Kentucky Insurance Guaranty Association v. Edna Conley ( 2023 )

RENDERED: DECEMBER 8, 2023; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2022-CA-0527-WC
KENTUCKY INSURANCE GUARANTY ASSOCIATION APPELLANT
PETITION FOR REVIEW OF A DECISION
v. OF THE WORKERS’ COMPENSATION BOARD
ACTION NO. WC-00-64861
EDNA CONLEY; DR. SAI GUTTI/PAIN
MANAGEMENT CENTER; RX DEVELOPMENT;
HONORABLE JOHN B. COLEMAN, ADMINISTRATIVE
LAW JUDGE; AND WORKERS’ COMPENSATION
BOARD APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: ECKERLE, JONES, AND MCNEILL, JUDGES.
JONES, JUDGE: Kentucky Insurance Guaranty Association (KIGA) appeals an
order of an administrative law judge (ALJ), as affirmed by the Workers’
Compensation Board (Board), which resolved a medical fee dispute it filed against
Dr. Sai Gutti/Pain Management Center (Gutti) and Rx Development (RX). Upon
review, we affirm.
I. BACKGROUND
The underlying medical fee dispute was filed by KIGA in early 2014
on behalf of its insured, Save-A-Lot;1 and against its insured’s employee, Edna
Conley, along with Conley’s medical providers, Gutti and RX. Gutti and RX
operated a physician dispensary and sought reimbursement from KIGA after filling
several of Conley’s prescriptions that were undisputedly covered under Conley’s
workers’ compensation award against Save-A-Lot. KIGA filed its post-award
medical fee dispute to challenge the prices Gutti and RX were billing it for those
prescriptions. On December 22, 2020, the ALJ entered a final order resolving
KIGA’s dispute. And, as the breadth of what is set forth below tends to indicate,
KIGA was disappointed with much of the ALJ’s order.
KIGA’s appeal raises the following issues: (1) whether the Board
erred by not sanctioning Gutti and RX for filing an untimely brief at the
administrative appellate level; (2) whether 803 Kentucky Administrative
Regulation (KAR) 25:092 (1993), the now-superseded regulation2 that governed
1
KIGA identified itself in its pleadings below as “Kentucky Insurance Guaranty Association as
insurer/payment obligor for Save-A-Lot,” but has now shortened its moniker to simply
“Kentucky Insurance Guaranty Association.”
2
While 803 KAR 25:092 was amended in 2021 and 2022, only the 1993 version of 803 KAR
25:092 is relevant to this appeal.
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the underlying fee disputes, required Gutti and RX to disclose their “actual
acquisition costs” for the prescriptions at issue to secure reimbursement from
KIGA; (3) whether the ALJ’s ultimate determination regarding the applicable rate
of reimbursement was supported by substantial evidence and otherwise consistent
with the aforementioned regulation; and (4) whether KIGA was entitled to
restitution or credit for any amount it may have over-reimbursed Gutti and RX.
We will address those issues sequentially. Additional facts will be discussed in the
course of our analysis.
II. STANDARD OF REVIEW
The issues presented by the parties primarily require us to interpret
statutory and regulatory provisions, which are legal issues we review de novo.
Saint Joseph Hosp. v. Frye, 415 S.W.3d 631, 632 (Ky. 2013). Apart from that, our
function is to correct the Board only where we perceive that it has “overlooked or
misconstrued controlling statutes or precedent, or committed an error in assessing
the evidence so flagrant as to cause gross injustice.” W. Baptist Hosp. v. Kelly, 827
S.W.2d 685, 687-88 (Ky. 1992). If the factfinder held in favor of the party with
the burden of proof, the burden on appeal is only to show that substantial evidence
supported the decision. See also Special Fund v. Francis, 708 S.W.2d 641, 643
(Ky. 1986). Conversely, if the factfinder held against the party with the burden of
proof, that party, on appeal, must “show that the ALJ misapplied the law or that the
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evidence in her favor was so overwhelming that it compelled a favorable
finding[.]” Gray v. Trimmaster, 173 S.W.3d 236, 241 (Ky. 2005).
III. ANALYSIS
1. The Board’s refusal to sanction Gutti and RX for filing an untimely brief
was at most harmless error.
When Gutti and RX filed their combined responsive brief and cross-
petition for review before the Board, their brief was untimely by a margin of
roughly three months. Citing that fact, KIGA moved the Board to sanction Gutti
and RX by striking their responsive brief and dismissing their cross-petition. The
Board refused to do so but did not elaborate upon its ruling. KIGA argues the
Board erred and should be reversed in this respect.
We disagree. 803 KAR 25:010 § 22(12)3 vests the Board with broad
discretion to sanction tardy briefs as it deems appropriate. However, there is no
indication that the posture of the instant appeal would have meaningfully differed
even if the Board had sanctioned Gutti and RX in the manner KIGA requested.
True, the Board did not dismiss Gutti’s and RX’s cross-petition. But, it affirmed
3
803 KAR 25:010 § 22(12) provides: “Sanctions. Failure of a party to file a brief conforming to
the requirements of this administrative regulation or failure of a party to timely file a response
may be grounds for the imposition of one (1) or more of the following sanctions: (a) Affirmation
or reversal of the final order; (b) Rejection of a brief that does not conform as to organization or
content, with leave to refile in proper for within ten (10) days of the date returned. If timely
refiling occurs, the filing shall date back to the date of the original filing; (c) Striking of an
untimely response; (d) A fine of not more than $500; or (e) Dismissal.”
-4-
with respect to their cross-petition. Gutti and RX thereafter filed no appeal; and
thus, as a practical matter, the same result was ultimately achieved. Furthermore,
even if the Board had stricken Gutti’s and RX’s response to KIGA’s appeal, doing
so in and of itself would not have precluded the Board from reviewing KIGA’s
appeal on the merits – without the assistance of any responsive brief from Gutti
and RX – and nevertheless affirming the ALJ as it did below.4 In sum, even if the
Board abused its discretion by failing to sanction Gutti and RX consistently with
KIGA’s motion, KIGA was not discernably prejudiced. Nothing more than
harmless error resulted.
2. The regulation that governed the underlying fee disputes did not require
Gutti and RX to disclose their “actual acquisition costs” for the prescriptions
at issue to secure reimbursement.
On February 2, 2018, KIGA moved the ALJ to compel production of
the following discovery from Gutti and RX:
A copy of each actual invoice received and paid by IWP
[sic] and/or Dr. Gutti (including any discounts, rebates,
incentives, etc. that comprise the actual price paid) for
each prescription it is seeking reimbursement for. In the
KESA v. IWP claim, the Supreme Court established that
the appropriate reimbursement price for pharmaceuticals
shall be the actual price paid by the pharmaceutical
provider plus a $5.00 dispensing fee. In order to
appropriately determine the amount of the proper
reimbursement to IWP [sic] and/or Dr. Gutti for the
4
Notably, in workers’ compensation appeals before this Court, respondents may but are not
required to file a brief. See Kentucky Rule of Appellate Procedure (RAP) 49(F).
-5-
prescriptions provided, they must produce this
information.
KIGA also sought an order compelling RX to produce a designated
corporate spokesperson to provide testimony regarding this requested discovery,
claiming that for purposes of its medical fee disputes, the “correct” pricing for the
prescribed medications at issue could not be determined unless RX and Gutti
disclosed the wholesale prices they had actually paid for them.
RX and Gutti objected, claiming among other grounds that KIGA was
improperly seeking trade secrets from them, i.e., “privileged business information
as to RX Development’s business operations, billings and profits”; and that in any
event “[t]he issues presented are legal not factual.” In resolving KIGA’s motion,
the ALJ refocused the issue, indicating that the dispositive question was not what
RX and Gutti had actually paid for the prescriptions, but whether the amount they
had billed KIGA was “outside of the pharmaceutical fee schedule” set forth in 803
KAR 25:092 (1993). The ALJ elaborated upon this point in a September 9, 2019
order overruling KIGA’s motion to compel, explaining in relevant part:
[T]he burden is on the payment obligor to make out a
prima facie showing for reopening by delineating what
the payment obligor believes to be the average wholesale
price or the average-to-sell price prior to the setting of a
proof schedule.
...
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Given the fact that the payment obligor has yet to provide
what it believes to be the average wholesale price or
average-to-sell price for any of the contested
medications, the objections to the motions to compel are
sustained.
...
The defendant is obligated to pay the outstanding charges
at what it believes to be the appropriate average
wholesale price or average-to-sell price as there is no
justification for withholding the entirety of the payment
for the outstanding prescriptions which have been filled.
In other words, the ALJ held that the information KIGA sought to
discover from RX and Gutti would not satisfy KIGA’s initial evidentiary burden
on reopening and was thus irrelevant. On appeal, KIGA argues the ALJ erred in
overruling its motions to compel, claiming the discovery it requested was relevant
and essential to its medical fee disputes. We disagree.
The irrelevance of what RX and Gutti actually paid for the
prescriptions at issue is best illustrated through a hypothetical: Suppose RX and
Gutti were able purchase all the prescriptions at issue from a wholesaler for
nothing. How would this impact their right to “reimbursement”? For the answer,
we turn to 803 KAR 25:092 (1993), which was operative when Gutti and RX
submitted their reimbursement requests. In relevant part, it provided:
Section 1. Definitions. . . .
...
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(6) “Wholesale price” means the average wholesale price
charged by wholesalers at a given time.
Section 2. Payment for Pharmaceuticals. (1) An
employee entitled to receive pharmaceuticals under KRS
342.020 may request and require that a brand name drug
be used in treating the employee. Unless the prescribing
practitioner has indicated that an equivalent drug product
should not be substituted, an employee who requests a
brand name drug shall be responsible for payment of the
difference between the equivalent drug product
wholesale price of the lowest priced therapeutically
equivalent drug the dispensing pharmacist has in stock
and the brand name drug wholesale price at the time of
dispensing.
(2) Any duly licensed pharmacist dispensing
pharmaceuticals pursuant to KRS Chapter 342 shall be
entitled to be reimbursed in the amount of the equivalent
drug product wholesale price of the lowest priced
therapeutically equivalent drug the dispensing pharmacist
has in stock, at the time of dispensing, plus a five (5)
dollar dispensing fee plus any applicable federal or state
tax or assessment.
(3) If an employee’s prescription is marked “Do Not
Substitute,” the dispensing pharmacist shall be entitled to
reimbursement in an amount equal to the brand name
drug wholesale price, at the time of dispensing, plus a
five (5) dollar dispensing fee plus any applicable federal
or state tax or assessment.
To review, § 1(6) of this regulation provided that “‘Wholesale price’
means the average wholesale price charged by wholesalers at a given time.”
(Emphasis added.) In turn, § 2(1), (2) and (3) each specified that given time:
According to those provisions, the amount of reimbursement Gutti and RX were
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entitled to receive depended solely upon the wholesale price of the drug product
they dispensed – or “the lowest priced therapeutically equivalent drug the
dispensing pharmacist has in stock,” whatever the case may be – “at the time of
dispensing.” (Emphasis added.) Thus, if Gutti and RX paid nothing to acquire the
drug product, but the average wholesale price charged by wholesalers for that drug
product – or “the lowest priced therapeutically equivalent drug the dispensing
pharmacist has in stock,” whatever the case may be – was “X” at the time they
dispensed it,5 the above regulation would have entitled Gutti and RX to
reimbursement in the amount of “X,” in addition to “a five (5) dollar dispensing
fee plus any applicable federal or state tax or assessment.” See § 2(2) and (3).
KIGA, in maintaining that the discovery it requested was relevant and
essential to its medical fee disputes, does not discuss any of the regulatory
language set forth above. Instead, KIGA’s argument appears limited to the
following proposition: Knowing what RX and Gutti actually paid a wholesaler for
the prescriptions at issue was relevant because our Supreme Court said so. In
support, KIGA quotes from our Supreme Court’s interpretation of 803 KAR
25:092 (1993), as set forth in Steel Creations By and Through KESA, The Kentucky
Workers’ Compensation Fund v. Injured Workers Pharmacy, 532 S.W.3d 145,
5
Undisputedly, the actual cost of a given drug product can vary on a daily basis.
-9-
156-57 (Ky. 2017); and KIGA emphasizes that our Supreme Court’s interpretation
repeatedly utilized the words “actual” and “paid”:
So, how should pharmacy reimbursement rate disputes be
resolved? The same way all other disputes under KRS
342 are resolved. The parties present their proof, and the
ALJ makes a determination. The ALJ may, but is not
required to, take into consideration the published average
wholesale price. The ALJ may also take into
consideration the wholesale acquisition price, which has
some connection to what a wholesaler would charge a
retailer. However, unless the ALJ determines that the
published average wholesale price or the wholesale
acquisition price is the actual average wholesale price the
pharmacist paid, the ALJ may not simply adopt either of
those pricing guides in toto.[FN]
[FN] For the sake of clarity, we are not
stating that any of the pricing guides are per
se admissible. Any such guide must be
admissible pursuant to 803 KAR 25:010
Section 14, and the ALJ is free to exercise
his or her discretion in either admitting or
excluding a proffered pricing guide within
the confines of that regulation. Based on the
record before us in this case, it appears that
the published average wholesale price
guides and the wholesale acquisition price
guide may not be particularly relevant.
However, none of the parties have sought to
introduce into evidence any of those pricing
guides. If a party attempts to do so and
there is an objection, the ALJ must
undertake the appropriate analysis before
admitting or excluding any proffered pricing
guides.
The ALJ must determine the actual wholesale price the
pharmacist paid, which may or may not have a relevant
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correlation to either the published average wholesale
price or the wholesale acquisition price. Regardless, the
ALJ, by exercising the discretion granted to him or her,
must determine what the appropriate reimbursement rate
is under the regulation.
We recognize that this could, as IWP argues, put a
considerable strain on the already busy ALJs. That may
or may not be the case. However, if that occurs, the
Department can take the appropriate steps to remedy the
situation by amending the regulation.
As to this case, the CALJ did not order KESA to
reimburse IWP based on the published average wholesale
price that IWP charged. He ordered KESA to reimburse
IWP pursuant to the statute and regulations, which he
correctly interpreted to be the actual average wholesale
price IWP paid. However, the CALJ did not make any
specific findings regarding the actual average wholesale
price IWP paid for the medications it dispensed.
...
[T]he regulation states that reimbursement is based on
what the dispensing pharmacy (IWP) paid for
medications, not what another dispensing pharmacy
(Walgreens, Kroger, Meijer, etc.) may have paid.
Therefore, this matter must be remanded to the
Department for assignment to an ALJ with instructions to
make findings regarding what IWP’s actual average
wholesale price was for the medications at issue.
(Emphasis added.)
With that said, we begin with the obvious: The words “actual” and
“paid” do not appear in 803 KAR 25:092 (1993). It was also never held in the
above-quoted case that reimbursement under that regulation was based upon what
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the pharmacist requesting reimbursement “actually paid” for the drug product; to
the contrary, our Supreme Court explained that reimbursement was based upon
“the actual average wholesale price the pharmacist paid.” Injured Workers
Pharmacy, 532 S.W.3d at 156 (emphasis added). As discussed, “wholesale price”
was administratively defined as what “wholesalers” (thus, wholesalers in general)
were charging pharmacists on “average” for the drug product at issue or its lowest-
priced therapeutic equivalent “at a given time.” See 803 KAR 25:092 § 1(6)
(1993). That “given time” – critical for ascertaining the average wholesale price
for reimbursement purposes – was not when the pharmacist paid for the drug
product at issue; it was “the time of dispensing.” See id. at § 2(1), (2) and (3).
Taken in context, our Supreme Court’s statement that reimbursement was based
upon “the actual average wholesale price the pharmacist paid” meant nothing more
than this: The price that a pharmacist is deemed to have paid for a drug product,
for purposes of reimbursement under 803 KAR 25:092 (1993), is the average price
for which the drug product could have been purchased from a wholesaler when the
pharmacist dispensed the drug product. 532 S.W.3d at 156.
Apart from that, two other salient points about Injured Workers
Pharmacy, id., underscore that what the pharmacist requesting reimbursement
actually paid is irrelevant. First, our Supreme Court emphasized – at length in
what is quoted above – that an ALJ may resort to general pricing guides to
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ascertain the applicable “wholesale price.” Second, the pharmacists requesting
reimbursement in Injured Workers Pharmacy similarly never divulged what they
actually paid for their dispensed drug products. Id. at 152. To be sure, our
Supreme Court ultimately vacated and remanded that matter for the ALJ to
“determine what [the pharmacist’s] actual average wholesale price was for the
contested medications.” Id. at 158. But, our Supreme Court did not require the
ALJ to “reopen proof” to make that determination – tacitly indicating that no proof
of what the pharmacist actually paid was required. Id. In short, the ALJ and Board
committed no error in this respect.
3. The ALJ’s ultimate determination regarding the applicable rate of
reimbursement was supported by substantial evidence and otherwise
consistent with 803 KAR 25:092 (1993).
KIGA begins this part of its appeal by arguing the Board incorrectly
stated in its affirming opinion that “KIGA did not present any evidence setting
forth the amounts it believed appropriate under the fee schedule.” KIGA is correct
that, to the contrary, it did eventually present this type of evidence. Moreover, the
evidence it eventually presented was, by all measures, substantial. Specifically, it
submitted a November 10, 2019 report from a pharmo-economics expert, Dr. T.
Joseph Mattingly, II, that provided several different estimates, based upon several
different sources and methodologies, of the average wholesale prices applicable to
each of the various prescriptions at issue during the relevant time frames.
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In his dispositive order, the ALJ began his summary of Dr.
Mattingly’s report as follows:
The report included clear definitions of terms such as
average wholesale price (AWP), national average drug
acquisition cost (NADAC) and wholesale acquisition
costs (WAC). The AWP is defined as an estimate of the
price retail pharmacies pay when purchasing from a
wholesale distributor. The NADAC is a drug cost
calculation developed through a national sample of drug
acquisition cost estimated by CMS[6] using actual
pharmacy invoices representing what the pharmacist paid
to the wholesaler from the previous 30 days. The WAC
represents the manufacturer’s “list price” for a drug to
wholesalers or other direct purchasers that does not
include discounts or rebates.
He provided an explanatory diagram depicting a
manufacturer charging a wholesaler by utilizing the
WAC of $100.00. The wholesaler then sells to the
pharmacy utilizing the AWP of $120.00. The pharmacy
then sells to the patient utilizing the usual and customary
charge plus a dispensing fee for $150.00. Along each
step in the supply chain, the charge is increased.
He provided documentation regarding the gross profits of
independent pharmacy operations between 2017 and
2018 to include the difference between cost of goods sold
and sales. The cost of goods sold range between 76%
and 77.9% of the sales. Gross profits range between
22.1% and 24%. He went on to explain that AWP is not
defined federally, but is instead a list of drug prices
published in commercial publications such as Medi-Span,
First Data Bank and Redbook. He noted that sometimes
the AWP is supplied by the drug manufacturer (e.g.
Pfizer, Merck) to the companies by calling it the
suggested wholesale price (SWP). The AWP is then
6
Centers for Medicare and Medicaid Services.
-14-
estimated by multiplying the WAC by 1.2 to assess a
standard 20% markup.
He noted that Kentucky Medicaid reimburses at the
lowest of NADAC, WAC, the federal upper limit,
maximum allowable costs or usual and customary price.
Gutti’s and RX’s reimbursement requests at issue below were made
between 2013 and 2019, and were made pursuant to 803 KAR 25:092 § 2(2)
(1993). KIGA paid Gutti and RX the full amount of each billing until the start of
January 2018. Thereafter, KIGA reduced its payments to what it believed the
regulation permitted it to pay Gutti and RX instead, i.e., an amount equivalent to
“M. Joseph pricing.”7 KIGA, for its part, asserted that what it paid Gutti and RX
for prescriptions filled before January 2018 had been grossly in excess of what it
should have paid them under a proper application of the regulation. Gutti and RX,
on the other hand, claimed that what KIGA paid them for prescriptions filled after
January 2018 was insufficient. With that in mind, the ALJ summarized Dr.
Mattingly’s opinion regarding KIGA’s dispute over Conley’s medical fees relative
to what KIGA paid Gutti and RX after January 2018. Discussing and applying the
7
During the pendency of its medical fee dispute, KIGA had an arrangement with M. Joseph
Medical, a company that specializes in helping workers’ compensation payment obligors such as
KIGA establish prices with prescription drug suppliers. Under this arrangement, M. Joseph
negotiates with pharmacy benefits managers (“PBMs”) to secure prices and terms with various
pharmacies. KIGA pays M. Joseph for the prescription drugs, M. Joseph pays the PBMs, and the
PBMs pay the pharmacies. This arrangement supposedly allowed KIGA to secure prescription
drugs at a lower price than what was required by the workers’ compensation regulatory fee
schedule set forth in 803 KAR 25:092 (1993).
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regulation and the substance of our Supreme Court’s holding in Injured Workers
Pharmacy, the ALJ then explained:
[O]n the issue of reimbursement, the ALJ must look at
the actual wholesale price paid, which may or may not
have a relevant correlation to either the published
average wholesale acquisition price or the wholesale
acquisition price. The ALJ must exercise the discretion
granted to him or her to determine what the appropriate
reimbursement rate is under the regulation. The court
noted the ALJ might not simply adopt either the AWP or
the wholesale acquisition price paid by a pharmacist.
The court went on to state that KESA could not
unilaterally impose its M. Joseph agreement on IWP.
A review of the entirety of the evidence, not only as
summarized above, but as contained in the entire record,
reveals the medical provider was utilizing the wholesale
price closely resembling that published by Redbook. Dr.
Mattingly explained that publications such as Redbook
publish the AWP price, which he explained was jokingly
referred to as “ain’t what’s paid.” Rosalie Ferris[8]
explained the AWP in publications such as Redbook do
not include rebates obtained in purchasing. She
explained the use of PBMs allowed KIGA to obtain
additional discounts so that pharmaceuticals could be
purchased at levels below AWP or the average-to-sell
price.
Based upon the information contained in the report of Dr.
Mattingly, I am convinced the method for determining
the reimbursable amount under the Kentucky schedule of
fees is to utilize the WAC multiplied by 1.2, which is
then added to the $5.00 dispensary fee per prescription.
The method takes into account the standard industry
markup of 20% from the manufacturer to the wholesaler.
8
Rosalie Faris provided expert testimony below regarding drug pricing. At that time, she was a
registered nurse and Vice President of Managed Care for Occupational Managed Care Alliance.
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The WAC represents the wholesale acquisition costs as
published by each pharmaceutical company at a point in
time. I find it is more appropriate to use the WAC rather
than the NADAC, which is determined after the fact by
looking backward at amounts paid for acquisition,
inclusive of discounts. Utilization of the NADAC would
be completely unworkable as the pharmacy or dispensary
would be unable to determine the NADAC amount at the
time the medication is dispensed, as the information is
based upon a future determination.
...
The Supreme Court made it clear that KIGA cannot
impose M. Joseph pricing on the medical provider.
Further pricing, which is “customary under the fee
schedule for the medications paid to other local
pharmacies” is not the requirement of 803 KAR 25:092,
Section 2(2), which allows reimbursement at the
wholesale price of the lowest priced therapeutically
equivalent drug the dispensing pharmacist has in stock, at
the time of dispensing, plus a five dollar dispensing fee,
along with taxes. KIGA’s request to reimburse with M.
Joseph pricing or pricing paid to other local pharmacies
is simply an attempt to provide KIGA the benefit of
lower prices negotiated by their PBMs, which were not
negotiated with the pharmacy in question. It has little to
do with the average wholesale price, which must be
reimbursed. Instead, I am directed to look at the
acquisition costs and the published wholesale pricing to
make a determination as to the reimbursable amounts
while utilizing my discretion.
Dr. Mattingly has provided us with the information
necessary to determine the amount owed. KIGA
requested allowance to make payment as if they were
doing so under the Kentucky Medicaid schedule.
However, this is not a Medicaid claim, but is instead a
workers’ compensation claim governed by KRS Chapter
342. Dr. Mattingly has provided average acquisition
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costs and the wholesale acquisition costs for each of the
medications in question. Those amounts are set forth in
the summary of evidence. Dr. Mattingly explained that
each step of the supply chain has a markup, which is
generally 20%, in addition to a dispensary fee. Here, the
acquisition costs can best be determined by utilizing the
WAC, which provides the listed wholesale price for a
drug to a wholesaler or other direct purchaser. It does
not include discounts, which may be negotiated by a
PBM or available under KIGA’s current managed care
plan. However, they do not enjoy the benefit of those
discounts across the board. To allow KIGA the benefit
of implied discounts would have the effect of imposing
the Medicaid rule on workers’ compensation providers.
The ALJ then resolved the underlying fee dispute – relative to what
KIGA paid Gutti and RX after January 2018 – by applying the WAC method for
ascertaining wholesale prices as set forth in Dr. Mattingly’s report:
Therefore, I find the acquisition cost for the medications
dispensed between January 2018 and February 2019 to
be $15,633.81, by utilizing the WAC set forth in
Appendix II of Dr. Mattingly’s report. The amount billed
by the medical provider is the amount published as the
average wholesale price without consideration of likely
discounts. The defendant requests the ALJ interpret the
Injured Workers Pharmacy case to mean the provider can
only charge a $5.00 dispensary fee above the wholesale
acquisition costs. However, this is not my interpretation.
Instead, I interpret the case to mean I must utilize the
acquisition costs and the published wholesale prices to
determine the amount available for reimbursement under
the regulation, to include the $5.00 dispensary fee.
In this instance, the testimony of Rosalie Ferris indicates
the bills were paid at 30% below what would typically be
the average wholesale price and the opinion of Dr.
Mattingly would indicate the acquisition price or WAC
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would be multiplied by 1.2 to obtain the average
wholesale price for a standard markup when explaining
that each step in the supply chain has a standard markup.
The $15,633.81 acquisition cost multiplied by 1.2 reveals
an average wholesale price of $18,760.57, which is
below the amount billed by the provider, but above the
amount paid by KIGA. KIGA paid $18,275.84 (see
KIGA’s Notice of Filing payments), which leaves
$839.73 owing to the medical provider, once the $355.00
for 71 dispensary fees ($5.00 x 71) is added to the
average wholesale price of $18,760.57. Therefore, the
balance due is $839.73.
On appeal, KIGA emphasizes in its brief that “Dr. Mattingly’s report
clearly explains that NADAC provides the most appropriate estimate” for
determining the average wholesale price applicable to drug products, and that it
made “very clear in all of its briefs that it is of the position that NADAC must
serve as the benchmark for determining what [Gutti and RX were] charged for the
medications at issue.” But, KIGA stops short of arguing that the methodology
selected by the ALJ was unsupported by substantial evidence or otherwise
inconsistent with 803 KAR 25:092 § 2(2) (1993).
Regardless, while the ALJ did not select the methodology favored by
Dr. Mattingly, the ALJ did select a methodology Dr. Mattingly acknowledged as a
recognized means of ascertaining the applicable wholesale price of prescriptions,
and the ALJ provided a reasonable explanation for doing so. The ALJ may choose
not only which expert to believe, but also what parts of the evidence or witness’s
testimony to believe or disbelieve. See Caudill v. Maloney’s Discount Stores, 560
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S.W.2d 15 (Ky. 1977). Furthermore, the ALJ’s analysis was consistent with the
operative regulation and Injured Workers Pharmacy. Accordingly, to the extent
KIGA is suggesting this aspect of the ALJ’s order was erroneous, its suggestion
lacks merit.
4. KIGA was not entitled to restitution or a credit for any amount it may have
over-reimbursed Gutti and RX.
The ALJ did not resolve the merits of KIGA’s medical fee dispute
insofar as it concerned what KIGA may have overpaid Gutti and RX before
January 2018. Essentially, the ALJ held that this aspect of KIGA’s medical fee
dispute was moot because he lacked authority under the circumstances to either
order Gutti and RX to refund any overpayment to KIGA, or to grant KIGA any
kind of offsetting credit against what remained outstanding. The Board affirmed.
On appeal, KIGA maintains the ALJ erred in denying this aspect of its medical fee
dispute because, in its view, the ALJ was either: (1) estopped from denying it
reimbursement or a credit; or (2) authorized to grant it that relief.
We disagree. Regarding its first argument, the ALJ could not have
granted KIGA relief based solely on equity or a common law principle such as
estoppel. Rather, the ALJ was required to find, within the ambit of the Workers’
Compensation Act, warrant for the exercise of any authority he could have
claimed. See Dep’t for Nat. Res. and Envt’l Prot. v. Stearns Coal & Lumber Co.,
563 S.W.2d 471, 473 (Ky. 1978). “Workers’ compensation is a creature of statute,
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and the remedies and procedures described therein are exclusive.” Williams v.
Eastern Coal Corp., 952 S.W.2d 696, 698 (Ky. 1997).
Before leaving this point, we pause to note that much of KIGA’s
estoppel argument is based upon what KIGA believes was the ALJ’s inequitable
conduct during the proceedings below. Specifically, KIGA notes that in June
2014, near the beginning of its underlying medical fee dispute, it filed a motion for
interlocutory relief asserting that it would suffer irreparable harm “if it were
required to pay [Gutti’s and RX’s] inflated prices”; and that in a July 29, 2014
order, the ALJ denied its motion, stating as follows:
After a review of the motion, same is hereby overruled as
there is no showing the defendant will suffer irreparable
harm during the proceedings. The defendant shall pay
the outstanding charges pursuant to the current medical
fee schedule. Any issue of overpayment can be dealt with
at the conclusion of the claim.
(Emphasis added.)
KIGA asserts it reasonably interpreted the above-emphasized
language of the ALJ’s order to mean that any overpayment it thereafter made to
Gutti and RX would be reimbursed at the conclusion of the proceedings; that in
reliance upon this language, it then reimbursed the full amount of each invoice
Gutti and RX thereafter submitted to it until January 2018; and that when the ALJ
ultimately did not direct Gutti and RX to reimburse any of its alleged
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overpayments “at the conclusion of the claim,” the ALJ effectively went back on
his word.
There are at least two flaws in that proposition, both of which emanate
from KIGA’s misreading of the ALJ’s order. First, the ALJ only required KIGA to
pay Gutti and RX “pursuant to the current medical fee schedule,” not the full
amount of Gutti’s and RX’s invoices. Second, the ALJ stated that “Any issue of
overpayment can be dealt with at the conclusion of the claim” – not that any
overpayment would be refunded at the conclusion of the claim, irrespective of the
legislative constraints on the ALJ’s authority.
This leads to KIGA’s second argument. KIGA contends that two
statutory provisions – by themselves or in conjunction with one another –
authorized the ALJ to grant it restitution representing its alleged overpayments.
The first provision is KRS 342.990(11), which KIGA asserts “allows for restitution
to be ordered by an ALJ, without any showing of misconduct.” (KIGA’s
emphasis.) However, KIGA’s assertion ignores the plain language of that
provision. KRS 342.990(11) states in relevant part that “any administrative law
judge . . . may order restitution of a benefit secured through conduct proscribed by
this chapter.” (Emphasis added.) Unless KIGA overpaid for prescriptions because
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Gutti and RX engaged in conduct forbidden or prohibited9 by KRS Chapter 342,
KRS 342.990(11) could not have authorized restitution.
The second provision of KRS Chapter 342 that KIGA relies upon is
KRS 342.035(2), which states in relevant part:
No provider of medical services or treatment required by
this chapter, its agent, servant, employee, assignee,
employer, or independent contractor acting on behalf of
any medical provider, shall knowingly collect, attempt to
collect, coerce, or attempt to coerce, directly or
indirectly, the payment of any charge, for services
covered by a workers’ compensation insurance plan for
the treatment of a work-related injury or occupational
disease, in excess of that provided by a schedule of fees,
or cause the credit of any employee to be impaired by
reason of the employee’s failure or refusal to pay the
excess charge. . . .
(Emphasis added.)
However, the ALJ held that Gutti and RX did not engage in conduct
forbidden or prohibited by KRS 342.035(2), and that restitution or reimbursement
therefore could not be ordered through KRS 342.990(11). In that regard, the ALJ
explained:
Given the fact the medical provider relied on a trusted
publication (Redbook) to determine pharmaceutical
charges, I find the medical provider did not knowingly
collect, attempt to collect, coerce, or attempt to coerce,
directly or indirectly, the payment of any charge, for
9
See, e.g., BLACK’S LAW DICTIONARY 1236 (7th ed. 1999) (defining “proscribe” as “To outlaw
or prohibit; to forbid.”).
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services covered by workers’ compensation in excess of
that provided by the medical schedule of fees.
.
(Emphasis added.)
KIGA maintains that KRS 342.035(2) permitted the ALJ to award it
restitution for any amount it may have overpaid Gutti and RX. But, KIGA fails to
address the ALJ’s finding that Gutti and RX lacked the requisite mens rea and thus
did not violate that provision. KIGA has accordingly conceded that this part of the
ALJ’s judgment was correct. See, e.g., Osborne v. Payne, 31 S.W.3d 911, 916
(Ky. 2000) (“Any part of a judgment appealed from that is not briefed is affirmed
as being confessed.”).
Lastly, KIGA insists that two published cases indicate it should have
been granted reimbursement under the circumstances of this case. The first of
these cases is Yocum v. Travelers Ins. Co., 502 S.W.2d 520 (Ky. 1973). However,
if KIGA is citing Yocum for the proposition that specific statutory authorization for
reimbursement is unnecessary, Yocum undermines KIGA’s position. There, the
employer voluntarily paid income benefits for which the Special Fund was
ultimately held liable. The Special Fund argued that it was not required to
reimburse the employer because the payments made by the employer were
voluntary, and also because the “old” Board had not expressly provided for
reimbursement of the employer by the Special Fund in its decision. The Special
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Fund’s argument was rejected by our former High Court, however, because
“reimbursement [was] required by KRS 342.120(4)[.]” Id. at 522.
The second case KIGA cites is Triangle Insulation and Sheet Metal
Co. v. Stratemeyer, 782 S.W.2d 628 (Ky. 1990). There, our Supreme Court held
an employer is allowed a dollar-for-dollar credit for past temporary total disability
(“TTD”) benefits where the employer voluntarily pays an injured employee prior
to a workers’ compensation award. It further explained:
It is important to encourage employers to make voluntary
payments to injured employees. Employers are not
obligated to pay benefits until a claim has been litigated
and an award entered. Such payments are voluntary.
The circumstances involved in each specific case must be
carefully evaluated so that the employee is not unduly
harmed and the employer is encouraged to make
voluntary payments.
Id. at 630.
However, the case at bar did not involve a circumstance where an
employer, prior to the entry of an award, voluntarily paid benefits to an injured
employee. Rather, it involved an obligor, KIGA, contesting post-award medical
expenses. And in that circumstance, KIGA did not have the luxury of a voluntary
choice, but rather faced a binary one: Either pay the bills within the time allotted
by statute; or reopen the underlying award, shoulder the burden of contesting the
appropriateness of the bill, and risk sanctions if its contest is deemed frivolous.
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See Kentucky Associated Gen. Contractors Self-Ins. Fund v. Lowther, 330 S.W.3d
456, 459 (Ky. 2010).
Because KIGA was not entitled to be reimbursed any amount, it
follows that KIGA was not entitled to indirect reimbursement through a credit or
offset, either; indeed, KIGA cites no statutory authority to the contrary, and we are
aware of none. The ALJ committed no error in this respect.
IV. CONCLUSION
When it affirmed the ALJ’s underlying order, the Board did not
overlook or misconstrue controlling statutes or precedent, or commit an error in
assessing the evidence so flagrant as to cause gross injustice. See Kelly, 827
S.W.2d at 687-88. Thus, we likewise AFFIRM.
ALL CONCUR.
BRIEF FOR APPELLANT: BRIEF FOR APPELLEES DR. SAI
GUTTI/PAIN MANAGEMENT
Christopher M. Mayer CENTER AND RX
Thomas L. Ferreri DEVELOPMENT:
Louisville, Kentucky
Ched Jennings
Louisville, Kentucky
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