Can a Kentucky workers' compensation insurer pay a mail-order pharmacy the discounted rate it negotiated with other pharmacies?

Plain-English summary

Kentucky's Attorney General concluded that the workers' compensation statute's employee choice of a “medical provider” did not include a pharmacy. The choice provisions of KRS 342.020 concerned providers who treated an injury or occupational disease, and the AG read them in light of the statute's focus on a treating physician. On that reading, an employer or insurer could agree with a pharmacy to reimburse prescriptions below the regulatory fee schedule without infringing the worker's choice of physician.

That agreement had a firm limit: it bound only pharmacies that were parties to it. An employer or carrier could not apply the local pharmacies' negotiated rate to a separate mail-order pharmacy that had not agreed to it. The AG noted that the employer could still dispute the reasonableness of pharmaceutical charges through the process identified in KRS 342.735(3). It did not decide that a physician had authority to require use of a particular pharmacy; the opinion said it was unaware of such authority.

Currency note

This opinion was issued in 2009. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Did an injured worker's right to choose a doctor also give a right to choose a pharmacy under KRS 342.020?
A: The AG said no. For the statute's provider-choice provisions, it read “medical provider” as excluding pharmacies.

Q: Could an insurer and a pharmacy agree to a payment below the workers' compensation fee schedule?
A: Yes. The opinion read Section 3(4) of 803 KAR 25:092 as allowing an insurer or self-insured employer to make such an agreement with a pharmacy.

Q: Could the insurer pay that discounted rate to a mail-order pharmacy that never signed the agreement?
A: No. The AG said an agreement with one pharmacy could not require a different pharmacy to accept less than the fee schedule.

Q: Did a discounted pharmacy agreement interfere with the worker's choice of treating physician?
A: The AG said no, because the statute's physician-choice protection did not make pharmacies “medical providers” for that purpose. It also said a doctor's preference for a particular pharmacy did not change the worker's right to choose that doctor.

Q: Did the employer have to accept every charge from a pharmacy outside its agreement?
A: The opinion said the employer retained the right under KRS 342.735(3) to dispute the reasonableness of pharmaceutical charges through appropriate channels. It did not set a different discount rate for that pharmacy.

Background and statutory framework

Senator Tom Jensen described a self-insured employer or carrier that had arranged discounted reimbursements with pharmacies near injured employees. A physician directed an employee to a mail-order pharmacy that charged the full schedule amount, and the carrier paid it at the lower local rate. The opinion separated two questions raised by that dispute: who counted as a provider for employee choice, and who was bound by the reimbursement agreement.

KRS 342.020 allowed an employee to select medical providers under the circumstances described in the statute. The AG read its treatment-focused language and its reference to a single treating physician as excluding pharmacies from that choice provision. Section 3(4) of 803 KAR 25:092 expressly permitted reimbursement agreements below the schedule. Nothing in that regulation made a nonparty pharmacy subject to another pharmacy's bargain.

Citations and references

• KRS 342.020: employee choice of treating providers and the opinion's key interpretive question.
• 803 KAR 25:092, Section 3(4): agreements for pharmacy payment below the schedule.
• KRS 342.735(3): employer's ability to dispute the reasonableness of pharmaceutical charges.

Source

• Landing page: https://kdla.access.preservica.com/uncategorized/IO_54c38536-b57e-4044-9556-97191b846beb/
• Original PDF: https://kdla.access.preservica.com/download/file/IO_54c38536-b57e-4044-9556-97191b846beb

Original opinion text

OAG 09-011
December 18, 2009
Subject:

Effect of “provider choice” provisions of KRS 342.020
upon agreements for reduced reimbursements to
pharmacies for dispensing workers’ compensation
prescriptions under 803 KAR 25:092, Section 3(4)

Requested by:

Senator Tom Jensen
21st Senate District

Written by:

James M. Herrick
Assistant Attorney General

Syllabus:

“Medical provider” under KRS 342.020 does not include a pharmacy for purposes of employee choice, so that the right to select medical providers does not limit an employer’s or insurer’s ability to make agreements with pharmacies for reimbursement below the fee schedule; such agreements, however, can only bind pharmacies that are parties thereto.

Statute construed:
OAG cited:

KRS 342.020

OAG 93-36

Opinion of the Attorney General
This office has been asked to render an opinion concerning prescription reimbursements for workers’ compensation claims. KRS 342.035(1) requires the Commissioner of the Department of Workers’ Claims to “adopt a schedule of fees for the purpose of ensuring that all

OAG 09-011
Page 2

fees, charges, and reimbursements under KRS 342.020 and this section shall be fair, current, and reasonable and shall be limited to such charges as are fair, current, and reasonable for similar treatment of injured persons in the same community for like services, where treatment is paid for by general health insurers.” Pursuant to that statute, the Department has promulgated 803 KAR 25:092, which establishes the workers’ compensation pharmacy fee schedule. Section 2 of 803 KAR 25:092, in essence, requires the employer (or insurance carrier) to reimburse a pharmacist for the wholesale price of a drug plus a five-dollar dispensing fee, “plus any applicable federal or state tax or assessment.” Section 4 prohibits “balance billing” by the pharmacy to recover any greater amount from the workers’ compensation patient. At issue presently is Section 3(4) of the regulation, which provides: Any insurance carrier, self-insured employer or group selfinsured employer may enter into an agreement with any pharmacy to provide reimbursement at a lower amount than that required in this administrative regulation. Also of concern is KRS 342.020(1), which provides in part: 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. Subsection (4)(b) of that same section similarly provides that where the employer has designated a managed health care system, “[t]he employee shall be allowed choice of provider within the plan.” Senator Tom Jensen has requested an opinion from the Attorney General concerning the following situation:

OAG 09-011
Page 3

Presently, a self-insured employer and/or an insurance carrier have made arrangements with pharmacies in and around the area in which the injured employee resides. They include the Walgreens, Rite-Aid[s], CVS, Kroger, etc., as well as the “Mom and Pop locally owned pharmacies.” The arrangement allows the employer and/or carrier to provide the prescribed medication of the physician for treatment due to the injury, at below the present pharmacy’s fee schedule promulgated by the Commissioner. A dispute has arisen because some physicians, who treat the employee, requir[e] the employee to receive his medications from a mail-order prescription pharmacy such as IWP, based in Boston, Massachusetts. The mail-order center then charges the employer/carrier the full fee schedule price, which is generally 25% greater, for the same drug than what the employer/carrier would pay through its arrangement with all other pharmacies in the area in which the employee resides. The employer/carrier then reimburses the mail-order center at the below fee schedule rate according to the arrangement it had with all other pharmacies. The mail-order center takes the position that they are owed the full fee schedule price and that to reduce the price would infringe upon the employee’s right to choose its medical service provider. Senator Jensen presents the following three questions:

1. [W]hether or not a pharmacy is considered a medical
   service provider for purposes of “choice” under KRS
   342.020, in light of [803 KAR 25:092, Section 3(4)].
   2.
   [D]oes an arrangement made between the
   employer/carrier and a pharmacy, at below fee schedule
   prices infringe upon the employee’s right to choose a

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physician for treatment, assuming the employee is not inconvenienced in obtaining his medications on a timely basis? 3.
[U]nder an arrangement made between the
employer/carrier at less than fee schedule, with the employee’s local pharmacy, can the employer/carrier reimburse a mail-order pharmacy charging fee schedule, at the discounted rate that it would pay the local pharmacy under the arrangement made between the employer/carrier and the local pharmacy? Having found no published cases or previous opinions on this subject, we approach these questions as a matter of first impression. “Medical provider” is not defined in KRS Chapter 342. Although there is a definition of “medical services” in KRS 342.0011(15) that includes “medical, surgical, dental, hospital, nursing, and medical rehabilitation services, medicines, and fittings for artificial or prosthetic devices” (emphasis added), this is not dispositive of whether a pharmacy is a “medical provider” for purposes of this chapter. KRS 342.020 as a whole is addressed to many aspects of medical care and reimbursement. The numerous references it contains to “medical services” and “provider[s] of medical services” do not appear in the context of provider choice; rather, in that context, the reference is to “medical providers” or simply to a “provider.” Accordingly, we believe there is no controlling statutory definition.1 “It is a primary rule of statutory construction that no single word or sentence determines the meaning of a statute. Rather, the statute as a whole must be considered.” Lexington Fayette County Food and Beverage Ass’n v. Lexington-Fayette Urban County Gov’t, 131 S.W.3d 745, 750 (Ky. 2004). Our reading of the “provider choice” provisions of 1

Moreover, it is evident that while a pharmacy “provides” medicines in the sense of

dispensing them, only a practitioner authorized under KRS 217.015(35) can ultimately “provide” them by writing any necessary prescriptions. OAG 93-36.

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KRS 342.020, in context of the whole statute, indicates that pharmacies are not contemplated as being “medical providers” for this purpose. The first sentence quoted above from subsection (1) refers to “medical providers” as those who “treat his injury or occupational disease,” and the second sentence appears to use “physician” as an equivalent term. It is not common to speak of a pharmacy as “treating” an injury or disease, whereas this is commonly said of a physician. Furthermore, in subsection (4)(b), the statute refers to “choice of provider” in the singular, which harmonizes with the following subsection (5): Except for emergency medical care, medical services rendered pursuant to this chapter shall be under the supervision of a single treating physician or physicians’ group having the authority to make referrals, as reasonably necessary, to appropriate facilities and specialists. The employee may change his designated physician one (1) time and thereafter shall show reasonable cause in order to change physicians. Therefore, whatever else may be included in the meaning of “medical provider” for purposes of employee choice under KRS 342.020, it does not, in our opinion, include a pharmacy. With regard to the second question posed by Senator Jensen, an arrangement between an employer or insurer and a pharmacy pursuant to Section 3(4) of 803 KAR 25:092 would not infringe upon the employee’s right to choose a treating physician. This is simply because of our conclusion above that pharmacies are not to be considered as “medical providers” under KRS 342.020. The fact that a physician may prefer to send patients to a particular pharmacy does not affect an employee’s right to choose that physician. We are unaware by what authority physicians can strictly “require” workers’ compensation patients to use a specific pharmacy, nor is it immediately apparent why any physician would be motivated to do so. KRS 342.020(9) requires medical providers to disclose any investment interest they may have in an entity to which they make referrals.

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As to the third question presented, an employer or insurer cannot
require a pharmacy that is not a party to its agreement under 803 KAR
25:092, Section 3(4), to accept reimbursement at a rate below the fee
schedule. If that were so, then an agreement made with any pharmacy
would have a binding effect on all other pharmacies regardless of their
agreement, which is not even implied by the language of the regulation (and could potentially have both constitutional and antitrust ramifications). Regarding the situation in which an employee’s treating physician attempts to require the use of a particular pharmacy not covered by an agreement, we note that the “provider choice” provisions of KRS 342.020, as construed herein, do not diminish the employer’s right under KRS 342.735(3) to dispute the reasonableness of those pharmaceutical charges through appropriate channels.

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CONCLUSION
“Medical provider” under KRS 342.020 does not include a pharmacy for purposes of employee choice, so that the right to select medical providers does not limit an employer’s or insurer’s ability to make agreements with pharmacies for reimbursement below the fee schedule; such agreements, however, can only bind pharmacies that are parties thereto. Jack Conway Attorney General

James M. Herrick
Assistant Attorney General