Author: WorkCompAcademy

Los Angeles budget officials warned, in a January 6 memo, that the City needs to immediately borrow tens of millions of dollars to avoid dipping into its emergency reserve fund after several high-profile lawsuit payouts.

The City Administrative Office recommended that the city borrow $50 million to $70 million to address cases that are part of a “new trend of increased liability payouts.”

The City typically budgets $60 million a year for its legal liability fund, but has already paid out $135 million since July 1, when the current fiscal year began.

Recent significant payouts include a $200-million settlement by the Los Angeles City Council over a housing-related lawsuit brought by disabled groups and an $8-million settlement to end lawsuits related to the fatal Los Angeles Police Department shootings of three unarmed men in separate incidents. The $200 million will be paid out over 10 years.

The report recommends issuing Judgment Obligation Bonds to fund these settlements, and warns against dipping into the city’s reserve fund, which is for financial emergencies.

As of November, the reserve fund stood at about $295 million, which the report said is “only precariously above” the minimum amount required under city policy – 5% of the General Fund budget. The recommendation comes after the city paid out $100 million in legal cases last fiscal year, said Assistant City Administrative Officer Ben Ceja. He said the rising expenditures “could be the new normal in terms of paying out cases.”

After calling the financial crisis to the attention of City officials, a Second Financial Status Report reported “a potential $52 million expenditure deficit and highlighted risks to revenues totaling $138 million. Since that report, additional information has increased the reported expenditure deficit to up to $80 million, while a new identified shortfall increases the combined revenue risk to $165 million. Therefore, the combined potential deficit currently stands at $245 million.”

The Report goes on to state that the “options to resolve this deficit are extremely limited.” The deficit is “mostly driven by the liability claims account, human resource benefits account, and recent labor agreements reached with firefighters.”

“One significant source of expenditures includes pending resolutions to additional cases being handled by the City Attorney and Conflict Counsel. These payouts are above the $135.5 million identified in the FSR, which already exceeded the Adopted Budget by $67 million. As this Office stated at the time of the adoption of the 2016-17 Budget, potential liabilities above budgeted amounts posed a major risk in 2016-17 that had the potential to exceed the available reserves set aside in the Unappropriated Balance. The City must strive to increase the funding available for liabilities in the upcoming budget process.”

In order to borrow the money, the report requests that “the City Attorney to present an amendment to the Los Angeles Administrative Code (Section 11.27) to clarify and expand on the types of settlements that are eligible to be paid with Judgment Obligation Bonds in a manner more consistent with current legal practice, and to provide more procedural flexibility with respect to the timing of certain portions of the issuance process.”

Last March, a federal judge in California granted the United States’ motion to dismiss portions of CIGA’s complaint regarding Medicare payments, holding that California’s insurance codes are preempted by federal law in the case of California Insurance Guarantee Association v. Sylvia Mathews Burwell, et al., No. 15-cv-1113, C.D. Calif..

CIGA is currently paying several claims in the Burwill case under various workers’ compensation policies issued by now-insolvent insurers. Some of these claimants also received payments from Medicare for items and services that were otherwise covered by these policies. Where Medicare pays benefits for a loss that is also covered by another insurer, the Medicare Secondary Payer statute, 42 U.S.C. § 1395y, designates Medicare as the “secondary payer” and generally requires those other insurance plans (called “primary plans”) to reimburse Medicare for all benefits it paid. Concluding that the workers’ compensation policies were “primary plans” within the meaning of the statute, the United States demanded that CIGA reimburse it for the Medicare benefits paid to these claimants. CIGA refused, prompting the United States to commence collection proceedings.

CIGA filed a declaratory and injunctive relief action against Defendants Sylvia Mathews Burwell, United States Department of Health and Human Services, and the Centers for Medicare and Medicaid Services contending that it was not required to reimburse the United States for Medicare benefits paid to individuals whose losses may also be covered by CIGA.

Ultimately, the California District Court for the Central District of California held last March that the McCarran-Ferguson Act did not subject the United States to California’s claims filing deadline because the Act was never intended to waive the federal government’s sovereign immunity. CIGA’s claims against the United States were dismissed to the extent that they were based on the United States’ failure to file timely proofs of claim under California’s Guarantee Act.

But the CIGA litigation in the case continued, and things change.

In the same case, CIGA alleged that CMS calculated its reimbursement liability in a manner that is contrary to the MSP and the implementing regulations, resulting in over-inclusive reimbursement demands. It sought a judicial declaration to that effect, as well as a permanent injunction barring CMS from reapplying the offending practice to future demands against CIGA.

Curiously, CIGA and CMS were ordered into mediation to resolve the dollar value of the CMS obligation and were unsuccessful. At the conclusion, CMS gave up and withdrew its demands in court altogether, hoping to just walk away from CIGA.  Ultimately CMS claimed that this rendered CIGA’s litigation “moot” and asked that the case be dismissed. CIGA responded that Defendants’ conduct does not make it “absolutely clear” that CMS will never again reopen these claims or reapply the offending practice, which means the case is not moot.

The federal judge agreed that the issue was not moot, and held CMS in the lawsuit to consider CIGA’s allegations. It said “Here, the government clearly has not met that burden. Defendants have not changed their practice with respect to reimbursement calculations; rather, they have simply withdrawn their reimbursement demands for the three particular claims at issue in this lawsuit.”

CIGA did not dispute that each charge for which CMS sought reimbursement contained at least one diagnosis code that is covered by CIGA’s policies, and CMS did not dispute that each charge also contained codes that were not covered by those policies. Thus, the parties’ arguments center on two main issues: (1) whether CIGA made a prima facie case to CMS that the reimbursement requests were erroneous; and (2) whether the MSP and the implementing regulations support Defendants’ position that CIGA must always fully reimburse CMS for a charge containing one covered code regardless of whatever uncovered codes are also present.

The Court concluded in a January 5 ruling “that if a single charge contains multiple diagnosis codes – some of which relate to a medical condition covered by CIGA’s policy and some of which do not – the presence of one covered code does not ipso facto make CIGA responsible for reimbursing the full amount of the charge. Instead, CMS must consider whether the charge can reasonably be apportioned between covered and uncovered codes or treatments. Upon such consideration, CMS might still conclude that apportioning the charge is unreasonable. In addition, even if the charge should be apportioned, the Court takes no position on how CMS should do so (e.g., pro-rata by covered codes versus uncovered codes, or some other method)”

This is a ruling at the federal district court trial level, and it may very well and likely will be appealed even to the U.S. Supreme Court.  However at this point in time, there is a well reasoned opinion in CIGA’s favor, and also inures to the benefit of all other California workers’ compensation carriers and self insureds.

The U.S. Department of Justice reports $4.7 billion in settlements and judgments from civil cases involving fraud and false claims during the budget year that ended Sept. 30, an amount much higher than the $3.5 billion reported the prior year. And more than half came from the health care industry, including drug companies, medical device companies, hospitals, nursing homes, laboratories and physicians.

The False Claims Act gives authorities the power to fight alleged fraud in a wide variety of industries receiving federal funds. It also includes financial incentives for whistleblowers to file fraud lawsuits on behalf of the government.

The largest recoveries this past year – $1.2 billion – came from the drug and medical device industry.

Drug manufacturers Wyeth and Pfizer Inc. paid $784.6 million to resolve federal and state claims that Wyeth knowingly reported false and fraudulent prices on two drugs used to treat acid reflux, Protonix Oral and Protonix IV. The government alleged that Wyeth (before it was acquired by Pfizer) failed to report deep discounts available to hospitals, as required by the government to ensure that the Medicaid program enjoyed the same pricing benefits available to the company’s commercial customers. Wyeth paid $413.2 million to the federal government and $371.4 million to state Medicaid programs.

In another settlement against a drug company, Novartis Pharmaceuticals Corp. paid $390 million based on claims that the company gave kickbacks to specialty pharmacies in return for recommending Exjade, an iron chelation drug, and Myfortic, an anti-rejection drug for kidney transplant recipients. The settlement includes $306.9 million for the federal government and $83.1 million for state Medicaid programs.

Hospitals and outpatient clinics accounted for $360 million in recoveries.

Tenet Healthcare Corp., a major hospital chain in the United States, paid $244.2 million to resolve civil allegations that four of its hospitals engaged in a scheme to defraud the United States by paying kickbacks in return for patient referrals. Tenet paid an additional $123.7 million to state Medicaid programs, and two of its subsidiaries pleaded guilty to related charges and forfeited $145 million, bringing the total resolution to $513 million.

In the medical lab arena, Millennium Health (formerly Millennium Laboratories) paid $260 million to settle allegations that it billed Medicare, Medicaid, and other federal health care programs for excessive and unnecessary urine drug and genetic testing and also that it gave free items to induce physicians to refer expensive and profitable lab tests to Millennium, in violation of the Anti-Kickback Statute and Stark Law. The settlement included $214.8 million in alleged false claims against federal programs, $26 million in alleged false claims against state Medicaid programs, and $19.2 million in related administrative claims.

The nation’s largest contract therapy provider paid $125 million to resolve claims that it had induced skilled nursing homes to submit false claims to Medicare for rehabilitation services that were not reasonable, necessary, and skilled, or that weren’t provided at all. The settlement was with RehabCare Group Inc., RehabCare Group East Inc., and their parent, Kindred Healthcare Inc. Cases involving nursing homes and skilled nursing facilities accounted for more than $160 million in settlements and judgments this past fiscal year.

The number of lawsuits filed under the qui tam provisions of the Act has grown significantly since 1986, with 702 qui tam suits filed this past year – an average of 13.5 new cases every week. The growing number of qui tam lawsuits, particularly since 2009, has led to increased recoveries. From January 2009 to the end of fiscal year 2016, the government recovered nearly $24 billion in settlements and judgments related to qui tam suits and paid more than $4 billion in whistleblower awards during the same period.

The Division of Workers Compensation (DWC) and the Workers’ Compensation Appeals Board (WCAB) have made changes to lien and attorney fee disclosure statement requirements which went into effect on January 1, 2017. The changes were made to implement provisions of Senate Bill 1160 and Assembly Bill 1244. The changes are as follows:

1) In compliance with SB 1160, DWC has made available an amended lien form which includes the required declaration affirming eligibility under penalty of perjury per newly enacted Labor Code Section 4903.05(c) effective January 1, 2017.

All liens filed after January 1, 2017 must use this new form. The new lien form and the required declaration are now available for all e-filers and JET Filers. All filers that must pay the filing fee are required to fill out the declaration. Liens filed without the declaration will be dismissed.

2) Also available for e-filers and JET Filers is a declaration for all liens filed prior to January 1, 2017 that require a filing fee under Labor Code Section 4903.05, as mandated by SB 1160. The declaration, which must include information on the type of services provided by the lien claimant, must be filed by July 1, 2017.

The Workers’ Compensation Appeals Board (WCAB) has posted new rules on this requirement, and has scheduled a public hearing January 4 on the proposed regulations.

3) SB 1160 also requires that all lien claimants file an original bill with their lien. This is a new requirement that is mandatory for all lien filings as of January 1, 2017.

4) To comply with the new requirements for the attorney fee disclosure statement introduced by AB 1244, DWC has made available a revised attorney fee disclosure statement form in compliance with recently amended Labor Code Section 4906. An amended form with the required information is now posted on DWC’s website.

The City of Santa Monica’s costs for workers’ compensation rose sharply last fiscal year, prompting a warning by the City’s finance director that a 53 percent increase in funding likely will be needed soon.

According to the report in the Santa Monica Lookout, the City spent approximately $9.3 million on medical treatment and indemnity payments for injured employees in the 2015-2016 fiscal year. That was a 22 percent increase from the previous fiscal year, when the City spent $7.6 million on disabilities, mostly due to the aging of its workforce, especially in its police and fire departments and its bus system.

The City has 564 cases still on its books, a number that Finance Director Gigi Decallaves said has been steady in recent years.

Although the City made some “modest” gains, such as slowing the frequency of claims in some departments, the improvements were “eclipsed” by higher program expenses, such as cash flow, and total liabilities, or the value of all open claims from 1979 forward.The City spent another $10.5 million on those costs in fiscal year 2015-2016, a 19 percent jump from the previous year, Decavalles said.

Worse still, the City’s few spots of good news were “completely over-shadowed” by “substantial growth” in the average cost per claim because of higher permanent and temporary disability expenses, she said.

“Moreover, the City’s claim profile is cause for concern,” she said. “A high frequency of continuous trauma-oriented injuries, coupled with an aging workforce, suggests that program costs will continue to rise well into the future.” Both temporary and permanent disability cases were the City’s biggest problem.

The report blamed climbing costs for permanent disability expenses on 2012 state legislation (SB 863) that mandated an overall 30 percent hike in the award schedule. It rose 64 percent, from $1.4 million last fiscal year to $2.6 million this year for the City.

Temporary disability costs grew as well, driven by the lengthening amount of time employees of the Fire Department and Big Blue Bus system were granted to recover from injuries. Those cases totaled $3.1 million this fiscal year, a 19 percent hike from last year’s $2.6 million.

But a particularly difficult problem for Santa Monica is the dominance of “cumulative trauma oriented” injuries, which are common among an aging workforce like the City’s.

This fiscal year, the City settled 131 claims for a total of more than $3.2 million – an increase of almost 80 percent from the $1.8 million paid out for 98 settlements last year.

In all, workers’ compensation total liabilities increased to $27.8 million by June 30, 2016, up from $25.7 million a year earlier, an eight percent increase, Decavalles said. Most of increase occurred in the Fire Department, followed by the Police Department and the Big Blue Bus (BBB), she said.

Decavalles called the rising compensation coats during fiscal year 2015-2016 an “adverse experience” that is going to be felt “going forward.”

The City’s Workers’ Compensation Self-Insurance Fund for the 2017-2018 year will need to be increased by $7.1 million, or from $13.4 million to $20.5 million — or 53 percent — to “maintain an adequate confidence level,” the report said.

Santa Monica has approximately 2,200 full-time employees, City officials have said.