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Orders For Witness “Hits” Adds 10 Counts to 50 Count Fraud Case

A Contra Costa County jail inmate added ten counts to a 50-charge indictment after he allegedly tried to order the killings of witnesses set to testify against him in a workers’ compensation fraud case.

A grand jury voted to indict defendant Charles Waldo with nine counts of solicitation to commit murder and one count of conspiracy to commit murder. The indictment alleges that while serving time in custody at the Martinez Detention Facility, the defendant solicited and conspired with other inmates to arrange the killing of nine different witnesses that were set to testify against him at an upcoming trial. These ten new charges will be added to the fifty charges the defendant currently faces.

The investigation of Mr. Waldo began when the Auto Insurance Fraud Unit of the Contra Costa County District Attorney’s Office received information about a fraudulent auto insurance claim related to an automobile arson. With the assistance of the Contra Costa County Fire Protection District, the investigation expanded and soon involved multiple fraudulent insurance claims related to the arsons and vandalisms of five cars over a five year period. The loss from these fraudulent claims exceeds $100,000.

The investigation also uncovered a series of crimes that occurred at a local business. Mr. Waldo had worked at the business and eventually talked the owner into making him the manager. Once he was in charge of the business it is alleged that Mr. Waldo embezzled over $100,000 from the business and that he stole property from the business, including a $38,000 generator. As the manager, Waldo was able to force out other employees and replace them with his associates. He directed these associates to commit additional crimes while working for the company such as the theft of recyclable metals and the theft of an electrical transformer. He also had his associates help construct a 2000 square foot addition to his Pittsburg, CA home. This work occurred while his associates were being paid by, and supposed to be working for, the victim company.

Investigators from the California Department of Insurance established that Waldo was also committing Workers’ Compensation Insurance fraud and tax code violations. Investigators from the Employment Development Department discovered that Mr. Waldo claimed unemployment insurance benefits for a year after being fired from the victim business. Mr. Waldo claimed these benefits despite the fact that he had secured other employment.

The new allegations came to light when a witness was alerted that a “hit” had been put out on him. The District Attorney’s office promptly started an investigation which led to two witnesses and one document. The document was a hit list that included nine names, the order in which they were to be killed, and suggested methods by which the murders were to occur. The methods included staged car accidents, drug overdoses and robberies that had “gone bad”.

The charges carry a maximum penalty of 25 years to life in jail.

SCIF Obtains Terminating Sanctions in Discovery Dispute With Employer

In 2004, the State Fund issued a workers’ compensation policy to a construction company doing business as L and M Construction. In May 2005, it audited the employer to calculate the final premium due for the policy year resulting in a claim by the SCIF for $497,265.48 premium due under the 2004 policy. SCIF was unsuccessful in obtaining payment, thus it assigned the debt to a collection company that sued the employer to recover.

In July 2007, SCIF propounded its first discovery set, to the employer which included form interrogatories, requests for admission, and requests for production of documents. The interrogatories were form interrogatories approved for use in civil cases. The employer’s response to each of these requests was the same: “Overbroad, overburdensome, vague and ambiguous, irrelevant, seeks information not reasonably calculated to lead to the discovery of admissible evidence.” A meet and confer process resulted in supplemental responses in September 2007. Appellant denied several requests for admission, provided non-committal answers to the rest, and added objections to requests that required admitting dates or verifying documents. This was the beginning of a discovery war between the parties that became quite acrimonious. For example, during one deposition, the employer’s attorney ridiculed the questions and then abruptly ended the deposition.

There were numerous motions by SCIF to enforce discovery. In August 2008, the court denied SCIF’s motion for terminating sanctions, but awarded $3,000 in additional sanctions on the ground that the employer and its counsel willfully violated the court’s order by failing to attend the deposition and produce documents in a timely fashion, by “stonewalling,” and walking out of the deposition. It ordered that all discovery matters be heard by the earlier-appointed discovery referee. Yet the employer “continued to evade identifying specific documents and potential witnesses in support of its denial that it owed any money.” The SCIF again filed discovery motions and requests for terminating sanctions which the referee recommended. The referee found appellant’s discovery responses continued to be dilatory, evasive, lacking a factual basis, and thus violative of the prior order. The trial court granted terminating sanctions. The sanctions were affirmed in the unpublished case of State Compensation Fund v. Notis Enterprises.

Under the Civil Discovery Act (§ 2016.010 et seq.), courts may impose monetary, issue, evidence, terminating, and contempt sanctions for “misuse of the discovery process.” Misuses of the discovery process include: (1) “[f]ailing to respond or to submit to an authorized method of discovery”; (2) “[m]aking, without substantial justification, an unmeritorious objection to discovery”; (3) “[m]aking an evasive response to discovery”; (4) “[d]isobeying a court order to provide discovery”; (5) “[m]aking or opposing, unsuccessfully and without substantial justification, a motion to compel or to limit discovery”; and (6) “[f]ailing to confer in person, by telephone, or by letter with an opposing party or attorney in a reasonable and good faith attempt to resolve informally any dispute concerning discovery . . . .” (§ 2023.010, subds.(d)-(i).) The trial court may impose terminating sanctions, such as striking a party’s pleadings and rendering a judgment by default against the party, for willful violations preceded by a history of abuse, where “the evidence shows that less severe sanctions would not produce compliance with the discovery rules . . . .”

“The record supports the referee’s finding that appellant and its counsel repeatedly violated section 2023.010 by failing to respond to discovery, making unmeritorious objections and evasive responses, disobeying court orders, opposing motions to compel without substantial justification, and failing to confer in good faith. The referee properly considered appellant’s ongoing failure to comply with discovery requests and court orders.”

Although this case was in the Superior Court, the same rules apply before the WCAB. Labor Code section 5710 provides that the deposition of witnesses in workers’ compensation cases are “to be taken in the manner prescribed by law for like depositions in civil actions in the superior courts of this state….” Thus this case is a good overview of the enforcement mechanisms available when a litigant unreasonable interferes with appropriate discovery.

Feds Now Target Executives in Healthcare Fraud Cases

Federal authorities are ramping up efforts to crack down on healthcare fraud, announcing plans to prosecute top executives at hospitals and other organizations involved with fraud – and target other fraudsters as well.

Leslie Caldwell, assistant attorney general for the criminal division at the Department of Justice, said in a recent presentation: “We are stepping up our prosecutions of corporations involved in healthcare fraud. Corporate healthcare fraud cases are a natural fit for us in light of our healthcare fraud expertise and our prosecutions of corporate cases in the financial fraud and foreign bribery arenas. We have numerous ongoing corporate healthcare fraud investigations, and we are determined to bring more.”

Healthcare attorney Peter Zeindenberg, a partner in the Washington officer of the law firm Arent Fox, says that the Justice Department’s warning is aimed at top executives at hospitals and other healthcare organizations where fraudulent activities, ranging from false Medicare billing to illegal kick-backs, are taking place.

For the most part, fraud-related cases against healthcare organizations have often ended up with restitution or settlements, not criminal prosecutions of executives that involve prison time, he says. “Companies have been able to resolve these cases by entering into non-prosecution or deferred prosecution agreements and leave individual executives untouched,” he says. In large part due to public pushback on corporate executives too often getting passes, the Justice Department is sending out signals that it “wants to serve up executives on a silver platter,” for misconduct that includes healthcare fraud, Zeidenberg says. But the attorney says he’s “somewhat dubious” that will actually happen.
OIG Crack Down

In addition to the Justice Department’s efforts, the Department of Health and Human Services’ Office of Inspector General is also stepping up its fraud crackdown activities. OIG often gets involved in criminal cases against owners of small medical companies or clinics – or individual physicians – where false billing and identity fraud is alleged, says Scott Lampert, assistant special agent in charge of the HHS OIG’s New York Regional Office, Office of Investigations. “Cases involving identity theft are a growing problem,” he tells Information Security Media Group. “Medical ID numbers are an ATM card to fraudsters.”

One of the largest “and most blatant” such cases to date was the prosecution and conviction of the owner of a Long Island, N.Y., medical supply company who posed as a clinician when visiting nursing homes. Helene Michel entered nursing homes pretending she was a clinician and stole information from patient charts, submitting more than $7 million in fraudulent Medicare billing using those records, Lampert says. In April 2013, Michel was convicted on charges of healthcare fraud and wrongful disclosure of individually identifiable health information. She was sentenced to 12 years federal prison time and ordered to pay more than $4.4 million in restitution. Her husband and co-conspirator, Etienne Allonce, for the second year in a row tops the HHS OIG’s “most wanted” fugitive list. Joseph Giambalvo, special agent with the HHS OIG’s New York regional office, tells ISMG that Allonce is believed to be in Haiti. “We have an arrest warrant out for him,” he says. The fraud case involving Allonce and Michel “is one of the largest medical identity theft cases we’ve had, and the first prosecution in the Northeast of a HIPAA case for the misuse of personal health information for profit,” Lampert says.

Two Dozen Civil Suits Filed Against Drobot Related Local Hospitals

More than two dozen lawsuits were filed in Los Angeles Superior Court against a former hospital executive and a collection of his business partners that allege the group was behind counterfeit screws and hardware used in spinal surgeries at various Southern California hospitals.The lawsuits claim that unknowing patients underwent spinal surgeries with doctors who benefited financially for using certain hardware – allegedly made at an auto shop in Temecula – and for performing surgery at certain hospitals. The former hospital executive, Michael Drobot, was indicted in February for his role in bribing a state senator to protect the $500 million insurance fraud scheme he was using to bilk the state’s workers compensation fund. Drobot agreed to a plea deal and is cooperating with federal law enforcement.

Also named in the lawsuit are Pacific Hospital of Long Beach, Riverside Community Hospital, Spinal Solutions, Orthopedic Alliance, Crowder Machine and Tool Shop and doctors Jack Akmakjian, Sunny Uppal and Khalid Ahmed. Attorneys told KPCC they have received hundreds of calls from people concerned they may have the fake parts, adding that they are going through each case to figure out if those former patients may have been impacted by the scheme. Drobot’s operation included bribes for doctors and others who referred patients to Drobot’s hospital, used hardware distributed by his partners, and inflated prices for medical hardware. The lawsuits say the victims are “among thousands of spinal fusion surgery patients in Southern California and elsewhere who [have] such counterfeit, non-FDA approved medical devices implanted into their bodies as a consequence of the systematic pattern of fraud and deceit.” According to the lawsuits, Spinal Solutions, a distributor out of Murrieta, was behind the manufacture of the fake screws provided to hospitals and doctors who were also part of the scheme.

Drobot’s attorney, Terree Bowers, said the lawsuits are “scare tactics” and that they are “reprehensible.” He further denies any counterfeit parts were used at Drobot’s hospital. “There is absolutely no indication or evidence that Spinal Solutions … screws were ever used at Pacific Hospital,” he said. “It is false and patients who went to that facility do not have to be alarmed.” Bowers said the federal indictment does not include any accusations regarding fake screws, and he said his own investigation into hospital records do not indicate counterfeit screws were used there. “They are creating fear in patients that have absolutely no reason to afraid,” he said.

Last summer, the State Insurance Commission Fund filed a lawsuit against Drobot and his son under the state’s racketeering laws. It alleges the Drobots created shell companies that supposedly made spinal hardware and billed for it at much higher rates than what it costs.

“Prehabilitation” Saves $1,215 Per Patient

Physical therapy after total hip (THR) or total knee replacement (TKR) surgery is standard care for all patients. Now, a new study, appearing in the Journal of Bone and Joint Surgery (JBJS), also found that physical therapy before joint replacement surgery, or “prehabilitation,” can diminish the need for postoperative care by nearly 30 percent, saving an average of $1,215 per patient in skilled nursing facility, home health agency or other postoperative care.

Approximately 50 million U.S. adults have physician-diagnosed arthritis. As the condition progresses, arthritis patients often require THR and/or TKR to maintain mobility and life quality. The number of THRs is expected to grow by 174 percent (572,000 patients) between 2005 and 2030, and TKRs by 673 percent (3.48 million). In recent years, the length of hospital stay following surgeries has decreased from an average of 9.1 days in 1990 to 3.7 days in 2008, while the cost of post-acute care, primarily in skilled nursing facilities and home health agencies, has “skyrocketed.”

Health-care costs following acute hospital care have been identified as a major contributor to regional variation in Medicare spending. This study investigated the associations of preoperative physical therapy and post-acute care resource use and its effect on the total cost of care during primary hip or knee arthroplasty. Utilizing Medicare claims data, researchers were able to identify both preoperative physical therapy and postoperative care usage patterns for 4,733 THR and TKR patients. Postoperative, or “post-acute” care, was defined as the use of a skilled nursing facility, home health agency or inpatient rehabilitation center within 90 days after hospital discharge. Home health agency services included skilled nursing care, home health aides, physical therapy, speech therapy, occupational therapy and medical social services.

Approximately 77 percent of patients utilized care services following surgery. After adjusting for demographic characteristics and comorbidities (other conditions), patients receiving preoperative physical therapy showed a 29 percent reduction in postoperative care use. In addition:

1) 54.2 percent of the preoperative physical therapy group required postoperative care services, compared to 79.7 percent of the patients who did not have preoperative therapy.
2) The decline in postoperative care services resulted in an adjusted cost reduction of $1,215 per patient, due largely to lower costs for skilled nursing facility and home health agency care.
3) Preoperative physical therapy cost an average of $100 per patient, and was generally limited to one or two sessions.

“This study demonstrated an important opportunity to pre-empt postoperative outcome variances by implementing preoperative physical therapy along with management of comorbidities before and during surgery,” said orthopaedic surgeon Ray Wasielewski, MD, co-author of the study.

Bowling Scores Convict Janitor With Shoulder Injury

A longtime Travis Unified School District employee pleaded guilty to workers’ compensation fraud last week, according to officials with the Solano County District Attorney’s Office.

Damon Fraticelli, a 27-year employee of Travis Unified School District, pleaded guilty to one felony count of workers’ compensation fraud last Friday, officials said. Fraticelli had alleged an on the job injury which prevented him from doing any of his duties as a janitor or participating in physical activities. According to officials at the Solano County District Attorney’s Office, Fraticelli told an occupational health physician in April 2013 that pain in his right shoulder was so severe he could only wipe and clean tables with his left hand.

The following day, Fraticelli was filmed bowling with his right arm for approximately 40 minutes. Also, at about this time, Fraticelli’s name appeared in newspapers as achieving top bowling scores, officials said. An investigation by the North Bay Schools Insurance Authority and the Solano County District Attorney’s Office Fraud Unit revealed several examples of misrepresentations, according to officials.

Fraticelli was sentenced to five years of probation and a required to perform community service in addition to being ordered to pay $10,000 in restitution.

Fraud Investigations Now Include Medical Coding Companies

A national medical billing company has agreed to pay $1.95 million for allegedly defrauding the Medicare and Medicaid systems. Thus it seems that culpability can now be placed on non-medical administrative perpetrators that are involved in nothing more than the paperwork end of a medical practice.

The United States Attorney’s Office announced that it has reached a settlement with Medical Business Service, Inc. (MBS), which agreed to pay $1.95 million to settle claims that it violated the False Claims Act by fraudulently changing diagnosis codes on claims to Medicare and Medicaid, in order to get the rejected claims paid on behalf of radiologists. MBS was located in Florida, with an office in Duluth, Ga.

The civil settlement resolves the United States’ investigation into MBS’s billing practices. The United States alleges that MBS improperly coded and billed claims by radiologists that were submitted to the Medicare and Medicaid programs. Medicare and Medicaid issue guidance stating that they will not pay for certain procedures given to patients with specific diagnoses. Medicare and Medicaid will reject claims for payment that combine those procedures and diagnoses. MBS allegedly changed the diagnosis codes on previously rejected claims to avoid those restrictions in order to have the claims paid. The settlement covers a three year period, 2008-2010, during which the conduct allegedly occurred.

“Billing companies provide a key check-point to combat medical billing fraud. Consequently, they will be examined with the same scrutiny as healthcare providers,” said United States Attorney Sally Quillian Yates.

“The health care providers who contracted with MBS placed their trust in the company to correctly process claims and not submit fraudulent information to the Medicare and Medicaid programs,” said Derrick L. Jackson, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General in Atlanta. “The lack of compliance and oversight by MBS placed all these providers at risk. Billing services such as MBS have no less of a duty to ensure truthful information on claims than do the providers who use these services.”

This civil settlement resolves a lawsuit filed by Katlisa N. Vaughn under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private citizens to bring civil actions on behalf of the United States and share in any recovery obtained. The case, pending in the Northern District of Georgia, is filed under United States of America, State of Florida, State of Georgia, State of New York, State of Tennessee, and State of Texas ex rel. Katlisa N. Vaughn v. Medical Business Service, Inc., Civ. No. 1:10-CV-2953. The Federal government will receive $1.917 million from the settlement, while Florida, Georgia, New York, and Texas will split the remainder of the settlement. Ms. Vaughn will receive a share of the settlement payment that resolves the qui tam suit that she filed. The claims settled in the civil settlement are allegations only, and there has been no determination of liability.

This resolution is part of the government’s emphasis on combating health care fraud under the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services, in May 2009. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover more than $14 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $20 billion.

RAND Study Sees No Savings From Medical Malpractice “Reform”

For decades, it’s been the conventional wisdom that U.S. healthcare costs are high because doctors order expensive tests to protect themselves from malpractice lawsuits, but new evidence says that assumption is wrong. The study from the RAND Corporation found that in three states where the laws were rewritten to make it virtually impossible to sue a doctor for mistakes, the cost of care did not go down in hospital emergency departments.

“If your goal is cost savings, if you believe there is a lot of pure waste going on, then malpractice reform is a blind alley,” Dr. Daniel Waxman, chief author of the study, told Reuters Health by phone.

According to the story in Reuters Health, the idea that defensive medicine is responsible for higher health costs “has come up over and over and over again,” said Waxman, of Rand HEALTH in Santa Monica, California. “It distracts people from looking for other avenues” that might bring costs down more effectively. A 2010 study even pegged the cost of needless care motivated by fear of malpractice lawsuits at $210 billion a year.

The new study in the New England Journal of Medicine looked at costs before and after Georgia, Texas and South Carolina changed their laws to only allow emergency department doctors to be sued for gross negligence, in which the doctor knows that a treatment will likely cause serious injury, yet does it anyway. “People say the letter of that law is an almost-impossible threshold to meet,” although such decisions are ultimately left up to the courts, said Waxman, who is an emergency department physician.

The team’s analysis of more than 3.8 million Medicare records from 1,166 hospitals also included neighboring states where the standard of malpractice remained ordinary negligence, which is a failure to exercise reasonable care. “If you ask physicians, ‘Do you practice defensively?’ They overwhelmingly say, ‘Yes we do.’ They say they order more CT scans and MRIs. They admit people to the hospital. That certainly is a long-standing belief among physicians and lay people at this point,” said Dr. Waxman.

But when the team examined emergency room bills and the likelihood that the patients would be admitted to the hospital or receive a CT or MRI scan, Waxman and his colleagues found no difference in nearly every measure before and after the three states changed their laws. Only in Georgia did they see any shift – a 3.6 percent drop in the average emergency room charge compared to neighboring states after the Peach State revised its law in 2005.

“Although there was a small reduction in charges in one of the three states (Georgia), our results in aggregate suggest that these strongly protective laws caused little (if any) change in practice intensity among physicians caring for Medicare patients in emergency departments,” the researchers conclude in the report. The new laws may not have changed how doctors practice, but in Texas the 2003 reforms cut the number of malpractice lawsuits by 60 percent and the total of malpractice payments by 70 percent.

“This certainly runs counter to most people’s expectation,” Waxman said. “Basically, there are a whole bunch of things going on. No doctor wants to be sued. But doctors also don’t want to make mistakes. They don’t want to cause harm. They don’t want to say no to patients. So everything favors doing more. There are reasons to be faulted for not doing more, and very little pushback if you don’t.”

“It’s easy to blame something that’s out of your control,” he said, “and the legal system is a convenient scapegoat.”

DWC Sets Hearing on More OMFS Regulatory Changes

The Division of Workers’ Compensation (DWC) has issued a notice of public hearing to revise various provisions of the Official Medical Fee Schedule (OMFS). The public hearing has been scheduled for 10 a.m., November 14, 2014, in the Auditorium of the Elihu Harris Building, 1515 Clay Street, Oakland, CA 94612. Members of the public may also submit written comment on the regulations until 5 p.m. that day. The proposed amendments are as follows:

1) Amend the fee schedules provisions in Article 5.3 and section 9790 in Article 5.5, to reiterate the applicable dates of fee schedule provisions. The Division has become aware of the misapplication of the effective dates of various fee schedule provisions.
2) Amend the inpatient hospital fee schedule provisions that address the operating disproportionate share hospital (DSH) adjustments. The proposed amendments are necessary as a result of changes made by Medicare to their operating DSH adjustment methodology.
3) Amend the inpatient hospital fee schedule provisions that address the outlier payments for eligible transfer cases. The Division has become aware of the need to clarify that hospitals transferring an inpatient to another hospital or post-acute care provider are eligible to receive an outlier payment for qualifying cases. The proposed amendments provide the methodology for determining whether a case is eligible for an outlier payment, and if so, how the payment amount would be calculated. The proposed methodology conforms to Medicare’s payment methodology.
4) Minor amendments that are required to conform to the proposed changes, to update, or to clarify various sections of the Official Medical Fee Schedule.

The notice, initial statement of reasons, and text of the regulations can be found on the proposed regulations webpage.

Former Adjuster Shot by Claimant at Nevada Comp Board

A shooting at the State of Nevada Department of Administrative Hearings Division building in Las Vegas on Monday stemmed from a workers’ compensation claim 11 years earlier, an arrest report reveals. Michael Kogler, who was shot, previously worked with the accused shooter, 73-year-old Leonard Sullivan, at MGM Resorts. Kogler worked as a claims adjuster for MGM at the time.

According to the arrest report, Sullivan, who was dressed in a suit, wore a hat, and carried a cane, was seen by multiple people before the shooting, including a maintenance employee who asked if he needed help finding his way. He reportedly told the man, “no.” “The male walked slowly across the landing outside the office as if waiting for someone,” the arrest report said.

Moments later, Kogler passed Sullivan on the walkway, when the 73-year-old yelled out Kogler’s name. “Kogler turned around and said, ‘yes’ and the suspect shot him,” according to the arrest report. Sullivan reportedly uttered Kogler had been “missing over him for 10 years” after he shot him. Kogler was shot in the upper chest. He was taken to University Medical Center and is expected to be OK.

Police said Sullivan was subdued by security officers and arrested when police arrived at the office building on Rancho Drive near Sahara Avenue. A security guard reported that after being detained, Sullivan told him he planned to put the gun into his mouth, according to the report. Sullivan faces one charge of attempted murder with weapon. Police received a call the day before the shooting from from an acquaintance who said Sullivan had made suicidal remarks, the report said.

Kogler said he worked with Sullivan 10 years ago for MGM Mirage, where Kogler was a claims adjuster, according to the police report.. At the time, Sullivan said he tripped over a luggage cart at a Las Vegas hotel. Sullivan has filed numerous claims and had been to the hearing office on “several occasions” before Monday’s shooting, police said.