Via Christi Hosps. Wichita, Inc. v. Kan-Pak, LLC

• Decision Date: 01 November 2019
• Docket Number: No. 116,692,116,692
• Parties: VIA CHRISTI HOSPITALS WICHITA, INC., Appellant, v. KAN-PAK, LLC, et al., Appellees.
• Court: Kansas Supreme Court

451 P.3d 459

VIA CHRISTI HOSPITALS WICHITA, INC., Appellant,

v.KAN-PAK, LLC, et al., Appellees.

No. 116,692

Supreme Court of Kansas.

Opinion filed November 1, 2019.

Edward D. Heath, Jr., of Law Office of Edward D. Heath, Jr., of Wichita, argued the cause and was on the briefs for appellant.

Ryan D. Weltz, of Wallace, Saunders, Austin, Brown & Enochs, Chartered, of Overland Park, argued the cause, and Douglas C. Hobbs, of the same firm, of Wichita, was with him on the briefs for appellee Paradigm Management Services, LLC.

The opinion of the court was delivered by Nuss, C.J.:

This case concerns a fee dispute between a hospital that provided extensive medical services to a severely burned worker and a workers compensation insurance carrier that paid the hospital considerably less than the billed amount for those services. A hearing officer ruled in favor of the carrier, Paradigm Management Services, LLC (Paradigm), essentially holding it had appropriately paid the amount required by the schedule for maximum medical fees established by the director of the Division of Workers Compensation. His decision was upheld by the Workers Compensation Appeals Board (Board).

After the hospital, Via Christi Hospitals Wichita, Inc. (Via Christi), appealed to the Court of Appeals under the Kansas Judicial Review Act (KJRA), K.S.A. 77-601 et seq., the court reversed. It essentially held the Board's enforcement of the maximum medical fee schedule was unreasonable, arbitrary, and capricious because the applicable fee limiting provision had been accidentally created. So Paradigm owed Via Christi considerably more money. Via Christi Hospitals Wichita, Inc. v. Kan-Pak LLC , 54 Kan. App. 2d 624, 630, 402 P.3d 602 (2017). Now Paradigm has appealed via K.S.A. 20-3018(b).

We conclude we have subject matter jurisdiction of this appeal under K.S.A. 2018 Supp. 77-614 of the KJRA. But as a matter of law, the relief sought by Via Christi—and ordered by the Court of Appeals—cannot be granted in this proceeding under K.S.A. 2018 Supp. 77-621(c). So we reverse the Court of Appeals panel and affirm the hearing officer and the Board.

FACTUAL AND PROCEDURAL BACKGROUND

Darin Pinion suffered severe burns while working at Kan-Pak, LLC (Kan-Pak) in 2011 and was treated that same year. Via Christi provided medical treatment in the total billed amount of $1,048,569. Kan-Pak's workers compensation insurance carrier was Travelers Indemnity Company of America (Travelers). Travelers contracted with Paradigm, an out-of-state corporation which specializes in medical management of complex workers compensation cases, to assume Travelers' obligations for Pinion's past and future medical needs. Of Via Christi's bill, Paradigm only paid $136,451.60 in purported full payment under the 2011 Schedule of Medical Fees. ("2011 maximum fee schedule"). See, e.g., K.S.A. 2011 Supp. 44-510i ; K.A.R. 51-9-7.

One year earlier, in 2010, the Division of Workers Compensation (Division) had created a "stop-loss" provision in its fee schedule. The Division's stated reason for the stop-loss methodology was to compensate hospitals for "unusually costly services rendered during treatment to an injured worker." This provision essentially stated that if the total charges of an inpatient hospital stay equaled or exceeded $60,000, those charges were multiplied by 70 percent to determine the allowed reimbursement. But if the total charges did not reach the $60,000 stop-loss threshold, then hospitals were reimbursed using the Medicare Severity-Diagnosis Related Group (MS-DRG) method which had previously been used.

This stop-loss methodology was repeated in the 2011 maximum fee schedule. But without the knowledge of the Division's manager of medical services or the appointed medical administrator (see K.S.A. 2011 Supp. 44-510i ), the 2011 version also included the sentence: "If the MS-DRG level of reimbursement exceeds the $60,000 stop-loss threshold, the facility shall be paid billed charges multiplied by 70% or the MS-DRG level whichever is least ; all other rules apply to making this determination." (Emphasis added.)

The origin of the "whichever is least" language—upon which Paradigm relies for its lowered payment to Via Christi—is unclear. Meeting minutes contain no indication that anyone within the Division, or advising the Division, had noticed the insertion of this language. The manager of medical services, Anne Haught, was responsible for guiding the 2011 maximum fee schedule through the process of adoption. See K.S.A. 77-602(j) (" ‘Rulemaking’ means the process for formulation and adoption of a rule and regulation."). As Haught testified during a hearing, the Division's adding of the phrase "whichever is least" would have been a significant enough change to come up as part of the process of adopting the 2011 maximum fee schedule. But it was not discussed which, according to her testimony, indicated it was not intended to be there. In fact, no one in the record available to this court explained how this particular language was inserted. The 2011 maximum fee schedule was adopted and incorporated by reference into K.A.R. 51-9-7. See K.S.A. 2011 Supp. 44-510i(c) (The workers compensation "director shall prepare and adopt rules and regulations which establish a schedule of maximum fees for ... hospital ... services.").

While Paradigm relies on the "whichever is least" language in the 2011 maximum fee schedule to justify its lowered payment, Via Christi responds that Paradigm should have paid $732,426.97—70% of the billed charges—or an additional $595,975.37, because the "whichever is least" amending language was accidentally included. This language was not in the 2010 or 2012 versions, or any subsequent year.

Via Christi proceeded with the steps set forth in K.S.A. 2015 Supp. 44-510j to try to resolve the fee dispute with Paradigm, which had begun with Paradigm's notification to Via Christi under the statute's subsection (a)(1) regarding the existence of a dispute. When resolution between the parties was unsuccessful, it was followed by Via Christi's request for an informal hearing before the director. K.S.A. 2015 Supp. 44-510j(a)(1). The informal hearing was unsuccessful and the director scheduled a formal hearing. K.S.A. 2015 Supp. 44-510j(d). After the formal hearing, a hearing officer in the Division agreed with Via Christi that the "whichever is least" language was erroneously included. But he held that a hearing officer did not have authority to strike the language and thus could not rule in favor of Via Christi.

Via Christi then appealed this decision to the Board under K.S.A. 2015 Supp. 44-510j(d)(2). The Board is within the Division. See K.S.A. 2015 Supp. 44-555c(a). Like the hearing officer, the Board found the addition of the "whichever is least" language was accidental. But it too ruled it had no authority to void the 2011 maximum fee schedule's amending language to hold in Via Christi's favor.

Via Christi then appealed the Board's decision directly to the Court of Appeals under K.S.A. 2016 Supp. 44-556(a). The panel observed that the director of workers compensation was statutorily tasked with adopting 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." Via Christi , 54 Kan. App. 2d at 627, 402 P.3d 602 (citing K.S.A. 2016 Supp. 44-510i[c] ).

The panel then ruled the amendment in the 2011 fee schedule was not correctly promulgated under the Rules and Regulations Filing Act—which made the amendment void. 54 Kan. App. 2d at 629-30, 402 P.3d 602 (citing K.S.A. 2016 Supp. 77-415). Specifically, the Act's required "determination of costs by the agency was not done here for the inserted ‘whatever is least’ language amending the 2011 fee schedule." 54 Kan. App. 2d at 629, 402 P.3d 602.

The panel effectively held it did have authority, under K.S.A. 2016 Supp. 77-621(c) of the KJRA, to declare the Board's enforcement of the improperly promulgated amendment to the 2011 maximum fee schedule to be unreasonable, arbitrary, or capricious. It reversed the Board and held in Via Christi's favor, no longer limiting the hospital to the payment of approximately 15% of its bill.

"If we were to approve the Board's ruling and enforce this rule, our holding would be as arbitrary as the Board's. Essentially, we would be saying that it is a rule; therefore, it must be enforced even though it was created accidentally. Once created, rules are not indestructible. The Judicial Review Act permits this court to grant relief if the agency action is unreasonable, arbitrary, or capricious. See K.S.A. 2016 Supp. 77-621(c). The enforcement of an accidentally created rule is the very picture of an arbitrary or capricious action, and we reverse the Board's ruling enforcing it." (Emphasis added.) Via Christi , 54 Kan. App. 2d at 631, 402 P.3d 602.

Paradigm petitioned for review which we granted under K.S.A. 20-3018(b).

ANALYSIS

After oral arguments, we ordered supplemental briefing on the issue of jurisdiction and whether Via Christi's requested relief could be granted under the KJRA. As explained below, we conclude subject matter jurisdiction exists. But as a matter of law the relief sought by Via Christi cannot be granted in this particular proceeding.

Jurisdiction

K.S.A. 44-556 provides for review of the Board directly to the Court of Appeals. It states in relevant part:

"(a) Any action of the board pursuant to the workers compensation act, ... shall be subject to review in accordance with the Kansas judicial review act by appeal directly to the court of appeals ." (Emphasis added.)

See, e.g., Herrera-Gallegos v. H & H Delivery Service, Inc. , 42 Kan. App. 2d 360, 212 P.3d 239 (2009) (direct appeal from Board).

The KJRA is found at K.S.A. 77-601 et seq . The KJRA allows for judicial review of "agency actions." See, e.g., K.S.A. 2018 Supp. 77-603(a) ; ...