RENDERED: DECEMBER 8, 2023; 10:00 A.M. NOT TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals
NO. 2022-CA-0526-WC
KENTUCKY INSURANCE GUARANTY ASSOCIATION APPELLANT
PETITION FOR REVIEW OF A DECISION v. OF THE WORKERS’ COMPENSATION BOARD ACTION NO. WC-99-62057
DENNIS RATLIFF; 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, Appleton & Ratliff Coal Corp. (Appleton);1 and against its
insured’s employee, Dennis Ratliff, along with Ratliff’s medical providers, Gutti
and RX. Gutti and RX operated a physician dispensary and sought reimbursement
from KIGA after filling several of Ratliff’s prescriptions that were undisputedly
covered under Ratliff’s workers’ compensation award against Appleton. 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Regulation (KAR) 25:092 (1993), the now-superseded regulation2 that governed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 Appleton & Ratliff Coal Corp.,” 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.
-2- 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
-3- 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.
...
-6- 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. . . .
-7- (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
-8- 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
-10- 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
-11- 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
-12- 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.
-13- 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 Ratliff’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).
-15- 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.
-16- 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
-17- 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 costs for the medications dispensed between January 2018 and February 2019 to be $19,683.27, 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
-18- 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 $19,683.27 acquisition cost multiplied by 1.2 reveals an average wholesale price of $23,619.94, which is below the $30,310.34 billed by the provider, but above the amount paid by KIGA. KIGA paid $19,287.88, which leaves $4,722.06 owing to the medical provider once the $390.00 for 78 dispensary fees ($5.00 x 78) is added to the average wholesale price of $23,619.94. Therefore, the balance due is $4,722.06. Curiously, utilizing the M. Joseph pricing plus 30% would have resulted in an average wholesale price of $25,074.24, which is very close to the methodology used herein.
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
-19- testimony to believe or disbelieve. See Caudill v. Maloney’s Discount Stores, 560
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.,
-20- 563 S.W.2d 471, 473 (Ky. 1978). “Workers’ compensation is a creature of statute,
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.
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
-21- 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
-22- 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. . . .
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.”).
-23- services covered by workers’ compensation in excess of that provided by the medical schedule of fees.
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
-24- 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.
-25- 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
-26-