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$3M Subro Lien Not Defeated by “Virtual Admission” of Employment

Andrews International assigned its employee Steven Paul Picazzo to work at Loyola Marymount University as a security officer between 2006 and 2013. In August 2013, LMU was erecting a new building on campus. C.W. Driver, Inc., was the project’s general contractor.

While on duty, Picazzo suffered a spinal cord injury when he tripped and struck his head against a railing at the construction site. He is now a quadriplegic. Andrews’s workers’ compensation carrier, Liberty Insurance Corporation, paid benefits to Picazzo.

Picazzo sued, among others, the general contractor Driver for negligence and for premises liability. LMU was not a named defendant. Liberty filed a complaint in intervention seeking reimbursement from any third party tortfeasor for benefits Liberty had paid. At trial, Liberty stipulated that it paid $2,849,209.62 in benefits to Picazzo.

The matter was tried by a jury, which found Driver, LMU, Picazzo, and Andrews negligent. However, the jury also found that Andrews’s negligence was not a substantial factor in causing harm to Picazzo, and therefore Andrews was not liable for damages. The jury awarded Picazzo total damages of $16,322,950.62

The jury allocated responsibility for the harm to Picazzo as follows: 40 percent to Driver, 15 percent to Picazzo, 45 percent to LMU, and zero percent to Andrews.

After trial, Driver moved to void Liberty’s lien on the theory LMU had a special employment relationship with Picazzo. Under this theory, if LMU specially employed Picazzo and the benefits Liberty paid were also paid on LMU’s behalf, then Liberty was not entitled to recover, as LMU was 45 percent at fault.

Liberty opposed the motion on the ground that whether LMU was Picazzo’s special employer was not submitted to the jury.

The trial court found against Liberty. Given what the trial court called Liberty’s “virtual admission” at trial that LMU was Picazzo’s special employer, the trial court found that Liberty’s lien should be reduced by the amount of LMU’s fault. Thus, the lien was wholly offset by LMU’s negligence, and Liberty recovered nothing on its lien from Driver.

Liberty appealed and the Court of Appeal reversed the judgment against Liberty on its complaint in intervention in the unpublished case of Picazzo v. C.W. Driver, Inc.

Whether a special employment relationship exists is generally a question of fact reserved for the trier of fact. (Kowalski, supra, 23 Cal.3d at p. 175; Wedeck v. Unocal Corp. (1997) 59 Cal.App.4th 848, 857.) Hence, the jury should have decided the issue.

Even if the trial court, rather than the jury, properly decided the special employer issue, the Court of Appeal still could not uphold the trial court’s ruling. That is, the trial court did not make its finding based on evidence that LMU specially employed Picazzo. Rather, the trial court based its finding of special employment on Liberty’s supposed “virtual admission” to that fact. However, there was no such admission.

Santa Rosa Physicians Face $3.9M Fraud Charges

A federal grand jury returned a superseding indictment against Robert Rowen and Teresa Su, charging them with conspiracy to defraud the United States. In addition, each defendant also was charged with a separate count of tax evasion.

Robert Rowen, M.D., has been practicing medicine for more than three decades. He graduated Phi Beta Kappa from Johns Hopkins University before attending medical school at the University of California, San Francisco. Terri Su, M.D., has practiced integrative medicine for nearly 40 years. She is a Phi Beta Kappa and summa cum laude graduate of UCLA with a degree in biochemistry. She graduated UC Irvine Medical School in the top quarter of her class. The husband and wife team operate the Rowen Su Clinic in Santa Rosa, serving patients in Sonoma County and the Bay Area.

The medical doctors allegedly conspired to evade payment of Rowen’s federal income tax liabilities by concealing Rowen’s ability to pay his 1992 through 1997 and 2003 through 2008 federal income tax liabilities. Specifically, Rowen and Su allegedly placed his assets out of the reach of the United States Government, placed assets in the names of other persons or entities, deposited Rowen’s revenue into nominee bank accounts, used cash to conduct personal and professional business, converted his revenue into gold and silver coins, and provided false information to the IRS.

The indictment provides a description of various methods the couple allegedly used to conceal Rowen’s income. For example, the indictment describes how the couple instructed patients to make their checks for medical services payable to gold dealers who, in turn, purchased gold and silver coins.

In addition, the indictment alleges Rowen formed a company named Lotus Management LLC to receive revenue from a different company. Rowen then deposited the funds into a bank account opened in the name of Lotus Management LLC, and used the proceeds to purchase gold and silver coins.

Further, the couple allegedly used cash to pay the rent for the medical practice as well as to pay the balance on credit cards used to cover various business and personal expenses.

In sum, the indictment alleges that between January 3, 2007, and April 11, 2014, Rowen, both individually and through nominees, converted over $3,900,000 of his revenue to gold and silver coins. Count one of the superseding indictment charges Rowen and Su with conspiracy to defraud the United States, in violation of 18 U.S.C. § 371, and counts two and three of the superseding indictment charges the defendants each with one count of tax evasion, in violation of 26 U.S.C. § 7201.

The defendants face a maximum sentence of five years imprisonment, and a fine of $250,000, plus restitution. If convicted of tax evasion, the defendant faces a maximum sentence of three years in prison and a $250,000 fine.

The defendants currently are released on a $200,000 bond.

Novato Uninsured Contractor Arrested – For the Third Time

The Marin County District Attorney’s Office reported that a Novato man, already on probation for contracting without a license in a prior case, has been charged with committing the same crime again.

Victor Mauricio Mendez Rodas, 40, is also charged with failing to secure worker’s compensation insurance for crew members. He could face jail time and up to $15,000 in fines, the prosecution said.

Rodas is scheduled to appear in court on March 10.

The district attorney’s insurance fraud unit opened the case after learning that Rodas was allegedly performing work for an 83-year-old homeowner in San Rafael. The alleged crimes occurred from September to December.

“The homeowner reported that they became suspicious when Rodas demanded additional payments for unauthorized work and failed to get required permits for the work,” the district attorney’s office said.

Authorities obtained an arrest warrant for Rodas, who is not licensed with the state Contractor’s State Licensing Board, the prosecution said. The warrant was served Friday with assistance from the Marin County Probation Department Enforcement team.

Residents who hired Rodas or received solicitations from him can contact the Marin County District Attorney’s Office Insurance Fraud Unit at 415-473-6450.

Rodas was convicted of unlicensed contracting in April 2016 and March 2019, according to the criminal complaint filed by Deputy District Attorney Sean Kensinger on Feb. 19.

The 2016 case stemmed from a sting by the Marin district attorney’s office and the Contractors State License Board. Ten suspects were snared by undercover investigators offering work on a residential job in Novato.

The state had 285,630 licensed contractors as of Dec. 31, according to Kevin Durawa, a spokesman for the licensing board. He said investigations by the agency resulted in 3,957 legal actions against violators last year.

Hollywood Pharmacy Owners to Serve 12 Years for $11.8M Fraud

Two owners and operators of a Los Angeles pharmacy were both sentenced to 144 months in prison for their roles in a health care fraud scheme where Medicare and CIGNA were billed more than $11.8 million in fraudulent claims for prescription drugs.

Aleksandr Suris, 51, of Sherman Oaks, California, was sentenced to 144 months in prison by U.S. District Judge S. James Otero of the Central District of California, who also ordered Suris to pay restitution of $11,826,444.65 to Medicare and $17,109.39 to CIGNA. The court ordered Suris to make an immediate partial restitution payment of $500,000.

Maxim Sverdlov, 45, also of Sherman Oaks, was sentenced to 144 months in prison by Judge Otero, who ordered him to pay $11,826,444.65 in restitution to Medicare.  The court ordered Sverdlov to make an immediate partial restitution payment of $500,000.

On Aug. 20, 2019, after an 11-day trial, a jury found Suris guilty of two counts of conspiracy to commit health care fraud, six counts of health care fraud, and one count of conspiracy to commit money laundering.  The jury found Sverdlov guilty of one count of conspiracy to commit health care fraud and one count of conspiracy to commit money laundering.

Suris and Sverdlov were the co-owners and co-operators of Royal Care Pharmacy (Royal Care) in Hollywood. According to the evidence presented at trial, from 2012 to 2015, Suris and Sverdlov fraudulently billed Medicare and CIGNA for prescription medications that Royal Care did not actually purchase or dispense to beneficiaries.  

In order to hide the fraud, Suris and Sverdlov obtained fake drug invoices from co-conspirators to make it appear as if Royal Care had purchased the medicines for which it had billed Medicare and CIGNA, when it actually had not.  Suris and Sverdlov also used these fake invoices to launder the proceeds of the fraud through a co-conspirator.  In total, Suris and Sverdlov submitted more than $11.8 million in bogus claims to Medicare for prescription drugs that they never purchased or dispensed to patients.

This case was investigated by HHS-OIG, the FBI, IRS-CI and the California Department of Justice, and was brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Central District of California.  Trial Attorney Robyn N. Pullio and Assistant Chief Daniel J. Griffin of the Fraud Section prosecuted the case.

The Fraud Section leads the Medicare Fraud Strike Force. Since its inception in March 2007, the Medicare Fraud Strike Force, which maintains 15 strike forces operating in 24 districts, has charged more than 4,200 defendants who have collectively billed the Medicare program for nearly $19 billion.  In addition, the HHS Centers for Medicare & Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

DWC Posts Changes to MTUS and OMFS

The Division of Workers’ Compensation has issued a notice of public hearing for proposed evidence-based updates to the Medical Treatment Utilization Schedule (MTUS), which can be found at California Code of Regulations, title 8, section 9792.23.

The public hearing is scheduled for Monday, March 30 at 10 a.m. in the auditorium of the Elihu Harris Building, 1515 Clay Street, Oakland. Members of the public may review and comment on the proposed updates no later than March 30.

The proposed evidence-based updates to the MTUS incorporate by reference the latest published guidelines from American College of Occupational and Environmental Medicine (ACOEM) for the following:

— Occupational Interstitial Lung Disease Guideline (ACOEM November 8, 2019)
Knee Disorders Guideline (ACOEM December 3, 2019)
— Workplace Mental Health Guideline: Depressive Disorders (ACOEM February 13, 2020).

The proposed evidence-based updates to the MTUS regulations are exempt from Labor Code sections 5307.3 and 5307.4 and the rulemaking provisions of the Administrative Procedure Act.

However, DWC is required under Labor Code section 5307.27 to have a 30-day public comment period, hold a public hearing, respond to all the comments received during the public comment period and publish the order adopting the updates online.

The DWC has also posted an amendment to the Hospital Outpatient Departments/Ambulatory Surgical Centers portion of the Official Medical Fee Schedule.

The amendment adopts Addenda A and B of CMS’ hospital outpatient prospective payment system rate for Calendar Year 2020 found in the [January 2020 Addendum A CORRECTION.02042020.xlsx] and [January 2020 Addendum B CORRECTION.02042020] files, and replaces the original files for services rendered on or after March 1, 2020.

The order can be found at the DWC website’s OMFS page.

February 24, 2020 News Podcast


Rene Thomas Folse, JD, Ph.D. is the host for this edition which reports on the following news stories: Supreme Court Rules Workers Must be Paid for Security Checks, WCAB Allows Non-Comp Evaluations Into Evidence, Sandoz Executive Pleads Guilty in Drug Price Fixing Case, GEICO Uses RICO Statutes to Combat Vendor Fraud, IHOP Cook Arrested for Fraudulent Comp Claim, CMS Implements Penalty Provisions of Rule 111 Reporting, Researchers Improve Design of Robotic Surgery Controller, Coventry Reports Better Claim Outcomes with Nurse Triage, NAIC Lists Top Ten Comp Carriers by Market Share, National Safety Council Launches ” Work to Zero” Safety Report.

Floyd Skeren – 9th Annual Employment Law Seminar – August 21

Floyd Skeren Manukian Langevin, LLP and Fisher & Phillips are are again co-sponsoring the 9th Annual Employment Law Seminar on August 21, 2020. This is an all-day conference, with break-out sessions, featuring Employment Law and Workers’ Compensation related-topics.

The conference is designed to provide the latest information, and helpful guidance, on Employment Law, human resources (HR), and Workers’ Compensation for employers, HR administrators, risk managers, and Workers’ Compensation claims adjusters.

HR and Minimum Continuing Legal Education (MCLE) credits will be available for attendees of the conference.

There is a great line-up of presenters including Kevin Kish, Director of the Department of Fair Employment and Housing, as keynote speaker. Featured Topics Include:

The latest developments at the Department of Fair Employment and Housing impacting employers; 2020 vision for the workplace;
Key risks to avoid in the crossover between Employment Law and Workers’ Compensation;
— An update on strategies for defending post-termination Workers’ Compensation cases;
— Guidance on implementing a compliant workplace catastrophe plan (e.g. for pandemic flu, major fire, and earthquake);
— Information every employer needs to know about the “California Consumer Privacy Act“;
Ten best practices for avoiding costly HR mistakes in managing family and medical leave, pregnancy disability leave, and paid sick leave, along with a Case Law update;
— Key strategies for investigating and defending Workers’ Compensation psychiatric claims involving harassment claims;
— A review of the top ten essential workplace polices for 2020; and
— Key tips on avoiding the big Employment Law verdict.

This years event will take place on August 21, at the Disneyland Hotel, 1150 West Magic Way, Anaheim, CA 90802. Registration is at 8:00 am, and the conference is from 8:30 am to 5:00 pm
Last year’s event sold out, so make your reservation as soon as possible! Registration can be made online.

You may direct any questions to “events@floydskerenlaw.com.”

18 States File Lawsuit Challenging Limits to Joint Employer Liability

California Attorney General Xavier Becerra, as part of a coalition of 18 attorneys general, filed a lawsuit challenging the U.S. Department of Labor’s (DOL) new rule limiting joint employer liability under the Fair Labor Standards Act (FLSA).

Under the Trump Administration’s new rule, Bacerra claims it would become substantially more difficult to establish when organizations are inappropriately shielding themselves from joint employment liability under the FLSA. In the lawsuit, the coalition argues that the rule is contrary to the FLSA’s statutory purpose and violates the Administrative Procedure Act.

In filing the lawsuit, the states argue that the rule’s definition of joint employer does not adequately reflect today’s workplaces, where growing numbers of businesses are outsourcing functions to third-party management companies, independent contractors, staffing agencies, or labor providers.

Entities found to be joint employers can be held accountable for workplace violations against an employee, even if the person is formally employed by another entity.

However, the new rule would make it much harder to establish joint employer liability. For example, under the new rule, employers can attempt to avoid liability by simply asserting that, although they had the ability to exercise control, they did not in fact exercise it.

The coalition further argues that the rule is an unreasonable interpretation of statute, that DOL does not articulate a satisfactory reasoned explanation for the rule, and that DOL lacks critical information and dismisses data and analysis assessing the impact of the rule on workers and joint employers.

While DOL’s rule will create harmful and unnecessary confusion, Bacerra said that workers in California will continue to be protected by the state’s broad definition of an employer.

In filing the lawsuit, Attorney General Becerra joins the attorneys general of New York, Pennsylvania, Colorado, District of Columbia, Delaware, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New Mexico, New Jersey, Oregon, Rhode Island, Vermont, Virginia, and Washington.

No Time Limit for Recovery Suits Against Secondary Payers

MSP Recovery LLC, a law firm out of Miami, Florida has been initiating class action litigation country-wide as assignees on behalf of Medicare Advantage Plans (MAPs) alleging that various primary payers have failed to reimburse MAP conditional payments allegedly giving rise to a Private Cause of Action under the Medicare Secondary Payer Act (MSP), specifically located at 42 USC §1395y(b)(3)(A). The litigation success of this organization should serve as a wakeup call for secondary payers, including the workers’ compensation industry. Here is the statutory back story to a new success story (for them) in a recently published appellate decision.

In 1980, to “curb the rising costs of Medicare,” Congress enacted the Medicare Secondary Payer Act, 42 U.S.C. § 1395y, which flipped the payment order, such that private insurers became the primary payers and Medicare became the secondary payer. A primary payer can include an entity responsible for providing workers’ compensation medical care.

When a primary-payer plan doesn’t or can’t pay “promptly” – say, for instance, when it is contesting liability – Medicare can make a conditional payment on behalf of a beneficiary, for which it can later seek reimbursement from the primary plan. If Medicare pays and then seeks reimbursement, only to be refused, the United States can sue the primary plan (or a medical provider) to recover its payment.

Section 1395y(b)(2)(B)(iii) contains a statute of limitations that requires the government to sue within three years of the date that Medicare receives notice of a primary payer’s responsibility to pay. The Act also contains a “private cause of action,” codified at § 1395y(b)(3)(A), which is available to Medicare beneficiaries and other private entities, who “are often in a better position than the government to know about the existence of responsible primary plans” that haven’t reimbursed Medicare or paid a beneficiary’s healthcare provider.

The private cause of action rewards successful plaintiffs with double damages after giving Medicare its share of the recovery, the plaintiff can keep whatever is left over. Unlike the government cause of action, the private cause of action contains no statute of limitations.

In 1997, in yet another effort to make Medicare more efficient, Congress enacted Medicare Part C, or the “Medicare Advantage” program. The legislation created Medicare Advantage Organizations. MAOs – like Medicare itself – were categorized as secondary payers. MAOs can sue to recover from primary plans that should pay, but don’t. MAOs, must utilize the Act’s private cause of action, rather than the government cause of action.

The case of MSPA Claims v. Kingsway Amigo began with an automobile accident in 2012. One of the people injured was a Medicare beneficiary who received her benefits from a Medicare Advantage Organization – Florida Healthcare Plus – that later assigned its claims to MSPA Claims (aka MSP Recovery LLC).

The other party involved in the accident was insured by Kingsway Amigo Insurance. The Medicare beneficiary obtained treatment for her accident-related injuries and Florida Healthcare made $21,965 in payments. The beneficiary settled a personal-injury claim with Kingsway and received a $6,667 settlement payment.

In 2015 MSPA sued Kingsway under the Act’s private cause of action. MSPA argued that Kingsway was the primary payer and Florida Healthcare was the secondary payer, giving MSPA – as Florida Healthcare’s assignee – the right to recover.

Kingsway filed a motion for judgment on the pleadings, arguing that MSPA’s claim was stale because it didn’t comply with the Act’s claims-filing provision limiting recovery claims to 3 years from the time item or service was furnished. The complaint alleged that services were provided between April 29 and July 26, 2012, Kingsway contended that a request for reimbursement had to have been made before July 26, 2015, which it wasn’t.

The district court granted Kingsway’s motion and MSPA appealed. The Court of Appeals for the 11th Circuit disagreed and reversed in the published case of MSPA Claims v. Kingsway Amigo .

The central issue in the appeal was whether MSPA’s failure to comply with the Medicare Secondary Payer Act’s claims-filing provision, § 1395y(b)is fatal to its suit against Kingsway, as the district court concluded.

In rendering its decision, the 11th Circuit Court noted that the plain reading of the MSP claims filing provision did not preclude MSPA Claims from filing suit. Essentially, the Court found that the dependent “notwithstanding” clause and the permissive term “may” in the actual text of the MSP claims filing provision means that MAOs are not required to bring suit as a prerequisite in the 3 year period.

Essentially, the permissive language within the law does not erect a separate bar that private plaintiffs must overcome to sue under the MSP private cause of action.

$1.6 Billion Global Settlement with Opioid Manufacturer Mallinckrodt

The California Attorney General announced a global settlement framework between state attorneys general, local subdivisions, and Mallinckrodt, its subsidiaries, and certain other affiliates. Mallinckrodt is currently the largest generic opioid manufacturer in the United States.

The company said that it had an agreement with a key committee of lawyers representing thousands of local governments suing various drug industry players over opioids – and that the deal has the support of the attorneys general of 47 states and territories.

In the agreement, Malinckrodt agrees to pay $1.6 billion in cash to a trust that will cover the costs of opioid addiction treatment and related efforts, with the potential for increased payment to the trust. The company also agrees that its future generic opioid business will be subject to stringent injunctive terms that, among other things, will prohibit marketing of its opioid products and ensure systems are in place to prevent the drugs from falling into the wrong hands.

Documents gathered as the company prepared for trial showed that a Mallinckrodt sales manager told a distributor in 2009 of the pills: “Just like Doritos; keep eating, we’ll make more.” A company spokesman later called the statement “outrageously callous.”

The company argued in court filings that unlike makers of brand-name drugs, it did not promote opioids to doctors or understate the addiction risks. But plaintiffs in the cases said Mallinckrodt continued to ship suspicious orders without making sure the drugs weren’t going to be diverted to the black market.

Under its agreement, Mallinckrodt is filing for bankruptcy. The plan calls for it to make payments for eight years after the company emerges from the protections. That route is similar to one OxyContin maker Purdue Pharma is taking to settle opioid claims against it.

“Reaching this agreement in principle for a global opioid resolution and the associated debt refinancing activities announced today are important steps toward resolving the uncertainties in our business,” Mark Trudeau, president and CEO of the company, said in a statement.

Joe Rice, a lawyer on the executive committee of plaintiffs suing in federal court over opioids, said in an interview Tuesday that some details of the Mallinckrodt agreement still remain to be ironed out.

Mallinckrodt’s announcement comes weeks before a trial on the toll of opioids is scheduled to start in Central Islip, New York. The looming trial has been a factor in a ramped-up push for other drugmakers and distributors to settle, as well.

There have been increasingly public tensions between attorneys general and the private lawyers for local governments over the biggest of the proposed settlements, which would involve at least the three biggest U.S. drug distribution companies.

States have also been divided on whether to accept the deal, under which the distributors would pay a total of $18 billion over 18 years.