The employer and insurer appeal the compensation judge’s findings that Advanced Neuromodulation Systems, Inc., (ANS) was not, and HealthEast Care System (HealthEast) was, the health care provider that furnished surgical implant components used in the employee’s surgery.  The employer and insurer also appeal the judge’s finding that the reasonable charge for the hardware was 85 percent of HealthEast’s usual and customary charge, and his determination that he did not have authority to determine the reasonable value of the surgical implant hardware at less than 85 percent of the hospital’s usual and customary charge.^[1]  We affirm.

The employee, Ronald E. Troyer, sustained work-related injuries to his low back arising out of his employment with Vertlu Management Company/Kok & Lundberg Funeral Homes, then insured by State Auto Insurance.  The employer and insurer admitted primary liability and paid workers’ compensation benefits to the employee, including medical expenses.

On August 27, 2008, the employee underwent low back surgery at St. Joseph’s Hospital consisting of removal of an anterior RF receiver and laminectomy at the T-10 level, removal of an epidural plate electrode, and implantation of an IPG spinal cord stimulator.  The parties stipulated the surgery was reasonable and necessary to cure and relieve the employee from the effects of his work injuries.  St. Joseph’s Hospital is part of the HealthEast Care System and charges for services at the hospital are billed by and through HealthEast.  The employer and insurer paid the operating room charges, room and board charges, and other charges included in an explanation of reimbursement (EOR) dated October 7, 2008, but paid only part of the charges billed by HealthEast for the surgical implant components.

In March 2009, HealthEast filed a medical request seeking payment of the unpaid balance of the bill for the employee’s surgery.  The employer and insurer denied liability for the additional expense.  The case came on for hearing, and was presented on stipulated facts pursuant to Minn. Stat. § 176.322.  No testimony was taken before the compensation judge; the transcript consists of the offer and admission of exhibits and the comments of counsel.  The parties stipulated to the following pertinent facts:

In a Findings and Order dated February 3, 2010, the compensation judge found that Advanced Neuromodulation Systems, Inc., was the manufacturer and supplier of the spinal cord stimulator implant components used in the employee’s surgery and was not a health care provider within the meaning of Minn. Stat. § 176.011, subd. 24; that HealthEast Care System was the health care provider that furnished the implant components to the employee during the surgery and that HealthEast was entitled to bill for the components; and that the reasonable value of the implant components used in the surgery was $62,322.00 of which $24,440.00 was previously paid leaving a balance due of $37,882.00.  Based upon these findings, the compensation judge ordered the employer and insurer to pay to HealthEast the amount of $37,882.00.  The employer and insurer appeal.

The compensation judge found HealthEast was the health care provider that furnished the implant hardware used in the employee’s surgery and that HealthEast was, therefore, entitled to bill the employer and insurer for the hardware.  The appellants contend the compensation judge erred in his interpretation of Minn. R. 5221.0700 governing provider responsibilities, and erred in finding that HealthEast was the health care provider that furnished the implant supplies.  Minn. R. 5221.0700, subp. 2.A.(2), provides:

The appellants contend that HealthEast was not the provider of the implant hardware because HealthEast did not keep these components in stock.  Rather, the appellants contend ANS was the health care provider that furnished the implant hardware and supplied a medical service to the employee within the meaning of the statute and rules.  To allow HealthEast to bill the insurer for the components at a markup, is, the appellants assert, contrary to Minn. R. 5221.0700, subp. 2.A.(2).  The plain language of the rule, the appellants argue, mandates a reversal of the compensation judge.  We disagree.

In Buck-Ulrick v. Tri City Enterprises, 60 W.C.D. 210 (W.C.C.A. May 13, 2008), the employee underwent an anterior spinal stabilization procedure at Fairview Southdale Hospital with ProDisc arthroplasty.  Fairview did not keep the disc implants in stock and specifically ordered the ProDisc for the employee’s surgery directly from Synthes Spine, the manufacturer of the implant.  Fairview subsequently billed the insurer for its medical services, including a charge of nearly $15,000.00 for “supply implants.”  There was no dispute the employee’s surgery was reasonable and necessary or that Fairview’s charge represented its usual and customary charge for the disc implant.  The insurer, however, argued that Fairview was not entitled to bill it for the disc implant, contending that Synthes Spine was the health care provider of the ProDisc and Synthes Spine had to bill the insurer for the disc implant.  On appeal, this court affirmed the compensation judge’s determination that Synthes Spine was a supplier and not a health care provider and that Fairview was entitled to bill the insurer for the employee’s disc implant.

The facts in the present case are essentially the same as those in Buck-Ulrick.  HealthEast did not keep the implant hardware in stock.  The components used in the employee’s surgery were manufactured by ANS and were purchased by HealthEast specifically for the employee at the direction of the surgeon.  The hardware was implanted as part of the employee’s low back surgery at St. Joseph’s Hospital.  The arguments made by the appellants in this case mirror those made by the employer and insurer in the Buck-Ulrick case.  In this case, as in Buck-Ulrick, the appellants contend Minn. R. 5221.0700, subp. 2.A.(2), dictates that the manufacturer of the implant is the health care provider rather than the hospital.  This court has rejected that argument, concluding in Buck-Ulrick that the manufacturer of an implant is not a health care provider “actually furnishing the service, article, or supply” to the employee.

The employer and insurer contend, however, that this case is distinguishable from the Buck-Ulrick case on three bases.  The appellants first contend the Buck-Ulrick decision lacks an analysis of the rule-making history and rationale behind the amendment of Minn. R. 5221.0700, subp. 2.A.  The appellants argue the compensation judge in this case and the court in Buck-Ulrick failed to consider both the policy underlying the amendments to Minn. R. 5221.0700 and the SONAR explaining the intent of the amendments.^[3]

Minn. Stat. § 176.001 states “[i]t is the intent of the legislature that chapter 176 be interpreted so as to assure the quick and efficient delivery of indemnity and medical benefits to injured workers at a reasonable cost to the employers who are subject to the provisions of this chapter.”  In furtherance of this statute, the appellants contend, the Department of Labor & Industry amended Minn. R. 5221.0700 to combat indirect billing that results in excessive cost markups.  In proposing the amendments to the rules governing reimbursement for workers’ compensation medical services, the department prepared a Statement of Need and Reasonableness (SONAR).  (Er Ex. 16.)  The appellants contend the SONAR supports the position that ASN, and not HealthEast, was the health care provider of the disc implants.  We disagree.

In 1993, Minn. R. 5221.0700 was amended, adding item A. of subpart 2, at issue in this case (see p. 4, above).^[4]  According to the SONAR, one purpose of the amendments to Rule 5221.0700 was to implement federal anti-kickback regulations and prohibit payment for workers’ compensation services delivered in violation of the federal act.  The Medicare anti-kickback statute, 42 U.S.C. § 1320a-7b, makes it a crime to knowingly and willfully solicit, receive, offer or pay any remuneration in return for (1) referring or arranging for services which are payable by a federal or state health care program or (2) purchasing, ordering, leasing or arranging for or recommending the purchase, leasing, or ordering of goods or services payable by a federal or state health care program.  In this case, there is no suggestion that any party received any remuneration in return for ordering or purchasing the spinal cord stimulator implant from ANS.  Nor is there any evidence of any payment by a federal or state health care program.  Thus, a principle purpose of Rule 5221.0700 is not relevant here.

The SONAR explanation for the amendments to subpart 2 of the rule states, in part:

While not specifically referencing the SONAR, in Buck-Ulrick this court stated:

We acknowledge the SONAR explication of Minn. R. 5221.0700, subp. 2.A.(2), suggests that if the equipment or supply is not ordinarily kept in stock by the hospital, the health care provider is the supplier of that equipment or supply.  We cannot agree, however, that the sole determining criteria for determining whether the hospital or the manufacturer is the health care provider is whether a hospital does or does not keep in stock a particular piece of equipment or a particular supply.  If it were, the rule “would transform virtually every manufacturer of custom medical devices or surgical components not kept in stock by a hospital into health care providers, subject to the rules and responsibilities of the workers’ compensation system.”  Id. at 214-215.  The court in Buck-Ulrick emphasized the statute and rule require that the charge for the implant components must be submitted by the health care provider actually furnishing the service.  As with the ProDisc implant in Buck-Ulrick, HealthEast St. Joseph’s Hospital did not refer the employee to ANS.  The implant hardware had no value to the employee until it was used at the hospital by the surgeon as part of the employee’s surgical procedure.  Until used in the surgery, the components supplied by ANS could not cure or relieve the employee from the effects of his personal injuries.  Accordingly, HealthEast, not ANS, was the health care provider “actually furnishing” the article to the employee within the meaning of Minn. R. 5221.0700.

The employer and insurer next argue the court in Buck-Ulrick lacked the context to reach the correct decision because the court was unaware of the extent of the markup.  In this case, HealthEast’s usual and customary charge for the implant components was $73,320.00.  The appellants paid HealthEast $24,440.00 for the components, which amount it claims was based upon wholesale invoices obtained from other hospitals for the same implant components.  The difference is $48,888.00 which the appellants contend is the markup in this case.  The employer and insurer argue it is the intent of Minn. R. 5221.0070, subp. 2.A., to avoid such a substantial markup on a supply not kept in stock by the hospital and supplied by a separate entity.  Further, the appellants assert such a large markup frustrates the intended purpose of Minn. Stat. § 176.001 to deliver medical benefits to injured workers at a reasonable cost.

No evidence was submitted as to the manner in which HealthEast determines the amount of its charges or how it priced the facilities, equipment, services, and supplies necessary for the employee’s surgery.  The amount of any markup was not an issue before the compensation judge nor is it an issue here.  Minn. R. 5221.0070, subp. 2.A., does not prohibit a markup on medical supplies purchased by a hospital nor does it set a limit on the amount of a markup.  Rather, the rule requires direct billing to the payer from the health care provider actually furnishing the article to the patient.  In applying the rule, the amount of any markup is not legally significant.  Furthermore, whatever the percentage of markup, the appellants stipulated it was HealthEast’s usual and customary charge.

Finally, the employer and insurer argue the Buck-Ulrick case is distinguishable because there was no testimony in that case of the extent of the involvement of the manufacturer of the artificial disc.  In the present case, a representative of ANS delivered the pre-sterilized device to the hospital, brought alternative sizes if they were required, and remained in the hospital in case the surgeon had questions about the proper installation and functioning of the device.  The appellants argue ANS developed, manufactured, tested, and delivered the implant and participated in the surgical procedure by having a representative present to answer questions.  These services, the appellants contend, were of value to the employee and constituted a service provided by ANS to the employee.  Accordingly, the appellants assert ANS, not HealthEast, was the health care provider of the implant components.  We are not persuaded.

There is no dispute ANS manufactured, developed, tested, and delivered the implant to St. Joseph’s Hospital.  The compensation judge, however, noted the evidence did not establish the device was brought to the operating room by ANS’s agent.  Nor, the compensation judge noted, did the evidence establish the agent participated in the surgical procedure in any manner.  Finally, there is no evidence describing what the ANS representative actually did in this case, if anything.  It is undisputed a HealthEast employee ordered the implant components from ANS at the request of Dr. Burton, the surgeon.  HealthEast was responsible for insuring the correct device was implanted in the correct patient and that sterility was maintained.  HealthEast supplied the facility, equipment, and supplies for the surgery and, except for the surgeon, provided all necessary staff, including the assistant surgeon.

The trial judge concluded that even if the evidence established that ANS’s representative was present during the surgery and answered questions about the hardware posed by the surgeon, this level of involvement would not convert ANS into a health care provider.  We agree.  The dispositive factor is that the implant components manufactured by ANS had no intrinsic value standing alone and could not cure and relieve the employee from the effects of his personal injuries until used in the surgery.  Accordingly, HealthEast was the health care provider under Minn. R. 5223.0700, subp. 2.A.(2), and was entitled to bill the insurer for the implant device.

The employer and insurer contend the compensation judge erred in determining that he did not have authority to determine the reasonable value of the surgical implant hardware at less than 85 percent of the hospital’s usual and customary charge, and in finding that the reasonable charge for the hardware was 85 percent of HealthEast’s usual and customary charge.^[5]  The appellants assert that, pursuant to Minn. Stat. § 176.136, subd. 2, a compensation judge does have authority to review the hospital’s usual and customary charge and reject charges that are excessive.

Prior to 1992, Minn. Stat. § 176.135, subd. 3, limited the liability of an employer for medical expenses to “such charges therefore as prevail in the same community for similar treatment, articles and supplies.”^[6]  In 1992, Minn. Stat. § 176.135, subd. 3, was repealed.  The legislature directed the commissioner of the Department of Labor & Industry to enact a relative value medical fee schedule which “must reasonably reflect a 15 percent overall reduction from the medical fee schedule most recently in effect.”  Minn. Stat. § 176.136, subd. 1a.  The liability of a employer for treatment provided at a hospital with greater than 100 licensed beds is now limited to 85 percent of the provider’s usual and customary charge or, in the alternative, 85 percent of the “prevailing charges” for similar treatment articles or supplies when paid for by the injured person, whichever is lower.  Minn. Stat. § 176.136, subd. 1b.(b).^[7]

The appellants assert the compensation judge’s decision regarding the 85 percent limit is erroneous.  They argue the Workers’ Compensation Act is to be interpreted to assure the efficient delivery of medical benefits at a reasonable cost to employers under Minn. Stat. § 176.001.  Minn. Stat. § 176.136, subd. 1b, the appellants contend, explicitly grants authority and discretion to a compensation judge to determine the reasonable value of medical services, articles, or supplies.  They maintain the policy underlying this grant of authority is to provide an independent check against unreasonable charges by hospitals for services outside the fee schedule.  The appellants note that neither the usual and customary standard or the prevailing charge standard prohibits hospitals from placing markups on products such as implants.  Further, they argue, a prevailing charge standard cannot be the sole safeguard intended by the legislature to protect against unreasonable usual and customary billings because that standard fails to provide for any independent scrutiny of markups for things such as implants.  To prevent such abuses, the appellants contend Minn. Stat. § 176.136, subd. 1b.(b), caps the employer’s liability at 85 percent of the hospital’s usual and customary charge or 85 percent of the prevailing charge, but allows a compensation judge to award less than 85 percent.  The appellants argue that by capping the payer’s liability at 85 percent, the legislature set only the upper limit of liability and not a mandatory percentage for reimbursement.

This interpretation of the statute, the appellants maintain, is evidenced by the difference in the language used in establishing the liability of an employer for small and large hospitals.  Subdivision 1b.(a) states that the liability of the employer for charges at a small hospital “shall be the hospital’s usual and customary charge.”  Subdivision 1b.(b) states the liability of the employer for charges at a large hospital “shall be limited to” 85 percent of the usual and customary or prevailing charge.  Had the legislature intended 85 percent to be the fixed amount for reimbursement to large hospitals, the appellants argue, it would have used the same obligatory language employed in subdivision 1b.(a) stating instead that the liability of the employer “shall be” 85 percent of the usual and customary charge.  Since it does not do so, the appellants argue, the 85 percent limitation is an upper limit only and the statute grants authority to a compensation judge to determine whether the hospital’s reasonable and customary charge is excessive.  We are not persuaded by these arguments.

Minn. Stat. § 176.136, subd. 1b.(a), establishes the liability of the employer for treatment at a small hospital at 100 percent of the hospital’s usual and customary charge “unless the charge is determined by the commissioner or a compensation judge to be unreasonably excessive.”  This subdivision of the statute, therefore, specifically provides for review, by a compensation judge, of a small hospital’s usual and customary charge.  In contrast, Minn. Stat. § 176.136, subd. 1b.(b), establishes the liability of an employer for treatment at a large hospital at 85 percent of either the hospital’s usual and customary charge or 85 percent of the prevailing charge, whichever is lower.  For a large hospital, therefore, the jurisdiction of a compensation judge is limited to determining which charge is less, 85 percent of the provider’s usual and customary charge or 85 percent of the prevailing charge.^[8]  That legislative intent is evidenced by the language of the statute which states that “[o]n this basis, the commissioner or a compensation judge may determine the reasonable value of all treatment, services, and supplies, and the liability of the employer is limited to that amount.”  The phrase “on this basis” can refer only to the two alternate standards for the liability of the employer.

Nor do we agree with the appellants’ argument that the 85 percent limitation is an upper limit only.  We agree the legislature’s use of the phrase “shall be limited to” was intentional and contemplates that the liability of an employer for treatment at a large hospital might be less than 85 percent of the usual and customary charge or 85 percent of the prevailing charge.  We do not agree, however, that a compensation judge has jurisdiction to make that determination.  The last sentence of Minn. Stat. § 176.136, subd. 1b.(b), provides that “[t]he commissioner may by rule establish a reasonable value of a service, article, or supply in lieu of the 85 percent limitation in this paragraph.”  The plain meaning of the statute is that the employer’s liability for charges at a large hospital are 85 percent of the hospital’s usual and customary charge or 85 percent of the prevailing charge unless the commissioner, by rule, establishes a lesser charge.  The authority to reduce the employer’s liability to less than 85 percent is limited to the commissioner through the rule making authority.  Nowhere in the statute do we find any implicit or explicit authority granted to a compensation judge to reduce the employer’s liability below the 85 percent limitation.

We acknowledge the appellants’ argument that substantial markups on surgical hardware implants by large hospitals contribute to the high cost of medical care.  But this court cannot ignore the statute in order to fashion a remedy.  The liability of an employer for treatment at a large hospital is statutorily established at 85 percent of either the provider’s usual and customary charge or the prevailing charge.  The appellants have not sought to establish the prevailing charge and have stipulated to HealthEast’s usual and customary charge.  To the extent a systemic problem may exist related to markups on surgical hardware implants, that problem is best addressed by the commissioner through the department’s rule making authority.

The decision of the compensation judge is affirmed.