§Suj;rreme Tnuri of Beninckg

RENDERED: AUGUST 24, 2017
TO BE PUBLISHED

20 l 6-SC-0002 l7-WC

STEEL CREATIONS BY AND THROUGH
KESA, THE KENTUCKY WORKERS’
COMPENSATION FUND; PRESTON
HIGI-IWAY METERED CONCRETE, BY AND
THROUGH KESA, THE KENTUCKY
WORKERS’ COMPENSATION FUND;
MURRAY ELECTRONICS, BY AND
THROUGH KES`A, 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

APPELLANTS

ON APPEAL FROM COURT OF APPEALS
CASE NOS. 2015-CA-000218-WC, 20 15-CA-000392-WC
& 20 l5-CA-000422-WC
V. WORKERS’ CO_MPENSATION BOARD NOS. 03-WC-69871,
03-WC-73193, O4-WC-O2145, 06-WC-00502, 85

07-WC-80884

INJURED WORKERS PHARM-ACY; KEVIN
KERCH; DONALD GRAMMER; KE:M -
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

APPELLEES

' 20 16-SC-000222-WC

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

ON APPEAL FROM COURT OF APPEALS
CASE NOS. 20 15-CA-OOO218-WC, 20 15-CA-000392-WC
85 2015-CA-000422-WC `

V. WORKERS’ COMPENSATION BOARD NOS. 03-WC-69871,
03-WC-'73193, 04-WC-02145, 06-WC-00502, 85
' 07-WC-80884
STEEL CREATIONS BY AND THROUGH CROSS-A_PPELLEES

KESA, THE KENTUCKY WORKERS’
cOMPENSATION FUND; PRESTON
HIGHWAY METERED CONCRETE, BY AND
THROUGH KESA, THE KENTUCKY
WORKERS’ cOMPE:NSATION FUND;

' MURRAY ELECTRONICS, BY AND
THROUGH KESA, THE KENTUCKY
WORKERS cOMPF_:NSATION 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,
A'I"I‘ORNEY 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 lOF THE COURT BY JUSTICE KELLER

AFFIR.MING IN PART, VACATING IN PART, AND R.EMANDING

This matter arose from five separate medical fee-disputes filed by KESA,
the l(entucky 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 (Hardili), all of whom had their prescriptions filled by IWP. This
litigation has involved three primary issues: (l) 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 l,aw Judge
(CALJ) found that a pharmacy/ pharmacist is a medical provider, which entitles
an injured worker to choose where to have his or her prescriptions iilled. The
CALJ also found the pharmacy fee schedule is based on the amount a l
pharmacist pays a wholesaler for medication, and that IWP is entitled to
interest on any underpayment by KESA. Finally, the CALJ found that KESA
had brought its medical fee disputes “without reasonable ground and without
reasonable medical or factual foundation.” Therefore, the CALJ ordered KESA
to pay the entire cost of the proceedings to IWP, Kem Barnes, Kevin Kerch, and

Donald Grarnmer.1 The Workers’ Compensation Board (the Board) reversed the

 

1 It appears that Shauna Little (I-Iardjn) did not participate in the ]itigation. It is
unclear why .the CALJ did not award costs to Rita Mern`ck.

3

CALJ’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 l
remand.

I. BAcKGRot`JND.

The factual bases for the underlying individual claims are not dispositive
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 CALJ and joined for litigation purposes.
Because the claims werenot 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 l
a Work-related back injury on December 10, 2003. She subsequently
underwent lumbar spine surgery and an Administrative Law Judge (ALJ)
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)1. Following the_
ALJ’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 CALJ treated these depositions as applicable to all of the
claims. We do so as well.

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.

ln 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 ALJ granted KESA’s motion and
reopened Merrick’s claim.

During the course of the litigation, Men'ick 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 to the pharmacy, phone calls to the adjuster 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 i_n KRS
342.730(1](0]1. Citing the same reasons it cited lin Merrick’s claim, KESA filed
a motion to reopen Grammer’s claim to contest his use of IWP to fill his '
prescriptions The ALJ 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, Grarnmer 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)l

Little, a registered nurse, suffered a work-related neck injury and
underwent a two-level cervical discectomy and fusion. An ALJ awarded .L_ittle
medical expense benefits and income benefits based on a 27% permanent h
impairment rating enhanced by the three times multiplier in KRS
342.730(1)(¢) 1. Three years after the ALJ rendered the opinion, KES-A‘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 ALJ granted KESA’s
motion.but Little, who failed to appear at her deposition and who filed no l
evid`ence, did not actively participate in this litigation,
D. Kem Barnes

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, Meriick, and
Grammer claims. The ALJ 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 c
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 ALJ
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: (l) some physicians required their workers’ compensation
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 342.001 1(15) lists medicines as a “medical service,” the
statute contains no definition for “medical provider.” Because “medical
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 th‘at 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.

IWP has a warehouse and retail outlet in Andover, Massachusetts. lt fills
prescriptions, in pertinent part, for injured workers and primarily markets
itself to plaintiffs’ attorneys. Therefore, most o_f 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.

Af`ter 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 ALJ subsequently determines that the
prescription 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, ln Kentucky, IWP charges the “average wholesale price,” as set forth

in a publication known as “l\/Iedi-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 “mi`ddle-man” between KESA and several pharmacy .
benefit management companies, which act as middlemen between pharmacies
and pharmaceutical -manufacturers.‘* Pharmacy benefit management
companies have contracts with a number 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.

l - Pursuant 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 lmown 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 Clairning 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 companies 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 lf it is'not, the pharmacist calls 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. lt is unclear whether M. Joseph uses a published
average wholesale price when making this assertion; however, it appears that is

the case. KESA filed into'evidence spreadsheets showing the difference

 

5 I_t 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

ll

between what M. Joseph charges for prescriptions and what IWP charges. For
some medications the difference is as much as several hundred dollars and f`or
others there is little to no difference.

ln 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
anda 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.5

 

5 The only arguably dispositive deposition taken after September 7, 2012 was
an update deposition of KESA’s expert, Dr. Rost.

_12

ln 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 d
Attorney General’s opinion, the Board had determined that a pharmacy is a
medical provid_er, 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 ALJ ultimately
made five findings/ decisions that are pertinent to this appeal. Fir`st, 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 §§ l and 2 neither mandate nor
exclude consideration of a published average wholesale price, and they should
_be interpreted as follows:

(a) Pursuant to 003 KAR 25:092§1(6), “wholesale price” is the
average wholesale price drugstores (or anv 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

(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 CALJ 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 CALJ ordered KESA to “pay all contested
pharmaceutical bills . . . pursuant to KRS 342.020 and the pertinent
regulations.” Finally, the ALJ 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 CALJ correctly found that a pharmacy should be paid based on the
actual average wholesale price the pharmacy paid for dispensed medication;

the CAI.J incorrectly found that the regulation does not require exclusion of the

use of published average wholesale prices when calculating the amount a
14

pharmacy is owed; the CALJ erred in assessing costs; and the CALJ erred in
finding a pharmacy is a medical provider. IWP argued that the CAL-J 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 CAI.J. Both parties sought review by the
Court of Appeals, and the Court of Ap`peals affirmed the Board. In doing so, .
the Court of Appealsl erroneously stated that the CAI_J 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 this Court.

As noted above, the parties raise essentially the same issues they have
argued throughout this litigation, 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 CALJ
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.
Seri)ices v. Estate of Wilson`, 39 S.W.3d 816,'817-18 (Ky. 2001).

iri. ANALYsrs.

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 contrary.

To resolve this issue we must look to two statutory provisions, KRS
342.020(1) and KRS 342.001 1(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 fn 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 commissioner shall promulgate
administrative regulations establishing conditions under which the
thirty (30) day period for payment may be tolled. The provider 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.

(Empha_sis added.)

16

There is no definition of “medical provider” in KRS Chapter 342.
However, KRS 342.001 1(15) defines “inedical 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, lt does not set out specific

17

reimbursement rates for medications and it does not adopt any specific
published schedule of reimbursement rates."' Rather it provides as follows: '

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
803 KAR 25:092 § 2. “Wholesale price” is defined as “the average wholesale
price charged by wholesalers at a given aree.” 803 KAR 25:092 § 1(6).

The CALJ 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. ln doing so, the CALJ 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 CALJ.

KESA agrees with the CALJ’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 lt 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 lWP’s prices were in keeping with then
pharmacy fee schedule, testimony the CALJ could have chosen to believe.
Furthermore, although M. J oseph 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 andle 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, lWP’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, 'ancl the ALJ makes a deterrnination: The ALJ 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 ALJ may not simply adopt either of those pricing guides
in roto.8 The ALJ 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 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 CAl.J did not order KESA to reimburse IWP based on
the published average wholesale price thatle 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

 

8 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 conines 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. . ' .

20

CALJ 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 ALJ with
instructions to make findings regarding what lWP’s actual average wholesale
price was for the medications at issuc.

1 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 KE:SA 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 CALJ correctly found that KESA is not liable for interest on any
past due amounts it owes IWP.

On remand, the ALJ may fmd that KESA does not owe IWP any
additional sums. However, because the ALJ could find otherwise, the issue of
interest on past due benefits may arise. Therefore, we address it.

“lt 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 Em)tl. Prot. v. Steams Coal 65 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 Assem-bly 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 Tumer v. Nelson, 342
S.W.3d 866, 873 (Ky. 2011]. Therefore, we agree with the CALJ, the Board,
and the Court of Appeals that IWP is not entitled to any interest on any past
due paymentsl l
D. _ The Board` correctly reversed the CALJ’s assessment of costs.

The CALJ 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 CALJ noted that the Attorney General’s opinion: (l) 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

incorrect assertion that physicians were directing their patients to IWP; and (3)
ran counter to a Board opinion, Based primarily on the preceding f'mdings, the
CALJ 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. l

KRS 342.310 provides, in pertinent part, that an ALJ “may assess the
whole cost of the proceedings” if he determines that the proceedings were
“brought, prosecuted, or defended without reasonable ground.;’ Whether to
assess such cost is within the ALJ’s discretion. Richey v. f’erry Amold, Inc.,
391 S.W.3d 705, 713 (Ky. 2012).

lf the only issue before the CALJ was whether KESA could direct the
claimth to use KESA approved pharmacies, we might be_ convinced that the
Board and the Court of Appealsl overstepped their bounds. lt was within the
CALJ’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 CALJ 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
CALJ’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 CALJ did
not make a determination regarding the actual average wholesale price paid by
_IWP. On remand, the ALJ, or CALJ if appropriate, must determine what IWP’s
actual average wholesale price was for the contested medications The ALJ, or
CALJ 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 Kirnberly McCann, sitting. All concur. VanMeter

and Wright, JJ., not sitting.

24

COUNSEL FOR APPELLANTS/ CROSS-APPELLEES, STEEL CREATIONS, BY
AND THROUGH KESA, THE KENTL_ICKY 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 Ter'ry Sumner
Frost Brown Todd, LLC

James Gordon Fogle

Fogle Keller Purdy, PLLC

COUNSEL FOR APP-ELLANT/ CROSS-APPELLEE, PRESTON HIGHWAY
METERE_D CONCRETE, BY AND 'l`HOUGH KESA, THE KENTUCKY WORKERS’
COMPENSATION FUND:

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

James Gordon Fogle
Fogle Keller Purdy, PLLC

Natalie Laszkowski

Fulton' 85 Devlin, LLC

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

Charles E. Jennings

Eric M. Lamb
Lamb 85 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 Of`ficel

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

J ames Robert Carpenter
Assistant Attorney General

COUNSEL FOR AMICUS CURIAE, INSURANCE INSTITUTE OF KENTUCKY:

Kenneth J. Dietz
Lucas 85 Dietz, PLLC

COUNSEL FOR AMICUS CURIAE, KENTUCKY ASSOCIATION OF GENERAL
CONTRACTORS:

Gregory Lonzo Little
Ferreri Partners PLLC

26

