Author: WorkCompAcademy

Labor Code section 3701.9, was added in 2012 as part of SB 863. This provision prohibits temporary services employers (TSE’s) and leasing employers (LE’s) from self-insuring their workers’ compensation liability. These entities that were self-insured in 2012 when SB 863 was passed had to become insured by January 1, 2015. The concern addressed by section 3701.9 is that a self-insured staffing company may grow rapidly during a calendar year without a concomitant increase in its workers’ compensation self-insurance deposit. Self-insured employers do not pay insurance premiums; instead, they post a security deposit each year. A self-insured employer would not have to increase the security deposit for its increased payroll until the following year, unlike a typical employer with workers’ compensation insurance, which is required to pay an increased premium on newly hired employees as soon as they are hired. When a self-insured employer’s security deposit is insufficient, the obligation for the loss falls on the Self-Insurers’ Security Fund (Fund) (§§ 3742, 3743) and other self-insured employers may be charged a pro rata share of the funding necessary to meet the obligations of an insolvent self-insurer.

Section 3701.9 was challenged on constitutional grounds by Kimco Staffing Services soon after the law was passed. But this month the Court of Appeal found the law to comply with constitutional standards in the published case of Kimco Staffing Services v State of California Many staffing companies have met the new requirements by purchasing workers compensation insurance with a large deductible.

But now, Lumbermen’s Underwriting Alliance, which issued large deductible workers’ compensation plans for professional employer organizations among other insurance lines, has been put into rehabilitation according to a Missouri Department of Insurance announcement.

LUA specializes in providing property and casualty insurance to the forest products industry, generally consisting of lumber and sawmill operations. Over time, LUA expanded its offerings, and therefore its membership, to a broader range of industries and insurance coverage’s. By 2014, LUA was providing property allied lines, inland marine, earthquake, and workers’ compensation coverage to assisted living facilities and the food processing industry, as well as the forest products industry. LUA also issued large deductible workers’ compensation plans for professional employer organizations (“PEOs”).

Lumbermen’s faced financial difficulty when one of its largest PEO insureds, TS Employment, failed to fully fund collateral obligations and filed Chapter 11 bankruptcy. The Chapter 11 bankruptcy filing for New York-based TS Employment listed the IRS as a creditor with $95.2 million in taxes owed, according to court records. Corporate Resource Services is TS Employment’s only client. New York-based Corporate Resource Service ranks as the 22nd-largest US staffing firm based on 2013 revenue. TS has up to 30,000 employees for which it processes payroll, according to court filings.

“Throughout LU A’s more than 110-year history, we have worked hard to build a reputation of integrity, trust and reliability, ” stated Jan Carlsson, President and Chief Executive Officer. “I want to assure the market that we are committed to remaining accessible and responsive to our policyholders during this voluntary supervision period and beyond.” LUA has taken the necessary step of entering into a voluntary supervision period due to a sudden and unanticipated Chapter 11 Bankruptcy filing by T.S. Employment Services, Inc., a Tri-State affiliated company with whom LUA has had a customer relationship for more than eight years. LUA provided workers compensation coverage for Tri-State, which offers payroll processing and revenue billing services as a Professional Employer Organization (PEO). T.S. Employment Services was forced into bankruptcy when it was unveiled that the company had “material., unpaid federal payroll tax liability.” Mr. Carlsson noted that as a result of T.S. Employment’s filing, “Tri-State’s ability to continue to meet its financial obligations to LUA has been placed in question .”

Rehabilitation is a legal step taken by the court to protect policyholders by preserving the company’s assets. John Huff, director of the Missouri Department of Insurance, was named receiver by the court. The move allows him to take over operations of the company. Huff will now attempt to correct existing problems, continue operations of Lumberman’s, maintain policyholder accounting and develop a plan of rehabilitation or petition the court for liquidation, according to the department. Policies will continue pursuant to their terms and conditions, and policyholders must continue making premium payments to keep insurance coverage intact, according to the department.. “Putting Lumbermen’s into rehabilitation allows us to ensure the company’s assets are handled properly so that claims are paid as fully as possible,” Huff said.

Lumbermen’s, based in Florida, had approximately 3,000 policyholders and 6,080 open workers’ compensation claims with the largest number of claims in California.

Fresno County is trying to shield itself from high-cost lawsuits from inmates who worked at the Fresno Sheriff’s Foundation shooting range the day a Pacific Gas and Electric pipeline exploded by saying the inmates fall under the state Workers’ Compensation program. If the county succeeds, the medical bills of 10 injured inmates will be paid through the state program, greatly reducing the county’s financial burden. In addition, the inmates wouldn’t be able to sue the county for general damages. It would not preclude the inmates from suing Pacific Gas which owns and maintains the pipeline.

According to the report in the Fresno Bee, the cause of the April 17 pipeline explosion at the northwest Fresno shooting range is under investigation by the state Public Utilities Commission. It occurred while a county front loader was driving on a road atop a berm that was being maintained. The loader driver was not digging, according to Sheriff Margaret Mims, but flattening dirt on the berm. The inmates were on the shooting ranges doing property maintenance. One inmate died in the hospital, while the loader driver, two deputies and nine inmates were injured.

Fresno County Counsel Dan Cederborg said that “jail inmates who are performing work on sheriff’s work crews are subject to workers’ compensation coverage in most circumstances” under state law. The inmates don’t have to be declared employees, he said. But Butch Wagner, a lawyer who represents five of the injured inmates, said the county is attempting a legal maneuver to save money if it’s found at fault. “They are not employees,” Wagner said. “It doesn’t surprise me, but what they have is an incredibly weak defense that isn’t going to stick.” Workers’ compensation claims have been paid to inmates in California state prisons, but the distinction is that those inmates report to the same jobs every day, Wagner said.

Warren Paboojian, who represents a sixth inmate, said the county’s effort is a way to pay lower damages and the arrangement wasn’t for pay. “There needs to be some form of (pay to inmates) for them to be employees,” Paboojian said. The jail inmates only occasionally work, making their status as employees much more subject to question, he said.

Even a county filing adds uncertainty to the issue. In a workers’ compensation claim filed by the county on behalf of one of the inmates, claims examiner Kay Gonzalez said, “We are unable to determine if you are eligible for workers’ compensation benefits from the information we have.”

Lawyer Tom Tusan, a Fresno workers’ compensation specialist, said the county wants the inmates to be employees to limit its financial exposure. Workers’ compensation prohibits a suit for general damages, he said. But workers’ compensation is only suitable under certain conditions and it’s not entirely clear whether those conditions exist for the county inmates at the range. It may exist for one inmate, he said, and not for another.

In state prisons, Tusan said, there are automatic work details, which will qualify an inmate for workers’ compensation in case of an injury.

Fresno County’s rules depend on its ordinances. If an inmate volunteered to work, he isn’t covered. The employee is covered “if he’s part of a designated work crew where he is offered the job and accepts it,” Tusan said. “It becomes an employment contract between himself and the county.

In a lawsuit unsealed this month in federal court, five ambulance companies have entered into civil settlements with the Department of Justice requiring them to collectively pay more than $11.5 million in payments to the United States to resolve kickback allegations. The settling defendants include three Orange-County based companies – Pacific Ambulance, Inc. and Bowers Companies, Inc., (both of which were subsequently acquired by Rural/Metro Corporation after the alleged misconduct occurred) and Care Ambulance Service, Inc.; and two San Diego-based companies – Balboa Ambulance Service, Inc., and E.R. Ambulance, Inc.

In Carlisle v. Pacific Ambulance et al., Case No. 3:09-cv-02628-L-BLM (S.D. Cal.), the settlements resolve allegations that the defendants engaged in so-called “swapping” kickback schemes by providing deeply discounted – and often below cost – ambulance services to hospitals and/or skilled nursing facilities in exchange for exclusive rights to the facilities’ more lucrative Medicare patient referrals. Such swapping arrangements can lead to overutilization of medical services and inflated charges to the Medicare program. The government alleges that the arrangements in this case resulted in false claims for Medicare Part B transports which in essence subsidized the discounted trips.

The Anti-Kickback Statute prohibits payment arrangements that are intended to influence health care referrals. The statute generally prohibits anyone from offering, paying, soliciting or receiving remuneration to induce referrals of items or services covered by federal health care programs, including Medicare.

“Today’s settlements resolve a thorough investigation of the practices by ambulance companies that offered significant discount services to facilities in exchange for patient referrals,” said Glenn R. Ferry, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General’s (OIG) Los Angeles Region. “The OIG takes this type of activity very seriously and welcomes the public’s assistance in identifying any health care businesses that engage in similar types of schemes.”

These settlements resolve a False Claims Act lawsuit filed in the Southern District of California by Kelvin Carlisle, a competitor in the San Diego, Orange and Los Angeles County ambulance marketplaces. The whistleblower or qui tam provisions of the False Claims Act permit the whistleblower to recover a portion of the proceeds obtained by the federal government. As part of the resolution of the suit, Mr. Carlisle will receive in excess of $1.7 million.

These settlements illustrate the government’s emphasis on combating health care fraud. One of the most powerful tools in this effort is the False Claims Act. Since January 2009, the Justice Department has recovered a total of more than $24 billion through False Claims Act cases, with more than $15.3 billion of that amount recovered in cases involving fraud against federal health care programs. “It is a priority of this office to combat abuses that drive up the cost of health care and waste taxpayer dollars,” said Laura E. Duffy, United States Attorney for the Southern District of California. “We will continue to work closely with our investigative partners to pursue those who refuse to play by the rules and offer kickbacks to induce health care referrals.”

The case was investigated by the U.S. Department of Health and Human Services Office of the Inspector General and the Federal Bureau of Investigation.

Last April, Michael Drobot filed a 15 page third-party complaint for equitable indemnity and declaratory relief against 22 doctors, health executives, chiropractors and a lawyer. Equitable indemnity says in theory that Drobot should not have to pay the State Fund, but if it ends up that he does, then he wants others to share the blame with him and pay the damages. Thus Drobot in his indemnity lawsuit is alleging that these 22 defendants are somehow involved in what the State Fund alleges he did. The lawsuit, in essence, says that if he has to pay any money to the State Fund, they should, also. So he has in effect implicated these entities and individuals.

Following Drobot’s implication of his alleged co-conspirators, the Plaintiff in the RICO case against him, the State Compensation Insurance Fund, has now asked to file a 221 page Third Amended Complaint that asserts claims against those who were named by Drobot, and others who are similarly situated. The list of RICO defendants has now expanded to dozens of entities organized by roles such as Individual Defendants (page 21), Surgical, Pharmacy, and Administrative Defendants (page 22), Provider Defendants (page 29), Marketer Defendants (page 58), and just in case someone has been missed DOE Defendants, (page 60).

The 221 page complaint goes on to specify the “fraudulent schemes” allegedly perpetrated by each group of defendants between pages 64 and 115. If one were to write a treatise on methods to perpetrate medical fraud, these pages would be a good guide. Topics include “Lack of Licenses, Corporate Practice of Medicine, and Payment of Illegal Referral Fees” on the part of the Administrative Defendants, Individual Defendants and Provider Defendants, “Overbilling and Pricing Manipulation” on the part of the Pharmacy Defendants and some Provider Defendants, “Billing State Fund for Treatments and Services That Were the Product of Illegal Kickbacks and Referral Fees, Fraudulent Scheme to Overbill Services By Unbundling/Upcoding, Including Unbundling and Overbilling, Fraudulent Scheme re: Nurse Billing; Autologous Transfusion Billing; Duplicate Radiology Billing, Double-Billing of Prescriptions”, and more.

The SCIF alleges that it has entered into settlement agreements with some of these defendants at the WCAB which it now seeks to rescind. In this regard it pleads “State Fund’s investigation also led it to review certain settlement agreements State Fund entered with Defendants related to liens Defendants brought before the WCAB based on their billings to State Fund. State Fund was unaware of Defendants’ pattern of racketeering activity and other misconduct when it entered into the settlement agreements with the Defendants named therein.” Thus the SCIF seeks to unravel global settlement agreements it has made in the past with certain of these defendants, and recover sums that have already been paid in lien resolution agreements.

State Fund’s proposed Third Amended Complaint asserts claims directly against, among others, Dr. Faustino Bernadett, Jeffrey Catanzarite, Dr. Gerald Alexander, Dr. Jack Akmakjian, Dr. Ian Armstrong, Michael Barri, Dr. Mitchell Cohen, Alan Ivar, Edward Komberg, Dr. Randy Rosen, Dr. Lokesh Tantuwaya, Dr. Jacob Tauber, Dr. Assad Moheimani, and Jason Bernard, as well as entities associated with these individuals.

It is difficult for the SCIF to add up what all of the above cost in damages. Essentially it pleads in paragraph 398 that “Defendants have fraudulently received up to hundreds of millions of dollars from State Fund as a direct and proximate result of their unfair and unlawful practices.” RICO statutes allow treble damages and attorney fees in addition to the hundreds of millions of dollars.

If State Fund’s motion for leave to amend its complaint is denied, State Fund says it intends to file a separate complaint against the parties named in its amended complaint. It says this “request has been made with diligence – State Fund moved quickly after being served with the Third-Party Complaint to perform due diligence on the new parties, research, draft, and file its proposed Third Amended Complaint.” The motion is scheduled to be heard on June 15 in Courtroom 10D before federal judge Andrew Guilford.

Daniel Ramirez filed a workers’ compensation claim against the State of California, Department of Health Care Services, that resolved in 2011 by way of stipulations with a future medical care.
http://appellatecases.courtinfo.ca.gov/search/case/dockets.cfm?dist=1&doc_id=2088080&doc_no=A143043
In July 2014 the State Fund, received a request for authorization from his primary treating doctor, Natalya Shtutman M.D., for 12 sessions of acupuncture. U.R timely denied the treatment, and Ramirez requested an IMR which upheld the denial of treatment. Ramirez alleges that the IMR reviewer found that the primary treater documented functional improvement following prior · acupuncture. However, the IMR reviewer denied treatment by opining that the primary treater’ continued reporting of functional improvement was not credible,

Applicant filed an appeal of the IMR determination with the WCAB challenging the IMR on substantive grounds, and also for an order of the WCAB disclosing the identity of the IMR doctor, so that he could conduct discovery on whether the IMR doctor was biased. The WCJ declined jurisdiction over these issues. Petitioner filed a Petition for Reconsideration and/or Removal of the order taking applicant’s appeal off calendar. He argued that reconsideration was proper because the order taking the matter off calendar was an effective dismissal of the appeal.

The WCAB issued its opinion and orders which denied reconsideration, but granted removal so as to amend the WCJ’s order to an actual dismissal of applicant’s appeal. The WCAB did not substantively address the issues raised. Instead, the WCAB was primarily concerned with providing a final order from which a petition for writ of review could follow.

The petition for writ of review was filed in the 3rd District Court of Appeal in February, and indeed the Court issued a writ on May 7, 2015. Ultimately the case of Ramirez v The State of California Department of Health Care Services will be argued and heard by the 3rd District.

The applicant argues there was lack of merit of the UR/IMR determination. He argues that the “acupuncture MTUS is found in 8 Cal.Code.Regs. section 9792.24.1, which provides for the continuation of acupuncture if functional improvement is documented. Petitioner clearly documented functional improvement with acupuncture. Instead of referring to the acupuncture MTUS, State Fund improperly applied the American College of Occupational and Environmental Medicine (“ACOEM”) Guidelines 2nd edition, which is not adopted or incorporated for purposes of approving acupuncture. State Fund quoted sections of the ACOEM, which state that “invasive techniques (e.g. needle acupuncture) … have no proven value.” Id. That position is completely inapposite to the actual MTUS guidelines for acupuncture. Compare with 8 Cal.Code.Regs. section 9792.24.1. State Fund was required to use the MTUS. Section 4610(c). State Fund did not use the MTUS.”

However the argument on the merits of the determination is not good cause for an appeal to the WCAB. Thus, Ramirez challenges the law on constitutional grounds. “The constitutional question here is whether the legislature had plenary power to remove jurisdiction over medical treatment disputes from the WCAB and assign that jurisdiction to an independent agency contracted through the Administrative Director.”

Ramirez claims it does. “Section 4610.6(i) violates California Constitution, article XIV, section 4, which expressly forbids the Legislature from using its plenary power to “impair or render ineffectual in any measure the creation and existence of the industrial accident commission[.]” This is a separation of powers violation. As stated by the Supreme Court: The standard for assessing whether the Legislature has overstepped its authority and thereby violated the separation of powers principle has been summarized as follows. “[The] legislature may put reasonable restrictions upon constitutional functions of the courts . provided they do not defeat or materially impair the exercise of those functions.” Hustedt v. Workers’ Comp. Appeals Bd., 30 Cal. 3d 329, 338.”

Ramirez alerts the Court that this constitutional issue is pending elsewhere. “Petitioner would note that the constitutional issues raised in this petition are on review in the 1st Appellate District, Stevens v. W. C.A.B., Case No. A143043. Given the scope and effect that the ruling would have on the workers’ compensation system, it may be prudent for multiple courts to address the subject.”

Thus, the constitutionality of IMR is now called into question in two districts of the Court of Appeal and will be decided in the coming months. Stevens is more favorable to applicants since the 1st District Court of Appeal is the most liberal, and the Stevens case has the most passionate facts. The 3rd District is located in Sacramento and Its jurisdiction consists of twenty three counties many of which are conservative. Four of the sitting associate justices were appointed by Governor Schwartzenegger. Should the 3rd District in Ramirez rule differently than the 1st District in Stevens, a quagmire would be created that would trigger the intervention by the Supreme Court. Thus, for the defense, the Ramirez appeal is strategically a gift that gives it a foot in the door of a more conservative court.