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Coachella Valley Doctor Pleads Guilty to Insurance Fraud Scheme

A Rancho Mirage cosmetic surgeon pleaded guilty to a scheme to defraud health insurance companies by submitting bills for more than $3.4 million for procedures that he claimed were “medically necessary” but in fact were cosmetic procedures such as “tummy tucks”, “nose jobs” and breast augmentations.

In a plea agreement filed in United States District Court, Dr. David M. Morrow, 71, of Rancho Mirage, a cosmetic surgeon and dermatologist who was the owner of the Morrow Institute (TMI) in Rancho Mirage, admitted that he participated in a scheme to obtain money from insurance companies by false or fraudulent pretences, which included submitting altered documents to the insurance companies. Morrow admitted that cosmetic surgeries were billed to insurance companies under the pretence that the procedures were “medically necessary” so that insurers would pay for them.

Morrow also pleaded guilty to one count of filing a false tax return for 2008. Morrow admitted that he failed to report to more than $100,000 of income on his 2008 tax return and more than $1.5 million on his 2009 tax return.

Morrow, his wife, and TMI were charged in this case last fall when a federal grand jury returned a 27-count indictment that outlined a scheme in which patients were lured to the Coachella Valley surgery center with promises that cosmetic procedures would be paid for by their union or PPO health insurance plans. The victim health insurance companies included Anthem Blue Cross, Blue Cross/Blue Shield of California, Blue Cross/Blue Shield of Massachusetts, Regional Employer/Employee Partnership for Benefits, formerly known as Riverside Employer/Employee Partnership (REEP), and Cigna.

To trick insurance companies into paying for the cosmetic procedures, Morrow and others at TMI completely fabricated diagnoses such as a “hernia” in the patients’ official medical records. According to the indictment, they also fabricated test results and symptoms on medical records to cover up the actual medical procedures being performed – tummy tucks were fraudulently billed as hernia repair or abdominal reconstruction surgeries, rhinoplasties (“nose jobs”) were fraudulently billed as deviated septum repair surgeries, and breast lifts and augmentations were fraudulently billed as “tuberous breast deformity.” A document filed as part of Morrow’s plea agreement shows that TMI billed insurance as much as $150,750 for a single cosmetic procedure.

Morrow faces a statutory maximum sentence of 20 years of in federal prison for the conspiracy count and three years of imprisonment for filing the false tax return. Morrow is scheduled to be sentenced by United States District Judge Josephine L. Staton on September 23. Morrow has also agreed to pay full restitution to the victims. Charges against Morrow’s wife, Linda Morrow, 63, are currently pending.

Clovis Pharmacy Owner Agrees to Pay $200,000 in Civil Penalties

Khoa Tan Huynh, owner of the Script Life Pharmacy in Clovis has agreed to pay the United States $200,000 to settle civil claims for statutory violations occurring at the pharmacy,

According to the settlement agreement, in June 2013, an audit revealed multiple violations of the Controlled Substances Act (CSA). The government contends that between June 6, 2011, and December 31, 2012, Script Life Pharmacy accepted and filled prescriptions that lacked required information, including the prescribers’ DEA registration numbers and signatures. In addition, the audit demonstrated shortages of several controlled substances, along with overages of several others.

“Abuse of prescription drugs is a significant societal problem. Pharmacies must take great care to ensure that controlled substances do not end up in the wrong hands. This settlement underscores the federal commitment to holding accountable dispensaries of controlled substances,” said U.S. Attorney Wagner.

The Controlled Substances Act (CSA) authorizes the Drug Enforcement Administration (DEA) to regulate controlled substances to create a “closed” system of distribution that provides the legitimate drug industry with a unified approach to narcotic and dangerous drug control. The CSA establishes a classification system for all controlled substances, including prescription medications, based upon the potential for abuse, dependence profile, and medicinal value of the drugs. The CSA and its implementing regulations mandate that prescriptions for controlled substances include certain critical information and require pharmacies to maintain certain records and inventories of these controlled substances; these controls allow the DEA to protect the distribution system and prevent drug diversion and abuse.

This case was prosecuted by Assistant United States Attorney Catherine Swann and results from an investigatory audit by the DEA Fresno Diversion Group.

Jury Awards $500 Million for Defective Hip Implants

Joint replacements and surgical implants are an integral part of medical care for injured workers. Many devices cost tens of thousands of dollars. While consumers spend hours agonizing over product features and benefits for home appliances or automobiles, often little or no time is spent deciding what surgical product will be selected by a physician to be placed in the patient, and more importantly why was that product selected over any other. Indeed, looking back at the data in a claim file for these cases, can we even identify the manufacturer of a product that was used in a surgery after the fact? Perhaps this jury verdict last week will illustrate why shopping for medical implants might be worth the time and effort.

Reuters Health reports that Johnson & Johnson and its DePuy unit were ordered by a Texas federal jury on Thursday to pay about $500 million to five plaintiffs who said they were injured by Pinnacle metal-on-metal hip implants. Following a two-month trial, jurors deliberated for a week before finding that the Pinnacle hips were defectively designed, and that the companies failed to warn the public about their risks. Jurors awarded about $140 million in total compensatory damages and about $360 million in punitive damages.

A J&J spokeswoman said the company will appeal. John Beisner, a lawyer for the company, said he expected the verdict to be a “pyrrhic victory for plaintiffs’ counsel” that could be slashed significantly. Appeals courts often reduce massive personal-injury verdicts, and Texas law limits the amount of punitive damages that can be awarded to plaintiffs. Beisner estimated that punitive damages could be reduced to as little as $10 million. Lanier said plaintiffs would address the issue in post-trial proceedings.

The verdict came in the second federal trial involving the Pinnacle device. J&J was cleared of liability in the first trial, which ended in 2014.Verdicts in these early trials are not binding on the rest of the litigation, but are used to help gauge the value of the remaining claims. More than 8,000 Pinnacle lawsuits have been consolidated in Texas federal court.

All five plaintiffs are Texas residents who were implanted with metal-on-metal Pinnacle hip devices. They said design flaws caused the devices to fail more frequently and quickly than expected, leading to injuries including tissue death, bone erosion and high levels of metal in their blood. Plaintiffs said J&J and DePuy described the metal-on-metal hips as long-lasting, durable and safe despite being aware of the risks, and aggressively promoted them for use in younger, more active patients. J&J has said that it researched and marketed the devices responsibly.

DePuy stopped selling the metal-on-metal version of the Pinnacle devices in 2013. That year, it paid $2.5 billion to settle more than 7,000 lawsuits over a separate metal-on-metal hip device, the ASR, which was recalled in 2010.

CHSWC Publishes 2015 Annual Report

The Commission on Health and Safety and Workers’ Compensation (CHSWC) has released its twenty-first Annual Report of its activities to improve vital programs affecting nearly all Californians. The 313 page 2015 Annual Report presents information about the health and safety and workers’ compensation systems in California and makes recommendations to improve their operations. CHSWC, created by the workers’ compensation reform legislation of 1993, is charged with examining the health and safety and workers’ compensation systems in California and recommending administrative or legislative modifications to improve its operations.

Senate Bill (SB) 863, the workers’ compensation reform legislation passed in 2012, incorporated many of CHSWC’s previous recommendations for statutory improvements in the workers’ compensation system, and the Division of Workers’ Compensation (DWC) is carrying out many of the commission’s recommendations for administrative improvements.

But not all of past CHSWC recommendations have had success. Suggestions have been made to integrate workers’ compensation medical care with the general medical care provided to patients by group health insurers in order to improve the quality and coordination of care, reduce overall medical expenditure and administrative costs, and derive other efficiencies in care. Research also supports the contention that an integrated 24-hour care system has the potential to create medical cost savings as well as shorten the duration of disability for workers. So far this ongoing annual suggestion has been a non-starter.

CHSWC continues to report unrelenting systemic fraud. By misreporting payroll costs, some employers avoid the higher premiums they would incur with accurate reporting of their payroll. Employers can also misreport total payroll or the number of workers in specific high-risk, high-premium occupation classifications by reporting them in lower-risk, lower-premium occupations. An earlier study by CHSWC found that between $15 billion and $68 billion of payroll is underreported annually.

Although most California businesses comply with laws regarding health, safety, and workers’ compensation, some businesses do not and thus operate in the “underground economy.” Such businesses may not have all their employees on the official company payroll or may not report wages paid to employees that reflect their real job duties. The underground economy costs the state economy an estimated $8.5 billion to $10 billion in tax revenues every year.

CHSWC identified an ongoing problem with the definition of first aid. Injuries that do not require treatment beyond first aid do not necessitate an employer report of injury for worker’s compensation or a Cal/OSHA log. The definitions of first aid for those two purposes are different, however, leading to some uncertainty about when a minor injury is reportable. Even criminal evasion of workers’ compensation obligations can hide behind that uncertainty. Employers have identified the conflicting definitions as a barrier to compliance, and prosecutors have identified the conflicting definitions as a barrier to prosecution of willful violations. The definition of first aid is pertinent only to reporting requirements, so a change in the definition would not change an injured workers’ right to receive treatment.

Information about CHSWC and the 2015 Annual Report is available on the CHSWC website.

DOJ “Yates Memo” Increases Individual Risk in Corporate Healthcare Crime

“Americans should never believe, even incorrectly, that one’s criminal activity will go unpunished simply because it was committed on behalf of a corporation.” This was the pronouncement made by Deputy Attorney General Sally Yates a day after she issued new guidance to Department of Justice attorneys outlining the importance of individual accountability in DOJ prosecutions. The Department of Justice has thus increased the risk in medical fraud cases. The Yates Memo announced an official DOJ initiative to hold individuals responsible for corporate misdeeds, both criminal and civil. By having the Justice Department’s number two official instruct prosecutors to target individual business people for criminal prosecution and civil sanctions, DOJ is upping the ante in white collar enforcement.

The Yates Memo is the latest in a line of similar pronouncements that began in 1999 when then-Deputy Attorney General Eric Holder penned a similar memo titled “Bringing Criminal Charges Against Corporations.” The principles stated in the Holder Memo continued to evolve through several subsequent memos from later Deputy Attorneys General (Thompson Memo (2003), McNulty Memo (2006), Filip Memo (2008)), and were eventually “codified” in the U.S. Attorney’s Manual (“USAM”) as the Principles of Federal Prosecution of Business Organizations (USAM § 9-28.000).

The “Principles” are a detailed framework that federal prosecutors are supposed to rely on in assessing whether and what charges to bring against a corporation in a criminal case. They also provide corporations and their counsel tools for considering important issues such as cooperation and remediation. The “Principles” and other sections of the USAM are being revised to incorporate the Yates Memo’s dictates on individual accountability for corporate wrongdoing.

The notion of targeting individuals for prosecution has been a stated goal expressed by numerous DOJ officials in recent years. It should not be news to anyone inside or outside a corporation that federal prosecutors are being asked to identify and prosecute individual executives and managers for their roles in corporate misconduct. However, the Yates Memo provides a telling insight into DOJ’s current policy objective: reach the highest-level business leaders through cooperation deals with lower-ranking executives.

While this shift in policy appears to be a response to repeated criticism that too many individuals evaded punishment for wrongdoing related to the financial crisis and a related push to improve integrity within the banking sector, it will have significant implications for healthcare providers and their employees. Recognizing the challenges required to go back and pursue individuals after the conclusion of a case originally aimed at corporate liability, DOJ attorneys have now been instructed to focus on individuals from the start of an investigation. Once a case is underway, the inquiry into individual misconduct will proceed in tandem with the broader corporate investigation.

Only in the rarest of circumstances will the DOJ now release individuals from civil or criminal liability when resolving a matter with a corporation. Any decision to conclude a corporate case, without simultaneously settling individual liability, will require the DOJ attorney to demonstrate, to his/her supervisor, a clear plan for resolving any related individual cases promptly and before the statute of limitations expires. Further, if the decision is made not to proceed against individuals, the justification for such a decision must be memorialized and approved by the relevant U.S. Attorney or Assistant Attorney General overseeing the investigation.

CSLB SWIFT Team Finds Unlicensed Contractors Thriving Online

For many consumers seeking construction or home repair services, online advertising services have become their go-to source to “hire the right pro,” as one popular website proclaims. However, they’ve also become a place where unlicensed contractors unqualified to perform construction services lurk, a recent Contractors State License Board (CSLB) sting operation in Napa showed. Of the 12 people cited on illegal contracting charges during the March 9-10 operation, eight were contacted through online advertising sites that exercise little to no control over unlicensed contractors.

Although California-licensed contractors do advertise on these online sites, CSLB Registrar Cindi Christenson said consumers need to be aware that unlicensed operators post their ads or list themselves on consumer services websites, often right next to legitimate contractors. Most of these sites operate on a buyer beware principle, with no warnings posted about California contractor law requirements.

“It’s vital that consumers check CSLB’s website and make sure they’re considering a reputable contractor in order to avoid serious risks,” Christenson said. “In all advertising, including websites, licensed contractors are required to list their license number, and unlicensed contractors, by law, must declare that they are not licensed.”

The Napa sting took place at a single-family home near Alston Park. Investigators with CSLB’s Statewide Investigative Fraud Team (SWIFT) posed as the homeowners seeking bids on improvement projects such as laminate flooring, concrete work, fencing, painting, and landscaping. Napa County District Attorney’s Office investigators lent assistance.

Six persons who came to the house and turned in bids were cited for contracting without a state license (Business and Professions Code (BPC) section (§) 7028) on the sting’s first day. Six received misdemeanor citations for that offense on the operation’s second day, March 10.

Most of the bids for the work were far in excess of what’s legally allowable before a state contractor license is required. The limit is $500 for construction-related materials and/or labor. Most of those cited submitted quotes that were in the $3,000-$5,000 range, the highest for interior painting and a stretch of fencing.

An additional misdemeanor charge of illegal advertising (BPC §7027.1) was lodged against 10 of the 12 suspects. State law requires unlicensed contractors to state in all advertising that they are not licensed.

CSLB regularly stages sting operations throughout the state to crack down on unlicensed contracting, which feeds a multi-billion-dollar underground economy in California, endangers the public, and creates unfair business competition for licensed, law-abiding contractors.

Those receiving citations were ordered to appear for arraignment May 26, 2016, in Napa County Superior Court, 1111 Third Street, Napa, CA 94559

Study Says Phone and Email Orthopedic Care Effective in Rural Areas

Orthopaedic care for patients living in remote areas may be managed through phone or email, allowing patients to receive treatment without traveling to a larger, urban hospital for care, according to a study presented at the 2016 Annual Meeting of the American Academy of Orthopaedic Surgeons (AAOS). The study also found that remote care may provide significant savings in time, missed work, and health care and transportation costs for residents living in rural areas.

Orthopaedic surgeons at a McGill University Health Centre in Montreal used commercial, encrypted email and phone calls to communicate with primary care physicians in six towns in the northern area of Quebec about their patients, who primarily suffered from bone fractures, injuries which typically require travel to a larger hospital for care. The towns are part of a geographic area surrounding the hospital which spans 375,291 square miles (972,000 square kilometers), including areas where medical services are extremely limited.

The retrospective study, using data from January 2008 to June 2013, found that out of 921 email consults, 731 patients were able to receive treatment from their local doctor with the guidance of an orthopaedic surgeon at McGill.

“These results show that you don’t need an expensive, elaborate system to clinically manage patients with more common conditions,” said Adam Cota, MD, lead study author and now an orthopaedic trauma fellow at OrthoIndy at St. Vincent Indianapolis.

Researchers used a basic email system, requiring virtually no start-up costs or dedicated personnel. In contrast, sophisticated telehealth communication systems have higher operating costs. Dr. Cota noted that the email application meets Canada’s requirements for protecting patient information.

For patients, receiving proper orthopaedic treatment and care near their home eliminates the need to travel, take time off from work, or pay for child care and other related expenses. In addition, the study estimated a savings of nearly $3.7 million ($5.5 million in Canadian dollars) over the study timeframe in medical transportation, which in Canada, is provided free of charge from rural areas.

“We feel that these results will be important for planning and enhancing delivery of orthopaedic care in remote communities,” said Dr. Cota, “and a low-cost referral system like this can result in significant savings by the patient and/or insurance or government provider.”

Researchers Find Better Knee Replacement Outcomes at High Volume Hospitals

According to a study at Hospital for Special Surgery (HSS) in New York City, if all patients scheduled for knee replacement were directed to high-volume hospitals for the surgery, it could save the U.S. healthcare system between $2.5 and $4 billion annually by the year 2030. “Numerous studies have shown lower complication rates and better outcomes in hospitals that do a high number of knee replacements compared to low-volume hospitals. And this new study was designed to determine whether the lower rate of complications, hospital readmissions and revision surgeries translated into cost savings.

The researchers found that knee replacement surgery at higher-volume hospitals is less costly over a patient’s lifetime and provides better outcomes, and if all knee replacements were performed at these hospitals, it could save between $15 and $23 million annually in New York State alone. With the number of procedures growing at a rapid rate nationwide, this could potentially translate into annual cost savings to society of up to $4 billion by 2030.

The study, “Cost-Effectiveness of Total Knee Arthroplasty at High Volume Hospitals,” was presented at the annual meeting of the American Academy of Orthopaedic Surgeons (AAOS) on March 4, in Orlando, Florida.

“Regionalization of knee replacement surgery to high-volume hospitals has been proposed as a means for reducing escalating health care expenditures in the United States, especially given the large and growing demand for the procedure,” said Stephen Lyman, PhD, study author and director of the Healthcare Research Institute at HSS.

“This is the first study to include a younger patient population in addition to Medicare patients in a cost-effectiveness analysis of total knee replacement. This is important because patients under 65 now account for about 50 percent of those having the procedure,” said Douglas Padgett, MD, chief of the Adult Reconstruction and Joint Replacement Service at HSS. “The list of complications included in our study was also much more comprehensive than those in previous analyses.”

Researchers compared the cost-effectiveness of elective knee replacement over a patient’s lifetime in low-, medium-, high-, and very high-volume hospitals utilizing data from the New York Statewide Planning and Research Cooperative System (SPARCS) from 1997-2014.

Total knee replacement in the younger patients at very high-volume hospitals was associated with the lowest lifetime costs and the greatest benefits. Hospitals performing the most knee replacements showed significantly greater cost-effectiveness than all other hospital categories. In the Medicare group, results were similar; however, the cost savings of very high-volume centers relative to the other categories was more modest than in the younger patient group.

“Based on current trends, 2.8 million patients will be eligible to regionalize to very high-volume hospitals annually by the year 2030,” Dr. Burket noted. “While regionalization may not be feasible for all patients, many low-volume hospitals are located in or near a metropolitan area with a high-volume hospital. Policy initiatives aiding to guide patients to higher-volume hospitals when available will not only reduce their risk for complications and improve outcomes, but will also considerably reduce the large financial burden knee replacement surgery places on our healthcare system. ”

Court of Appeal Guts Massive Orange County Compound Medication Fraud Case

In 2014 an Orange County Grand Jury indicted 45-year-old Kareem Ahmed and 14 others, alleging he formulated topical creams and oversaw an extensive network of kickbacks that paid doctors and pharmacists more than $25 million to prescribe and distribute the products. Ahmed, president of Ontario company Landmark Medical Management, and the others faced a total of 44 counts on felony charges including conspiracy, trading rebates for patient referrals, insurance fraud and involuntary manslaughter, according to the original two grand jury indictments. The amounts individual doctors received between 2010 and 2013 allegedly ranged from $600,000 to more than $2.5 million. Among those Ahmed allegedly paid were Daniel Capen, M.D. (more than $2.5 million); Andrew Jarminski, M.D. (more than $1.9 million); pharmacist Michael Rudolph (more than $1 million); and Rahil Kahn, M.D. (more than $1 million), according to the indictment.

The grand jury was instructed that it had to unanimously find a defendant committed only a single act encompassed within the count to return a true bill on that count. After the grand jury found the indictments to be true, defendants demurred in the trial court, resulting in the People amending the indictments to add hundreds of new counts – a separate count for each victim – and adding an additional allegation in a single count of involuntary manslaughter.

The defendants moved to set aside the amended indictments on the ground the grand jury had not made separate findings as to each victim, but instead had been instructed to find only one act. Defendants posited that the amendments thus impermissibly changed the offenses charged by the grand jury in violation of Penal Code section 1009. As to the involuntary manslaughter count, the defendants contended the new allegation, embedded in the single charge of involuntary manslaughter, also impermissibly changed the offense charged by the grand jury. The court denied the motion.

The Court of Appeal reversed and remanded in the case of Kareem Ahmed v Superior Court.

The Court of Appeal ruled that “there is no logical basis upon which we can conclude that the grand jury made a finding as to each of the new counts in the amended indictment. The additional counts are new offenses, not shown to be found by the grand jury, and thus changed the offenses charged in violation of section 1009. Accordingly, the indictment was ‘not found, endorsed, and presented as prescribed in’ the Penal Code….. Based on our conclusion that adding multiple counts of insurance fraud changed the offense charged in violation of section 1009, we will grant the petition for writ of mandate setting aside most of the charges in the two indictments.”

The trial court was ordered to issue a new order granting the motion with respect to all counts in the Charbonnet indictment except counts 1, 298, and 323, and all counts in the Ahmed indictment except count 1. The court is further directed to, at the prosecutor’s election, order the case resubmitted to a grand jury pursuant to sections 997, 998, and 1009. Count 1 is a conspiracy charge not addressed in this writ petition. Counts 298 and 323 repeated counts 30 and 33 from the original indictment, which alleged violations with respect to a single victim during a timeframe entirely within the statute of limitations.

The defendants had argued that the indictments alleged conduct outside the statute of limitations. In particular, defendants argued the statute of limitations for violations of section 549 and Business and Professions Code section 650 is three years (§ 801), and the statute of limitations for a violation of section 550 is four years (§§ 801.5, 803, subd. (c)(6)). With the indictments being filed on June 17, 2014, defendants argued they cannot be tried for conduct prior to June 17, 2011 and June 17, 2010, respectively.

At this point it is not clear how much of this major case remains. After remand the district attorney will have an opportunity to attempt to resurrect part of its case. It is not known at this time how successful this will be.

CDC, DWC and Others Develop New Opioid Treatment Guidelines

As part of the urgent response to the epidemic of overdose deaths, the Centers for Disease Control and Prevention (CDC) issued new recommendations for prescribing opioid medications for chronic pain, excluding cancer, palliative, and end-of-life care. The CDC Guideline for Prescribing Opioids for Chronic Pain, United States, 2016 will help primary care providers ensure the safest and most effective treatment for their patients.

While prescription opioids can be part of effective pain management, they have serious risks. The new guideline aims to improve the safety of prescribing and curtail the harms associated with opioids, including opioid use disorder and overdose. The guideline also focuses on increasing the use of other effective treatments available for chronic pain, such as nonopioid medications or physical therapy.

In developing the guideline, CDC followed a rigorous scientific process using the best available scientific evidence, consulting with experts, and listening to comments from the public and partners. CDC is dedicated to working with partners to improve the evidence base, and will refine recommendations as better evidence is available.

Among the 12 recommendations in the guideline, three principles are key to improving patient care:

1) Nonopioid therapy is preferred for chronic pain outside of active cancer, palliative, and end-of-life care.
2) When opioids are used, the lowest possible effective dosage should be prescribed to reduce risks of opioid use disorder and overdose.
3) Providers should always exercise caution when prescribing opioids and monitor all patients closely.

Health and Human Services Secretary Sylvia Burwell has made addressing opioid misuse, dependence, and overdose a priority. Other work on this important issue is underway within HHS. The evidence-based HHS-wide opioid initiative focuses on three priority areas: informing opioid prescribing practices, increasing the use of naloxone (a rescue medication that can prevent death from overdose), and expanding access to and the use of Medication-Assisted Treatment to treat opioid use disorder.

At the same time, the DWC is in the process of developing its own Opioid Treatment Guideline. The last public hearing on the DWC Guideline was in September, and the first fifteen day comment period ended last December. However, the DWC Guideline outlines a philosophical difference by stating “A key difference between occupational and non-occupational guidelines is that a main goal of the former is the restoration of function to ensure early return to work.”

It is clear that government at every level has recognized the opioid epidemic, and is responding with new Guideline initiatives. Time will tell if these efforts will be effective.