Steel Creations by and Through Kesa, the Kentucky Workers' Compensation Fund v. Injured Workers' Pharmacy

Opinion

RENDERED:AUGUST24,2017 TO BE PUBLISHED

~upr:em:e

STEEL CREATIONS BY AND THROUGH APPELLANTS KESA, THE KENTUCKY WORKERS' COMPENSATION FUND; PRESTON HIGHWAY METERED CONCRETE, BY AND THROUGH KESA, THE KENTUCKY WORKERS' COMPENSATION FUND; MURRAY ELECTRONICS, BY AND THROUGH KESA, THE KENTUCKY WORKERS COMPENSATION FUND; FAMILY ALLERGY AND ASTHMA, BY AND THROUGH KESA, THE KENTUCKY WORKERS' COMPENSATION FUND; AND SAMARITAN ALLIANCE, BY AND THROUGH KESA, THE KENTUCKY WORKERS' COMPENSATION FUND

ON APPEAL FROM COURT OF APPEALS CASE NOS. 2015-CA-000218-WC, 2015-CA-000392-WC & 2015-CA-000422-WC V. WORKERS' COMPENSATION BOARD NOS. 03-WC-69871, 03-WC-73193, 04-WC-02145, 06-WC-00502, & 07-WC-80884

INJURED WORKERS PHARMACY; KEVIN APPELLEES KERCH; DONALD GRAMMER; KEM BARNES; RITA MERRICK; SHAUNA LITTLE F/K/A HARDIN; HON J. LANDON OVERFIELD, CHIEF ADMINISTRATIVE LAW JUDGE; WORKERS' COMPENSATION BOARD; AND JACK CONWAY, ATTORNEY GENERAL

AND · 2016-SC-000222-WC

INJURED WORKERS PHARMACY; KEVIN CROSS-APPELLANTS KERCH; DONALD GRAMMER; AND KEM BARNES

ON APPEAL FROM COURT OF APPEALS CASE NOS. 2015-CA-000218-WC, 2015-CA-000392-WC & 2015-CA-000422-WC V. WORKERS' COMPENSATION BOARD NOS. 03-WC-69871, 03-WC-73193, 04-WC-02145, 06-WC-00502, & 07-WC-80884

STEEL CREATIONS BY AND THROUGH CROSS-APPELLEES KESA, THE KENTUCKY WORKERS' COMPENSATION FUND; PRESTON HIGHWAY METERED CONCRETE, BY AND THROUGH KESA, THE KENTUCKY WORKERS' COMPENSATION FUND; MURRAY ELECTRONICS, BY AND THROUGH KESA, THE KENTUCKY WORKERS COMPENSATION FUND; FAMILY ALLERGY AND ASTHMA, BY AND THROUGH KESA, THE KENTUCKY WORKERS' COMPENSATION FUND; SAMARITAN ALLIANCE, BY AND THROUGH KESA, THE KENTUCKY WORKERS' COMPENSATION FUND; JACK CONWAY, ATTORNEY GENERAL; DWIGHT LOVAN, COMMISSIONER, DEPARTMENT OF WORKERS' CLAIMS; HON. J. LANDON OVERFIELD, CHIEF ADMINISTRATIVE LAW JUDGE; WORKERS' COMPENSATION BOARD; RITA MERRICK; AND SHAUNA LITTLE (HARDIN)

OPINION OF THE COURT BY JUSTICE KELLER

AFFIRMING IN PART, VACATING IN PART, AND REMANDING

2 This matter arose from five separate medical fee-disputes filed by KESA,

the Kentucky Workers' Compensation Fund, on behalf of its insureds---'Steel

Creations, Preston Highway"Metered Concrete, Murray Electronics, Family

_Allergy and Asthma, and Samaritan Alliance. The disputes were filed against

the Injured Workers' Pharmacy (IWP) and the insureds' employees/former

employees-Kevin Kerch, Donald Grammer, Kem Barnes, Rita Merrick, and

Shauna Little (Hardin), all of whom had their prescriptions filled by IWP. This

litigation has involved three primary issues: (1) whether a

pharmacy/ pharmacist is a medical provider; (2) whether an injured worker is

entitled to choose which pharmacy he or she uses to fill prescriptions or

whether that "choice" belongs to the employer or its insurer; and (3) how to

interpret the pharmacy fee schedule. The Chief Administrative Law Judge

(CAW) found that a pharmacy/pharmacist is a medical provider, which entitles

an injured worker to choose where to have his or her prescriptions filled. The

CAW also found the pharmacy fee schedule is based on the amount a

pharmacist pays a wholesaler for medication, and that IWP is entitled to

interest on any underpayment by KESA. Finally, the CAW found that KESA

had brought its medical fee disputes "without reasonable ground and without

reasonable medical or factual foundation." Therefore, the CAW ordered KESA

to pay the entire cost of the proceedings to IWP, Kem Barnes, Kevin Kerch, and

Donald Grammer.1 The Workers' Compensation Board (the Board) reversed the

1 It appears that Shauna Little (Hardin) did not participate in the litigation. It is unclear why .the CAW did not award costs to Rita Merrick.

3 CAW's award of costs but otherwise affirmed. The Court of Appeals affirmed

the Board. For the following reasons, we affirm in part, vacate in part, and

remand.

I. BACKGROUND.

The factual bases for the underlying individual claims are not disp

of this appeal. However, they bear mentioning and we briefly summarize each

claim below. Before doing so, we note that the underlying five claims were not

consolidated but were assigned to the CAW and joined for litigation purposes.

Because the claims were not consolidated, the parties filed essentially the same

evidence in each of the individual claims.2 We address that jointly filed

evidence separately after our summary of the individual claims.

A. Rita Merrick

Merrick, who worked for Family Allergy and Asthma Associates, suffered

a work-related back injury on December 10, 2003. She subsequently

underwent lumbar spine surgery and an Administrative Law Judge (AW)

awarded her medical expense benefits and income benefits based on a 26.455

permanent disability rating with entitlement to the three times multiplier

pursuant to Kentucky Revised Statute (KRS) 342.730(1)(c)l. Following the_

AW's award, the parties filed several motions to reopen, culminating in the

motion KESA filed on March 31, 2010, which is the subject of this appeal.

2 We note that several depositions were filed.only in the Kevin Kerch claim. However, the parties and the CAW treated these depositions as applicable to all of the claims. We do so as well.

4 In its motion, KESA stated that it had provided Merrick with a medical

card that permitted her to "conveniently purchase prescription drugs at the

local pharmacies at a contracted price." KESA also stated that it had advised

Merrick that the medical card was provided through a program administered

by M. Joseph Medical (M. Joseph) and that KESA would only pay prescription

bills submitted through the M. Joseph program.

According to KESA, it had an agreement with M. Joseph which enabled

KESA to reimburse Merrick's pharmacy "at a potentially lower price than what

is required in the administrative regulation's fee schedule for prescription

drugs." KESA noted that Merrick was not getting her prescriptions filled

through the M. Joseph program but was getting them filled through IWP.

KESA sought an order requiring Merrick to participate in the M. Joseph

program.

In her response, Merrick stated that she had difficulty getting her

prescriptions timely filled when going through KESA or a KESA required

pharmacy. However, she experienced no such problems when getting her

prescriptions filled through IWP. The AW granted KESA's motion and

reopened Merrick's claim.

During the course of the litigation, Merrick testified that, when she

presented a prescription at a KESA approved pharmacy, she had to wait while

the .pharmacist obtained authorization from KESA to fill it. This often resulted

in multiple trips t_o the pharmacy, phone calls to the ad~uster at KESA, and

delays in getting her prescriptions filled that could extend to several days. As a

5 result, Merrick contacted her attorney, who referred her to IWP. Once.Merrick

switched to IWP, she began getting her prescriptions through the mail, and she

did not experience any delays.

B. Donald Grammer

Grammer suffered a neck injury while working for Preston Highway

Metered Concrete. He underwent a two-level cervical fusion and the ALJ

awarded medical expense benefits and income benefits based on a 35%

permanent impairment rating enhanced by the three times multiplier in KRS

342.730(1)(c)l. Citing the same reasons it cited.in Merrick's claim, KESA filed

a motion to reopen Grammer's claim to contest his use of IWP to fill his

prescriptions. The AW granted KESA's motion, and during the course of the

subsequent litigation, Grammer testified .. that he switched to IWP to fill his prescriptions because he had experienced delays when using a KESA-preferred

pharmacy. As did Merrick, Grammer testified that he often had to wait to get

his prescriptions filled because the KESA-preferred pharmacist had to get

authorization, a delay he did not experience with IWP.

C. Shauna Little (Hardin)

Little, a registered nurse, suffered a work-related ·neck injury and

underwent a two-level cervical discectomy and fusion. An ALJ awarded _Little

medical expense benefits and income benefits based on a 27% permanent

impairment rating enhanced by the three times multiplier in KRS

342. 730(1)(c) 1. Three years after the AW rendered the opinion, KESA filed a

motion to reopen Little's claim to contest medical expenses citing .the same

6 reasons it cited in the Merrick and Grammer claims. The AW granted KESA's

motion but Little, who failed to appear at her deposition and who filed no

evidence, did not actively participate in this litigation.

D. KemBames

Barnes suffered a work-related low back injury and settled his claim for a

lump sum based on a 5% permanent impairment rating. The settlement

provided that Barnes's employer would remain liable for medical expenses.

Slightly less than four years after the settlement, KESA filed a motion to reopen

Barnes's claim citing the same reasons it cited in the Little, Merrick, and

Grammer claims. The AW granted KESA's motion, and Barnes testified about

the difficulties he had getting his prescriptions filled before he switched to IWP.

E. Kevin Kerch

Kerch suffered a work-related left upper extremity injury in July 2007.

In February 2009, the parties settled Kerch's claim based on a 24% permanent

impairment rating and provided that Kerch's employer would remain liable for

medical expense benefits. Approximately a year later, KESA filed a medical fee

dispute contesting Kerch's use of IWP to fill his prescriptions, which the AW

granted. As did the others, Kerch testified about the difficulties he had getting

his prescriptions filled at the KESA preferred pharmacy.

F. Common elements to all claims.

In.further support of its position on reopening, KESA stated it had

concluded that it had the right to direct the claimants to a pharmacy because

KRS 342.020 did not provide the option for claimants to make that choice. In

7 support of that conclusion, KESA attached an opinion from the Attorney

General given in response to a request from state Senator Tom Jensen. In that

opinion, the Attorney General set out the following facts as presented by

Senator Jensen: (1) some physicians required their workers' cC>mpensation

patients to use IWP; (2) IWP charged insurers "the full fee schedule, which is

generally 25% greater" than what the insurers were charged by other area

· pharmacies; and (3) IWP complained because KESA was reimbursing it at the

lower rate.

In response to the Senator"s specific questions, the Attorney General

noted that, while KRS 342.0011(15) lists medicines as a "medical service," the

statute contains no definition for "medical provider." Because "mec:!ical

services" does not appear in the context of medical provider choice, the

Attorney General concluded that a pharmacy is not a medical provider for

choice of provider purposes. Therefore, an employer or insurer could direct a

claimant to a particular pharmacy or group of pharmacies. The Attorney

General also stated that there was no case law regarding this, which ignored a

Board opinion stating that pharmacies are medical providers. Finally, the

Attorney General stated that an employer or insurer could not enter into a fee

agreement and force a non-party to that agreement to accept the agreed to fee.

G. Evidence common to all claims.

The parties filed a substantial amount of evidence regarding the business

models of IWP and M. Joseph; the various methods tliat arguably can be or

should be used to determine the average wholesale price of pharmaceuticals;

8 and. the advantages and disadvantages to using each of those methods. We

summarize that evidence below to the extent it is necessary to understand the

disputes among the parties.

lWP has a warehouse and retail outlet in Andover, Massachusetts. It fills

prescriptions, in pertinent part, for injured workers and primarily markets

itself to plaintiffs' attorneys. Therefore, most of its "referrals" are from

plaintiffs' attorneys, as is the case with the five individual claimants herein.

We note that, despite the statements in the Attorney General's opinion, there

was no evidence presented that any physicians required their patients to use

IWP.

After an injured worker enrolls with IWP and IWP receives a prescription,

it verifies the authenticity of the prescription and fills it without requiring

authorization from the insurer. If an AW subsequently determines that the

pres.cription was for a nonwork-related condition or otherwise is not

compensable by the insurer, IWP will not balance bill the patient but will write

off the cost of any non-covered medication. IWP undertakes this risk because

it views itself as a patient advocate and does not want to unnecessarily delay

providing prescribed medication.

IWP, which operates in a number of states, charges insurers for

medication it dispenses pursuant to its interpretation.of the appropriate fee

schedule. In Kentucky, IWP charges the "average wholesale price," as set forth

9 in a publication known as "Medi-Span."3 IWP charges the published average

wholesale price regardless of what it actually pays for the medication it

dispenses.

M. Joseph acts as a "middle-man" between KESA and several pharmacy.

benefit management companies, which act as middlemen between pharmacies

and pharmaceutical manufacturers.4 Pharmacy benefit management

companies have 'contracts with a numbt;r of pharmacies to provide medication

to those pharmacies at an agreed to price. That price reflects the price the

pharmacy benefit management companies have negotiated with the ' pharmaceutical manufacturers and includes discounts for volume as well as

for manufacturer provided rebates. The pharmacies bill the pharmacy benefit

management companies based on the agreed to price.

· Pllrsuant to M. Joseph's contracts with the pharmacy benefit

management companies, the companies bill M. Joseph for the medications that

claimants of M. Joseph clients have purchased. The pharmacy benefit

management companies add an "upcharge" to what the pharmacies bill before

sending the bills to M. Joseph. M. Joseph then adds an "upcharge" to that

amount and bills its clients.

3 It appears that IWP may have used a publication known as "First Databank"

at some point during the litigation. However, First Databank apparently no longer publishes data regarding average wholesale·pharmaceutical prices and IWP switched to Medi-Span. 4 Claiming that it was a trade secret, representatives of M. Joseph would not

identify the pharmacy benefit management companies with which it has contractual relationships.

10 M. Joseph's primary fact witness, Michael Bartlett, testified that he did

not know how much the pharmacy benefit management compani~s added as

an upcharge, and he refused to testify about the amount M. Joseph added as

an upcharge claiming that information is a trade secret. Furthermore, none of

the witnesses could or would testify regarding the agreed to price for

medications that had been negotiated between the pharmacy benefit

management companies and the pharmacies.

KESA has a "hand-shake" agreement with M. Joseph whereby M. Joseph

provides a prescription card to KESA's insureds that the insureds can use at

most pharmacies in the.Commonwealth. When the insured presents the card

to get a prescription filled, the pharmacist can verify if the prescription is

authorized.5 If it is not, the pharmacist c_alls a representative from M. Joseph

who then contacts an adjuster at KESA. The adjuster will then either authorize

the pharmacist to fill the prescription or advise the pharmacist and the insured

that additional information is needed. It is this authorization procedure that

causes the delays about which the named claimants complained.

M. Joseph markets itself by representing that it can provide prescription

medications to insureds at an average cost that is approximately 25% below

the average wholesale price. It is unclear whether M. Joseph uses a published

average wholesale price when making this assertion; however, it appears that is

the case. KESA filed int!Yevidence spreadsheets showing the difference

5 It is unclear if a pharmacist is required to obtain authorization; however, it is

undisputed that most if not all pharmacists, with the exception of the pharmacists at IWP, will not fill a prescription without receiving authorization.

11 between what M. Joseph charges for prescriptions and what IWP charges. For

some medications the difference is as much as several hundred dollars and for

others there is little to no difference.

In addition to the preceding, the parties filed voluminous testimony

about the difference between the published average wholesale price and the

actual average wholesale price. According to KESA's expert witness, the

published average wholesale price is provided to the publishers by the

pharmaceutical manufacturers and has no relationship to what wholesalers

actually charge. A more accurate measure, although it is not exact either, is

the published wholesale acquisition cost, which is a reflection of what the .

wholesalers pay the. manufacturers. However, this number, like the number

.for the published average wholesale price, is also provided by the

manufacturers. It appears that most states use the published average

wholesale price and/ or the wholesale acquisition cost as a starting point for

pricing purposes but do not explicitly adopt either in toto.

Neither party filed any evidence regarding the actual wholesale price IWP

pays for the medications it dispenses. However, we note that, for nearly two

and a half years of this litigation, KESA did not challenge IWP's charges as

being in excess of the prescription fee schedule. In fact, KESA did not officially

list that as an issue until September 7, 2012, which was after the vast majority

of the depositions had been taken and filed.6

6 The only arguably dispositive deposition taken after September 7, 2012 was an update deposition ofKESA's expert, Dr. Rost .

.12 In a rare step in workers' compensation claims, KESA joined the.

Commissioner of the Department of Workers' Claims (the Department) as a

party. The Commissioner testified that 803 KAR 25:092, which is commonly

known as the pharmacy fee schedule, controls how prescription fees are

charged and it "speaks for itself." The average wholesale price is "the average

wholesale price of a given drug at a specific point in time." The Commissioner

stated that he did not know what proof the parties would need to put forth to

establish what the average wholesale price is; however, he noted that the

Department had not adopted any pricing publications. Determining what price

meets the regulatory definitions would be a matter for an ALJ, not the

Commissioner. Finally, the Commissioner noted that, years prior to the

Attorney General's opinion, the Board had determined that a pharmacy is a

medical provider, and the Department follows Board opinions until an

appellate court rules to the contrary.

H. The ALJ's Opinion.

Following a number of petitions for reconsideration, the AW ultimately

made five findings/decisions that are pertinent to this appeal. First, he found

that a pharmacy is a medical provider, which entitles a claimant to choose

which pharmacy to use.

Second, he found that 803 KAR 25:092 §§ 1 and 2 neither mandate nor

exclude consideration of a published average wholesale price, and they should

be interpreted as follows:

(a) Pursuant to 803 KAR 25:092§1(6), "wholesale price" is the average wholesale price drugstores (or any other pharmaceutical 13 providers) pay to wholesalers when purchasing pharmaceuticals for distribution in filling prescriptions for customers.

(b) A pharmacist filling prescriptions for an injured worker which requires dispensing brand name drugs for a workers[sic] compensation injury is entitled to be reimbursed in an amount equal to the wholesale price as determined pursuant to 803 KAR 25:092§1(6) the pharmacist paid for the drug dispensed plus a five dollar ($5.00) fee and any applicable federal or state tax or assessment.

(c) A pharmacist filling prescriptions for an injured worker for a workers [sic] compensation injury with drugs which are not brand name drugs is entitled to be reimbursed in an amount equal to the wholesale price as determined pursuant to 803 KAR 25:092§1(6) the pharmacist paid for the lowest price drug which is therapeutically equivalent to the drug use[d] to fill the prescription which the pharmacist has in stock in his establishment at the time he fills the prescription, plus a five dollar ($5.00) dispensing fee and any applicable federal or state tax or assessment.

(Emphasis added.)

Third, the CAW found that KESA "brought and prosecuted [the medical

fee disputes] without reasonable ground and without reasonable medical or

factual foundation" and he assessed the entire cost of the proceedings to the

claimants. Fourth, the CAW ordered KESA to "pay all contested

pharmaceutical bills ... pursuant to KRS 342.020 and the pertinent

regulations." Finally, the AW found that IWP is not entitled to interest on any

unpaid or overdue balances it claims.

Both parties appealed to the Board. KESA argued, in pertinent part,

that: the CAW correctly found that a pharmacy should be paid based on the

actual average wholesale price the pharmacy paid for dispensed medication;

the CAW incorrectly found that the regulation does not require exclusion of the

use of publil:ihed average wholesale prices when calculating the amount a 14 pharmacy is owed; the CAW erred in assessing costs; and the CAW erred in

finding a pharmacy is a medical provider. IWP argued that the CAW erred

when he failed to award interest on any past due payments.

The Board agreed with KESA that the award of sanctions was not

justified, but otherwise affirmed the CAW. Both parties sought review qy the Court of Appeals, and the Court of Appeals affirmed the Board. In doing so,

the Court of Appeals erroneously stated that the CAW had ordered KESA to

pay IWP based on the published average wholesale price that IWP had charged.

This misstatement by the Court of Appeals appears to be fueling, in large part,

· KESA's appeal to ~is Court.

As noted above, the parties raise essentially the same issues they have

argued throughout this lil}gation. We address those issues below.

II. STANDARD OF REVIEW.

The issues presented by the parties primarily require us to interpret

statutory and regulatory provisions, which we review de novo. Saint Joseph

Hosp. v. Frye, 415 S.W.3d 631, 632 (Ky. 2013). However, we defer to the CAW

with regard to factual determinations and, when the issues involve mixed

questions of fact and law, we have greater latitude to determine if the

underlying opinion is supported by probative evidence. See Purchase Transp.

Services v. Estate of Wilson, 39 S.W.3d 816, 817-18 (Ky. 2001).

III. ANALYSIS.

A. The CALJ correctly determined that a pharmacy is a medical provider.

15 KESA argues that workers' compensation claimants are not entitled to

choose a pharmacy because a pharmacy is not a medical provider. The CALJ,

the Board, and the Court of Appeals found to the contr~.

To resolve this issue we must look to two statutory provisions, KRS

342.020(1) and KRS 342.0011(15). KRS 342.020(1) provides that:

In addition to all other compensation. provided in this chapter, the employer shall pay for the cure and relief from the effects of an injury or occupational disease the medical, surgical, and hospital treatment, including nursing, medical, and surgical supplies and appliances, as may reasonably be required at the time of the injury and thereafter during disability, or as may be required for the cure and treatment of an occupational disease. The employer's obligation to pay the benefits specified in this section shall continue for so long as the employee is disabled regardless of the duration of the employee's income benefits. In the absence of designation of a managed health care system by the employer, the employee may select medical providers to treat his injury or occupational disease. Even if the employer has designated a managed health care system, the injured employee may elect to continue treating with a physician who provided emergency medical care or treatment to the employee. The employer, insurer, or payment obligor acting on behalf of the employer, shall make all payments for services rendered to an employee directly to the provider of the services within thirty (30) days of receipt of a statement for services. The comrµissioner shall promulgate administrative regulations establishing conditions under which the thirty (30) day period for payment may be tolled. The proviq.er of medical services shall submit the statement for services within forty-five (45) days of the day treatment is initiated and every forty- five (45) days thereafter, if appropriate, as long as medical services are rendered. Except as provided in subsection (4) of this section, in no event shall a medical fee exceed the limitations of an adopted medical fee schedule or other limitations contained in KRS 342.035, whichever is lower. The commissioner may promulgate administrative regulations establishing the form and content of a statement for services and procedures by which disputes relative to the necessity, effectiveness, frequency, and cost of services may be resolved.

(Emphasis added.)

16 There is no definition of"medical provider" in KRS Chapter 342.

However, KRS 342.0011(15) defines "medical services" as: "medical, surgical,

dental, hospital, nursing, and medical rehabilitation services, medicines, and

fittings for artificial or prosthetic , devices." (Emphasis added.) As.did the Court

of Appeals, we hold that the plain meaning of these two statutes is that a

- medical provider is one who provides medical services. Since medicines are

"medical services," and a pharmacist provides that medical service, a

pharmacist is a medical provider. Therefore, absent an employer's

participation in a managed health care system, claimants are free to choose

which pharmacy to use.

We note KESA's argument that such a holding will "open a door through

which other commercial operators ... could pass." However, if that door has

been opened, it is the General Assembly that opened it, not the Court.

Furthermore, to the .extent those other commercial operators are subject to the

appropriate fee schedule, we fail to see how KESA would be harmed by a

claimant exercising that choice.

B. The CALJ correctly interpreted the "pharmacy fee schedule."

The workers' compensation "pharmacy fee schedule" is set forth in 803

KAR 25:092. We put that phrase in quotation marks because this fee schedule

is not what we typically think of as a fee schedule. It does not set out specific

17 reimbursement rates for medications and it does not adopt any specific

p-y.blished schedule of reimbursement rates. 7 Rather it provides as follows: .

Any duly licensed pharmacist dispensing pharmaceuticals . pursuant to KRS Chapter 342 shall be entitled to be reimbursed m 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. ·

803 KAR 25:092 § 2. "Wholesale price• is defined as "the average wholesale

price charged by wholesalers at a given time." 803 KAR 25:092 § 1(6).

The CAW interpreted the fee schedule as entitling a pharmacist to

reimbursement based on the average wholesale price the pharmacist paid for a

given medication, plus the dispensing fee. In doing so, the CAW stated that

the regulation neither adopted nor excluded the use of a published average

wholesale price guide to determine the appropriate reimbursement rate. The

Board and the Court of Appeals agreed with the CAW.

KESA agrees with the CAW's interpretation of the regulation. However,

it argues on appeal that the evidence compelled a finding that the published

average wholesale price cannot be the basis for determining reimbursement

rates in this case. IWP on the other hand argues that the published average

wholesale price can be used and should be used to determine the

reimbursement rate. We address each argument in turn below.

7 It appears from the evidence that the published and actual average wholesale prices of pharmaceuticals change frequently, with the published guides being updated frequently.

18 KESA is correct that its expert testified that published average wholesale

prices have little to do with actual wholesale prices. However, neither that

testimony nor the regulation itself compel the finding KESA seeks. We note

that KESA's own witness testified that IWP's prices were in keeping with the

pharmacy fee schedule, testimony the CAW could have chosen to believe.

Furthermore, although M. Joseph claimed that it obtained medication for KESA

at an average of 25% less than the· average wholesale price, spreadsheets filed

by KESA show that the M. Joseph and IWP prices for some medications were

the same. Thus, KESA's proof was, at least in part, inconsistent with its

argument. Finally, if the Department of Workers' Claims had wanted to

exclude the use of published average wholesale prices, it could have specifically

stated as much in its regulation.

As to IWP's argument, the regulation does not ·mandate or even suggest

that published average wholesale prices should be used to determine the

appropriate reimbursement rate. Furthermore, IWP's argument to the contrary

notwithstanding, the Commissioner testified that the Department has not

taken the position that a published price controls the reimbursement price.

Therefore, IWP's argument that those guides should be the sole arbiter of

reimbursement rates is without merit.

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 AW makes a determination. The AW may, but is not

· required to, take into consideration the published average wholesale price. The

19 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 AW may not simply adopt either of those pricing guides

in toto. s The AW must determine the actual wholesale price the pharmacist

paid, which may or may not have a relevant 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 approp]'.iate reimbursement rate is under the regulation.

We recognize that this could, as lWP argues, put a considerable strain on

the already busy AWs. 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 lWP pursuant to the statute and regulations, which he correctly

interpreted to be the actual average wholesale price IWP paid. However, the

s 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 AW 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 particuiarly 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 AW must undertake the appropriate analysis before admitting or excluding any proffered pricing guides.

20 CAW did not make any specific findings regarding the actual average wholesale

price IWP paid for _the medications it dispensed.

KESA's argument that its payment to IWP based on the M. Joseph

agreement satisfies the regulation is without merit. As we understand this

argument, KESA believes that the pharmacy benefit management companies

with which it has contractual relationships have established the average

wholesale price through their contracts with the pharmacies. Thus, by paying

IWP the M. Joseph price, KESA is paying the actual average wholesale price.

However, the 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 AW with

instructions to make findings regarding what IWP's actual average wholesale

price was for the medications at issue.

Finally, we note that 803 KAR 25:092 § 3(4) provides that "[a]ny

insurance carrier, self-insured employer or group self-insured employer may

enter into an agreement with any pharmacy to provide reimbursement at a

lower amount than that required in this administrative _regulation." Thus,

there is no prohibition against the arrangement KESA has with M. Joseph and

there would be no prohibition against KESA entering into a similar

arrangement with IWP. However, KESA cannot unilaterally impose its M.

Joseph agreement on IWP.

21 '

C. The CAW correctly found that KESA is not liable for interest on any past due amounts it owes IWP.

On remand, the AW may find that KESA does not owe IWP any

additional sums. However, because the AW could find otherwise, the issue of

interest on past due benefits may arise. Therefore, we address it.

"It is fundamental that administrative agencies are creatures of statute

and must find within the statute warrant for the exercise of any authority

which they claim." Dept. for Nat. Res. and Envtl. Prot. v. Stearns Coal & Lumber

Co., 563 S.W.2d 471, 473 (Ky. 1978). KRS 342.040 provides for the

assessment of interest on past due income benefits; however, there is no

corollary for payment of interest on past due medical expense benefits. We

presume that the General Assembly acted intentionally when it provided for the

payment of interest on past due income benefits while omitting the payment of . .

interest from past due medical expense benefits. See Turner v. Nelson, 342

S.W.3d 866, 873 (Ky. 2011). Therefore, we agree with the CAW, the Board,

and the Court of Appeals that !WP is not entitled to any interest on any past

due payments.

D. The Board correctly reversed the CAW's assessment of costs.

The CAW found that the Attorney General's opinion did not provide a

reasonable legal or factual basis for KESA's decision to direct the named

claimants to use the M. Joseph program to obtain their medications. In doing

so, the CAW noted that the Attorney General's opinion: (1) stated that the

claimants did not have the right to choose their pharmacy, but it did not state

that KESA had the right to make that choice; (2) was based in part on the 22 ipcorrect assertion that physicians were directing therr patients to IWP; and (3)

ran counter to a Board opinion. Based primarily on the preceding findings, the

CAW ordered KESA to pay the entire cost of the proceedings. The Board found

that the Attorney General's opinion was sufficient to support KESA's actions.

The Court of Appeals agreed with the Board. We agree with the ultimate

decisions by the Board and the Court of Appeals but for somewhat different

reasons.

KRS 342.310 provides, in pertinent part, that an AW "may assess the

whole cost of the proceedings" if he determin~s that the proceedings were

"brought, prosecuted, or defended without reasonable ground." Whether to

assess such cost is within the AW's discretion. Richey v. Perry Arnold, Inc.,

391 S.W.3d 705, 713 (Ky. 2012).

If the only issue before the CAW was whether KESA could direct the

claimants to use KESA approved pharmacies, we might be convinced that the

Board and the Court of Appeals. overstepped their bounds. It was within the

CAW's discretion to find that the opinion of the Attorney General was not a

sufficient basis to support KESA's action, particularly in the face of a Board

opinion to the contrary. However, as the litigation progressed, the

interpretation of KAR 25:092 became an issue as did the appropriateness of

IWP's charges·. This was an issue of first impression, which KESA had a

reasonable legal and· factual basis to challenge. Because the CAW did not

factor this issue into his decision to assess costs, he abused his discretion.

23 Therefore, we affirm the Court of Appeals and the Board in their reversal of the

CAW's assessment of the cost of the proceedings against KESA.

IV. CONCLUSION.

For the foregoing reasons, we affirm the Court of Appeals opinion

regarding the assessment of interest and sanctions. We also affirm the Court

of Appeals that a pharmacy is a medical provider. However, we vacate the

remainder of the Court of Appeals opinion and remand because the CAW did

not make a determination regarding the actual average wholesale price paid by

IWP. On remand, the AW, or CAW if appropriate, must determine what IWP's

actual average wholesale price was for the contested medications. The AW, or

CAW if appropriate, may reopen proof if he or she deems it necessary to do so. ·

Minton, C.J.; Cunningham, Hughes, Keller, Venters, JJ., and Special

Justices David Samford and Kimberly Mccann, sitting. All concur. VanMeter

and Wright, JJ., not sitting.

24 COUNSEL FOR APPELLANTS/CROSS-APPELLEES, STEEL CREATIONS, BY AND THROUGH KESA, THE KENT{lCKY WORKERS' COMPENSATION FUND; MURRAY ELECTRONICS, BY AND THROUGH KESA, THE.KENTUCKY WORKERS' COMPENSATION FUND; FAMILY ALLERGY AND ASTHMA, BY AND THROUGH KESA, THE KENTUCKY WORKERS' COMPENSATION FUND; AND SAMARITAN ALLIANCE, BY AND THROUGH KESA, THE KENTUCKY WORKERS' COMPENSATION FUND:

Joseph L. Ardery Griffin Teny Sumner Frost Brown Todd, LLC

James Gordon Fogle Fogle Keller Purdy, PLLC

COUNSEL FOR APPELLANT/CROSS-APPELLEE, PRESTON HIGHWAY METERED CONCRETE, BY AND THOUGH KESA, THE KENTUCKY WORKERS' COMPENSATION FUND: .

Joseph L. Ardery Griffin Teny Sumner Frost Brown Tcidd, LLC

James Gordon Fogle Fogle Keller Purdy, PLLC

Natalie Laszkowski Fulton- & Devlin, LLC

COUNSEL FOR APPELLEE/CROSS-APPELLANT, INJURED WORKERS' PHARMACY:

Charles E. Jennings

Eric M. Lamb Lamb & Lamb, PSC

COUNSEL FOR APPELLEES/CROSS-APPELLANTS, KEVIN KERCH AND DONALD GRAMMER:

Charles E. Jennings

25 COUNSEL FOR APPELLEE/CROSS-APPELLANT, KEM BARNES:

Jeffery Roberts Roberts Law Office

COUNSEL FOR APPELLEE/CROSS-APPELLEE, RITA MERRICK:

McKinnley Morgan Morgan Collins & Yeast

COUNSEL FOR APPELLEE/CROSS-APPELLEE, SHAUNA LITTLE F /K/ A HARDIN:

Paul Guthrie

COUNSEL FOR APPELLEE/CROSS-APPELLEE, JACK CONWAY, ATTORNEY GENERAL:

Andy Beshear Attorney General of Kentucky

James Robert Carpenter Assistant Attorney General

COUNSEL FOR AMICUS CURIAE, INSURANCE INSTITUTE OF KENTUCKY:

Kenneth J. Dietz Lucas & Dietz, PLLC

COUNSEL FOR AMICUS CURIAE, KENTUCKY ASSOCIATION OF GENERAL CONTRACTORS:

Gregory Lonzo Little Ferreri Partners PLLC