ[ing] evidence of the need for ancillary or concomitant administration of medications…” Id. Considering the foregoing, the court held that “[g]iven the complete absence of any medical basis for the line drawn here [by the state]…we cannot find that the [DOP]…is rational.” Id.

Perhaps most notably—but unsurprisingly given the above—the court made the relatively unusual decision not to grant respondents agency deference. While the court conceded that doing so where “statutory language is special or technical” is the norm, the record bore “no evidence that any such expertise was genuinely exercised by either agency in arriving at the subject definition.” Id. at 4-5.

While not new law per se, it is notable that the case applies a “rational basis” test generally reserved for rule-making to an “interpretive statement” or “policy.” Such precedent will help to further broaden the array of options counsel have to challenge problematic quasi-legislative action even if that quasi-legislative action did not technically result in a “substantive rule.” Given what is, in this author’s opinion, NYDOH’s propensity for veiled rule-making in the guise of policy, this angle may be key for future challenges to “policies” or “interpretive statements” that adversely affect providers.

Lessons for Practitioners

There are helpful lessons to be learned for practitioners seeking to challenge unlawful agency rules or policies from the NYCBS Matter. First, to the extent it is appropriate to raise the issue—and there is nearly always an angle to do so—make your focal how the policy or rule in question may harm patients. The Article 78 petition did this repeatedly, noting from the outset that the DOP “directly and adversely impact[ed] those members of New York’s deeply vulnerable Medicaid population who are stricken by cancer, by precluding their oncologists’ ability to dispense supportive medications while the patient is in-office…”.” Petition at ¶20.

Second, where appropriate, draw heavily from authoritative medical compendia—especially those recognized as such by Medicare and Medicaid—to support your patient harm or “lacks rational basis” argumentation. Government agencies will have a difficult time discounting compendia that they themselves admittedly rely upon as expert authorities.

Third—and this is something far too often overlooked at the trial level in my view—work to draw in interested and motivated expert amici. While filing as an amicus is a “privilege and not a right[,]” Columbus Monument Corp. v. City of Syracuse, 156 NYS3d 820, 832 (NY Sup. Ct. 2021), the factors weighed by a court in granting leave to file are often not difficult to satisfy. They include relatively straightforward factors such as “(1) whether the applications were timely; (2) whether each application states the movant’s interest in the matter and includes the proposed brief; (3) whether the parties are capable of a full and adequate presentation of the relevant issues and, if not, whether the proposed amici could remedy this deficiency; [and] (4) whether the proposed briefs identify law or arguments that might otherwise escape the court’s consideration or would otherwise be of assistance to the court…” Anschutz Exploration Corp. v. Town of Dryden, 35 Misc.3d 450, 454, 940 N.Y.S.2d 458 (Sup. Ct., Tompkins County 2012).

Trends To Watch and Use to Your Client’s Benefit

This year saw a sea-change in federal administrative law. Between Loper Bright Enters. v. Raimondo’s, 144 SCT 2244 (2024) rejection of Chevron deference, and SEC v. Jarkesy’s, 144 S.Ct. 2117 (2024) 7^th Amendment-based limitation of administrative civil penalties, it is reasonably clear which way the wind is blowing—the administrative state seems to be slated for substantial erosion in the near-term. Regardless of one’s personal opinions on the wisdom of this trend, as zealous advocates for our clients, we would be remiss not to attempt to use such case law—even if only persuasive at the state level—if it may help. I endorse doing so unreservedly in the healthcare space, where combatting poor agency decision-making can improve our provider clients’ ability to practice medicine and, by extension, the lives of the patients they treat.

Jason Silberberg is a partner in Frier Levitt’s healthcare litigation section and co-chairs the firm’s value-based care litigation group, which litigated the ‘North Shore’ case discussed herein.