Will NYDEC’s Audit Agreement for Retail Pharmacies Provide a Path to Increased Compliance?

by | Aug 17, 2015

wolff-tedBy Ted Wolff, James Walsh and Matthew Dombroski

Federal and state hazardous waste handling and disposal requirements, which were established to address issues related to industrial waste generators and disposal facilities, are often a complicated and awkward fit for retail pharmacies and other “healthcare facilities.” Over the past few years, New York and many other states have increased inspections of and enforcement activity against retail pharmacies. These inspections have revealed that many pharmacies face a myriad of compliance challenges due to the complicated hazardous waste regulatory framework. This article focuses on recent efforts by the New York State Department of Environmental Conservation (NYSDEC) to promote increased compliance by retail pharmacies, as well as the limitations of NYSDEC’s approach.

Since at least 2010, NYSDEC has initiated enforcement actions against various types of retailers, including chain drug stores, for hazardous waste violations on an ad hoc, region-by-region, and non-programmatic basis. These enforcement actions have illuminated a variety of common compliance challenges in the retail pharmacy context — including everything from misunderstanding the role of reverse distribution and the extent to which pharmaceutical (including over-the-counter) materials were even considered hazardous waste to the applicability of New York State’s requirement that ignitable hazardous wastes stored on-site be located at least 50 feet from the property boundary, the latter of which is a tall order for many retail pharmacies who might be located in shopping centers or strip malls with adjacent owners. Eventually, various stakeholders — including retailers and the Business Council of New York State — sought clarification of existing policies and establishment of more uniform policies by NYSDEC.

In response to these requests, NYSDEC signaled a willingness to temporarily curtail its retailer enforcement activity while simultaneously turning to a November 2013, NYSDEC-issued Voluntary Environmental Audit Policy (the Audit Policy) as the basis for a path forward. The State’s lightly used Audit Policy, among other things, allows certain members of the regulated community to disclose their self-discovered violations, prepare a plan to address the areas of non-compliance, and, in return, receive some leniency on penalties. NYSDEC has suggested that using the Audit Policy in this context is the ideal program for retail pharmacies to identify their areas of need and come into compliance. The Audit Policy initiative may reflect the “doing less with less” approach many state authorities are turning to as budgets get squeezed — it incentivizes the regulated community to be more proactive and take on much of the work of enforcement. Indeed, after stakeholder discussions, NYSDEC already has changed course and, instead of rolling out the initiative to a full range of retailer operations, appears to be focusing solely on the “retail pharmacy sector.”

Moreover, the State’s initiative does little to address some of the underlying issues that lead to non-compliance in the first place. As a number of retailers have observed, the Audit Policy is a more appropriate approach for a chemical company with a single plant to be audited but is much less appropriate for a retail pharmacy chain with hundreds of New York stores to be audited. Compliance audits must be performed by trained employees or third-party consultants, which may cost hundreds or even thousands of dollars for each store. Moreover, the Audit Policy provides relatively short turnaround periods to conduct the audits and report and correct deficiencies, which again is especially problematic for retail pharmacy chains responsible for compliance at hundreds of New York stores. In fact, it remains unclear what types of retailers (or others) will be included in NYSDEC’s term “Regulated Entities.”

NYSDEC has issued a draft Audit Agreement for retail pharmacies (the Pharmacy Audit Agreement), which appears to address some of the concerns raised by retail pharmacies regarding the non-pharmacy-specific Audit Policy. For example, the draft Pharmacy Audit Agreement grants much more latitude in timing than the Audit Policy itself. In the most recent draft version of the Pharmacy Audit Agreement, a “Regulated Entity” would have the following time allotments (following the effective date of the Pharmacy Audit Agreement):

  • 180 days to “identify environmental regulatory compliance deficiencies.”
  • 365 days to conduct the environmental audit.
  • 425 days to complete the audit and disclose to NYSDEC conditions requiring corrective action.
  • 545 days to implement corrective measures and notify NYSDEC of same.

These time allotments are substantially longer than those provided under the standard Audit Policy. Provided a retail pharmacy satisfies the requirements of its Pharmacy Audit Agreement, it would be entitled to penalty and enforcement relief. The Pharmacy Audit Agreement requires further clarification regarding the scope of the audit. Specifically, it is not clear how many stores or other facilities (e.g., distribution centers) in the State must be audited to be sufficiently representative and which media (e.g., hazardous waste, water discharges, air emissions) must be evaluated in order to satisfy the Pharmacy Audit Agreement requirements. As written, all of a signatory’s facilities in the State would need to be audited, but we understand that NYSDEC is considering a more rational approach by requiring that only a sample of stores be audited. Additionally, the standard Audit Policy limits eligibility to those entities with no history of non-compliance over the past 5-year period (including the mere receipt of a notice of violation). In light of certain NYSDEC Regions’ recently curtailed enforcement activities, many retailers may find this eligibility requirement to be a challenge.

A final concern with the Pharmacy audit program, even as modified to take into account concerns of the regulated community (such as concerns about pharmaceutical take-back prerogatives), is that it will be mere guidance and will not be embodied in regulation. Despite the lack of a commitment through regulation, it is expected that where NYSDEC exercises its enforcement prerogative to enter into a Pharmacy Audit Agreement, the terms of the Agreement will be binding on all parties.

While NYSDEC’s Audit Policy and the Pharmacy Audit Agreement are relatively untested, the stakeholders generally perceive the initiative as an opportunity for greater compliance and penalty avoidance for retail pharmacies and others faced with the often-vexing State hazardous waste handling and disposal requirements. Indeed, the Business Council of New York — which has been working with its members, Manatt and NYSDEC — “remains hopeful that the state will continue to move forward through the Retail Pharmacy Audit Policy or other mechanisms to address the administrative burdens of retailers’ compliance under RCRA while ensuring sound environmental protections.” The regulated retailer community will continue to monitor the program rollout and timing, and individual retailers should work closely with counsel and environmental health and safety professionals to determine if the program is “right” for them. The apparent willingness of NYSDEC to be flexible in the development and implementation of these efforts will ultimately determine whether the program becomes a successful environmental compliance tool and a model for other states to emulate, or a missed opportunity to build a partnership with the regulated community.

Ted Wolff is a partner in Manatt, Phelps & Phillips’ New York office and focuses his environmental practice on litigation and transactional work. He regularly counsels clients on compliance with environmental laws, including those that regulate the handling, storage, treatment and disposal of hazardous substances and waste. He can be reached at 212-790-4575 or twolff@manatt.com

walsh-jimJames Walsh is a partner in Manatt, Phelps & Phillips’ Albany office and focuses his practice on government relations and regulatory compliance matters in the areas of environmental regulation, government contracting, energy, labor, economic development, consumer protection, higher education and lobbying compliance. He can be reached at 518-431-6717 or jwalsh@manatt.com

dombrowski-matthewMatthew Dombroski, counsel with Manatt, Phelps & Phillips in New York, regularly counsels clients with respect to environmental corporate compliance, environmental issues in connection with real estate transactions and corporate dispositions, and regulatory compliance and toxic tort litigation. He can be reached at 212-790-4556 or mdombroski@manatt.com

This column is part of a series of articles by law firm Manatt, Phelps & Phillips, LLP’s Energy, Environment & Natural Resources practice. Earlier columns in the fifth edition of this series discussed Changes Likely in Final Version of EPA’s Clean Power Plan, EPA Commits to Voluntary Compliance Auditing Program, Streamlines Enforcement Incentives Process, and Fracking Is Not One-Size-Fits-All, Which Is Good News for California When It Comes to Water.


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