The decision has frustrated SDHB medical oncologist Dr Chris Jackson, who believed "Bridging the Gap" addressed fundamental issues about access to unfunded services.
"To me, the message for doctors is clear: don't waste your time trying to improve the public sector - go private.
"Doctors around the country will be listening."
The DHB has been waiting since March for Mr Ryall's permission to offer unfunded drugs for those who could pay. The board argued patients were travelling to Christchurch or further afield for treatment.
Mr Ryall said Mercy Hospital's plan to start its own service "will provide a comprehensive chemotherapy service in Dunedin [which] aims to address this gap in private provision".
"The new service will mean more convenient access to self-funded cancer treatments for patients living in the Southern DHB area."
However, Dr Jackson maintains the potential benefits of Bridging the Gap would not be realised in the private sector.
"[Mr Ryall] has ignored international models of practice, clinical leadership and innovation, a public sector solution, and instead recommends a private sector solution, leaving the public sector in the cold," Dr Jackson said.
He said the proposal would have kept patients in the public sector, avoided the duplication caused by split care in the public and private sectors, and kept specialists in the public sector.
Similar systems operated in countries such as the Canada and Australia.
Nationally, there was an inconsistent approach to private and public sector access, he said.
"Mr Ryall has carefully skirted around the discrepancies ... in some centres there is an all-public or all-private approach with patients not able to receive any public treatment if they utilise a private service, whereas in other centres there is piecemeal interaction."
The board's proposal would have allowed access to unfunded drugs close to home for patients in provincial centres such as Oamaru and Invercargill.
"Mr Ryall has just made life a lot harder for cancer sufferers from provincial New Zealand - and a lot more expensive."
Last December, the DHB called for public submissions on its proposal. About two-thirds were in favour. Submitters' objections included concerns the proposal paved the way for a two-tier public system, and fears it potentially compromised the treatment of patients unable to afford the top-ups.
Mercy Hospital chief executive Richard Whitney said he expected the comprehensive chemotherapy proposal would get the board's final sign-off in October. It has already been approved in principle.
Mercy worked co-operatively with the public sector, he said.
SDHB chief executive Brian Rousseau could not be reached for comment.
