Author: WorkCompAcademy

Governor Jerry Brown signed SB 17, state legislation requiring drug companies to report certain price hikes for prescription medicines in a move that could set a model for other states to follow.

The law, which aims to provide more transparency around pharmaceutical and biotech company pricing methods for their medicines, requires drug manufacturers to give a 60-day notice if prices are raised more than 16 percent over a two-year period.

It also requires drug manufacturers to notify state purchasers (CalPERS, Medi-Cal, Department of Corrections and Rehabilitation, and Department of General Services), health plans and insurers, and PBMs at least 90 days prior to the planned effective date, of an increase in the WAC of a prescription drug, as specified.

The law also requires health plans and insurers to file annual reports outlining how drug costs affect healthcare premiums in California. Health plans and insurers that report rate information in the small and large group markets, beginning October 1, 2018, for example must annually report to regulators
– the 25 most frequently prescribed drugs,
– the 25 most costly drugs by total annual spending; and,
– the 25 drugs with the highest year-over-year increase in total annual spending.

And health plans that report as part of the large group process among other things must report
– the percentage of the premium attributable to prescription drug costs for the prior year for each category of prescription drugs;
– the year-over-year increase, as a percentage, in per-member, per-month total health plan spending for each category of prescription drugs;
– the year-over-year increase in per-member, per-month costs for drug prices compared to other components of the health care premium;
– the specialty tier formulary list; the percentage of the premium attributable to prescription drugs administered in a doctor’s office that are covered under the medical benefit as separate from the pharmacy benefit, if available;
– and, information on its use of a pharmacy benefit manager (PBM), if any, including its name and which components of the prescription drug coverage are managed by the PBM.

The bill has been opposed by drugmakers, who argue that wholesale price increases do not reflect the actual prices paid for medicines after discounts and rebates.

Biotechnology Innovation Organization (BIO), the leading biotech industry trade group, issued a statement condemning the bill and arguing that it would not serve its intended purpose. “This law will neither provide meaningful information to patients nor lower prescription drug costs,” the group said, adding that the law “seriously jeopardizes the future of California’s leadership in this innovative industry.” California is home to hundreds of biotechnology companies.

PhRMA condemned the law in a press release that claimed “California’s latest bill falls short of offering patients, providers or policymakers any meaningful improvements on medicine access, affordability or coverage. Rather, it calls for mounds of red tape and government reports that look only at the list price of a prescription drug rather than considering actual patient spending after negotiated discounts and rebates.”

Pharmaceutical companies have so far dodged stricter federal oversight despite growing public and political outrage over pricing practices for both branded and some generic medicines.

But states, struggling to cover rising healthcare costs, have been addressing the issue rather than wait for federal help. At least 176 bills on pharmaceutical pricing and payment have been introduced this year in 36 states, according to the National Conference of State Legislatures.

A new Maryland law takes aims at egregious price hikes on generic versions of older off-patent drugs that are supposed to be far cheaper than the original branded medicines after some companies took massive increases on generic drugs not facing competition from other distributors.

Amid the furor some drugmakers, including Allergan Plc and AbbVie Inc, have voluntarily pledged one annual price increase of under 10 percent on branded prescription medicines. It had been common industry practice to raise prices twice a year, often by double-digit percentages.

However, even annual price hikes of 9 percent over a two-year period would put a company in the crosshairs of the new California legislation.

The Court of Appeal ruled that “In specified circumstances, a worker who engages in criminal fraud in attempting to recover workers’ compensation benefits and is convicted of doing so is thereafter barred from recovering benefits growing out of the fraud. However, in given circumstances where, independent of any fraud, a worker is able to establish his or her entitlement to benefits, benefits may be awarded.”

In 2006, while working at Pearson Ford, Leopoldo Hernandez accidentally slammed the trunk of a car on his left hand and crushed one of his fingers. He applied for and received workers’ compensation benefits.

Dr. Byron King, an orthopedic AME, had some difficulty in examining Hernandez’s left arm and hand; in particular, although Hernandez complained about his inability to use his left hand and arm, he would not permit Dr. King to perform grip or pinch strength tests on the hand..

Subsequently, Hernandez was examined three times by Dr. Walter Strauser, a pain specialist who had been treating Hernandez. On each of his visits, Hernandez wore a sling on his left arm and complained of continuing severe pain and an inability to use his left arm and hand.

Video surveillance was conducted following each of the three visits to Dr. Strauser in early 2010. Following each visit, Hernandez was observed taking off his sling, using his left hand to get in and out of his truck or a car, using his left hand to steer his truck or car, and on one occasion stopping at a grocery store and using his left hand to carry a bag of groceries.

Hernandez’s also saw Dr. Greg M. Balourdas, acting as Hernandez’s primary physician. As he did when he was examined by Dr. Strauser, Hernandez appeared wearing a sling on his left arm. Following his visit to Dr. Balourdas, Hernandez was observed once again taking off his sling, driving his car and stopping at an appliance store where, using both hands, he lifted a washing machine into the back of the car he was driving.

After AME King was made aware of the surveillance, Hernandez appeared for another exam, more cooperative than before. King performed a number of objective tests and concluded that his hand was severely compromised, and had suffered a 38 percent impairment. He said the videos were not very helpful in making any diagnosis because “it was difficult to identify any actual finger motions of the left hand other than using the left hand and thumb to hold and move objects.”

In March 2011, Hernandez was charged with four counts of violating Insurance Code section 1871.4 ; three counts were based on his three visits in 2010 to Dr. Strauser and one count was based on his 2010 visit to Dr. Balourdas. Hernandez was also charged with insurance fraud within the meaning of Penal Code section 550 subdivision (b)(3). On May 10, 2012, Hernandez pled guilty to one count of violating Insurance Code section 1871.4, based on his May 2010 visit to Dr. Strauser. He was placed on summary probation and required to pay $9,000 in restitution.

In 2016, a WCJ, relying on Dr. King’s conclusions found that Hernandez suffered a 70 percent permanent disability. The WCAB denied reconsideration, and the Court of Appeal affirmed in the unpublished case of Pearson Ford v WCAB.

The main issue on appeal was the employer’s argument that any award to Hernandez for the injury is barred by Labor Code section 1871.5. which provides “”Any person convicted of workers’ compensation fraud pursuant to Section 1871.4 . . . shall be ineligible to receive or retain any compensation, as defined in Section 3207[ ] of the Labor Code, where that compensation was owed or received as a result of a violation of Section 1871.4 . . . for which the recipient of the compensation was convicted.”

The leading case interpreting section 1871.4 is Tensfeldt v. Workers Compensation Appeals Board (1998) 66 Cal.App.4th 116. The court in Tensfeldt took pains to expressly limit the scope of its holding so that section 1871.5 would not be used as an automatic or broad prohibition on the payment of benefits which were not directly connected to a worker’s fraudulent misrepresentation.

Here, the WCJ found Hernandez met the three requirements set forth in Tensfeldt, and the WCAB adopted those findings. The WCJ found that Hernandez suffered a compensable injury, there was substantial medical evidence supporting an award which did not stem from his fraudulent statements, and his credibility had not been so damaged as to make him unbelievable concerning the underlying compensation case.

The risk of double damages claimed against California workers compensation carriers may be increasing for failure to reimburse Medicare Advantage Plans for medical care of an injured worker when a claim is settled.

Hartford Casualty Insurance Company is the target of a new complaint recently filed in the United States District Court, Western District of Washington (Seattle) by Humana Health Plan.

Humana, as a Medicare Advantage Plan (MAP) is seeking a declaratory judgment as to Hartford’s obligation to reimburse conditional payments made before settlement of its claim, as well as a private cause of action pursuant to 42 USC 1395y(b)(3)(A) for the recovery of double damages for the alleged failure to reimburse Humana.

If Humana ultimately prevails and Hartford appeals to the Ninth Circuit Court of Appeals, precedent may be set determining that MAPs have the same recovery rights as traditional Medicare (a right to double damages for failure to reimburse MAP conditional payments within 60 days of issuance of the settlement check) in the largest Circuit in the United States including California.

These states would be added to the growing list of the 3rd and 11th Circuits from the In Re Avandia and Western Heritage litigation which has now established this double damages private cause of action right for MAPs in the states of: Pennsylvania, Delaware, New Jersey, Alabama, Georgia and Florida.

The Medicare beneficiary in this test case was injured in a car accident. The Enrollee received medical treatment related to the collision which was paid for by Humana totaling at least $161,853.14 in conditional payments. On February 19, 2015 Humana sent Hartford a written notice of its right to recovery of the conditional payments pursuant to the Medicare Secondary Payer Act (MSP).

Later in 2015 Hartford entered into a settlement with Enrollee. Enrollee was responsible for reimbursing Humana within 60 days of the Hartford’s payment of the settlement amount; however, Enrollee did not reimburse Humana.

Even though Hartford had already paid Enrollee the settlement funds, Humana alleges that the Hartford remains responsible to ensure that Humana was reimbursed pursuant to 42 CFR 411.24(i)(1).

The issue of a MAP’s ability to bring a double damages private cause of action was brought to the Ninth Circuit Court of Appeals in Parra v. PacifiCare of Arizona back in 2012. The MAP in Parra was unsuccessful in its double damages pursuit and simply awarded a contractual right of recovery.The Parra court determined that double damages was not available, because the carrier had already interpleaded the funds to the Court, and at that point had no control over such funds. The MAP had a remedy by exercising its recovery directly against the beneficiary from that fund.

However, this new complaint filed by Humana may establish MSP double damages if the allegations that Hartford ignored Humana’s request for reimbursement holds true.

Thus far, Circuit Courts and District Courts nationwide tend to be favoring MAPs having the same rights to recovery as Medicare. Further, the circumstances and legalities behind this complaint are quite simple: Hartford was on notice of Humana’s claim for recovery and did not respond/reimburse. Despite Hartford already having paid Enrollee, Humana purport to have a solid legal basis to pursue recovery from Hartford pursuant to 42 CFR 411.24(i)(1).

Ramiro Zapata Jimenez was injured on May 19, 2003 at work. He filed a timely workers’ compensation claim on August 1, 2003 naming Luis Aragon, an uninsured contractor, as the employer. Zapata sustained injury to his head, brain, right knee, internal system, and urinary tract and is totally and permanently disabled.

Aragon was refurbishing an apartment complex located in Long Beach for the owner of the complex, Marco Bolanos. Aragon was a licensed contractor but his workers’ compensation insurance had lapsed on April 9, 2002. Aragon filed for bankruptcy in 2011.

Bolanos did not recall whether he asked Aragon if he had workers’ compensation insurance when Bolanos hired Aragon to refurbish the apartment complex. Bolanos did not inquire with the Contractors State License Board about the status of Aragon’s license.

On August 26, 2003, Zapata’s counsel sent a letter to Bolanos notifying him of Zapata’s injury. This letter was Bolanos’ first notice of Zapata’s accident and injury. Bolanos did not reply to the letter and did not at any time after the accident provide a claim form to Zapata.

Upon confirming Aragon’s uninsured status from the Workers’ Compensation Insurance Rating Bureau on August 28, 2003, Zapata joined the UEBTF as a defendant on February 26, 2004.

The WCJ, on the UEBTF’s motion, joined Bolanos as a party defendant on June 17, 2009, six years after the accident occurred. Bolanos raised the statute of limitations and laches as defenses.

Zapata also sued Bolanos in a civil action in 2011, represented by the same attorney who represented him in the workers’ compensation proceeding. The Superior Court sustained Bolanos’s demurrer without leave to amend in 2012 based on the statute of limitations.

The WCJ issued findings and an award on July 31, 2015 and found Bolanos to be the ultimate employer of Zapata because Aragon was both uninsured and unlicensed by operation of law. The WCJ rejected the statute of limitations defense. The Workers’ Compensation Appeal Board in a split decision, held that the statute of limitations was tolled. The Court of Appeal reversed in the unpublished opinion of Bolanos v WCAB.

Labor Code 5405 provides that a workers’ compensation claim must be filed one year after the date of injury. A new defendant cannot be added after the statute of limitations has run. (McGee Street Productions v. Workers’ Comp. Appeals Bd. (2003) 108 Cal.App.4th 717, 724-725 (McGee).) “The general rule is well settled that, when new parties are brought in by amendment, the statute of limitations continues to run in their favor until thus made parties. The suit cannot be considered as having been commenced against them until they are made parties.” (Ingram v. Department of Industrial Relations (1930) 208 Cal. 633, 643; see also McGee, supra, 108 Cal.App.4th at pp. 724-726.)

The statute of limitations is tolled if the employee is unaware of his right to file a workers’ compensation claim. Zapata was not ignorant of his right to apply for benefits under the workers’ compensation laws for this injury, as demonstrated by his filing a workers’ compensation claim on August 1, 2003. After that date, there was no need for a claim form and “notice of potential eligibility for benefits.” (Kaiser Foundation Hospitals, supra, 39 Cal.3d at pp. 64-65, § 5401.) Nor was there any reason for tolling the statute of limitations after that date.

Dr. Eduardo Anguizola, who is facing multiple counts of insurance fraud filed by Orange County prosecutors, is one the plaintiffs who claims Labor Code 4615 – the automatic lien stay law – violates the procedural component of the due process clause because it immediately stays all liens without notice or a hearing. His motion in federal court for a preliminary injunction halting the implementation of the new law has been pending since early this year.

As the Anguizola case headed for its final hearing on September 28, Governor Brown signed AB 1422 into law. According to the Governor’s signing memo he said “I am signing AB 1422 which is clean-up legislation to last year’s workers’ compensation anti-fraud bills, AB 1244 and SB 1160. Those measures established new requirements and authority to help prevent and reduce fraud in the workers’ compensation system. Specifically, they require the suspension of medical providers who have been convicted of crimes involving fraud or abuse. They also require placing a stay on any liens filed by providers charged with such crimes (pending disposition of the charges).”

AB 1422 contains a new LC 4615 subsection (e) which reads “The automatic stay required by this section shall not preclude the appeals board from inquiring into and determining within a workers’ compensation proceeding whether a lien is stayed pursuant to subdivision (a) or whether a lien claimant is controlled by a physician, practitioner, or provider.”

The DIR filed a “Notice of New Law” in federal court the day before the September 28, hearing set before Judge Wu which would have been the final hearing before his ruling. Accordingly, Judge Wu continued the September 28 hearing to October 19, and provided the parties with a briefing schedule to discuss the impact of AB 1422, the newly passed law.

In the “final” closing brief just filed in support of a preliminary injunction, attorneys for the lien claimants respond to the new law saying that they are making “a facial constitutional attack on a statute, which cannot be cured by a hastily passed amendment.”

They go on to claim that “Recognizing the deficiencies in their evidence, the State appears to have corralled the Legislature into intervening by rushing through ‘amended’ legislation in the hopes of making an end run around this litigation, accompanied with a signing message directed to this Court.”

They go on to argue that “the California Legislature’s recent amendment to Section 4615 does not repair the law’s constitutional defects. Indeed, the amendment merely serves to highlight those defects while doing nothing to ameliorate the Due Process and Sixth Amendment quagmire created by the law. Its language establishes no right to a hearing, which is required under both the Due Process Clause and the Supreme Court’s interpretation of the Sixth Amendment.”

They support the argument by saying “Notably, subsection (e) does not provide any stayed lien claimant with the right to a hearing. It merely states that the stay ‘shall not preclude the appeals board’ from ‘inquiring into and determining’ whether a lien is stayed. Id. The statute appears to give the appeals board (not workers’ compensation judges) the limited ability to consider the narrow issue of whether the lien falls within the scope of Section 4615 and therefore, whether the appeals board is required to treat it as automatically stayed.”

“Notably, it does not require  the appeals board to allow a lien claimant to be heard on this issue, or even to consider any protest raised by a lien claimant – it merely gives the appeals board permission to consider such a grievance.”

They go on to conclude that “In other words, new subsection (e) gives lien claimants no right at all to a hearing, even when it is abundantly clear that a lien claimant should not have been on the published list, the secret list, the double-secret list, or any other list that might be available to the appeals board. Although the appeals board can choose  to hear what the lien claimant has to say, there is no direction that the appeals board must  make an inquiry and determine whether the law applies. This does not suffice to protect lien claimants’ due process rights.”

The DIR will file their response by October 10, and Judge Wu will hold another hearing in federal court on October 19.