Kansas Court Strikes Words “Accidentally” Introduced into Medical Fee Schedule

Saves Hospital $600,000 in Lost Reimbursement

Stressing that a rule or regulation adopted by an administrative agency can only be given binding legal effect if the agency complies with the full requirements of the state’s Rules and Regulations Filing Act [See Kan. Stat. Ann. § 77-415], the Court of Appeals of Kansas recently held that a three-word modification in language introduced into the 2011 version of the Kansas Workers’ Compensation Schedule of Medical Fees could not be enforced [see Via Christi Hosps. Wichita, Inc. v. Kan-Pak LLC, 2017 Kan. App. LEXIS 67 (Aug. 25, 2017)]. Utilizing the schedule, with the three-word modification from the 2010 version, a hearing officer awarded a hospital reimbursement in the amount of $136,451.60 for its services to a severely burned workers’ compensation claimant. Had the three words not been introduced into the 2011 schedule, the hospital would have entitled to an additional $600,000. The hearing officer and the state’s Workers’ Compensation Appeals Board ruled that the schedule had to be enforced as written. The Appellate Court detailed the proper procedure to be followed in making regulatory changes and noted that none of the required safeguards had been utilized in adding the suspect language. The Court concluded that since the appropriate procedure had not been followed, the 2011 schedule should be read as if the changes in wording had never occurred.

Background

In 2011, a Kansas worker received horrible burns within the course and scope of the employment. The treating hospital billed the insurance carrier more than one million dollars for the associated medical costs. Prior to the injuries, in 2010, the state’s Department of Labor introduced an independent methodology called the “stop-loss method” to reimburse hospitals for “unusually costly services rendered during treatment to an injured worker.” The stop-loss method generally provided that if the total charges of an inpatient hospital stay equaled or exceeded $60,000, the total charges were multiplied by 70 percent to determine the allowed reimbursement. If charges did not reach the $60,000 stop-loss threshold, hospitals were reimbursed using the traditional Medicare Severity-Diagnosis Related Group (MS-DRG) method.

Mysterious Change in Language

The stop-loss methodology was again included in the 2011 fee schedule. Somehow—those in charge could not explain exactly how or why—the wording in the published 2011 fee schedule was slightly modified by this statement: “If the MS-DRG level of reimbursement exceeds the $60,000 stop-loss threshold, the facility shall be paid billed charges multiplied by seventy percent (70%) or the MS-DRG level whichever is least; all other rules apply to making this determination” (Emphasis added).

Following a hearing, the hearing officer concluded that the addition of the “whichever is least” provision in the 2011 fee schedule was unknowing, inadvertent, and unintentional. The officer found, however, that he lacked authority to rule an administrative regulation void. The Appeals Board agreed, adding that it had no such authority either.

Fee Schedule Must Satisfy Statutory Directives

The Court noted that since 1990, the Kansas Legislature had required the director of the Division of Workers Compensation to adopt rules and regulations which establish a schedule of maximum fees for medical, surgical, hospital, dental, nursing, vocational rehabilitation, or any other treatment or services provided to employees under the Workers Compensation Act. The fee schedule must satisfy certain statutory directives of reasonableness and scope. The court described in great detail the procedural safeguards to determine if indeed the schedule was reasonable and observed that such a procedure had not been followed. The insertion of the three words had been accidental. The Court added that the “enforcement of an accidentally created rule is the very picture of an arbitrary or capricious action ….” The Board’s ruling enforcing the rule was accordingly reversed.