IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Armour Pharmacy, :

Petitioner :

:

v. : No. 1613 C.D. 2017 : Argued: June 4, 2018 Bureau of Workers’ Compensation : Fee Review Hearing Office (National : Fire Insurance Company of Hartford), :

Respondent :

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge

HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE CHRISTINE FIZZANO CANNON, Judge

OPINION BY PRESIDENT JUDGE LEAVITT FILED: August 7 , 2018

Armour Pharmacy (Pharmacy) petitions for review of an adjudication of the Bureau of Workers’ Compensation

, Fee Review Hearing Office ( Hearing

Office ) that vacated a fee review determination by the Bureau’s Medical Fee Review

Section that Pharmacy was entitled to be paid $6,644.30 , p lus interest, for

medication it had dispensed to Mark Kraayenbrink (Claimant). The Hearing Office

did so because Claimant had released his employer from liability for this particular
treatment in a Compromise and Release (C&R) Agreement that was approved by a Workers’ Compensation Judge (WCJ). Notably, this C&R Agreement was executed

after the fee review determination was issue d and while the employer’s challenge

thereto was pending . Pharmacy argues that the C&R A greement cannot be used to

set aside a fee review determination ; rather, a fee review determination in favor of a
provider may be set aside only by following the fee review procedures set forth in the Workers’ Compensation Act 1 (Act). Pharmacy also argues that the C&R

1 Act of June 2, 1915, P.L. 736, as amended , 77 P.S. §§1

- 1041.4, 2501

- 2708.2

A greement , to which it wa s not a party, deprived it of its property right s in violation

of the Act and in violation of Pharmacy’s constitutional guarantee of due process of

law . We vacate and remand.
Background

In 1999, Claimant sustained a back injury while working for Cabinet

T ransport, Inc. (Employer) . In 2000, Claimant and Employer entered into a C&R Agreement that settled Claimant’s disability compensation but left Employer responsible for Claimant’s medical treatment. Since 2000, Employer has covered

Claimant’s medical tre atment. 2

In 2015, Employer requested a utilization review of a topical compound

cream prescribed by Jason Bundy, M.D. to treat Claimant’s work injury, i.e., neuropathy. This compounded cream consisted of “ketamine 10%, flurbiprofen
10%, gabapentin 10%, cyclobenzaprine 3%, bupivacaine 2% within a tran sdermal

base ” and was to be applied as needed. Utilization Review Determination at 5;
Reproduced Record at 7a (R.R. __). On September 9, 2015, the utilization review
organization deter mined that the compound cream prescribed by Dr. Bundy to

Claimant was reasonable and necessary to treat Claimant’s accepted work injury

. Employer did not appeal.

In early 2016, Dr. Bundy prescribed the identi cal compound cream to
Claimant. Pharmacy dispensed the cream and billed Employer on April 19

, 2 016,

but Employer refused to pay Pharmacy ’s invoice, “based on utilization review.”

R.R. 14a. Pharmacy filed a timely fee review application with supporting

document s . On July 25, 2016, the Medical F ee Review Section of the Bureau

2 The insurer responsible for Clai mant’s workers’ compensation benefits is National Fire Insurance Company of Hartford.3

determined that Employer owed Pharmacy $6,644.30, plus ten percent interest to be

calculated as of the 30 t h day after Pharmacy had submitted its invoice for payment

. On August 5 , 2016, Employer requested a hearing to contes t the fee review

determination on the following grounds:

Claimant has been prescribed compound medications which are overly inflated in price, with self

- intere st from the prescriber, are
not FDA approved and generally contain the same medications that ca n be taken orally at a significant price reduction. The medicine is not reasonable nor medically necessary.

R.R. 32a. T he hearing requested by Employer was convened on November 18, 2016,

before a hearing officer appointed by the Hearing Office

.

At the hearing’s inception, Employer alleged that Dr. Bundy had a
financial interest in Pharmacy and, thus, his prescription constituted an unlawful

“self

- referral.” Notes of Testimony at 6 (N.T. ___); R.R. 86a. Noting that t he
question of whether the provider self

- referral prohibition in the Act 3 applies to
pharmacies was pending in several cases , the Hearing Officer stated that he would

3 Section 306(f.1)(3)(iii) of the Act provides: Notwithstanding any other provision of law, it is unlawful for a provider to refer a person for laboratory, physical thera py, rehabilitation, chiropractic, radiation oncology, psychometric, home infusion therapy or diagnostic imaging, goods or services pursuant to this section if the provider has a financial interest with the person or in the entity that receives the referral

. It is unlawful for a provider to enter into an arrangement or scheme such as a cross

- referral arrangement, which the provider knows or should know has a principal purpose of assuring referrals by the provider to a particular entity which, if the provide r directly made referrals to such entity, would be in violation of this section. No claim for payment shall be presented by an entity to any individual, third

- party payer or other entity for a service furnished pursuant to a referral prohibited under this section. 77 P.S. §531(3)(iii) (emphasis added).4

defer ruling on that question. Accordingly, t he Hearing Officer instructed Employer

to “move on” to the “non

- self

- referral i ssues. ” N.T. at 8 ; R.R. 88a.
Employer the n presented a copy of a C&R Agreement

, which was
approved by a WCJ on October 28 , 2016 (2016 C&R Agreement), three months after

the Medical Fee Review Section directed Employer to pay Pharmacy $6,644.30 plus

intere st

. 4 The 2016 C&R Agreement states, in relevant part, as follows:

Upon approval of this Agreement Defendant/ Employer shall pay reasonable, necessary and related medical expenses incurred before the hearing date. No past, present or future benefits shal l be paid for any compounded prescription cream, including but not limited to compound prescription creams prescribed by physician Dr. Jason Bundy. (see Addendum)

2016 C&R Agreement, ¶10; R.R. 59a (emphasis added). The corresponding

Addendum stated:

Afte r an investigation, Defendants have reason to believe that Dr. Bundy has a financial interest in [Pharmacy] in violation of [S]ection 306(f.1)(3)(iii) of the Act[, 77 P.S. §531(3)(iii)] and Sections 127.301 and 127.302 of the Medical Cost Containment Regul ations[, 34 Pa. Code §§ 127.301

- 127.302]. Consistent with Section 306(f.1)(7) [of the Act, 77 P.S. §531(7)] neither provider Dr. Bundy nor [Pharmacy] shall hold the Claimant responsible for any charges related to the above mentioned compounding prescripti on cream.

Addendum to ¶10 , R.R. 62a. Employer asserted that paragraph 10 of the 2016 C&R
Agreement relieved it of liability to pay Pharmacy ’s invoice for the compound

creams and , thus, the Hearing Officer lacked jurisdiction to proceed further on

4 Specifically, the Medical Fee Review Section ordered Employer to pay Pharmacy on July 25, 2016. On September 15, 2016, Employer petitioned for approval of the C&R Agreeme nt. It was approved by the WCJ on October 28, 2016 , shortly before the hearing on Employer’s challenge to the fee review determination.5

Employer’s request for a hearing to contest the fee review determination in favor of
Pharmacy

. Pharmacy replied that it was not a party to the 2016 C&R Ag reement , which was executed long after Pharmacy had dispensed the medication and the

Medical F ee R ev iew Section had made its determination that Employer was liable
for the cost plus interest. Pharmacy contend ed that a C&R Agreement could not be used “to invalidate or subvert a legal process” established in the Act for a review of a provider’s fees. N.T . at 13

- 14; R.R. 93a

- 94a. Pharmacy further contended that its
vested right to the payment ordered by the Medical Fee Review Section could not be “extinguished” without notice and an opportunity to be heard. Id.

At the direction of the Hearing Officer, t he parties submitted briefs on
the threshold question of whether the 2016 C&R Agreement deprived the Hearing

Office r of jurisdiction over Employer’s challenge to the fee review determination.
On October 3, 2017, the Hearing Office r issued the instant adj udication. He

concluded that in light of the 2016 C&R Agreement , which extinguished Employer’s
past, present and future liability for compound creams , the Medical Fee Review

Section’s “Administrative Determination cannot stand.” Hearing Office
Adjudicati on at 6. In response to Pharmacy’s due process arguments, the Hearing
Officer explained that he lacked the authority to address constitutional questions.
Likewise, he lacked jurisdiction to consider the merits of the 2016 C&R Agreement,

which was a matter committed solely to the discretion of the WCJ. Accordingly, the Hearing Officer granted Employer’s motion to dismiss and vacated the July 25,
2016, fee review determination that Employer owed Pharmacy $6,644.30, plus6

interest, for the compound cream prescribed to Claimant

. Pharmacy then petitioned

for this Court ’s review of the Hearing Office’s adjudication

. 5

On appea l, Pharmacy challenges the Hearing Office’s adjudication as violative of Pharmacy’s right to payment under the Act for medications it dispensed

for treatment of Claimant’s accepted work injury

. Pharmacy contends that the
Hearing Office erred in relying up on the C&R Agreement, which was employed
improperly to deprive Pharmacy of due process of law and to usurp the procedures
in the Act for resolving fee disputes

. Finally, Pharmacy argues that Employer
waived its ability to use the 2016 C&R Agreement as the basis of its motion to

dismiss

. 6
Applicable Law

The Act requires employers to make prompt payment on provider

invoices for reasonable and necessary medical treatment of a claimant’s work injury

. The Act also establishes specif ic procedures fo r resolving disputes between a
provider and an employer about whether the treatment that generated the invoice
actually meets that standard

. Section 301(f.1)(5) states:

The employer or insurer shall make payment and providers shall submit bills and records in accorda nce with the provisions of this section. All payments to providers for treatment provided

5 Our review in medical fee review cases determines whether constitutional rights were violated, whether an error of law was committed, or whether the ne cessary findings of fact were supported by substantial evidence. Pittsburgh Mercy Health System v. Bureau of Workers’ Compensation

, Fee Review Hearing Office (U.S. Steel Corp. ), 980 A.2d 181 , 184 n.4 (Pa. Cmwlth. 2009). Regarding questions of law, our sc ope of review is plenary and our standard of review is de novo

. Sedgwick Claims Management Services, Inc., v. Bureau of Workers’ Compensation, Fee Review Hearing Office (Piszel and Bucks County Pain Center ), 185 A.3d 429, 433 n.2 (Pa. Cmwlth. 2018).

6 Pha rmacy asserts waiver because Employer’s request for a hearing to contest the fee review determination did not cite the 2016 C&R Agreement. It did not yet exist. Because we decide the appeal on other grounds, we do not address Pharmacy’s waiver claim.7 pursuant to this act shall be made within thirty (30) days of receipt of such bills and records unless the employer or insurer disputes the reasonableness or necessit y of the treatment provided pursuant to paragraph (6)

. T he nonpayment to providers within thirty (30) days for treatment for which a bill and records have been submitted shall only apply to that particular treatment or portion thereof in dispute; payment must be made timely for any treatment or portion thereof not in dispute. A provider who has submitted the r eports and bills required by this section and who disputes the amount or timeliness of the payment from the employer or insurer shall file an application for fee review with the department no more than thirty (30) days following notification of a disputed treatment or ninety (90) days following the original billing date of treatment. If the insurer disputes the reasonableness and necessity of the treatment pursuant to paragraph (6), the period for filing an application for fee review shall be tolled as long as the insurer has the right to suspend payment to the provider pursuant to the provisions of this paragraph. Within thirty (30) days of the filing of such an application, the department shall render an administrative decision.

77 P.S. §531(5) (emphasis a dded)

. “Paragraph 6” states, in relevant part, as follows:

[D]isputes as to reasonableness or necessity of treatment by a health care provider shall be resolved in accordance with the following provisions :
(i ) The reasonableness or necessity of all treatment provided by a health care provider under this act may be subject to prospective, concurrent or retrospective utilization review at the request of an employe, employer or insurer. The department shall author ize utilization review organizations to perform utilization review under this act. Utilization review of all treatment rendered by a health care provider shall be performed by a provider licensed in the same profession and having the same or similar speci alty as that of the provider of the treatment under review.8

77 P.S. §531(6) (emphasis added).

In sum, where an employer challenges a provider’s treatment as neither

reasonable n or necessary, it must seek utilization review pursuant to Section
301(f.1)(6) o f the Act. Until the utilization review determination is issued , the
employer may “ suspend payment to the provider.” Section 301(f.1)(5), 77 P.S.
§531(5). Where a provider does not receive payment within 30 days (and payment has not been stayed by an employer’s utilization review request) , it has recourse

. The provider may file a fee review petition under Section 301(f.1)(5) of the Act

, which gives that provider a right to prompt payment for reasonable and neces sary
medical treatment of a claimant’s accepted work injury.

Notably

, a fee review proceeding cannot be used to establish that a
claimant has a work

- related injury for which the employer has liability. As this
Court has explained:

the fee review process p resupposes that liability has been established, either by voluntary acceptance by the employer or a determination by a WCJ. Neither the Act nor the medical cost containment regulations provide any authority for a fee review officer to decide the issue of liability in a fee review proceeding. The Department’ s regulations, at 34 Pa.Code § 127.255 (1), state that an application for fee review filed by a provider is premature and will be returned if “[t]he insurer denies liability for the alleged work injury.” The issue for the fee review officer is the “amount and timelines s of the payment made by an insurer.” 34 Pa.Code § 127.251

.
Nickel v. Workers’ Compensation Appeal Board (Agway Agronomy) , 959 A.2d 498,
503 (Pa. Cmwlth. 2008) (emphasis added). Any dispute ab out whether a claimant

has a work injury , or the scope of that injury, must be litigated in accordance with
the procedures of the Act for a claim petition proceeding. See Inglis House v.9

Workmen’s Compensation Ap p eal Board ( Reedy ), 634 A.2d 592, 595 (Pa. 1 9 9 3) (“[I]n a claim proceeding, the employe e bears the burden of establishing a right to
compensation and of proving al l necessary elements to support an award”).

Pharmacy argues it has a right to payment under Section 301(f. 1)(5) of

the Act , which is a ri ght protected by d ue p rocess of law. 7 It contends that Employer’s collusive 2016 C&R Agreement was designed solely to nullify the

Medical Fee Review Section’s determination and to bypass the fee review
procedures set forth in Section 301(f.1)(5) of the Act

. Employer responds that
Section 449(a) of the Act 8 provides that “[n] othing in this act shall impair the right
of the parties interested to compromise and release, subject to the provi sions herein
contained, any and all liability which is claimed to exist under this act on account of
injury or death. ” 77 P.S. §1000.5(a). Employer maintains that the 2016 C&R
Agreement was consistent with Section 449 (a) of the Act and relieved it of lia bility to pay Pharmacy’s invoice as directed by the Medical Fee Review Section.

The central question in this appeal is whether a C&R a greement can be

used to set aside a fee review determination that an employer owes reimbursement
to a provider for a particular course of treatment

.

7 The Due Process Clause of the Fourteenth Amendment states as follows: No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or prop erty, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.
U.S. C ONST

. amend

. XIV, §1. The Pennsylvania Constitution also provides this protection. P A

. C ONST

. art. I

, §9.

8 Added by the Act of June 24, P.L. 350, 77 P.S. §1000.5(a).10 Analysis On May 10, 2016, Employer denied payment of Pharmacy’s April 19, 2016, bill in its entirety “based on utilization review.” R.R. 14a. As noted by the
Hearing Officer, Employer “ attack ed ” the 2015 utilization re view determin ation that
the compound cream was medically necessary , but it did not appeal that
determination in accordance with the provisions of the Act. Hearing Office
Adjudication at 4, n.3. Nor did Employer seek a utilization review of the 2016

presc ription that was dispensed by Pharmacy or allege that Claimant’s condition
changed since 2015

. Id. at 3, n.2. Employer’s refusal to pay Pharmacy’s 2016

invoice violated the Act and the Department ’s implementing regulation.

First, if Employer wanted to su spend its ob ligation to pay Pharmacy’s

2016 invoice within 30 days , it had to file a new utilization review application in

accordance with Section 301(f.1)(6) of the Act

. It did not do so and, thus , it lacked

a lawful basis not to pay Pharmacy promptly in accordance with Section 301(f.1)(5)

of the Act

. Second, the Department’s regulation provides that where a “bill is denied entirely, insurers shall provide a written explanation of the denial.” 34 Pa.
Code §127.209. Employer gave a false reason, i.e., that Pharmacy’s invoice was denied on the basis of “utilization review.” This was contrary to the 2015 determination of the utilization review organizati on that the compound cream was reasonable and necessary to treat Claimant’s neuropathy. Giving a false reason, even
one in writing, is not the “explanation” required by the regulation.

Pharmacy properly respon ded to Employer’s refusal to pay by

submit ting a timely application for fee review under Section 306(f.1)(5) of the Act.

The Medical Fee Review Section promptly granted Pharmacy’s application,11

calculating the amount owed to be $6,644.30 and 10% interest on the unpaid sum “calculated from the date payment on each bill was due.” R.R. 25a.

Employer relies upon paragraph 10 of t he 2016 C& R Agreement that

purport ed to dissolve Employer’s liability for any past, present and future compound

creams. However, paragraph 10 also states that Employer “shall pay reasonable

, necessary and related medical expenses incurred before the hearing date [ on the 2016
C&R Agreement ]. ” R.R. 59a (emphasis added). This includes the com pound cream

issued to Claimant in 2016, which was speci fically determined by the Medical Fee

Review Section to be reasonable and necessary in 2015 before the hearing on the

2016 C&R Agreement

. In short, paragraph 10 obligated Employer to pay for the “reasonable and necessary” compound creams dispensed by Pharmacy in 2016
because the expense therefor had already been “ incurred.” 9 Id.

A valid C&R agreement is “binding upon the parties.” Department of Labor & Industry, Bureau of Workers’ Compensation v. Workers’ Compensation
Appeal Board (US Food Service) , 932 A.2 d 309, 314 (Pa. Cmwlth. 2007). However, Pharmacy was not a part y to the 2016 C&R Agreement

. Accordingly, Employer’s
reliance upon Section 449(a) of the Act is misplaced . The scope of Section 449(a)

is limited to “parties interested” that wish to “compromise and release ... any and all liability” under the Act. 77 P.S. §1000 .5(a). This does not include the provider. 10

9 Claimant has no liability to Pharmacy. Section 306(f.1)(7) provides : “[a] provider shall not hold an employe liable for costs related to care or service rendered in connection with a compensabl e injury under this act. A provider shall not bill or otherwise attempt to recover from the employe the difference between the provider’ s charge and the amount paid by the employer or the insurer.” 77 P.S. § 531(7).

10 The other provisions of Section 449 sp eak to the rights of the “employer or insurer” and “the claimant” (or his dependents or survivors). 77 P.S. §1000 .5.12

Further, as a matter of due process , Pharmacy cannot be deprived of its rights under
the Act except in accordance with due process of law.

In In re Upset Sale, 479 A.2d 940 (Pa. 1984), the Pennsylvania
Supreme Court affirmed that the U.S. Constitution re quires notice and an opportunity to be heard before property or proper ty rights may be taken, particu larly
when the process is pa rt of a state regulatory scheme. The Court stated:

The Due Process Clause of the Fourteenth Amendment to the Federal Constitut ion requires at a minimum that the deprivation of life, liberty or prop erty by adjudication must be pre ceded by notice and opportunity for hearing appropriate to the nature of the case. The United States Supreme Court beginning with Mullane v. Central Han over Bank and Trust Co., 339 U.S. 306, 94 L.Ed. 865, 70 S.Ct. 652 (1950), has invoked the Due Process Clause and required states to make efforts to provide actual notice to all parties whose interests are affected by proceedings before a tribunal.

I d. at 9 43.

In Mullane v. Central Hanover Bank and Trust Co.

, 339 U.S. 306
(1950), the U.S. Supreme Court explained that:

An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportuni ty to present their objections.

The Court further held that the “notice must be of such nature as reasonably to
convey the required infor mation, and it must afford a reasonable time for those interested to make their appearance.” Id. (internal citations omitted).

In Baksalary v. Smith, 579 F. Supp. 218 (E.D. Pa. 1984), the U.S. District Court held that the “automatic supersedeas” provision of the Act

, which13

allowed an employer to suspend a claimant’s disability compensation without a prior
hearing

, was unconstitutional under the Due Process Clause of the Fourteenth

Amendment . That the claimant could eventually have his compensatio n reinstated

was not sufficient to satisfy due process because the claimant “ had no avenue to contest [the suspension’s] application. ” Id. a t 221

- 22.

The Act’s utilization review and fee review procedures have been
designed to comport with due proces s. They give both the employer and provider
an opportunity to be heard on t he factual question of whether a provider’s treatment
was reasonable and necessary and, thus, required to be paid for by the employer . A

C&R a greement , to which a provider is not a party, cannot be use d to deprive a
provider of the review procedures and excuse the employer from paying the
provider . To do so wou ld violate the Act and due process. Baksalary, 579 F . Supp.

a t 221

- 22.

Also instructive is Gingerich v. Workers’ Compensation Appeal Board
( U.S. Filter )

, 825 A. 2d 788 (Pa. Cmwlth

. 2003). In th at case, a claimant and her tort

counsel entered into a C&R a greement with the employer that, inter alia, allowed

t he claimant to retain the tort claim award and relea sed the employer from future

payment of her compensation counsel ’s fees. This Court held that neither the

claimant nor her employer could deprive her compensation counsel of these fees via
a C&R Agreement . Neither was “ the person with the claim .” Id. at 791. Likewise

, here

, Claimant had no authority to “release” Employer from its liability to Pharmacy

because Claimant was not “the person with the claim.” Nor could Employer release

itself from its liability to Pharmacy established by the Medical Fee Review Section.
The parties to a C &R a greement can bind each other

, but they cannot release

themselves from liability to a person who is not a party to the C&R agreement and14

who has been given neither notice nor opportunity to be heard on the C&R
Agreement

. Conclusion

T he 2016 C&R Agreement holds Employer liable for all “ reasonable,
necessary and related medical expenses incurred before the date of the [October 25, 2016] hearing.” 2016 C&R Agreement, ¶ 10; R.R. 59a. The Addendum to Par agraph

10 purports to exclude Pharmacy ’s 2016 invoice from its reach for the stated reason
that Dr. Bundy has a financial interest in Pharmacy . However, t here is no evidence
that Dr. Bundy has a financial interest in Pharmacy , and there has not been a leg al

determination that this financial relationship, if it exists

, violates the Act. The stated

“belief” of the parties in the 2016 C&R Agreement on this legal question is
meaningless

.

T he 2016 C&R Agreement requires Employer to pay for all reasonable
and necessary medical expenses incurred prior to hearing , and it is for the utilization
review organization to decide whether the compound cream treatment was reasonable and necessary. It did so in 2015, and Employer never chall enged that

determination. A C&R Agreement cannot be employed to avoid the procedures in
the Act for challenging a provider’s invoice or a fee review determination that the
invoice must be paid. To hold otherwise would eviscerate Section 301(f.1)(5) and
( 6) of the Act and violate the due process of law guaranteed to providers.

Accordingly, w e vacate the adjudication of the Hearing Office that the 2016 C&R Agreement eliminated Employer’s liability to Pharmacy. We remand to

the Bureau for a decision on the merits of Employer’s request for a hearing to contest
the fee review determination of July 25, 2016, in favor of Pharmacy

.

______________________________________ MARY HANNAH LEAVITT, President JudgeIN THE COMMONWEALTH COURT OF PENNSYLVANIA

Armour Pharmacy, :

Petitioner :

:

v. : No. 1613 C.D. 2017

: Bureau of Workers’ Compen sation : Fee Review Hearing Office (National : Fire Insurance Company of Hartford), :

Respondent :

O R D E R

AND NOW, this 7 th day of August , 2018, the order of the Bureau of Workers’ Compensation

, Fee Review Hearing Office of October 3, 2017, is

VACATED and the matter is REMANDED for a decision on the merits of the
request for a hearing to contest the fee review determination filed by National Fire
Insurance Company of Hartford

, in accordance with the attached opinion.

Jurisdiction relinquished.

______________________________________ MARY HANNAH LEAVITT, President Judge