STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

TECHNOLOGY INSURANCE COMPANY, )

)

Petitioner, )

)

vs. )

)

DEPARTMENT OF FINANCIAL ) SERVICES, DIVISION OF WORKERS' ) COMPENSATION, )

)

Respondent. )

Case No. 12-3834

)

RECOMMENDED ORDER

On March 25, 2013, Robert E. Meale, Administrative Law Judge of the Division of Administrative Hearings, conducted the final hearing by videoconference in Tallahassee and Lauderdale Lakes, Florida.

APPEARANCES

Petitioner: James T. Armstrong, Esquire

Nathan Stravers, Esquire

Walton Lantaff Schroeder & Carson, LLP

200 South Orange Avenue, Suite 1575 Orlando, Florida 32801

Respondent: Mary E. Ingley, Esquire

Assistant General Counsel Division of Legal Services Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-4229

STATEMENT OF THE ISSUE

The issue is whether Respondent should grant or deny a Petition for Resolution of Reimbursement Dispute filed by a health care provider or its assignee. The dispute concerns the proper reimbursement amount for 60 units of meloxicam 15 mg.

PRELIMINARY STATEMENT

On February 6, 2012, Prescription Partners, LLC (Prescription Partners), filed with Respondent's Office of Medical Services (OMS) a Petition for Resolution of Reimbursement Dispute (Petition).1/ Attached to the Petition is a Health Insurance Claim Form, CMS-1500,2/ which shows that, on December 14, 2011, Dr. Jonathan Daitch dispensed to J. G. 60 units of meloxicam, charging $437.48 for the drugs and $4.18 for a dispensing fee for a total claim of $441.66. Also attached to the Petition is Petitioner's Explanation of Bill Review (EOBR) disallowing the dispensing fee in its entirety and adjusting the reimbursement claim for the meloxicam to $385.48 due to a "written contractual arrangement." The amount in dispute is thus $56.18--$52 in the adjustment for the drug reimbursement and $4.18 for the dispensing fee.

Petitioner filed a response to the Petition on February 15, 2012. The response states that Petitioner reimbursed Prescription Partners based on a contract with Carlisle Medical (Carlisle). Attached to the response is a contract dated

August 2, 2011, between Carlisle and AmTrust North America (Written Contract); a letter from the president and chief executive officer of Carlisle to a claims manager with AmTrust North America of Florida, Inc.; and an invoice from Carlisle to AmTrust North America showing the disallowed and adjusted reimbursement amounts described in the preceding paragraph.

On August 28, 2012, OMS issued its Reimbursement Dispute Determination. OMS determined that Petitioner incorrectly reduced the reimbursement claim from $441.66 to $385.48 and incorrectly disallowed the dispensing fee. The determination provides Petitioner with a right to request an administrative hearing, and Petitioner timely did so.

Respondent transmitted the file to the Division of Administrative Hearings on November 20, 2012. By Notice of Litigation dated November 26, 2012, Respondent advised

Dr. Daitch that a final order adjudicating the reimbursement dispute will be a determination of his substantial interests and "you are an indispensable party . . . because your participation is necessary in order to obtain [a] complete and efficient determination of the equities, rights and liabilities of the Petitioner and the Department." The notice therefore provides Dr. Daitch with a clear point of entry into the pending administrative proceeding.

The hearing was originally set for January 28, 2013, but was continued by Order entered on January 10, 2013, at the request of Petitioner and without objection by Respondent.

Neither Dr. Daitch nor Prescription Partners requested leave to intervene.

On January 25, 2013, Petitioner filed a Motion to Compel Dr. Jonathan Daitch's Attendance at Deposition, to which Respondent had no objection. By Order entered on February 13, 2013, the Administrative Law Judge granted the motion.

On March 12, 2013, appearing through counsel, Thomas F. Panza, Prescription Partners filed a Motion to Quash and for Protective Order. The motion addressed a subpoena duces tecum for the deposition of Chris Reichart, executive vice president of Prescription Partners, who had been served in care of Automated Healthcare Solutions. The subpoena requested any and all documents identifying medications repackaged and dispensed by Dr. Daitch or any other doctor under contract with Prescription Partners, calculating the Average Wholesale Price (AWP) of drugs, showing how health care providers are reimbursed, describing how medication is repackaged and where it is obtained, implementing contracts between insurance carriers and pharmacy benefits managers (PBMs), and stating if such contracts meet the standards of Prescription Partners. The

motion claims that these materials are clearly irrelevant to the issues in this case.

By response filed March 14, 2013, Petitioner argued that the purpose of this case is broader than described by Prescription Partners; it is to determine if the determination of OMS "follows the intent" of Florida's Workers' Compensation Law. Petitioner contended that meetings had taken place between Respondent and Prescription Partners and that "Prescription Partners is at the core of the factual issues that go to the determination of whether or not OMS practices are consistent with the intent of the Florida Workers' Compensation Law and section 440.015 as well as section 440.13, Florida Statutes."

By Order entered on March 18, 2013, the Administrative Law Judge granted Prescription Partner's motion.

In its proposed recommended order, Petitioner renewed its request to depose a corporate representative of Prescription Partners. This request is denied.

On March 14, 2013, Respondent filed a Motion in Limine.

Respondent argued that the parol evidence rule barred the admission into evidence of testimony to vary the provisions of the Written Contract. In particular, Respondent contended that the Written Contract: 1) omits Petitioner as a party or intended third-party beneficiary and 2) omits any provision specifying a discount for any drugs.

By Order entered on March 22, 2013, the Administrative Law Judge denied Respondent's motion without prejudice to its renewal at hearing. The issues related to the Motion in Limine are addressed in greater detail in the Conclusions of Law below.

At the hearing, Petitioner called two witnesses and offered into evidence five exhibits: Petitioner Exhibits 1-5.

Respondent called two witnesses and offered into evidence nine exhibits: Respondent Exhibits 1-9. The parties jointly offered four exhibits: Joint Exhibits 1-4. All exhibits were admitted.

The court reporter filed the transcript on April 9, 2013.

The parties filed proposed recommended orders on April 29, 2013.

FINDINGS OF FACT

1. J. G. is 30 years old and suffered a compensable injury on September 14, 2009. On December 14, 2011, J. G. visited the Advanced Pain Management office of Dr. Daitch, who dispensed to the employee 60 units of meloxicam 15 mg. Meloxicam is a prescription pain medication.

2. Dr. Daitch obtains certain prescription drugs from Unit Dose Services for dispensing in his office. Although Dr. Daitch sees patients who are not covered by Workers' Compensation, he dispenses prescription drugs in his office only to patients covered by Workers' Compensation and has been doing so for four years.

   
   

3. Dr. Daitch testified that he was unaware of the pricing of the prescription drugs that he dispenses in his office, and he was unaware of any contract that, in this case, might require him or his assignee, as described in the next paragraph, to discount this reimbursement claim. But he testified that the dispensing of prescription drugs through retail chains such as Walgreens and CVS is "very profitable." (Tr. of deposition of Dr. Daitch 16). All of this testimony is credited.

4. However, it is not unusual for providers to be unaware of in-network or preferred-provider contracts when that they dispense prescription drugs to injured employees. As a certified health care provider, Dr. Daitch was presumptively aware that, whenever he dispenses prescription drugs, his reimbursement may be limited to what is authorized for an in- network or preferred provider.3/

5. As he did in this case, Dr. Daitch routinely assigns his claims for reimbursement for dispensed prescription drugs. Dr. Daitch testified that he or his practice has a contract with Automated Healthcare Solutions, but the assignee in this case is Prescription Partners--either as a result of a reassignment or Dr. Daitch's misunderstanding of the identity of the billing contractor.

6. For the December 14 office visit, Dr. Daitch completed a CMS-1500, which includes a National Drug Code (NDC) for the

   
   

   meloxicam that he dispensed, a note that he dispensed 60 units of the drug, a reimbursement claim of $437.48 for the drug, and a reimbursement claim of $4.18 as a dispensing fee. Appearing in the upper right-hand corner of the CMS-1500 is the name, "AmTrust of North America," suggesting that Dr. Daitch or Prescription Partners believed that AmTrust North America, Inc., or AmTrust North America of Florida, Inc., was the carrier or claims administrator. The CMS-1500 states that Prescription Partners is the "billing provider" and that Prescription Partners submitted the CMS-1500 to AmTrust North America.

7. The carrier is Petitioner. AmTrust North America, Inc., is a multistate insurance agency, although it is not licensed in Florida. Formerly known as Associated Industries Insurance Service, Inc., AmTrust North America of Florida, Inc., is an insurance agency licensed in Florida and serves as a

   third-party administrator of claims on policies issued by Petitioner and other carriers, including the claim involved in this case. Each of these corporations is owned by AmTrust Financial Services, Inc., although AmTrust North America of Florida, Inc., was principally owned, as of July 1, 2009, by AmTrust North America, Inc.

8. By EOBR received on January 11, 2012, Petitioner notified Prescription Partners that Petitioner was disallowing the dispensing fee and adjusting the reimbursement amount for

   
   

   the 60 units of meloxicam to $385.48. The explanation for both actions is: "Paid; no modification to the information provided on the medical bill; payment made pursuant to written contractual arrangement (network or PPO named required): ."4/ There is no network or PPO identified in the space after the final colon. The EOBR advises that reconsiderations or appeals must be submitted to Petitioner and Fair Pay SOLUTIONS, if Prescription Partners had any questions about the "analysis."

9. Prescription Partners had questions about the analysis, but addressed them to OMS by filing the Petition. The Petition, which was timely filed, shows that the petitioner is Dr. Daitch, but that the Petition is presented by Prescription Partners, as an entity acting on behalf of the health care provider. The Petition shows copies were mailed to "AmTrust" and Petitioner. The Petition states the gist of the dispute as follows:

   "Carrier is paying under the AWP not according to the FL fee schedule. This claim is being processed incorrectly." The Petition states that the amount in dispute is $56.18.

10. Attached to the Petition are four documents: the above-described CMS-1500 and EOBR, a Calculation Sheet that renders the above-described details on the amounts in dispute, and a document identified as "Detailed Product Information" from the "Red Book."

    
    

11. The "RedBook" is the Drug Topics Red Book™, which is a price index published by Medical Economics Company, Inc. The Red Book™ provides an AWP, by NDC, for all prescription drugs, including repackaged drugs. The "Detailed Product Information," which is from an online version of the Red Book™, identifies the same UDC referenced in the above-described CMS-1500 and indicates that the drug is a repackaged generic.

12. The "Detailed Product Information" also contains "current pricing information" for meloxicam 15 mg. The "current pricing information" shows that the AWP is $218.74 and "HCFA"-- evidently referring to Medicare reimbursement through the Health Care Financing Administration (HCFA)--is $6.28. These prices appear to apply to 30 units.

13. The AWP is a price that is designated by the manufacturer or repackager and reported to the Red Book™ publisher. Contrary to its name, the AWP does not necessarily correspond to the mean price of all of the arm's length, wholesale transactions in the drug over a period of time; the AWP more closely resembles the "undiscounted sticker price" assigned to a drug by its manufacturer or repackager.5/

14. Unlike AWP, repackaging is self-explanatory. A repackager purchases a drug from its manufacturer in bulk--say, 1000 units--and repackages the drug in small quantities--say, 30 units--for dispensing by physicians and other appropriate health

    
    

    care providers. The repackager provides a package and label and obtains a unique UDC for the repackaged drug.

15. By obtaining a unique UDC for the repackaged drug, the repackager is able to set a different AWP from the AWP assigned the drug by its manufacturer. In general, the AWPs assigned by repackagers are 80%-200% higher than the AWPs assigned by manufacturers. As between manufacturers and repackagers of meloxicam at the time in question, the AWP for 60 units ranged from about $290 for manufacturers to about $450 for repackagers. At the time in question, meloxicam was a generic. Now a MAC drug, which means it carries a "maximum allowable cost" because it is now manufactured by several manufacturers, meloxicam presently supports an AWP of $60.91 for 60 units.

16. Petitioner timely filed a carrier response to the Petition. The response states that the carrier has contracted with Carlisle for the reimbursement of prescription drugs at reduced prices. The response states that neither Prescription Partners nor Dr. Daitch is a party to the contract, and they must accept the reduced reimbursement rate. The response includes a copy of a written contract between Carlisle and AmTrust North America (Written Contract); a letter dated January 12, 2012, from the president of Carlisle to the Claims Manager of AmTrust North America of Florida, Inc.; an invoice

    
    

    showing the reduced reimbursements for the subject transaction; and Informational Bulletin DFS-02-2009 dated August 12, 2009.

17. Signed by both parties on August 2, 2012, and, from all appearances, taking effect on that date, the Written Contract is only 22 lines long, exclusive of headings. Its provisions are as follows:

    1. AmTrust North America will "exclusively" use Carlisle's "PBM" services.

       
       

    2. Carlisle will provide PBM services for AmTrust North America throughout the United States.

       
       

    3. Carlisle's PBM program includes over 64,000 pharmacies, including all of the major retail chains--Walgreens, CVS, Target, and Rite-Aid.

       
       

    4. If there are no contracted pharmacies that are "reasonably accessible" to an employee, the employee may use an

       out-of-network pharmacy.

       
       

    5. Carlisle will submit all pharmacy invoices on a form acceptable to AmTrust North America.

       
       

    6. The "terms" are "net-30, or as mandated by the appropriate state law."

       
       

    7. Carlisle will maintain pharmacy records for three years from the last activity.

       
       

    8. "Insurance. See attachment." (The versions of the contract submitted into evidence have no attachments.)

       
       

       g. The agreement is for one year, after which the agreement automatically renews unless either party provides written notice

       
       

       of termination at least 90 days prior to the renewal date.

       
       

18. Carlisle is not an affiliate of AmTrust North America, Inc. Carlisle has a contract with an entity that has contracts with large chains of retail pharmacies. This networking-forming entity obtains discounts from AWPs for various classes of prescription drugs: brand name drugs, generic drugs, and MAC drugs. Pursuant to these contractual arrangements, Carlisle obtains for AmTrust North America, Inc., and its affiliates discounts of 12% off AWP for generic drugs. Eric Lloyd, OMS Program Administrator, testified that this is a relatively low percentage among in-network or preferred providers; this testimony is credited.

19. The January 12, 2012, letter from Carlisle to AmTrust North America of Florida states that AmTrust North America of Florida has the right, under the Written Contract, to reimburse an out-of-network or nonpreferred provider at the same rate that applies to an in-network or preferred provider. The letter states that the pricing worksheet that Carlisle supplies to AmTrust North America of Florida, Inc., shows the reimbursement amount for prescription drugs obtained through in-network or preferred-provider pharmacies. Carlisle uses Medi-Span, which provides AWPs by NDCs like the Red Book™, as the source of the AWP for every prescription drug, to which Carlisle then applies

    
    

    the appropriate discount, depending on whether the drug is a brand name, generic, or MAC drug.

20. Respondent's Information Bulletin DVS-02-2009, which was issued on August 12, 2009, is irrelevant to this case.6/

21. OMS resolved this reimbursement dispute in favor of Prescription Partners. In its Reimbursement Dispute Determination, OMS cites two grounds for this proposed agency action: 1) the Written Contract is between Carlisle and AmTrust North America, not Petitioner, and 2) the Written Contract provides no drug pricing methodology by which OMS could validate the accuracy of the discount that Petitioner applied to the AWP.

22. The Reimbursement Dispute Determination mentions the Florida Workers' Compensation Health Care Provider Reimbursement Manual, 2008 edition (Provider Manual), which is incorporated by reference at Florida Administrative Code Rule 69L-7.020. Provider Manual II.F.1.b.(1) requires carriers to reimburse certified Florida health care providers pursuant to the reimbursement guidelines contained in the manual: the reimbursement shall be the "agreed upon contract price (whether agreed upon prior to rendering service(s) or upon submission of bill) or the maximum reimbursement allowance (MRA) in the appropriate schedule pursuant to section 440.13(12)(a), F.S."

23. Provider Manual V.A recognizes that prescription drugs may be dispensed by pharmacists or dispensing physicians.

    
    

    Provider Manual V.A.5.a. limits reimbursement to the pharmacist or dispensing practitioner, pursuant to the formula contained in the manual. For prescription drugs, Provider Manual V.A.5.b states that reimbursement shall be by the "pharmaceutical reimbursement formula," which is either the AWP plus a $4.18 dispensing fee or the "contracted reimbursement amount determined in accordance with the contractual arrangement between the provider and insurer." The Provider Manual does not address the dispensing of prescription drugs by an out-of- network or nonpreferred provider.

24. Alan McClain, Jr., Carlisle executive vice-president, negotiated the Written Contract. In testimony, Mr. McClain identified a few contractual provisions that are not contained in the Written Contract, such as that the discounts are confidential, but that AmTrust North America could disclose them if it wished, and that the affiliates of AmTrust North America, including Petitioner, are parties to the Written Contract.

    Mr. McClain also testified that the three levels of discounts are primarily derived from course of dealing, rather than a formal schedule to the Written Contract. Mr. McClain's testimony is credited.

25. Nothing in this record suggests any discord between the AmTrust family of corporations, on the one hand, and Carlisle and its direct and indirect contractual counterparties

    
    

    described above, on the other hand. To the contrary, the business relationships among all of these parties appear to be entirely satisfactory. This simple fact, not fraud or collusion, explains the readiness of the parties freely to supplement the Written Contract with layers of oral agreements-- some express and some implied in fact from course of dealing--in order to perpetuate, reinforce, and extend these advantageous business relationships.

26. These same written and oral contracts, both express and implied, that have produced such satisfaction among the parties on the carrier side of the transaction have produced no similar effect on Respondent, which has limited its consideration to the Written Contract and rejected the oral contracts and course of dealing. Petitioner objects to Respondent's treatment of these contractual arrangements on the ground that Respondent has not scrutinized as closely the business relationships and their documentation on the provider's side of the transaction.

27. In its least appealing form, Petitioner's argument is: if Respondent casually accepts the role of Prescription Partners as assignee without insisting on documentation, it must do the same as to the right of Petitioner to access the discounts provided by Carlisle and impose them on out-of-network or nonpreferred providers such as Dr. Daitch. The ultimate

    
    

    question, as a matter of law, is whether the operative reimbursement provisions of the Workers' Compensation Law support Respondent's proposed agency action. But Petitioner's argument, as a matter of fact, exposes serious flaws in Respondent's posture in this case.

28. Nothing in the record suggests any problems demanding regulatory intervention in the form of Respondent's prosecution of Prescription Partner's claim to an additional reimbursement of $56.18. There is no suggestion that Petitioner or its contractual counterparties have disrupted the reimbursement process. In particular, there is no suggestion that the 12% discount from AWP at issue in this case is excessive by industry standards; to the contrary, it is a relatively modest discount.

29. In a more appealing form, Petitioner's argument reflects that multiple parties may be involved in what would seem to the injured employee to be the simplest of

    transactions--obtaining 60 pills for chronic or recurring pain-- and the business relationships among these parties are defined by a variety of oral and written, express and implied, contracts. In this light, Respondent's failure to demand documentation of the contractual arrangements among the multiple parties on the provider side of the transaction implicitly acknowledges the role of oral contracts and course of dealing in defining business relationships. By contrast, Respondent's

    
    

    insistence on documentation of the business relationships among the multiple parties on the carrier side of the transaction

    is inconsistent with legitimate business practices. The Conclusions of Law will consider the extent to which Respondent's insistence on documentation on the carrier side of the transaction finds any support among the operative reimbursement provisions.

    CONCLUSIONS OF LAW

    
    

    1. General

       
       

30. The Division of Administrative Hearings has jurisdiction. §§ 120.569, 120.57(1), and 440.13(11)(c), Fla. Stat.

31. Under the Workers' Compensation Law, a covered employer is liable for payment to the injured employee and to the physicians and pharmacists providing covered services, under section 440.13, of the compensation described in sections 440.13, 440.15, and 440.16. This liability is the sole liability of the covered employer to, or on behalf of, the injured employee, § 440.11(1), who is typically not liable for the cost of his medical treatment. § 440.13(3)(g). To ensure that providers understand their statutory rights and responsibilities, they must be certified by Respondent as knowledgeable of the Workers' Compensation Law. § 440.13(3)(a);

    
    

    Fla. Admin. Code Chap. 69L-29; and Fla. Admin. Code R. 69L-29.001(9).

32. The legislature intends for the Workers' Compensation Law to be interpreted for the "quick and efficient" delivery of medical services to the injured employee and to facilitate the employee's reemployment "at a reasonable cost to the employer." The legislature also intends for the Workers' Compensation Law, including the reimbursement process, to be efficient and self- executing. Section 440.015 provides:

    an efficient and self-executing system must be created which is not an economic or administrative burden. [Respondent, the Agency for Health Care Administration], the Office of Insurance Regulation, and the Division of Administrative Hearings shall administer the Workers' Compensation Law in a manner which facilitates the self- execution of the system and the process of ensuring a prompt and cost-effective delivery of payments.

    
    

33. By accepting payment under chapter 440, the provider submits to the jurisdiction of Respondent, including for the resolution of reimbursement disputes. § 440.13(3)(f). The self-executing nature of the reimbursement process limits Respondent's involvement. The provider obtains the carrier's authorization prior to commencing nonemergency treatment.

    § 440.13(3)(a). The provider regularly submits treatment reports to the carrier. § 440.13(4)(a). As treatment takes place, the provider bills the carrier, which examines each bill

    
    

    for overutilization or billing errors. If the carrier finds any overutilization or billing error, the carrier disallows or adjusts the reimbursement claim before paying the provider.

    § 440.13(6).7/

    
    

34. Only if the provider objects to the disallowance or adjustment does Respondent become actively involved in the reimbursement process. The objecting provider promptly files with Respondent a petition for resolution of reimbursement dispute with all supporting documents and records.

    § 440.13(7)(a). Unless it wishes to waive all objections to the petition,8/ the carrier promptly submits to Respondent all documentation substantiating the disallowance or adjustment.

    After receiving these filings, Respondent issues a written determination of whether the carrier properly disallowed or adjusted the reimbursement. § 440.13(7)(b) and (c). Any party whose substantial interests are determined by Respondent's written determination is entitled to a formal administrative hearing upon timely request. § 120.569(1)(a).

35. Reimbursement claims involving prescription drugs are governed by section 440.13(12)(c). This drug reimbursement statute provides:

    As to reimbursement for a prescription medication, the reimbursement amount for a prescription shall be the [AWP] plus $4.18 for the dispensing fee, except where the carrier has contracted for a lower amount.

    
    

    Fees for pharmaceuticals and pharmaceutical services shall be reimbursable at the applicable fee schedule amount. Where the employer or carrier has contracted for such services and the employee elects to obtain them through a provider not a party to the contract, the carrier shall reimburse at the schedule, negotiated, or contract price, whichever is lower. No such contract shall rely on a provider that is not reasonably accessible to the employee.

    
    

    1. Burden of Proof

       
       

36. In its proposed recommended order, Respondent argues that Petitioner bears the burden of proof. In a recent final order, Respondent determined that the carrier bears the burden of proof in a reimbursement dispute involving billing errors. In the Matter of FFVA Mutual Insurance Company, DOAH Case No. 12-2499 (Feb. 1, 2013). FFVA is procedurally identical to the present case. A provider billed a carrier about $13,000 for knee surgery on an injured employee. Rejecting one of the three

    CPT codes that the provider had billed, the carrier adjusted the claim for this billing error and paid only about $9000. The provider filed a petition with OMS. After receiving the required filings from the provider and carrier, OMS issued a written determination finding no billing error.

37. As does Respondent's proposed recommended order, the recommended and final orders in FFVA allocate the burden of proof based on a determination of which party had the affirmative of the issue. Unfortunately, the orders identify

    
    

    the party with the affirmative of the issue at the point of proposed agency action, not at the earlier point of the filing of the petition by the provider. Because the proposed agency action was adverse to the carrier, the recommended and final orders, as well as Respondent's proposed recommended order, erroneously conclude that the carrier in each case has the affirmative of the issue.

38. As does Respondent's proposed recommended order, the FFVA recommended order, which was adopted in total by the final order, relies on Dep't of Transp. v. J. W. C. Co., 396 So. 2d 778, 788 (Fla. 1st DCA 1981), which involves an application for an environmental permit. As in FFVA and the present case, the proposed agency action in J. W. C. was to approve the original application (or petitions in FFVA and the present case). At hearing, unlike in FFVA, the hearing officer allocated the burden of proof to the applicant, even though, in this intent- to-grant case, the hearing had been requested by an adjoining landowner, not the applicant. On appeal, the applicant argued that the adjacent landowner had the burden of proof because it had the affirmative of the issue after the agency had issued its proposed agency action to grant the permit. Rejecting this argument, the court held that the party with the affirmative of the issue was determined at the outset of the permitting matter, not at the later point of proposed agency action. The court

    
    

    imposed the burden of proof, not on the "petitioner" that had requested the hearing in this intent-to-grant case, but on the applicant. This is an application of the de novo nature of the formal hearing that follows proposed agency action. Haines v. Dep't of Child. & Fams., 983 So. 2d 602, 606 (Fla. 5th DCA 2008).

39. The procedural setting of FFVA and the present case is similar to the setting in J. W. C. Objecting to the carriers' adjustments of reimbursement claims, providers filed with OMS petitions for resolution of reimbursement disputes--essentially asking for orders approving the providers' original reimbursement claims--and OMS issued proposed agency action to this effect. As in J. W. C., if matters had stopped at this point, the proposed agency action would have become final, and the providers, as applicants, would have obtained what they had initially sought. But matters did not stop at this point because the carriers filed petitions requesting formal hearings to challenge the proposed agency action. Like the adjoining landowner in J. W. C., the carriers may be designated "petitioners," but the affirmative of the issue remains with the parties that had initiated agency action--i.e., the providers.

40. To determine the affirmative of the issue at the point of proposed agency action would give an agency the power to allocate the burden of proof in an intent-to-grant case.9/ But,

    
    

    largely due to the de novo nature of the formal administrative proceeding, the courts attach no such importance to proposed agency action and decline to confer upon such agency action any "presumption of correctness." Miles v. Fla. A & M Univ., 813 So. 2d 242, 247 (Fla. 1st DCA 2002).

41. The holding of J. W. C. placing the burden on the party with the affirmative of the issue is only a "general rule." Dep't of Bank. & Fin v. Osborne Sterne & Co. 670 So. 2d 932, 934 (Fla. 1996) (per curiam). Where, as here, a statute does not allocate the burden of proof, case law may provide more specific allocation rules than the general rule of J. W. C. Although no such case law is available concerning reimbursement disputes, much case law addresses the burden of proof in insurance litigation.10/

42. In general, the insured bears the burden of proving coverage and liability under an all-risks policy, and the insurer bears the burden of proving an exception to avoid coverage. See, e.g., Phoenix Ins. Co. v. Branch, 234 So. 2d 396, 398 (Fla. 4th DCA 1970) (citing Jewelers Mutual Ins. Co. v.

    Balough, 272 F.2d 889, 892 (5th Cir. 1959)). The insured generally bears the burden of proving the amount of recovery available under a policy.11/

43. Of particular relevance to the allocation of the burden of proof in a reimbursement dispute under the Workers'

    
    

    Compensation Law is Derius v. Allstate Indem. Co., 723 So. 2d 271, 272-73 (Fla. 4th DCA 1998). This case involved the payment of medical benefits to the provider, not insurance benefits to the insured. The court noted that the PIP statute had relieved the insurer of any liability for unnecessary medical expenses or unreasonable charges for medical services. The court held that, in an action under the statute, both reasonableness and necessity are "essential elements of a plaintiff's case," notwithstanding the requirement imposed on the insurer to obtain an independent medical examination prior to withdrawing payment of a treating physician.

44. Case law more applicable to the present issue is thus in agreement with the general rule of J. W. C. Regardless of the proposed agency action, the provider, not the carrier, bears the burden of proving in administrative litigation that the amount of the reimbursement claims is accurate--i.e., the reimbursement claims are free of billing errors.12/

45. But the burden of proof is on the carrier as to one issue in billing-error administrative proceedings. As noted above, the drug reimbursement statute provides for a reduced reimbursement for prescription drugs, if the carrier relies on a contract. In such a case, the carrier must prove up any contract on which it relies. St. Joe Corp. v. McIver, 875 So. 2d 375, 381 (Fla. 2004). Once the carrier proves up a contract,

    
    

    the burden remains with the provider to prove that its reimbursement claim was accurate in light of the contract.13/

    1. Contracting for a Below-Schedule Price

       
       

46. Because a negotiated price is irrelevant to this case, the issue under the drug reimbursement statute is whether Petitioner must reimburse Prescription Partners based on the AWP plus a dispensing fee or based a lower contractual reimbursement amount. As cited above, section 440.13(12)(c) identifies two scenarios under which a lower contractual amount applies:

    1. "where the carrier has contracted for a lower amount" and

       
       

    2. "[w]here the employer or carrier has contracted for such services [evidently referring to "pharmaceuticals and pharmaceutical services"] and the employee elects to obtain them through a provider not a party to the contract[--in which case,] the carrier shall reimburse at the schedule . . or contract price, whichever is lower." The first scenario describes the dispensing of prescription drugs from an in-network or preferred provider. The second scenario describes the dispensing of prescription drugs from an out-of-network or nonpreferred provider--where an in-network or preferred provider was reasonably accessible to the injured employee.

47. Because Dr. Daitch was an out-of-network or nonpreferred provider, the first scenario is inapplicable to this case. In the second scenario, the issues are determining

    
    

    whether the carrier has contracted for drug services and, if so, identifying the contract price for the drug.14/

48. A third potential issue is whether an in-network or preferred-provider pharmacy was reasonably accessible to J. G. The evidentiary record is silent on this matter. Because the burden of proof falls on Respondent, the consequence of this omission from the record is borne by Respondent, and it is therefore found that J. G. obtained the meloxicam from

    Dr. Daitch despite the presence of a reasonably accessible in- network or preferred-provider pharmacy.

49. Neither the drug reimbursement statute nor the Provider Manual requires documentation of a contracted-for price. As previously noted, the second scenario described in the reimbursement statute applies in situations in which the carrier "has contracted" for PBM services and requires the determination of the "contract price." As previously noted, the Provider Manual does not address out-of-network or nonpreferred- provider dispensing of prescription drugs, but, in describing the reimbursement of prescription drug claims under the first scenario, references the "contracted reimbursement amount" determined by the "contractual arrangement" between the provider and insurer.15/ The sole mention of a written contract is in an obscure rule, which provides form language for the coding of

    
    

    EOBRs and does not attempt to prescribe the requirements for a particular reimbursement.16/

50. Lacking the requirement of a written contract in the drug reimbursement statute and Provider Manual, Respondent relies on the parol evidence rule to prevent the consideration of oral agreements or course of dealing in this reimbursement. But the parol evidence rule does not apply. Even if this rule were intended for use by a nonparty to the agreement, the parol evidence rule does not apply to oral agreements made after the execution of a written contract. See, e.g., Pavolini v.

    Williams, 915 So. 2d 251, 254 (Fla. 5th DCA 2005). The provisions to add Petitioner to the parties to the Written Contract and the course-of-dealing establishment of the 12% discount emerged after the Written Contract was signed.

51. Nor does the Statute of Frauds require a writing to document the relevant agreements in this case, including the agreements set forth in the Written Contract. The Statute of Frauds does not disturb oral agreements that are to be performed within the space of 1 year." § 725.01(1). From all appearances, the term of the Written Contract started on

    August 2, 2011, when it was signed by both parties, so the original term was for one year and thus outside the Statute of Frauds. Grossman v. Levy's, 81 So. 2d 752 (Fla. 1955). And, even if it applied, the Statute of Frauds in Florida does

    
    

    disturb agreements; it only prohibits actions to enforce them.

    
    

    § 725.01(1); Grossman, supra.

    
    

52. Largely because the Statute of Frauds does not void or invalidate offending contracts, this defense is not even available to nonparties to the contract. See, e.g., Commercial

    Union Ins. Co. v. Padrick Chevrolet Co., 196 So. 2d 235, 237-38 (Fla. 4th DCA 1967) (insurer may not rely on Statute of Frauds to defeat an oral contract between car dealer and purchaser); Jones v. Howland, 369 So. 2d 438, 441 (Fla. 3d DCA 1979).

53. As long as the term of the agreement does not violate the Statute of Frauds, nothing prevents the parties from establishing a drug discount program by express oral agreement, provided the oral agreement encompasses the necessary elements of a contract--i.e., offer, acceptance, consideration, and sufficient specification of essential provisions. See, e.g., St. Joe Corp. v. McIver, 875 So. 2d 375, 381 (Fla. 2004); W. R.

    Townsend Contracting, Inc. v. Jensen Civil Constr., Inc., 728 So. 2d 297, 300 (Fla. 1st DCA 1999) (essential provisions). The McIver opinion adds that the parties may leave open nonessential provisions and may orally modify the essential provisions of an oral contract, even by subsequent conduct, if the agreement is mutual. McIver at 381-82.

54. Lastly, as noted by the McIver opinion, the parties may modify the essential provisions of an oral--or written--

    
    

    contract by their course of conduct. A contract implied in fact is based on an implied agreement that is inferred in whole or in part from the parties' conduct, rather than entirely based on the parties' words. See, e.g., Gem Broadcasting, Inc. v.

    Minker, 763 So. 2d 1149, 1150 (Fla. 4th DCA 2000). The inferred provision may be the promise to pay a reasonable amount for the services rendered. Id. at 1151.

    1. Conclusion

    
    

55. The standard of proof in this case is a preponderance of the evidence. § 120.57(1)(j), Fla. Stat. As noted above, Respondent bears the burden of proof on all issues except the provisions of any contracts on which Petitioner relies.

56. Even though Petitioner must prove up any written or oral, express or implied, contracts in this case, Petitioner encounters no impediments in this effort. Respondent's case law addresses the question of whether unhappy parties can avoid agreements with other unhappy parties or impose these agreements on third parties that do not wish to be subject to these agreements;17/ for these reasons, Respondent's case law is irrelevant.

57. The question presented by this case is whether happy parties can, by oral and written agreements, express and implied, freely add layers of understanding to their agreements, in the absence of any objection among themselves. The answer is

that they can. The Workers' Compensation Law then imposes these agreements on the certified health care provider and his assignee, both of whom, by training and experience, are well aware that their dispensing of a prescription drug in an out-of- network or nonpreferred-provider transaction may result in the imposition of a discount against the repackager's AWP for the drug--and often a discount considerably greater than the 12% at issue in this case.

RECOMMENDATION

It is RECOMMENDED that the Division of Workers' Compensation enter a final order dismissing the petition of Dr. Jonathan Daitch and Prescription Partners, LLC, for resolution of a reimbursement dispute.

DONE AND ENTERED this 7th day of May, 2013, in Tallahassee,

Leon County, Florida.

S

ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 7th day of May, 2013.

ENDNOTES

1/ The Administrative Law Judge has redacted--and initialed--the name of the claimant from the Petition for Resolution of Reimbursement Dispute that was submitted into evidence.

2/ The Administrative Law Judge has redacted--and initialed-- what appears to be the Social Security number of the claimant from the CMS-1500 that was submitted into evidence.

3/ These reimbursement principles are discussed at length in the Conclusions of Law. In particular, see discussion, below, of section II.F.1.b(1) of the Florida Workers' Compensation Health Care Provider Reimbursement Manual, 2008 edition, which requires a certified health care provider to accept as reimbursement the "agreed upon contract price (whether agreed upon prior to rendering service(s) or upon submission of bill)"--absent either of which, the provider accepts the scheduled payment.

4/ This is the approved language of F.A.C. Rule 69L- 7.602(5)(o)93.

5/ Although nothing in the present record suggests that the practices described in these cases occur today, two decisions provide detailed background as to the flexibility inherent in the term, AWP, which the pharmaceutical manufacturers conceded was an "undiscounted sticker price." In re Pharmaceutical Industry Average Wholesale Price Litigation, 263 F. Supp. 2d 172 (D. Mass. 2003), aff'd 582 F.3d 156 (1st Cir. 2009). (These citations are to two relevant decisions among more than 60 reported decisions in this and related cases.) See also Shepley v. Johnson & Johnson (In re Pharm. Indus. Average Wholesale Price Litig.), 582 F.3d 231, 232-233 (1st Cir. 2009).

6/ The Information Bulletin responds to requests from carriers for guidance as to whether they could lawfully deny reimbursement for prescription drugs dispensed by physicians, rather than pharmacists. The bulletin states that Respondent is unaware of any provision of chapter 440, Florida Statutes, that addresses the issue. Without offering its application of the statute to the facts presented in the request, the bulletin reminds carriers that section 440.13(12)(c), Florida Statutes, provides that "the reimbursement amount for a prescription [drug] shall be the [AWP] plus $4.18 for the dispensing fee, except where the carrier has contracted for a lower amount."

7/ Although the first sentence of § 440.13(6) limits carrier review to the detection of billing errors and overutilization,

F.A.C. rule 69L-7.602(5)(o) provides what, on its face, is a broader range of reasons for disallowing or adjusting a reimbursement claim.

8/ Cited in Respondent's proposed recommended order, Fairpay Solutions v. Agency for Health Care Admin., 969 So. 2d 455 (Fla. 1st DCA 2007), merely holds that a carrier that does not respond to the opportunity to present documents to Respondent, after a provider has filed a petition, waives its objections to the petition. As noted above, Petitioner timely filed its documents in response to the Petition, so Fairpay Solutions is irrelevant to this case. In particular, this case does not stand for the principle cited by Respondent that the Petitioner's evidence is limited to the documents that it provided to Respondent. The requirement is to file documents. By limiting the carrier's case in a formal administrative hearing to those documents, Respondent silently advances its argument that oral agreements are irrelevant. Because the carrier never filed anything in Fairpay Solutions, the case provides no guidance as to what evidence a carrier may submit in a formal administrative hearing.

9/ In an intent-to-deny case, the burden would, of course, be on the provider.

10/ Although workers' compensation differ may differ from other forms of insurance in its greater reliance on statutory, rather than contractual, bases for coverage, this distinction does not preclude reference to burden-of-proof case law in other forms of insurance for guidance in reimbursement disputes under the Workers' Compensation Law. In one decision, the opinion dismisses any concern as to the distinction between an insured and a provider. "Though this action was brought by the service provider and not the policyholders, the distinction is immaterial. Virtual Imaging was an assignee beneficiary of both policyholders. An assignee "stands in the shoes of the assignor and may enforce the contract against the original obligor in his own name." Price v. RLI Ins. Co., 914 So. 2d 1010, 1013 (Fla.

5th DCA 2005) (citing Lauren Kyle Holdings, Inc. v. Heath- Peterson Constr. Corp., 864 So. 2d 55, 58 (Fla. 5th DCA 2003)); Geico Indem. Co. v. Virtual Imaging Servs., 79 So. 3d 55, 58 n.1 (Fla. 3d DCA 2011).

11/ In U. S. Liability Ins. Co. v. Bove, 347 So. 2d 678, 680 (Fla. 3d DCA 1977), the insured had suffered a theft of over

$20,000 of jewelry from a residence. The policy limit of

$16,000 was subject to a further limit of $500 per occurrence for jewelry. The court imposed on the insured the burden of proving multiple occurrences. The court noted that the insurer conceded that the loss was covered by the policy and that no exceptions applied to avoid liability. The per-occurrence policy language "merely sets a limitation on the coverage as to each loss." Id.

In Appalachian Ins. Co. v. United Postal Savings Ass'n,

422 So. 2d 332, 333-34 (Fla. 3d DCA 1982), the insured had suffered over $250,000 in losses from vandalism and theft over a four-month period. The policy allowed a recovery to the extent that the damages exceeded $1000 from an act of theft or an act of vandalism. Distinguishing Phoenix Ins. and Jewelers Mutual, supra, the court acknowledged that the allocation to the insured of the burden of proving the nonexistence of exceptions would convert an all-risk policy to a named-peril policy. But, relying instead on Bove, supra, the court refused to impose on the insurer the burden of proof when it conceded that the loss is covered by the policy, leaving the sole question as whether the loss exceeds the deductible amount. See also Universal Underwriters Ins. Corp. v. Reynolds, 129 So. 2d 689, 691 (Fla. 2d DCA 1961) (court imposed on judgment creditor the burden of proving how much of the judgment was covered by a liability insurance policy).

12/ This recommended order addresses the burden of proof as to a claim of billing errors, not overutilization.

13/ The allocation of the burden of proof is unaffected by the fact, as here, that the provider chooses not to participate in the administrative proceeding, which is then prosecuted by Respondent. In at least one administrative program, the state agency may commence an administrative proceeding on behalf of the aggrieved party. See § 760.35(3)(a)1. (Florida Commission on Human Relations may prosecute claim under the Florida Fair Housing Act, 760.20 et seq., or aggrieved party may prosecute claim, § 760.35(3)(a)2.) If the agency files and prosecutes the case, the agency bears the burden of proof. § 760.34(5); Mitchell v. Shane, 350 F.3d 39, 47 (2d Cir. 2003).

Other administrative programs implement the principle of self- execution by relying on the parties to litigate. As noted above, the aggrieved party may prosecute housing discrimination claims and must prosecute other forms of discrimination claims. See generally the Florida Civil Rights Act, §§ 760.01 et seq.

Also, claims against agriculture bonds administered by the Department of Agriculture and Consumer Services, pursuant to § 604.21, normally involve only the claimant against the bond and the principal under the bond. More generally, in a wide range of permitting programs, the permitting agency determines its level of participation on a case-specific basis, participating actively, for instance, in a case that implicates broad policies of interest or importance to the agency.

Of course, the Notice of Litigation informs the provider of the subject litigation. It even advised him that he was an indispensable party, but neither the provider nor his assignee chose to participate in this administrative proceeding, nor did Petitioner or Respondent file a motion to dismiss this proceeding on this ground. The interesting issue is not whether the replacement of the provider with Respondent somehow precludes the allocation of the burden of proof to Respondent, but whether the nonparticipation of the provider or his assignee is a ground for the dismissal of a reimbursement-dispute proceeding. "Efficient" and "self-executing" are not the first words that come to mind to describe a reimbursement dispute process, in which the agency prosecutes on behalf of the provider's assignee a reimbursement claim of $437 against a carrier that has offered a reimbursement of $385 for a prescription drug that was reimbursed at the time by HCFA for less than $15.

14/ The other requirement--that the provider not be a party to the contract--will always be satisfied in reimbursement disputes under the second scenario because the first scenario captures all providers that are parties to the contract.

15/ Even though applicable to the first scenario, this clause is relevant to illustrate the efforts of the courts to construe such provisions in favor of cost containment. Cf. Nationwide Mut. Ins. Co. v. Dennis Jewell, D.C., P.A., 862 So. 2d 79, 84 (Fla. 2d DCA 2003) (similar language not construed to require direct contractual relationships to establish a network of preferred providers).

16/ F.A.C. rule 69L-7.602(5)(o)93. As mentioned above, this is the descriptor code used by Petitioner in its EOBR when it first reduced Prescription Partners' reimbursement claim. It is unclear whether this code applies to first-scenario reimbursements (i.e., where the provider is in-network or preferred) and second-scenario reimbursements (i.e., where the provider is out-of-network or nonpreferred, but an in-network or

preferred provider was reasonably accessible). In either event, these codes are not reliable sources of reimbursement requirements, but are merely intended to capture reimbursement requirements stated elsewhere, such as in the reimbursement- dispute statute or Provider Manual. Cf. rule 69L-7.602(5)(o)34 (for disallowance of payment, a mere "contractual arrangement," not "written contractual arrangement," is required).

17/ For example, Respondent's proposed recommended order cites RX Solutions, Inc. v. Express Pharmacy Services, Inc., 746 So. 2d 475 (Fla. 2d DCA 1999), as "directly on point." It is not. In the present case, the parties to the Written Contract welcome Petitioner's participation. In RX Solutions, a corporation entered into a contract with two of its employees to limit their ability to compete with their employer, once they were no longer employed by the corporation. Post-termination, they competed by means of an innovation aggrieved an affiliate of their former corporate employer, which tried unsuccessfully to add the affiliate as a third-party beneficiary to the contract. These unhappy parties were, of course, not attempting to supplement their written contract with layers of oral agreements, both express and implied, so this case is inapposite.

Another case relied upon by Respondent, FP&L v. Rock Road, Inc., 920 So. 2d 201 (Fla. 4th DCA 2006), reveals this problem more plainly. In Rock Road, the parties disputed whether they intended for a third party to benefit from their contract. The court declined to find that the parties intended to benefit the third party. In the present case, neither party to the Written Contract objects to the inclusion of Petitioner as a party to the contract.

This theme runs through all of Respondent's cases for the obvious reason that some contractual dispute preexists litigation that results in decisional law.

COPIES FURNISHED:

James T. Armstrong, Esquire Nathan Stravers, Esquire

Walton Lantaff Schroeder & Carson, LLP

200 South Orange Avenue, Suite 1575 Orlando, Florida 32801

Mary E. Ingley, Esquire Assistant General Counsel Division of Legal Services Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-4229

Julie Jones, CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services

200 East Gaines Street Tallahassee, Florida 32399-0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.

Docket for Case No: 12-003834

Orders for Case No: 12-003834