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Head of Las Gatos Testing Lab Charged with $69M Hoax

The president of a California-based medical technology company was charged for his alleged participation in schemes to mislead investors, to manipulate the company’s stock price and to conspire to commit health care fraud in connection with the submission of over $69 million in false and fraudulent claims for allergy and COVID-19 testing.

The complaint against Mark Schena, 57, of Los Gatos, California, the president of Arrayit Corporation, is the first criminal securities fraud prosecution related to the COVID-19 pandemic that has been brought by the Department of Justice and charges one count of securities fraud and one count of conspiracy to commit health care fraud.

According to the affidavit in support of the complaint, Schena touted that Arrayit is the “only laboratory in the world that offers” revolutionary “microarray technology” that allows Arrayit to test for allergy and COVID-19 based on a drop of blood that is 250,000 times smaller than the technology touted by Theranos.

Beginning in or around 2018 and continuing to in or around February 2020, Schena and others paid kickbacks and bribes to recruiters and doctors to run an allergy screening test for 120 allergens (including things ranging from stinging insects to food allergens) on every patient regardless of medical necessity, and then made numerous misrepresentations to potential investors about Arrayit’s allergy test sales, financial condition, and its future prospects.

Schena and others issued press releases and tweeted about partnerships with Fortune 500 companies, government agencies and public institutions, without disclosing that such partnerships either did not exist or were of de minimis value.

As the COVID-19 crisis began to escalate in March 2020, Schena and others made false claims concerning Arrayit’s ability to provide accurate, fast, reliable and cheap COVID-19 tests in compliance with state and federal regulations, and made numerous misrepresentations to potential investors about the COVID-19 tests and Arrayit’s future prospects for COVID-19 testing.

Schena stated that it was simple to develop a test for COVID-19 because the switch from testing for allergies to testing for COVID-19 was “like a pastry chef” who switches from selling “strawberry pies” to selling “rhubarb and strawberry pies.” Arrayit’s stock price doubled in mid-March, but Schena and others never disclosed that there were questions about the validity of its data and the accuracy of its COVID-19 test.

“The scheme described in the complaint, in which the defendant allegedly leveraged this allure by appending the fear of the Covid 19 pandemic, amounts to a cynical multi-million dollar hoax,” said U.S. Attorney David L. Anderson of the Northern District of California.

“This defendant allegedly defrauded Medicare through illegal kickbacks and bribes, and then turned to exploiting the pandemic by fraudulently promoting an unproven COVID-19 test to the market,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.

Workers’ Comp Trails Commercial Lines Growth

U.S. commercial insurance prices again grew significantly in the first quarter of 2020, according to Willis Towers Watson’s most recent Commercial Lines Insurance Pricing Survey (CLIPS).

The survey compared prices charged on policies underwritten during the first quarter of 2020 to those charged for the same coverage during the same quarter in 2019.

The aggregate commercial price change reported by carriers was close to 2% for all four quarters of 2018 and the first quarter of 2019, climbing to almost 4% in the second quarter, almost 5% in the third quarter of 2019, and over 6% for the past two quarters.

Data for nearly all lines indicated significant price increases in the first quarter, with the largest coming from excess/umbrella liability and directors and officers liability, as both coverages saw significantly accelerating increases over the past three quarters.

However CLIPS indicates ongoing material price reductions for workers compensation, in contrast to nearly all other surveyed lines, though the decreases have tempered somewhat for each of the last five quarters.

The past outlier in the results, commercial auto, saw reported price increases near or above double digits for the tenth consecutive quarter, while property coverage saw near double digit increases for the fourth consecutive quarter.

Price changes for most lines other lines were fairly consistent with those observed in the prior quarter.

When comparing account sizes, reported price changes were more muted for small commercial accounts, higher for mid-market accounts, and approaching double digits for large accounts, whereas the prices were fairly consistent by account size four quarters ago.

Specialty lines price increases in aggregate were above double digits increases for the second consecutive quarter.

Stipulation to “Upper Extremity” Includes Thoracic Outlet Syndrome

Michael Perani was a computer software engineer from 1988 until 1995, who sustained an injury to his “upper extremities” while employed by Island Graphics.

In 1994, he filed a workers’ compensation claim after he began suffering from pain, inflammation, swelling and impaired range of motion in his hands, wrists and arms. He was not specifically diagnosed as having a condition known as “thoracic outlet syndrome” (TOS), but his medical records describe symptoms consistent with TOS in the year following his claim.

TOS refers to a constellation of symptoms which arise due to compression of blood vessels or brachial plexus nerves in the space between the clavicle and the first rib (i.e., the thoracic outlet). Compression of the brachial plexus nerves causes a variety of symptoms, including pain in the shoulder and scapula area, pain, numbness, swelling and tingling in the arm or hand, reduced grip strength, and weakness when raising the arm. Thoracic outlet syndrome commonly arises in patients whose occupation requires repetitive motion, which causes inflammation, which in turn results in compression of the brachial plexus nerves.” (Borrayo v. Avery (2016) 2 Cal.App.5th 304, 307.)

In 1998, Perani entered into a stipulated award which stated he “. . . sustained injury arising out of and in the course of employment.” In the space labeled “(Parts of body injured),” the award stated, “bilateral upper extremities.”

The WCAB upheld a decision by the WCJ that thoracic outlet syndrome involves a different part of the body than did the award. It consequently denied Perani’s application for expenses incurred to treat that condition. The court of appeal annulled the decision in the unpublished decision of Perani v WCAB, Island Graphics.

The question presented was whether thoracic outlet syndrome is encompassed within the award.

Upper extremity” includes the hand, wrist, elbow and the shoulder – in other words the entirety of the arm. (See Smith v. Empire Pencil Company (Tenn. S.C. 1989) 781 S.W.2d 833, 837.) The term can be defined even more expansively, to include the neck and shoulders; essentially, everything from the base of the skull down. (M.C. Dean, Inc. v. District of Columbia Employment Services (D.C. App. 2016) 146 A.3d 67, 72-73.

The 1998 stipulated award did not specify that future medical treatment was authorized only for a particular medical condition such as repetitive strain injury or carpal tunnel syndrome, which can be distinguished from TOS even when the symptoms overlap. Instead, the award broadly stated that the body parts injured were the “bilateral upper extremities,” without specifying a particular medical condition, and that there was a need for further medical treatment of that injury.

Had the parties wished to limit future medical treatment to treatment for particular conditions, they could have done so.

Workers Sue Amazon Over COVID-19 Working Conditions

Amazon has found itself involved in a lawsuit, which was filed by a group of warehouse workers that claim the e-commerce giant put them at risk because of the working conditions at its fulfillment centers during the coronavirus pandemic.

This is not the first lawsuit that Amazon has been involved with over working conditions at its fulfillment centers during the coronavirus pandemic. The company has come under fire for its safety measures as it ramped up its workforce by 175,000 employees to meet the onslaught of demand caused by consumers stocking up on essential items from its website.

Employees at Amazon have staged walkout protests asking for hazard pay, better working conditions, and more COVID-19 testing. Amazon paid its workers $2 per hour extra during the height of the coronavirus pandemic, which expired at the end of May. The company said it has spent $800 million in the first two quarters of the year on safety measures.

Amazon said it was reviewing the complaint. “We are saddened by the tragic impact COVID-19 has had on communities across the globe, including on some Amazon team members and their family and friends,” spokeswoman Lisa Levandowski said in an emailed statement. “From early March to May 1, we offered our employees unlimited time away from work, and since May 1 we have offered leave for those most vulnerable or who need to care for children or family members.”

Amazon emerged as an indispensable service for many customers shopping online during “shelter-in-place” orders. The company scrambled to meet surging demand by hiring 175,000 workers while simultaneously announcing new procedures to protect its workforce.

According to Amazon, over 150 processes have been updated to protect employees, and the company is spending over $800 million in the first half of 2020 on coronavirus safety measures. Workers diagnosed with the virus are also being offered additional paid time off, the company has said.

But the new lawsuit claims Amazon has only “sought to create a facade of compliance” and continued with unsafe practices. Workers “continue to work at dizzying speeds, even if doing so prevents them from socially distancing, washing their hands, and sanitizing their work spaces,” according to the lawsuit.

The plaintiffs also say Amazon punishes employees who complain about workplace safety and tells workers to avoid informing others if they become infected. Amazon has told employees its contact tracing consists only of reviewing its surveillance footage, rather than interviewing infected workers about their interactions, the lawsuit says.

Amazon’s failures have already caused injury and death to workers and family members of workers,” the lawsuit says, noting that a worker at the Staten Island warehouse has been confirmed to have died from Covid-19.  One month later, the worker’s family member reportedly displayed COVID-19 symptoms and died. The plaintiffs in the case are not seeking damages for illness or death but instead asking for an injunction to force Amazon to follow public health guidelines, the news outlet said.

The Staten Island warehouse has been a focus of health and safety complaints since March, when employees mounted the first of a series of walkouts.

Amazon terminated the leader of that protest, claiming he violated a company quarantine order. The company’s action spurred denunciations and calls for investigation by officials including Senator Bernie Sanders and New York Attorney General Letitia James.

Fake Hydroxychloroquine Study Retracted by Lancet and NEJM

Medical treatment in California Workers’ Compensation is based upon treatment guidelines built upon high quality scientific research. At the core is the assumption that published medical studies in leading peer reviewed journals are high quality science. But that might not always be the case.

Nearly a decade ago, headlines highlighted a disturbing trend in science: The number of articles retracted by journals had increased 10-fold during the previous 10 years. Fraud accounted for some 60% of those retractions.

Since then, two longtime health journalists founded the blog Retraction Watch, to get more insight into just how many scientific papers were being withdrawn, and why. They began to assemble a list of retractions.

That list, formally released to the public in 2018 as a searchable database, is now the largest and most comprehensive of its kind. In its tenth year, 2019, nearly 1500 retractions were added to its database in just one year.

The COVID-19 pandemic aftermath added the alarming retraction of what appeared to be a derogatory study of the effectiveness of Hydroxychloroquine as a treatment modality by two leading medical journals, the Lancet, and the New England Journal of Medicine.

The paper, “Hydroxychloroquine or chloroquine with or without a macrolide for treatment of COVID-19: a multinational registry analysis,” which relied on data from a private company called Surgisphere and had concluded that hydroxychloroquine was linked to a higher risk of death among some COVID-19 patients, has been dogged by questions since its publication in late May.

The publication of the study had prompted the World Health Organization (WHO) to halt a study of hydroxychloroquine, but the WHO resumed that trial once the expression of concern appeared.

Details in the Surgisphere data revealed many obvious inconsistencies to scientific observers – which should have been obvious to the “peers” who supposedly reviewed the article before publication by the Lancet and NEJM.

For example, Matthew Spinelli, MD, of University of California San Francisco, told MedPage Today the “claim to have captured data from over 60,000 hospitalizations at over 550 hospitals in North America by April 13th concerns me, given that there were approximately 60,000 COVID-19 hospitalizations total from approximately 6,000 hospitals across all of the United States through April 13th.”

Walid Gellad, MD, of the University of Pittsburgh, noted on Twitter that 73 deaths were recorded in Australia according to the Lancet authors, which is “more than the number of deaths in Australia on April 20.”

A blog hosted by statisticians at Columbia University in New York City raised several other issues, including the results being confounded by disease severity, lack of hierarchical modeling, and how the data appeared to be aggregated across continents.

Two days after issuing expressions of concern about controversial papers on Covid-19, The Lancet and the New England Journal of Medicine have retracted the articles because a number of the authors were not granted access to the underlying data.

EU Regulators Join FTC Efforts Against Drugmaker Pay-for-Delay Deals

Reverse payment patent settlements, also known as “pay-for-delay” agreements, are a type of agreement that has been used to settle pharmaceutical patent infringement litigation (or threatened litigation), in which the company that has brought the suit agrees to pay the company it sued.

That is, the patent holder pays the alleged infringer to stop its alleged infringing activity (e.g., to stop selling a generic version of a drug) for some period of time and to stop disputing the validity of the patent. These agreements are distinct from most patent settlements, which usually involve the alleged infringer paying the patent holder. Reverse payment patent settlements result from a peculiarity in US regulatory law arising from the Hatch-Waxman Act passed in 1984.

One of the Federal Trade Commission’s top priorities in recent years has been to oppose a costly legal tactic that more and more branded drug manufacturers have been using to stifle competition from lower-cost generic medicines.

According to the FTA, drug makers have been able to sidestep competition by offering patent settlements that pay generic companies not to bring lower-cost alternatives to market. These “pay-for-delay” patent settlements effectively block all other generic drug competition for a growing number of branded drugs.

According to an FTC study, these anticompetitive deals cost consumers and taxpayers $3.5 billion in higher drug costs every year. Since 2001, the FTC has filed a number of lawsuits to stop these deals, and it supports legislation to end such “pay-for-delay” settlements.

Reuters just reported that EU Regulators have now successfully pursued similar initiatives.

EU antitrust enforcers, boosted by recent court victories, reinforced their case against Israeli drugmaker Teva over its deal with rival Cephalon to delay selling a generic version of its sleep disorder drug modafinil.

Three years ago, the European Commission said the company’s cash payments deal with Cephalon as part of a settlement to end a lawsuit over alleged infringement of Cephalon’s patents on the blockbuster drug may have jacked up the price of modafinil.

It sent a statement of objections, or charge sheet, outlining its concerns why the deal may be anti-competitive. Teva later acquired Cephalon in 2011.

On Monday, the EU competition enforcer sent a supplementary charge sheet to Teva, clarifying why it considered that the objective of the pay-for-delay deal was to restrict competition. It also cited recent court judgments backing its stand.

Teva can be fined up to 10% of its global turnover if found guilty of breaching EU antitrust rules. Regulators on both sides of the Atlantic have fought a long-running battle with drugmakers against such deals.

June 1, 2020 – News Podcast


Rene Thomas Folse, JD, Ph.D. is the host for this edition which reports on the following news stories: Court of Appeal Clarifies Hikida Limits on PD Apportionment, Insurance Agent Who Stole .5M in Premiums Faces 9 Felonies, Four More Convicted in $199M Illegal Prescription Drug Conspiracy, Uber/Lyft AB-5 Initiative Qualifies for November Ballot, WCIRB Estimates Costs of COVID-19 Executive Order at $1.2B, CWCI Reports on Effects of COVID-19 Presumptions, Hollywood Spawns New Cottage Industry – COVID-19 Consultants.

5000 COVID-19 Workers’ Comp Cases Filed in Calif.

Californians stricken with COVID-19 took the first step in filing more than 5,000 workers’ compensation claims from January through May, according to state data released to CalMatters.

More than 1,000 of those claims were denied, most of them before Gov. Gavin Newsom signed a May 6 executive order extending protections for essential workers infected on the job on or after March 19, the day California’s lockdown order went into effect. The order presumes that essential workers – including nurses, first responders, farmworkers and grocery workers who contracted COVID-19 – were infected on the job, and puts the burden on employers to prove otherwise.

At the same time, overall workers’ compensation claims plummeted during California’s lockdown as workplaces shut down and fewer employees were injured at work. Only 1,098 claims were filed in May, compared with more than 50,000 in January.

While a number of states have extended similar “presumptive eligibility” protections to varying groups of workers – mostly health care workers and first responders – California goes further than many in protecting all essential workers.

As of Tuesday, more than 10,000 health care workers have been diagnosed with COVID-19; 63 have died. More than half worked in nursing homes.

Analysts originally estimated that California employers and their insurers might face COVID claims of up to $33.6 billion annually but later downgraded that to about $2 billion.

COVID-related claims were denied at a rate of 10 to 60 percent depending on the month. In April, about 13 percent of claims were denied. Under Newsom’s executive order, essential workers, such as nurses or first responders, have to show that they were infected within a certain period after the statewide shutdown began; they also had to be diagnosed by a physician.

Alex Swedlow, president of the California Workers’ Compensation Institute said that even before Newsom’s order took effect, the majority of COVID claims were approved.

The shortage of diagnostic tests – a significant problem for workers in March and April, when most of the claims were filed – may have contributed to some of the denials, Swedlow said. Other workers may have been denied because they tested negative at a time when some COVID-19 tests have produced false negatives.

An Institute report released earlier this month found that about 41 percent of workers’ comp claims were made by health workers, with another 32 percent by first responders including police and firefighters. Some workers were denied because they worked at home; others because they declined to be tested, according to the report.

Swedlow anticipates that denials may decline as workers get more access to testing and California’s workers’ comp system adjusts to dealing with an entirely new disease.

Sudden Turnaround – Payrolls Unexpectedly Rise by 2.5M in May

The unemployment rate fell to 13.3 percent and payrolls unexpectedly rose by 2.5 million workers as the easing of restrictions on business activity and government aid led to new hiring in May.

The U.S. unemployment rate fell below last month’s record-high 14.7 percent, which was the highest on record in data going back to 1948. Economists estimate that the unemployment rate reached 25 percent during the Great Depression, although that predated the scientific economy-wide record keeping the government now deploys.

The job gains mark a sudden turnaround from a month earlier, when the economy shed a staggering 20.5 million jobs, by far the worst monthly decline on records back to 1939.

Economists had expected the unemployment rate to rise to nearly 20 percent and the economy to shed an additional 8 million jobs.

The mandatory closures of many businesses and stay-at-home orders slammed what had been a very healthy labor market hard. The economy added jobs for 113 straight weeks through February, a record streak of growth. The unemployment rate was 3.5 percent in February. And yet job creation was running very hot, with the economy adding an average of 211,000 new jobs each month.

The government has undertaken unprecedented efforts to support employment and provide aid to those who have lost their jobs. Around 150 million taxpayers received stimulus payments of up to $1200 for adults in their household plus additional amounts for children. The Treasury’s Paycheck Protection Program is backing $669 billion of loans to small businesses that can be forgiven if borrowers do not lay off workers. The federal government has been providing an additional $600 on top of state unemployment benefits, paying some Americans more than they earned on the job.

Recent data suggest the labor market has been stabilizing and is now improving. The number of people applying for unemployment benefits has declined every week since hitting a record high 6.8 million in March. Last week, this number fell to around 1.8 million. Over 40 million new claims have been made for unemployment since the wave but ongoing claims are just over 20 million, indicating many Americans have been rehired after losing jobs.

In May, employment in leisure and hospitality jumped by 1.2 million after falling by 7.5 million in April and 743,000 in March. Bars and restaurants hired an additional 1.4 million workers following a combined 6.1 million in job losses in April and March.

Construction employment jumped by 464,000 in May, gaining back almost half of April’s decline.

Dentist offices added 245,000 jobs. Health care employment overall rose by 312,000.

Retail shops added 368,000 jobs in May, after a loss of 2.3 million in April. Over-the-month job gains occurred in clothing and clothing accessories stores were 95,000. Auto dealers added 85,000. General merchandise stores added 84,000.

Manufacturers added 225,000 jobs, about evenly split between the durable and nondurable goods components. Twenty-eight thousand of those were in auto making plants.

Employer Group Argues Against Additional COVID-19 Presumptions

Stuart Waldman is president of the Valley Industry & Commerce Association (VICA), which works to enhance the economic vitality of the greater San Fernando Valley region by advocating for a better business climate and quality of life.

He just published his views on the workers’ compensation presumptions that he says burdens the COVID-19 recovery in an opinion article published by the Los Angeles Daily News.

He says that the consequences of the governor’s COVID-19 “presumption” for workers is far-reaching and will potentially add billions in new costs to California’s already cost-laden system, especially as employers struggle to bring jobs and public services back online.

Now, he points out that state lawmakers stand ready with several legislative proposals which threaten to burden the relatively modest workers’ compensation system with an outsized responsibility for California’s response to COVID-19, even though the connection to the workplace may be tenuous or even nonexistent.

To be clear, he points out that employers have raised no objection to paying COVID-19 workers’ compensation claims that can be traced to the workplace. In fact, these claims are being paid in cases where there’s a positive test. The objection is that presumptions leave employers virtually defenseless against claims that originated outside the workplace but must be accepted as workers’ compensation claims.

Yet he makes four arguments against adding more presumptions to the current worker’s compensation compensability architecture.

First, there’s no evidence that a COVID-19 presumption is needed. In addition to unprecedented safety measures and expansions of sick leave, all evidence points to employers accepting claims for COVID-19. Early reports suggest workers’ compensation claims are only being denied when COVID-19 tests come back negative.

Second, wholesale presumptions fail to consider whether a worker has any greater risk of COVID-19 sickness. Even if they leave their home, many workers are working with ample social distancing and do not interact with the public. Personal errands for these workers likely come with far greater risk than the workplace.

Third, California’s re-opening from the pandemic is not limited to workplaces. People are easing back into broader socializing and recreation. Presumptions assume that people are merely going to or from work. That is not the current reality. The “industrial causation” standard exists precisely because people have lives outside of work.

Fourth, presumptions lay billions of new costs on employers at the exact moment when they can least afford it. For many employers and most public agencies (cities, counties, schools, and others are also employers), workers’ compensation costs are not an indirect cost paid for through insurance. They are a direct, pay-as-you-go cost that redirects critical dollars away from other business needs or public services.