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Walter Hesse Returns to Floyd, Skeren and Kelly

Floyd, Skeren and Kelly is pleased to announce the return of Walter Hesse as of April 5, 2013.

After an approximate year of employment at another law firm, he is once again a welcomed addition to the firm’s new Westlake Village office. He brings with him over 35 years of Workers’ Compensation claims experience.

As he worked his way up the ranks of the California insurance industry, Walter was tapped by FS&K to create its lien unit over a decade ago. Due to his efforts, the lien unit now flourishes and maintains over a dozen lien specialists throughout California. Recognized early in his career as a lien litigator, the IEA tapped him as an instructor. His special insight towards lien defense, coupled with his recognition, respect, and goodwill within our community, allows FS&K this proud opportunity to announce his “coming home” after a year at another law firm.

Welcome back Walter!

SCIF 2012 Annual Report Shows Surge in Income

State Fund’s Annual Report for 2012 was just released. The report shows a significant increase in net income for California’s largest workers’ comp insurer. For 2012, State Fund’s income before dividends totaled $458 million, which was $279 million more than the prior year.

The report also indicates that State Fund reduced annual fixed expenses by $150 million dollars compared to 2009, and expects to achieve annual savings of more than $300 million by the end of 2014. These savings will help State Fund maintain fair pricing and bring value to a larger swath of the available market. State Fund announced a rate reduction of 7% effective March 1, 2013.

State Fund maintained a balanced investment portfolio that was focused on both credit quality and investment yield (99.3% of the $18.2 billion bond portfolio was rated NAIC 1, the NAIC’s highest quality credit class). The weighted average credit quality of the overall bond portfolio was Aa1/AA by Moody’s and Standard and Poor’s, respectively. Book yield at December 31, 2012 was 4.10%, down from 4.43% at December 31, 2011.

“I am proud to report that at the end of 2012, we began to realize our vision of a more effective State Fund, and that we are on a sustainable path to become the competitive, agile workers’ compensation carrier envisioned by our core mission,” remarked Tom Rowe, State Fund President and CEO in the report.

Rowe added that, “State Fund is emerging from its restructuring stronger, more efficient, and better able to deliver value to our policyholders, and injured workers – the greatest thing we can do for Californians.”

The report comes as State Fund approaches the three-year mark of implementing a comprehensive restructuring plan aimed at consolidating operations, shrinking its real estate footprint, and reducing operating expenses.

Pfizer Loses Appeal of $142 Million Judgment For Unapproved Neurontin Marketing

A federal appeals court said Pfizer Inc should pay about $142 million to cover costs for the marketing and prescribing of epilepsy drug Neurontin for unapproved uses, a practice that has also earned it a hefty criminal fine.

Reuters Health reports that a panel of appellate judges in Boston on Wednesday refused to overturn a ruling in favor of Kaiser Foundation Health Plan, which claimed it had been damaged after prescribing Neurontin for conditions it did not effectively treat, based on fraudulent marketing by Pfizer, the largest U.S. drugmaker.

In related appeals, the panel also revived similar claims from insurer Aetna and class action allegations from Harden Manufacturing Corp, restoring lawsuits that had been thrown out by a lower court. The ruling in the Kaiser case, which deals the biggest immediate blow to Pfizer, upholds a lower court’s decision not to grant Pfizer a new trial after a jury had awarded it $142 million. The jury found that Pfizer had marketed Neurontin for bipolar disorder, migraines and neuropathic pain, none of which had been approved by the U.S. Food and Drug Administration. The verdict followed a $240 million criminal fine in 2004 paid by Pfizer’s Warner-Lambert unit, as well as a $190 million civil fine paid by Pfizer in connection with the off-label marketing.

Neurontin, developed by a Warner-Lambert unit, was approved in 1993 to treat seizures at a maximum dose of 1800 milligrams per day. Warner-Lambert was later acquired by Pfizer. The drugmaker initially forecast about $500 million in revenue generated by Neurontin, but in 1995 began marketing it for off-label uses in an attempt to increase its earning potential — a move that apparently worked, reaping $2 billion from Neurontin sales in 2003 alone, the appellate court said. Pfizer marketed Neurontin for off-label uses directly to doctors, sponsored misleading informational supplements and suppressed negative information about the drug, the opinion said. The company’s internal marketing plan for certain drugs, including Neurontin, called for the development of relationships with Kaiser officials “who are not considered whistle blowers,” according to the opinion.

In a statement, Kaiser said it was “very pleased” and that “justice has been achieved for our members and the physicians, pharmacists and staff who care for them.” David Frederick, an attorney for Kaiser, said he was “gratified by the court’s carefully crafted decision.”

Pfizer was less satisfied, saying in a statement it believes “there was no basis in fact or law” for the awards in the Kaiser case. In the Aetna and Harden cases, Pfizer said it believed the lower court’s dismissals were the right move and that it “disagrees with the conclusions” of the appeals court. “We are exploring our appellate options in all three of these cases,” the company said.

Pfizer’s attorneys in the case, from law firms Skadden Arps Slate Meagher and Flom and Quinn Emanuel Urquhart and Sullivan, could not be reached. The Kaiser cases are Kaiser Foundation Health Plan et al v. Pfizer Inc et al, U.S. Court of Appeals for the First Circuit, Nos. 11-1904 and 11-2096.

Carson Woman Gets 13 Year Sentence for $8 Million Fraud Scheme

A Carson woman has been sentenced to 156 months in federal prison in an $8 million Medicare fraud case in which she illegally paid kickbacks for referrals to patients whose beneficiary information was used to make bogus claims to the government health care program.

Uben Ogbu Rush, 54, received the 13-year sentence from United States District Judge George H. King. During the sentencing hearing, Judge King said Rush was motivated by greed and the lengthy sentence was necessary, in part, to send a message of deterrence to others who might commit crimes against Medicare.

Rush owned or controlled six companies that ostensibly sold durable medical equipment, such as motorized wheelchairs and powered pressure-reducing mattresses. The companies were located in Carson, Gardena, Torrance, and Paramount.

At a trial in November 2011, federal prosecutors showed a jury how Rush paid marketers to recruit Medicare beneficiaries who would allow their identities and Medicare numbers to be used for the submission of false claims. The evidence also showed how Rush paid kickbacks to marketers, who in turn paid kickbacks to doctors who fraudulently wrote prescriptions, even though the physicians had not examined the patients or an examination revealed that the medical equipment was not medically necessary.

During the course of a scheme that ran from 1999 until 2008, Rush submitted more than $15 million in fraudulent claims to Medicare seeking payment for motorized wheelchairs, hospital beds, air pressure mattresses, and other items for patients who did not need the equipment. Medicare paid more than $8.1 on the bogus claims.

A co-defendant in the case, Carlos Alberto Rezabala, 60, of Downey, was sentenced by Judge King in June 2012 to 41 months in federal prison. Rezabala was a recruiter who brought Medicare beneficiaries into the scheme so their information could be used to submit fraudulent bills.

Another co-defendant, Phitsamay Syvoravong, 58, of Orange County, another recruiter who brought Medicare beneficiaries into the scheme, is scheduled to be sentenced by Judge King on May 20.

A related defendant, Dr. Alfred Glover, 57, of Playa Vista, testified at trial that he was paid for writing fraudulent prescriptions for Medicare beneficiaries, many of whom he never saw. Glover is schedule to be sentenced on May 28.

The investigation into Rush and her Medicare fraud scheme was conducted by the Federal Bureau of Investigation.

Riverside Transit Authority Worker Pleads Guilty

A former Riverside Transit Authority worker has pleaded guilty to worker’s comp fraud charges. RTA issued a statement that George Bateman, 46, of Corona pleaded guilty March 7 to one count of insurance fraud, resulting in 180 days in jail and a $5,000 fine. He was sentenced on May 30.

According to the story in the Press Enterprise, Bateman was placed on permanent disability in February 2012 after complaining of neck, shoulder and back pain. DA investigators began monitoring Bateman following his medical leave and reports of fraud. During the investigation, which combined the efforts of both RTA and the DA’s office, Bateman was observed operating his own limousine service, and he was videotaped driving, handling customer luggage, lifting bags of ice, tire rims and cases of water without any sign of restriction. Employees who are on TTD are required to report any outside income. Bateman did not report any income from his limousine business.

Roughly 360 RTA employees are covered by workers’ compensation, which provides for medical treatment and loss of earnings that result from work-related injuries.

“Workers’ compensation fraud is not a victimless crime,”said RTA Chairman of the Board Marion Ashley. “We are committed to detecting and deterring fraud in workers’ compensation by any means possible.”

The Riverside District Attorney’s Office has a designated unit of two deputy district attorneys and six senior investigators who are specially tasked to investigate and prosecute workers’ compensation fraud. Because of the huge impact this type of fraud has on the community it is one of District Attorney Paul Zellerbach’s priorities since he’s been in office.

CMS Publishes 88 Page Workers’ Compensation MSA Guide

CMS published a new 88-page reference guide for Workers’ Compensation Medicare Set-Asides (WCMSAs). The publication’s purpose is to serve as a reference guide for claimants, attorneys, WCMSA consultants and others by consolidating information from previous CMS WCMSA Regional Office (RO) Memorandums and other information on the CMS website. For more comprehensive information, readers are requested to continue to refer to the WCMSA RO Memorandums.

The format of the guide (with version numbers, version history and paragraph numbers) is structured to make it expandable for future updates. This guide is in response to users requests for CMS to provide clearer guidance on the WCMSA program.

This guide was written to help litigants understand CMS’ Workers’ Compensation Medicare Set – Aside Arrangement (WCMSA) amount approval process and to serve as a reference for those electing to submit such proposals to CMS for approval. Submitters of arrangements may include injured workers themselves, their attorneys, Workers’ Compensation Medicare Set-Aside Arrangement agents or consultants, or claimants’ other appointed representatives. This guide reflects information compiled from all WCMSA Regional Office (RO) Memorandums issued by CMS, and from information provided on the CMS website.

A WCMSA allocates a portion of the WC settlement for all future work injury related medical expenses that are covered and otherwise reimbursable by Medicare. When a proposed WCMSA amount is submitted to CMS for review and the individual or beneficiary obtains CMS’approval, the CMS – approved WCMSA amount must be appropriately exhausted before Medicare will begin to pay for care related to the beneficiary’s settlement, judgment, award, or other payment.

The goal of establishing a WCMSA is to estimate, as accurately as possible, the total cost that will be incurred for all medical expenses otherwise reimbursable by Medicare for work-related conditions during the course of the claimant’s life, and to set aside sufficient funds from the settlement, judgment, or award to cover that cost. WCMSAs may be funded by a lump sum or may be structured, such that a fixed amount of funds are provided each year for a fixed number of years.

Any claimant who receives a WC settlement, judgment, or award that includes an amount for future medical expenses must take Medicare’s interest with respect to future medicals into account.  If Medicare’s interests are not considered, CMS has a priority right of recovery against any entity that received a portion of a third party payment either directly or indirectly. Medicare may also refuse to pay for future medical expenses related to the WC injury until the entire settlement is exhausted. These arrangements are typically not created until the individual’s condition has stabilized so that it can be determined, based on past experience, what the future medical expenses may be.

Once the CMS-approved set-aside amount is exhausted and accurately accounted for to CMS, Medicare will pay primary for future Medicare-covered expenses related to the WC injury that exceed the approved set-aside amount.

To view the new WCMSA reference guide, click here.

New FEHA Disability Regulations Directly Impact Work Comp Cases

California’s former Fair Employment and Housing Commission adopted new disability regulations that are in effect as of January 1, 2013. These regulations directly impact workers’ compensation cases by requiring that an employer initiate an interactive process if “an employer or other covered entity becomes aware of the possible need for an accommodation because the employee has exhausted leave under the California Workers’ Compensation Act…” in addition to imposing significant other new obligations on employers related to employees suffering from a work related or non- work related injury/disability.

Floyd, Skeren and Kelly is pleased to announce its 3rd Annual Employment Law Conference, to be held on May 9, 2013 at the Disneyland Hotel, which will feature as keynote speaker, Phyllis Cheng, Director of the California Department of Fair Employment and Housing (DFEH). Ms. Cheng, will review these important new disability regulations including the following key points:

  • A Review of the Expanded Definition of a Disability
  • Examples of Qualifying Physical and Mental Disabilities
  • Clarification on Who is a “Qualified” Individual with a Disability?
  • Heightened Emphasis on Engaging in Interactive Process
  • Clarification on Employer Interactive Process Obligations
  • New Interactive Process Requirements in Work Comp Cases
  • New Reasonable Accommodation Guidelines and Examples
  • Transfer to an Alternative/Vacant Position as an Accommodation
  • New Obligations Related to Job Descriptions
  • New Procedures Related to Medical Certifications
  • Medical Leave of Absence Obligations
  • Termination Issues Related to Disabled Employees

The conference will also include a presentation on the expansive new pregnancy disability regulations, also in effect as of January 2013, in addition to a workers’ compensation case law and legislative update; guidance for employers on avoiding employment related lawsuits; an OSHA update; and, the latest information on social media in the workplace. For more information and registration for the conference, please visit: www.fskhrtraining.com.

WCAB En Banc Decision Clarifies Exemption of Air Ambulance Charges from OMFS

On April 26, 2009, applicant Luis Enriquez was working on a farm when he was gored by a bull, ultimately resulting in his death. Mercy Air Services provided air ambulance services by airlifting Enriquez from the injury site to a hospital in Modesto, a distance of about 26 miles. Mercy billed Zenith in the amount of $11,132.93. Pursuant to AD Rule 9789.70(a), Zenith reimbursed Mercy in the amount of $4,756.42.

Administrative Director Rule 9789.70(a) provides, in relevant part, that “[t]he maximum reasonable fee for ambulance services rendered after January 1, 2004 shall not exceed 120% of the applicable fee for the Calendar Year 2004 set forth in CMS’s Ambulance Fee Schedule, which is established pursuant to Section 1834 of the Social Security Act (42 U.S.C. § 1395m) and applicable to California.” (Cal. Code Regs., tit.8, § 9789.70.)

The workers’ compensation judge concluded that, to the extent it purports to apply to air ambulance services covered by the federal Airline Deregulation Act of 1978 (“ADA”), AD Rule 9789.70 is preempted by federal law. The WCJ therefore found that “on April 26, 2009, [AD Rule 9789.70] did not apply to the provision of air ambulance services[,]” and that “lien claimant Mercy Air Services has established that the reasonable value of its services on behalf of defendant’s employee Luis Enriquez on April 26, 2009 is $11,132.93.” The WCJ ordered Zenith Insurance Company to pay that sum to Mercy.

Zenith petitioned for reconsideration in the case of Luis Enriquez (deceased) v Couto Dairy and Zenith Insurance Company, contending that (1) by making a substantive ruling on preemption, the WCJ exceeded his authority under the California Constitution; (2) the WCJ erred in concluding that AD Rule 9789.70 is preempted by the ADA; and (3) if the ADA preempts Rule 9789.70, it also preempts Labor Code section 4600, in which case Zenith allegedly “owes Mercy nothing.”

An amicus brief and request for an en banc decision was filed by California Shock Trauma Air Rescue and Reach Air Medical Services, two air ambulance companies who allege they have hundreds of pending lien claims similar to Mercy’s.

Article III, section 3.5(c) of the California Constitution declares that “[a]n administrative agency … has no power … [t]o declare a statute  unenforceable, or to refuse to enforce a statute  on the basis that federal law … prohibit[s] the enforcement of such statute  unless an appellate court has made a determination that the enforcement of such statute  is prohibited by federal law …” (Italics added.). The WCAB noted however that “it has no bearing on the Appeals Board’s ability to declare a regulation   preempted by federal law. This is because the provision refers only to an administrative agency’s lack of power “[t]o declare a statute unenforceable[.]” As further discussed below, we are finding preemption of AD Rule 9789.70, a regulation“.

However, the WCAB concluded that Mercy has the burden of showing that it is an air carrier subject to the provisions of the ADA. In order to be considered an “air carrier” under the ADA’s preemption provision, the air ambulance provider must show all of the following: (1) it is a “citizen of the United States undertaking by any means, directly or indirectly, to provide air transportation” (49 U.S.C. § 40102(a)(2); (2) it provides foreign, interstate, or mail transportation by air as a common carrier (49 U.S.C. § 40102(a)(5), (25));13 and (3) it is subject to regulation under 49 U.S.C. §§ 41101 et seq. (Med-Trans Corp., supra, 581 F.Supp.2d at 731-732.) Of course, air ambulance liens do not involve either foreign air transportation or the transportation of mail. Therefore, the essential question is whether the air ambulance “may provide” interstate air transportation.In this case, the record requires clarification as to whether Mercy is an “air carrier that may provide air transportation” within the meaning of the preemption provision of the ADA.

UPS Resolves Federal Charges For Delivery of Painkillers for $40 Million

United Parcel Service agreed to forfeit $40 million to settle a probe into its shipments on behalf of illicit online pharmacies. According to the story in the Wall Street Journal, the deal was the latest move in the U.S. government’s expanding crackdown on illegal sales of prescription painkillers. More than 16,000 people died of opioid overdoses in 2010, according to the Centers for Disease Control and Prevention.

Under the agreement between UPS and the U.S. attorney’s office in San Francisco, the company won’t be prosecuted. The Justice Department said UPS cooperated with investigators and has already made changes “to ensure that illegal Internet pharmacies can no longer use its services to ship drugs.” UPS spokesman Bill Tanner said: “We believe we have an obligation and responsibility to help curb the sale and shipment of drugs sold through illegal Internet pharmacies.” In addition to paying $40 million to the government, the company “has agreed to enhance its compliance policies with respect to Internet pharmacy shippers,” he said.

The Drug Enforcement Administration has also been probing FedEx over similar issues, but FedEx wasn’t part of the settlement announced Friday. The Justice Department said it has been looking into Internet pharmacies’ use of shipping companies between 2003 and 2010.

Last year, a FedEx spokesman called the government investigation “absurd and deeply disturbing,” saying drug agents wanted to “deputize” FedEx delivery workers to catch criminals, which he said wasn’t their job.

After the UPS settlement was announced Friday, FedEx spokesman Patrick Fitzgerald said the company is confident it is complying with federal law. “It is unclear what federal laws UPS may have violated,” he said. The company is ready to support law enforcement and is trying to persuade the DEA to provide a list of suspect pharmacies “so we can immediately shut off shipping services to those pharmacies,” he said.

UPS and FedEx, the nation’s two biggest shipping companies, were served with subpoenas starting more than four years ago, according to their public disclosures. Last year, a lawyer for FedEx said the company was informed by the Justice Department that it could soon face criminal charges. The company said it was innocent and planned to contest any charges.

UPS opted instead to negotiate a settlement. According to court papers filed as part of the settlement, UPS employees had numerous exchanges showing they were aware of legal problems surrounding many Internet pharmacies. As a result, UPS workers were told they couldn’t offer discounted pricing to such customers.

In August 2005, a law-enforcement drug task force in Virginia wrote to UPS security officials expressing concern about the company’s delivery practices there, citing evidence the company was making deliveries in parking lots and roadsides to customers of the Internet pharmacies.”Your drivers and managers already know who these people and locations are,” the letter said. The government said UPS continued to make such deliveries after receiving the letter.

U.C. Irvine Medical Center Settles Fraud Case for $1.2 Million

A federal qui tam whistle-blower lawsuit filed in 2008 by former University of California-Irvine (UCI) Professor and Anesthesiologist Dr. Dennis O’Connor triggered a multi-year investigation by the United States Department of Justice, resulting in an agreement by the California Board of Regents to pay the United States $1.2 Million.

The False Claims Act lawsuit alleged that anesthesia was routinely administered at UCI by Certified Registered Nurse Anesthetists (CRNAs) or residents when there was no supervisory anesthesiologist present or immediately available, in violation of federal regulations. The complaint alleged that, in many instances, the supervisory anesthesiologist would be in a completely different building at the time, and that anesthesia records would be “pre-filled” to make it appear that the anesthesiologist was present. The complaint also alleged that required post-operative evaluations would routinely be performed by unsupervised and/or unlicensed residents, in violation of federal regulations, increasing the likelihood that post-operative complications would be missed.

In the Settlement Agreement with UCI, the United States contended that “it has certain civil claims against the Regents arising out of … the submission of claims by or on behalf of the Regents for payment by the Medicare program and the federal portion of the Medicaid program for anesthesia services performed at UCI in a manner inconsistent with federal healthcare program documentation requirements for those services, or inconsistent with federal healthcare program payment requirements for supervision of residents or CRNAs.” The Regents agreed to pay $1.2 Million to the United States to resolve such claims. UC Regents denied the allegations.

According to the story in the Los Angeles Times, the UCI Medical Center had come under fire in the past for similar accusations. The medical center was placed under state supervision in 2008 because of the anesthesiology department’s “inability to provide quality healthcare in a safe environment,” according to a federal report. Among the most serious failings federal inspectors cited was filling out reports in advance of care.

In 2008, the California Medical Board accused the former head of the anesthesiology department, Peter Breen, of gross negligence and incompetence. Two years later, the medical board gave him a public reprimand for writing that a patient was “stable” and “comfortable” during each phase of the procedure before anesthesia had been administered. Breen was ordered to take ethics and medical record-keeping courses. He also was reprimanded by the Illinois Department of Professional Regulation. Breen, who remains at UCI, did not return phone calls or an email Wednesday.

The UCI statement said “new leadership took over and transformed” the anesthesiology department in 2008, putting in place new training and policies, including “an electronic record keeping system that does not permit the practices alleged.”

O’Connor, who now works at the Veterans Administration Hospital in Long Beach, remains wary of UCI Medical Center. “I won’t go there, and I wouldn’t take my family there,” he said.

The medical center has suffered a number of scandals in the last 18 years. In 1995, fertility doctors were accused of stealing patients’ eggs and embryos and implanting them in other women without permission. In 2005, the hospital shut its liver transplant program after federal funding was withdrawn. The action came after The Times reported that 32 people died awaiting livers, even as doctors turned down organs that later were transplanted elsewhere.