KENTUCKY ASSOCIATED GENERAL CONTRACTORS SELF INSURANCE FUND, ET AL. VS. LOWTHER (SHEILA), ET AL.
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RENDERED: JANUARY 29, 2010; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2008-CA-002090-MR
KENTUCKY ASSOCIATED GENERAL
CONTRACTORS SELF-INSURANCE
FUND; AND THIRD PARTY
ADMINISTRATOR, LADEGAST &
HEFFNER CLAIMS SERVICE, INC.
v.
APPELLANTS
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE THOMAS D. WINGATE, JUDGE
ACTION NO. 08-CI-00149
SHEILA C. LOWTHER, ADMINISTRATIVE
LAW JUDGE; DWIGHT T. LOVAN,
COMMISSIONER, DEPARTMENT OF
WORKERS' CLAIMS (PREVIOUSLY,
PHILIP A. HARMON, ACTING EXECUTIVE
DIRECTOR); AND DEPARTMENT OF
WORKERS' CLAIMS
OPINION
AFFIRMING
** ** ** ** **
APPELLEES
BEFORE: COMBS, CHIEF JUDGE; MOORE, JUDGE; LAMBERT,1 SENIOR
JUDGE.
LAMBERT, SENIOR JUDGE: Kentucky Associated General Contractors SelfInsurance Fund (KAGC) and Ladegast & Heffner Claims Service, Inc. (Ladegast)
seek review of a determination of the executive director of the Kentucky Office of
Workers’ Claims that a fine in the amount of $10,000 was appropriate for failure of
KAGC and Ladegast to pay a claim. We affirm the decision of the Franklin
Circuit Court upholding that penalty.
An employee of Back Construction Company sustained a workrelated injury to his lower back on May 3, 2004. Back Construction was insured
by KAGC. Ladegast administers claims for and on behalf of KAGC. The claim
was ultimately settled with the worker being entitled, inter alia, to payment of
covered medical expenses through April 12, 2008, pursuant to KRS 342.020. In
2006, the injured employee’s treating physician requested pre-authorization from
Ladegast for a procedure requiring a series of injections. Ladegast submitted this
request to utilization review by a physician other than the treating physician.
The utilization review physician determined that the injections were
not a reasonable and necessary treatment for the work related injury. A utilization
review notice of denial was issued and that denial was appealed. A second
utilization review physician also found that the injections were not reasonable and
1
Senior Judge Joseph E. Lambert sitting as Special Judge by assignment of the Chief Justice
pursuant to Section 110(5)(b) of the Kentucky Constitution and Kentucky Revised Statutes
(KRS) 21.580.
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necessary. A final utilization review decision was sent to both the employee and
his physician denying the pre-authorization request.
Medical services are subject to a utilization review upon a
preauthorization request. 803 Kentucky Administrative Regulations (KAR) 25:190
§ 5(1)(a). “[U]tilization review shall toll the thirty (30) day period for challenging
or paying medical expenses pursuant to KRS 342.020(1). The thirty (30) day
period shall commence on the date of the final utilization review decision.” 803
KAR 25:190 § 5(4). When an injured worker or a treating physician submits a
preauthorization request, the insurance carrier has 30 days to either pay or
challenge the request after the final utilization review decision. The only way to
challenge payment is through a reopening of the case. “[T]he proper procedure is
for the employer to file a motion to reopen and get the issue of reasonableness back
before the fact-finder.” R.J. Corman R.R. Const. v. Haddix, 864 S.W.2d 915, 918
(Ky. 1993).
Neither KAGC nor Ladegast filed a formal reopening with the Office
of Workers’ Compensation (OWC) after the final utilization review decision. The
record is not clear, but either the injured employee or the treating physician
contacted the OWC regarding the denied claim. The OWC sent letters to KAGC
and Ladegast regarding the allegation that they had committed unfair claims
practices by failing to promptly pay a claim.
A hearing was held before the OWC executive director and by Order
entered March 20, 2007, KAGC and Ladegast were found to have failed to
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promptly rectify and pay a valid workers’ compensation claim and to have failed in
good faith to promptly pay a claim where liability was clear. Upon those findings,
a fine of $10,000.00 was imposed. KAGC contested those findings before then
Chief Administrative Law Judge Sheila C. Lowther. Judge Lowther upheld the
penalty and dismissed KAGC’s appeal. KAGC appealed to the Franklin Circuit
Court.
The Franklin Circuit Court, sitting as a court of appellate review,
concluded that:
[T]he office of Workers’ Claims and Defendant ALJ
Lowther correctly relied upon established Kentucky law
when she determined that the KAGC and Ladegast &
Heffner violated the provisions of KRS 342.267 and
applicable regulations. Simply stated, when a request for
pre-authorization is received, it is submitted to utilization
review. If the final utilization review decision supports
the request, then payment to the provider is to be assured
within thirty (30) days of the final UR decision.
Conversely, if the final utilization review decision does
not support assurance of payment for the treatment or
services for which preauthorization is sought, then a
dispute has risen and the matter must be resolved by way
of filing a medical fee dispute that is initiated by the
insurance carrier[.]
KAGC insists that the trial court erred in imposing a fine when there
is no specific language in the statute that requires a carrier to file a motion to
reopen in post-settlement or post-award claims when pre-authorization has been
denied by utilization review, absent receipt of a statement of services rendered.
While the statute may not expressly assign the burden of reopening to
the insurance carrier, Kentucky decisions are clear that when a dispute arises an
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ALJ and not a utilization review physician or insurance carrier is to make the
determination. KRS 342.325. KAGC’s argument would put the entire decision of
whether medical treatment is appropriate in the hands of Utilization Review. It is
clear from the statutory scheme that when a final utilization review decision
reveals a dispute, the payment obligor “shall have thirty (30) days” to file a Form
112 medical dispute. This is true whether services have been rendered and a bill
sent, or whether pre-authorization has been denied. KAGC did not seek reopening
of the claim and it was therefore in violation of its duty under the workers’
compensation laws to promptly pay or contest a claim.
The OWC executive director may promulgate administrative
regulations determining the “procedures by which disputes relative to the
necessity, effectiveness, frequency, and cost of services may be resolved.” KRS
342.020(1). In this case, when the final utilization review resulted in a denial of
the claim, the regulations clearly placed the burden on KAGC to seek reopening.
This court will not substitute its judgment as to the interpretation of an agency’s
regulations as long as they are “compatible and consistent with the statute under
which [they were] promulgated and [are] not otherwise defective[.]” Hughes v.
Kentucky Horse Racing Authority, 179 S.W.3d 865, 872 (Ky. App. 2004).
The executive director found that KAGC failed to “attempt in good
faith to promptly pay a claim in which liability is clear[.]” 803 KAR 25:240 §
6(1). Additionally, the executive director found KAGC failed to meet the
appropriate time limits imposed by KRS Chapter 342. Upon those determinations,
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the OWC is authorized to impose a fine upon the insurance carrier of between
$1,000 and $5,000 for each violation. Here, the fine was $10,000 for two
violations. The fine imposed was not arbitrary or lacking in sound legal authority.
Accordingly, the judgment of the Franklin Circuit Court is affirmed.
COMBS, CHIEF JUDGE, CONCURS.
MOORE, JUDGE, DISSENTS AND FILES SEPARATE OPINION.
MOORE, JUDGE, DISSENTING: The question squarely presented
in this case is: Can an employer or carrier be sanctioned for bad faith if it fails to
contest the reasonableness and necessity of an employee’s proposed medical
treatment before an administrative law judge (i.e., fails to reopen an employee’s
award of benefits) within 30 days of denying preauthorization of said treatment
through utilization review? The majority answers with an affirmative. I
respectfully disagree.
In the context of workers’ compensation, an employer, carrier, or
employee may file a Form 112, reopen an award of benefits, and contest a medical
fee before an administrative law judge. See 803 Kentucky Administrative
Regulation (KAR) 25:012 § 1(1) and (2). See also, Bartee v. University Medical
Center, 244 S.W.3d 91, 95 (Ky. 2008) (stating that nothing prevents an employee
from preserving her rights by filing a prospective motion, supported with a report
from her treating physician, in which she seeks to compel the employer to
authorize surgery through a medical fee dispute). As a caveat to the issue of
reopening an award of benefits for the purpose of a medical fee dispute, however,
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it is recognized that a carrier “shall attempt in good faith to promptly pay a claim
in which liability is clear[,]” and that a carrier may be sanctioned if it compels an
employee to institute formal proceedings with the Office of Workers’ Claims to
recover benefits where liability is clear. See 803 KAR 25:240 § 6(1) and (3). In
addition, if an employer or carrier receives a bill for medical services rendered to
the employee and does not act to contest the bill for a period exceeding thirty days,
the employer is estopped from contesting it thereafter. See Phillip Morris, Inc. v.
Poynter, 786 S.W.2d 124, 125 (Ky. App. 1990); see also, Kentucky Revised
Statute (KRS) 342.020(1). In my opinion, sanctions were inappropriate here
because the facts of this case do not lend themselves to either of these caveats.
The employer’s liability is not clear in this instance, as is required
under 803 KAR 25:240 § 6(1) and (3). The subject of this case is a medical fee
dispute, and the rule applicable to medical fee disputes is that an employer is
clearly liable for medical expenses if these expenses arise from “reasonable and
necessary medical treatment ‘for the cure and relief from the effects of an injury.’”
Kentucky Employers Safety Ass’n v. Lexington Diagnostic Center, 291 S.W.3d
683, 685 (Ky. 2009) (quoting FEI Installation, Inc. v. Williams, 243 S.W.3d 313
(Ky. 2007)). See also, KRS 342.020(1). Appellees argue that KAGC was properly
sanctioned because it was clearly liable to pay for the treatment (i.e., the series of
injections) for which Wallace sought preauthorization. However, Wallace does not
explain how these injections were either reasonable or necessary treatment, and it
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defies logic to state such a conclusion prior to any ruling of an administrative law
judge on this issue.
Second, our holding in Phillip Morris, supra, is inapplicable to the
facts of this case. There, we interpreted the plain language of KRS 342.020(1) to
mean exactly what it says: that an employer must contest, within thirty days of
receipt, a bill for services rendered. We also held that an employer’s failure to do
so estopped it from contesting it thereafter. The obvious difference between this
case and Phillip Morris is that this case involves neither a bill nor services
rendered. Rather, it involves preauthorization for prospective, unperformed
treatment; issue is taken with the fact that, after denying Wallace’s claim through
its utilization review process, KAGC failed to follow up its denial with a medical
fee dispute within 30 days.
Appellees ask this Court to look beyond the plain language of KRS
324.020(1) and the holding in Phillip Morris, supra. Laid bare, the support for this
view is as follows: first, an employer is liable for the payment of all services that
are reasonable and necessary for the treatment and relief of an employee’s workrelated injury. Second, the term “preauthorization” is defined in the administrative
regulations. Third, preauthorization is subject to utilization review and 803 KAR
25:190 § 5(4) tolls, during utilization review, KRS 342.020(1)’s thirty-day period
for challenging or paying medical expenses. Fourth, when filing a medical fee
dispute, 803 KAR 25:012 § 1(6) requires the party filing the medical fee dispute to
include a motion to reopen with their Form 112. Finally, 803 KAR 24:240 § 5(4)
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mandates that “[a] carrier shall meet the time constraints for accepting and paying
workers' compensation claims established in KRS Chapter 342 and applicable
administrative regulations.”
With regard to the first point, while an employer is liable to pay for
fees related to reasonable and necessary treatment and relief of a work-related
injury per KRS 342.020(1), nothing in KRS 342 or any regulation promulgated
under it mandates that the onus to file a medical fee dispute falls upon an
employer; to the contrary, 803 KAR 25:012 § 1(2) states that an employee may
also file a medical fee dispute, and KRS 342.020 only provides that an employer is
estopped from filing a medical fee dispute if it fails to contest a bill for services
rendered within 30 days of receipt. This time limit has no application here, and
there is no basis for estoppel because treatment was not rendered.
With regard to the second point, the fact that preauthorization is
defined in the regulations is irrelevant.
With regard to the third point, 803 KAR 25:190 § 5(4) does toll,
during utilization review, KRS 342.020(1)’s thirty-day period for challenging or
paying bills. However, this fact is similarly irrelevant. 803 KAR 25:190 specifies
two forms of utilization review: preauthorization (i.e., utilization review conducted
prior to treatment being rendered and a bill submitted, per 803 KAR 25:190 §
5(2)(a)) and retrospective (i.e., utilization review conducted after treatment is
rendered and a bill is received, per 803 KAR 25:190 § 5(2)(b)). 803 KAR 25:190
§ 5(4) acknowledges by its own terms that the thirty-day period mandated by KRS
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342.020(1), which it purports to toll, applies to the circumstance of challenging or
paying medical expenses. Furthermore, the plain language of KRS 342.020(1)
states that those expenses must relate to services already rendered. As this case
regards preauthorization utilization review, rather than retrospective utilization
review, 803 KAR 25:190 § 5(4) is inapplicable because no expenses exist for
services rendered, and no basis exists for holding KACG to any thirty-day
limitation.
The fourth point, that a motion to reopen should accompany a Form
112 in order to initiate a medical fee dispute, is similarly irrelevant to the issues of
who has the duty to initiate a medical fee dispute, or when such a dispute must be
initiated.
With regard to the final point, 803 KAR 25:240 § 5(4) is similarly
inapplicable. This regulation mandates that “[a] carrier shall meet the time
constraints for accepting and paying workers' compensation claims established in
KRS Chapter 342 and applicable administrative regulations.” But, no time
constraint exists for an employer or carrier to initiate a medical fee dispute in the
event it denies preauthorization through utilization review.
To conclude, the General Assembly has left the language of KRS
342.020(1) at issue in this case intact. The words used in this statute create a duty
of an employer to contest a bill for services rendered, not a request for
preauthorization, within thirty days of its receipt. “Where a statute is intelligible
on its face, the courts are not at liberty to supply words or insert something or
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make additions which amount, as sometimes stated, to providing for a casus
omissus, or cure an omission.” Commonwealth v. Harrelson, 14 S.W.3d 541, 546
(Ky. 2000). Under that elementary rule of construction, we simply are not at
liberty to add language to cure a perceived omission. For these reasons, I
respectfully dissent.
BRIEF FOR APPELLANTS:
BRIEF FOR APPELLEES:
Douglas A. U’Sellis
Louisville, Kentucky
B. Dale Hamblin, Jr.
Frankfort, Kentucky
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