KENTUCKY ASSOCIATED GENERAL CONTRACTORS SELF-INSURANCE FUND V. LAW JUDGE; ET AL.
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RENDERED : DECEMBER 16, 2010
TO BE PUBLISHED
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2010-SC-000114-DG
KENTUCKY ASSOCIATED GENERAL
CONTRACTORS SELF-INSURANCE FUND
APPELLANT
ON REVIEW FROM COURT OF APPEALS
CASE NO. 2008-CA-002090-MR
FRANKLIN CIRCUIT COURT NO. 08-CI-00149
SHEILA LOWTHER,
ADMINISTRATIVE LAW JUDGE;
DWIGHT T. LOVAN, COMMISSIONER,
DEPARTMENT OF WORKERS' CLAIMS
(PREVIOUSLY, PHILIP A. HARMON,
ACTING EXECUTIVE DIRECTOR); AND
DEPARTMENT OF WORKERS' CLAIMS
APPELLEES
OPINION OF THE COURT
AFFIRMING
A divided Court of Appeals affirmed the Franklin Circuit Court, which
affirmed an Administrative Law Judge's decision to uphold a $10,000.00 fine
imposed on the employer's insurance carrier, Kentucky Associated General
Contractors Self-Insurance Fund (KAGC), and the carrier's third-party
administrator, Ladegast and Heffner Claims Service, Inc. (Ladegast) . The fine
was based on two unfair claims settlement practices, the employer's failure to
meet the time constraints for paying claims and its failure to pay a claim in
which liability was clear.'
The issue central to the appeal is whether the injured worker or the
employer bears the burden of filing a medical dispute and moving to reopen a
workers' compensation award when pre-authorization for medical treatment is
denied upon utilization review. The Court of Appeals majority held that the
employer bears the burden. We agree .
This dispute results from a work-related low back injury sustained on
May 3, 2004 by Mr. Marshall Wallace, an employee of Back Construction
Company. KAGC insured Back Construction Company's workers'
compensation liability. Wallace and his employer entered an agreement to
settle his claim. The agreement entitled him to the continued payment of
medical expenses as a result of the injury through April 12, 2008 .
In 2006 Wallace's treating physician requested pre-authorization from
Ladegast to perform a series of injections. Ladegast submitted the request for
utilization review as required by 803 KAR 25 :190, § 5(1)(a) The reviewer
.
recommended that the request be denied, after which Ladegast issued a notice
of denial. Wallace appealed and a second reviewer also concluded that the
recommended injections were not reasonable and necessary treatment of the
injury. Ladegast then issued Wallace and his treating physician a written final
decision denying pre-authorization .
1
KRS 342.267 ; 803 KAR 25:240, §§ 5(4) and 6(1) .
The employer failed to file a medical dispute or motion to reopen
Wallace's claim in order to contest the compensability of the proposed
treatment. Wallace likewise failed to do so in order to obtain an order
compelling the employer to pre-authorize the treatment. Instead, he or his
treating physician contacted the Office of Workers' Claims (OWC) to complain .
KAGC and Ladegast received an opportunity to respond to the allegation that
they had committed unfair claims settlement practices, which they did.
The OWC's Executive Director determined after a hearing that KAGC and
Ladegast committed unfair claims settlement practices by failing "to meet the
time constraints for rectifying and paying workers' compensation claims
established in KRS 342 and applicable administrative regulations" 2 and by
failing to "attempt in good faith to promptly pay a claim in which liability is
clear."3 The Executive Director based the decision on the Workers'
Compensation Board's longstanding interpretation of the applicable regulations
as equating a final utilization review decision to grant or deny preauthorization with a "statement for services" that an employer must contest
within 30 days or pay.
The Franklin Circuit Court affirmed, having determined that an
insurance carrier and/or its third-party administrator must file a medical
dispute and motion to reopen when a final utilization review decision fails to
2 803 KAR 25:240, 3 5(4) .
3 803 KAR 25:240, § 6(1) .
support the assurance of payment for the treatment or services for which preauthorization was sought . A Court of Appeals majority agreed and affirmed .
KAGC and Ladegast continue to assert that the Executive Director erred
by imposing a fine . They argue that neither KRS 342 .020 nor any regulation
states that a carrier must file a medical dispute or motion to reopen based on
receipt of a final utilization review decision concerning a pre-authorization
request. They also argue that the regulations define a "statement for services"
as being a bill for services rendered, which differs from a final decision
concerning .a request to pre-authorize a proposed treatment. They conclude
that they satisfied all of their obligations under KRS 342.020 and the
applicable regulations when their agent issued the written final utilization
review decision . We disagree .
I. KRS 342.020 AND THE APPLICABLE REGULATIONS .
KRS 342 .020(1) entitles an injured worker to reasonable and necessary
medical treatment for a work-related injury and requires a medical provider to
submit a "statement for services" within 45 days after initiating treatment as
well as every 45 days thereafter. The statute requires the worker's employer to
pay the provider directly within 30 days of receiving a "statement for services"
but directs the commissioner (formerly the executive director) to establish
conditions for tolling the 30-day period. Finally, it authorizes the
commissioner to adopt administrative regulations establishing the form and
content of a statement for services as well as procedures for resolving disputes
over the "necessity, effectiveness, frequency, and cost" of medical services.
Although KRS 342.010(1) gives an injured worker great latitude in
selecting a treating physician and course of treatment, the worker's freedom is
not unfettered . KRS 342 .020(3) and (4) permit employers to provide medical
services through managed care systems, subject to specified requirements
among which are an informal method of resolving disputes concerning the
rendition of services4 and a provision for obtaining a second opinion at the
employer's expense . 5 Another requirement is a provision for utilization review
to assure among other things that the course of treatment is reasonably
necessary, appropriate, and cost-effective . 6 KRS 342 .020(7) (formerly KRS
342 .020(3)) states clearly that employers are not required to pay for medical
treatment that fails to provide "reasonable benefit" to the worker.?
The courts have construed KRS 342.020(1) as placing on an injured
worker's employer the burden to contest a post-award medical bill within 30
days or. to pay it. 8 At issue presently is whether a final utilization review
decision refusing to pre-authorize medical treatment is equivalent to a
"statement for services" to which the 30-day requirement pertains.
4 KRS 342 .024(4)(c) .
5 KRS 342 .020(4)(d) .
6 KRS 342 .020(4)(P .
7 See Square D Co. v. Tiptoe, 862 S.W.2d 308 (Ky. 1993) .
8
Westvaco Corporation v. Fondaw, 698 S .W.2d 837 (Ky. 1985) .
803 KAR 25:096, § 8(1) requires a "medical payment obligor" to "tender
payment" or file a medical dispute and motion to reopen within 30 days of
receiving "a completed statement for services." 803 KAR 25 :096, § 1(5) defines
a "statement for services" as follows:
(a) For a nonpharaceutical bill, a completed Form
HCFA 1500, or for a hospital, a completed Form UB92, with an attached copy of legible treatment notes,
hospital admission and discharge summary, or other
supporting documentation for the billed medical
treatment, procedure, or hospitalization; and
(b) For a pharmaceutical bill, a bill containing the
identity of the prescribed medication, the number of
units prescribed, the date of the prescription, and the
name of the prescribing physician.
Pre-authorization is a process by which a carrier assures a provider that
it will pay the bill for a proposed medical service or course of treatment. 9 The
regulations require a provider's pre-authorization request to be submitted to
another medical expert for utilization review, 10 i.e., "a review of the medical
necessity, and appropriateness of medical. care and services for purposes of
recommending payments for a compensable injury or disease ."" Whether
conducted before or after the treatment is provided, 1 2 the purpose of utilization
review is to provide the parties with an independent medical opinion
concerning the compensability of medical treatment in order to help them
9 803 KAR 25:190, § 1(5).
10 803 KAR 25:190, § 5(1)(a).
11 803 KAR 25:190, § 1(6) .
12 See 803 KAR 25:190, §§ 5(2)(a) and (b) .
resolve disputes without resorting to litigation . 13 Initiation of the process tolls
the 30-day period for challenging or paying medical expenses until the date of
the final utilization review decision. 14
KRS 342 .325 vests A1 Js with jurisdiction over all questions arising
under Chapter 342, including medical disputes . 803 KAR 25:012 sets forth the
procedure for resolving such disputes. It provides that an "employee,
employer, carrier or medical provider" 15 may file a Form 112 to contest the
reasonableness and necessity of "a medical expense, treatment, procedure,
statement, or service which has been rendered or will be rendered." 16 In cases
involving a post-award medical dispute, the regulation requires a motion to
reopen and medical dispute to be filed within 30 days of receipt of "a complete
statement for services" unless utilization review has been initiated. 17 If a
contested expense is subject to utilization review, such as in the case of a preauthorization request, the regulation prohibits a medical dispute from being
filed before the process is exhausted 18 but gives the "[t]he employer or its
medical payment obligor" 30 days after the final utilization review decision in
which to file a medical dispute. 19
13
14
15
16
See E-Town Quarry v. Goodman, 12 S.W.3d 708 (Ky. App. 2000) .
803 KAR 25:190, § 5(4) .
803 KAR 25 :012, § 1(2) .
803 KAR 25 :012, § 1(1) .
803 KAR 25 :012, § 1(6) (a) .
.18 803 KAR 25:012, § 1(8) .
19 Id.
17
II. CONCLUSIONS.
Neither KRS 342 .020 nor the regulations states explicitly that an
employer must file a medical dispute and motion to reopen within 30 days of
receiving a final utilization review decision denying pre-authorization or pay for
the medical treatment to which it pertains . We note, however, that the Board
has interpreted the regulations since 2001 as equating a final utilization review
decision to grant or deny pre-authorization with a "statement for services" that
an employer must contest within 30 days or pay. 2o We find no error in the
Board's interpretation, having concluded that it is consistent with the
authorizing statute as well as the regulatory language and being mindful of the
principle that the courts give great deference to an administrative agency's
reasonable interpretation of its own regulations .21
KRS 342.020(1) authorizes the OWC to establish procedures for resolving
disputes over the "necessity, effectiveness, frequency, and cost" of medical
services. Pre-authorization and utilization review are two of the procedures the
OWC adopted to accomplish that purpose . The term "statement for services"
and the regulatory definition of the term may be construed as referring to a bill
for services rendered previously, but that is not the only reasonable
interpretation . We agree with the Board that the term also encompasses a final
decision to grant or deny pre-authorization . We reach that conclusion because
20
21
See Garrett Mining #2 v. Ronald Miller, Claim No . 97-78726, entered by the Workers'
Compensation Board on August 29, 2001 .
J.B. Blanton v. Lowe, 415 S.W.2d 376 (Ky. 1967) ; Hughes v. Kentucky Horse Racing
Authority, 179 S.W.3d 872 (Ky. App. 2004).
the very purpose of conducting utilization review of a pre-authorization request
is to help the employer decide whether to agree or refuse to agree to pay the bill
for services rendered in providing the proposed medical treatment.22
We find further support in 803 KAR 25:012, § 1(8) for our conclusion
that the employer has the burden to initiate a formal medical dispute following
a final utilization review decision denying pre-authorization . 803 KAR. 25 :012,
§ 1(8) is explicit in giving "[t]he employer or its payment obligor" 30 days after a
final utilization review decision .in which to file a medical dispute . The
provision does not mention the injured worker or limit itself to retrospective
utilization review . Although 803 KAR 25:012, § 1(2) permits an injured worker
to file a medical dispute in order to obtain a decision on the compensability of a
proposed medical treatment when a recalcitrant employer fails to do so, that
fact does not absolve the employer of its burden to initiate the formal dispute.
We find no error in the decision to impose a fine for unfair claims
settlement practices in the present circumstances. This is not a case in which
the employer, its carrier, or its third-party administrator had no notice of the
Board's position with respect to their obligations following a decision to deny
pre-authorization . The Board determined in 2001 that KRS 342 .020 and the
regulations require an employer, to file a medical dispute and motion to reopen
within 30 days of receiving a final utilization review decision denying preauthorization or to pay for the proposed procedure . The appellants' failure to
22
See 803 KAR 25:190, § 1(6) .
comply with the statute and regulations supports the finding that they
committed unfair claims settlement practices as well as the resulting fine.
The decision of the Court of Appeals is affirmed.
All sitting. All concur.
COUNSEL FOR APPELLANT,
KENTUCKY ASSOCIATED GENERAL
CONTRACTORS SELF-INSURANCE FUND:
Douglas Anthony U'Sellis
Richard Edwin Neal
U'Sellis & Kitchen, PSC
600 East Main Street
Suite 100
Louisville, KY 40202
COUNSEL FOR APPELLEES,
SHEILA LOWTHER,
ADMINISTRATIVE LAW JUDGE;
DWIGHT T. LOVAN, COMMISSIONER,
DEPARTMENT OF WORKERS' CLAIMS
(PREVIOUSLY, PHILIP A. HARMON,
ACTING EXECUTIVE DIRECTOR); AND
DEPARTMENT OF WORKERS' CLAIMS:
Bradley Dale Hamblin, Jr .
Sheila Carroll Lowther
Dwight Taylor Lovan
Department of Workers' Claims
657 Chamberlin Avenue
Frankfort, KY 40601
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