Implementation of Social Services Law §367-a(9): Practitioner Dispensing Billing Clarification Exempt from Rulemaking

Introduction

Matter of North Shore Hematology-Oncology Assoc., P.C. v. New York State Dept. of Health (2025 NYSlipOp 01985) arises from a dispute between an oncology practice that dispenses prescription drugs directly to Medicaid patients and the New York State Department of Health (“DOH”), the agency charged with administering Medicaid. Petitioner, North Shore Hematology-Oncology Associates, P.C. (doing business as New York Cancer & Blood Specialists), challenged a “Policy Clarification for Practitioner Dispensing” published by DOH in July 2022. Petitioner argued that the clarification constituted an unpromulgated rule, was unconstitutionally vague, irrational and discriminatory under section 504 of the Rehabilitation Act. The Appellate Division, Third Department, affirmed the lower court’s dismissal of the petition under CPLR article 78 on September 28, 2023.

Summary of the Judgment

The Appellate Division held, unanimously, that:

• The DOH clarification is an interpretive statement exempt from the State Administrative Procedure Act’s rule-making requirements;
• The guidance merely implements Social Services Law §367-a(9) by directing practitioner dispensers to bill under the “medical benefit” format and not under the pharmacy dispensing fee structure;
• The clarification is neither unconstitutionally vague nor irrational because it straightforwardly conveys the statutory billing methodology;
• Petitioner’s Rehabilitation Act claim fails for lack of proof that any federally funded benefit was denied to its patients.

Analysis

1. Precedents Cited

The court relied on two principal lines of precedent to distinguish interpretive statements from legislative rules:

• State Administrative Procedure Act (SAPA) §102(2): Defines “rules” subject to notice and comment but carves out interpretive statements, forms and policy statements that “in themselves have no legal effect.”
• Matter of Board of Educ. of the Kiryas Joel Vill. Union Free Sch. Dist. v. State of New York, 110 AD3d 1231 (3d Dept 2013), lv denied 22 NY3d 861 (2014): Reiterating that guidelines which “simply provide additional detail and clarification” do not require formal promulgation.

The court also cited its own prior decision in North Shore Hematology-Oncology Assoc. v. DOH, 233 AD3d 97 (3d Dept 2024), to emphasize that DOH’s clarification merely reiterated the existing statutory billing scheme and did not introduce a new substantive standard.

2. Legal Reasoning

The court’s reasoning proceeded in three steps:

1. Interpretive Statement vs. Rule: Under SAPA §102(2)(b)(iv), the “Policy Clarification for Practitioner Dispensing” is an interpretive statement. It explains how existing law (Social Services Law §367-a(9)) applies to practitioner dispensers, rather than creating new obligations or rights.
2. Statutory Basis for Billing Methodology:
   • Social Services Law §367-a(9)(a) governs “drugs provided by medical practitioners,” reimbursing them for acquisition cost (with benchmark adjustments effective October 1, 2024) but no dispensing fee.
   • Social Services Law §367-a(9)(b) & (d) govern “drugs dispensed by pharmacies,” which receive both drug cost and a professional dispensing fee.
   The clarification simply instructs that practitioner-dispensing claims must be submitted in the medical benefit format, consistent with the statute.
3. Vagueness and Rationality:
   • The phrase “supersedes previous communications on this topic” unambiguously refers to prior DOH communications regarding billing for practitioner-dispensed drugs; it does not purport to nullify unrelated policies.
   • Because the clarification implements clear legislative mandates, it is neither arbitrary nor capricious.

3. Impact

This decision has significant implications:

• Agencies may issue clarifying guidance documents on billing and administrative practices without undergoing formal rule-making, provided they do not alter substantive rights or standards.
• Practitioner dispensers must adhere strictly to the billing formats prescribed by statute; attempts to claim pharmacy dispensing fees absent pharmacy licensure are barred.
• The ruling reinforces legislative primacy over administrative interpretation: when statutory language is clear, agencies must implement rather than expand it.

Complex Concepts Simplified

• CPLR article 78 proceeding: A special Article of the New York Civil Practice Law & Rules allowing judicial review of administrative determinations.
• Interpretive Statement: An agency communication explaining how it views or applies existing law but not creating new legal rights or obligations.
• Professional Dispensing Fee: An additional payment to pharmacies under Medicaid for the service of preparing and dispensing prescription drugs, not available to non-pharmacy providers.
• Void for Vagueness: A constitutional doctrine requiring laws or regulations to be written with sufficient clarity so affected parties can understand what is required.
• Section 504 of the Rehabilitation Act: Federal statute prohibiting discrimination on the basis of disability in programs receiving federal funds.

Conclusion

In Matter of North Shore Hematology-Oncology Assoc. v. New York State Dept. of Health, the Appellate Division reaffirmed that administrative clarifications reflecting clear statutory mandates do not constitute enforceable rules and are exempt from formal rule-making procedures. By delineating the billing methodology for practitioner-dispensed drugs under Social Services Law §367-a(9), the Department of Health provided necessary operational guidance without overstepping its rule-making authority. This decision underscores the boundaries between legislative enactments and agency interpretive guidance, signaling to health-care providers and regulators alike that compliance with unambiguous statutory schemes cannot be recharacterized as new, enforceable obligations requiring elaborate administrative procedures.