Author: WorkCompAcademy

Sung Hyun Kim, 57, and her sister Caroline Choi, 59, CEOs of sewing companies that were subcontracted by True Religion Brand Jeans were arrested along with their CPA, Jae Kim, 71, on 18 felony counts of workers’ compensation insurance fraud totaling more than $11 million in losses. The three allegedly conspired to underreport $78.5 million in payroll to multiple insurers including the State Compensation Insurance Fund and two insurance companies owned by Berkshire Hathaway.

According to California Department of Insurance detectives, sisters Kim and Choi, CEOs of Meriko, Inc. and SF Apparel, Inc., both located in Vernon California, allegedly conspired with their CPA to hide tens of millions in payroll to avoid paying workers’ compensation insurance premiums. Their underground economy conspiracy led to multi-million dollar premium losses for several workers’ compensation insurers including State Fund.

The alleged fraud was committed by fabricating payroll records provided to insurance carrier auditors with the help of CPA Jae Kim. State Fund notified Department of Insurance detectives when they discovered payroll reports submitted to them by the companies showed significantly less total payroll than similar reports submitted to the California Employment Development Department (EDD). Evidence also revealed many employees were paid under the table through a bank account that was never disclosed to EDD or insurance carriers.

If convicted, Sung Hyun Kim faces 28 years in state prison and her bail is set at $700,000; Caroline Choi faces 15 years and her bail is set at $430,000; Jae Kim faces 22 years and his bail is set at $520,000. Syung Hyun Kim and Caroline Choi were booked into the Los Angeles County Jail and Jae Kim was booked into the Men’s Central Jail in Los Angeles. The Los Angeles County District Attorney’s Office is prosecuting this case.

“Workers’ compensation fraud affects everyone and drives up costs in the system,” said State Fund Chief of Internal Affairs Dante Robinson. “That’s why State Fund actively pursues fraud detection and prosecution. We commend the Department of Insurance and the other agencies and carriers involved for their diligence in pursuing this significant alleged fraud case.”

After over a dozen acts of Congress and innumerable reams of debate and conjecture about its fate, it’s time to say goodbye to the Medicare Sustainable Growth Rate (SGR) formula.

From 1980-1990, Medicare payments to doctors were based on charges. During that period, spending under the program on physician services inflated rapidly, growing at an annual rate of 13.4 percent. Congress took note and reformed the system in two key ways: (1) rates paid for services would be determined by the resources, or inputs, necessary to perform them; and (2) annual increases for services would be restricted based on the total volume of services delivered.

The heralded budget deal struck in 1997 by then-President Clinton and the Republican-controlled Congress included a refinement to the aspect of Medicare physician payment rates linked to volume growth, newly labeled the Sustainable Growth Rate (SGR) formula. In very short terms, the SGR boosted payments when the growth rate of spending on physician services fell short of growth in the gross domestic product (GDP). Likewise, it cut payments when physician spending grew more rapidly than GDP. Prices, the number of Medicare beneficiaries, and changes in law were all accounted for, essentially leaving utilization rate as the only key factor driving the SGR algorithm.

The SGR seemed a nice little incentive for docs to rein in their prescribing pens and be more efficient, except that the incentive was spread across over a million physicians and related professionals, creating a classic collective action problem. No one much seemed to care, though, until 2002, when Medicare’s base payment rate for these services was cut by 4.8 percent. Suddenly, the flaws in the formula got everyone’s attention, including Congress’s. For 2003 (and ever since), Congress passed a law to block the cuts generated by the SGR formula.

Doctors were set to receive a 21% cut in payments on April 1 if Congress did not act (again). The current funding formula expired on April 1. However, the Centers for Medicare and Medicaid Services said that it takes a minimum of 14 days to pay claims from doctors, giving senators until midnight Tuesday to act before checks went out. Just in the nick of time, a bipartisan bill passed the Senate by 92-8. The House overwhelmingly passed the “doc fix” bill by a vote of 392-37 on March 26 before leaving town for a two-week recess. President Obama is expected to quickly sign the bill into law.

The bill would repeal the current Medicare payment formula for doctors and replace it with one that would increase payments to doctors by one-half of 1% every year through 2019. After that, doctors would receive bonuses or penalties depending on performance scores from the government. Their scores would be based on the value of the care they provide rather than on the volume of patients they see. This in effect becomes a “pay per performance” model of reimbursement.  Medicare recipients with incomes of more than $85,000 a year would be required to pay higher Medicare Part B premiums starting in 2018. The legislation would end the annual scramble by lawmakers to pass a temporary patch to keep the payments from plummeting. Congress has been struggling with what both sides call a “flawed formula” since lawmakers enacted it in 1997.

The non-partisan Congressional Budget Office estimated that the bill would increase the deficit by $141 billion over 11 years. But the CBO also said the bill spends $900 million less than if Congress simply froze Medicare payment rates for doctors over that same period.

The formulaic approach to setting base payment rates is gone, replaced with automatic increases for all doctors from 2015 through 2019. For six years after that, no automatic increases will be provided and doctors’ respective rates will be altered based on their performance under a Merit-Based Payment Incentive System (MIPS). The MIPS is basically a consolidation of three pay-for-performance programs already underway and the addition of another. It is a process that combines existing Medicaid incentive programs and creates a composite performance score that will inform a provider’s reimbursement rates based on four performance categories: Quality, Resource use, Meaningful use, and Clinical practice improvement activities. A provider’s performance in these categories will be reflected in the Composite Performance Score, a 0-100 scale that informs the level of reimbursement. A threshold would be established annually that providers would have to meet or exceed in order to be eligible for enhanced rates. Those who fail to meet the threshold would be at risk of reduced rates. It is a zero sum game, and physicians who make more will be offset by physicians who make less.

This long awaited transformation of physician payment is expected to stimulate payment reform throughout the healthcare industry, including Workers’ Compensation. It will of course take years for this to take place.

Michael D. Drobot and his company Healthsmart Pacific, Inc. owner and operator of the Pacific Hospital of Long Beach has now filed a lawsuit against the 30 individuals who sued him, and their attorneys allegedly for falsely and maliciously claiming that Drobot and Healthsmart’s former hospital, Pacific Hospital of Long Beach, harmed them by what it claims was a non-existent “counterfeit screw” conspiracy. This new lawsuit is filed by attorney Keith Fink in Los Angeles County Superior Court,, case BC578484. The lawsuit seeks at least $30 million in damages.

The lawsuit names three prominent law firms and the individuals they represented when they filed about 30 lawsuits last year. According to the near-identical complaints, each of these individuals alleged that Drobot and Healthsmart “conspired” with doctors to insert “counterfeit screws” into these persons’ spines. Drobot’s new lawsuit names law firms Kabateck, Brown Kellner, LLP, Cotchett, Pitre and McCarthy, LLP, and Knox Ricksen, LLP, the individual attorneys at each firm who prepared and litigated these claims, and the 30 “non-patients” who sued Drobot and Healthsmart for treatment they allegedly received elsewhere. The 30 plaintiffs, now defendants, are Golia, Bravo, Moses, Arroyo, Averhart, Cahill, Cichy, Coslett, Dail, Dixon, Duron, Epps, Espinoza, Fabila, Gonzales, Gutkowski, Heath, Lorton, Marciel, Mashtalier-Scott, McAlonan, Mejia, Perry, Philips, Plescia,Toppel, Vargas, Ventimiglia, Williams, Wilson, Kabateck, KBK, Hutchinson, CPM, KR, Pitre,Hamilton, LiCalsi, Danowitz, Sokolove, Barrett, Melidonian, DiCorrado, and Hakimfar.

Drobot alleges that these 30 plaintiffs were from his point of view “non-patients” because the surgeries during which each alleged to have received counterfeit hardware did not take place at the Pacific Hospital of Long Beach. Thus, as “non-patients” he in essence alleges that whatever happened to them was not of his making. Instead he lists the facilities were each of the surgeries took place, These other facilities are identified as a “non-party” since these facilities are not defendants in the new suit. The non-party facilities include Parkview Community Hospital, Riverside Community Hospital, Rancho Specialty Hospital all in Riverside and Tri-City Regional Medical Center in Hawaiian Gardens. The suit alleges that “None of the aforementioned Non-Patient Defendants received any form of medical treatment whatsoever from Plaintiffs PHLB” and that “Drobot had no financial interest, no participation in, nor any involvement whatsoever in the aforementioned medical treatment received by the Non-Patient Defendants listed above.”

Last February, Los Angeles Superior Court Judge Elihu M. Berle dismissed the cases filed by Golia, Bravo, and Moses against Drobot, Pacific Hospital of Long Beach and the other hospitals and physicians accused of using the alleged “counterfeit” surgical screws. One of the difficulties in these cases was the inability of the plaintiffs to prove what hardware had been implanted since it had not been surgically removed and examined. In this regard Drobot alleges that the “Non-Patient Defendants (and implicitly Attorney Defendants who drafted their underlying complaints) themselves did not and could not know nor reasonably conclude that the medical parts surgically inserted into their bodies were deficient because these parts had not been removed from the Non-Patient Defendants’ bodies for examination and testing.” Following dismissal of three of the cases most of the remaining 27 cases were voluntarily dismissed by the plaintiffs.

Drobot’s new lawsuit alleges in the aftermath that “no reasonable person” would have believed that Drobot and Healthsmart Pacific could be held liable for surgeries that occurred at other hospitals on the facts alleged. As his new lawsuit further alleges, the individuals’ lawyers repeatedly disregarded multiple attempts to have these claims voluntarily dismissed from the outset.

Drobot’s new lawsuit is the second filed by the former hospital executive against the trio of law firms that alleged the counterfeit screw conspiracy. In October 2014, Drobot and Healthsmart Pacific filed a $50 million defamation lawsuit, alleging that the attorneys defamed him and his company on television and radio. The prior action remains pending.

The Department of Industrial Relations has now launched the Return-to-Work Supplement Program for injured workers. This fund – which will get an additional $5,000 to each eligible injured worker who has a disproportionate loss of earnings – is an important component of the workers’ compensation reforms in Senate Bill 863. This program is based on findings of studies done by RAND concerning permanent disability and in particular the study entitled Identifying Permanently Disabled Workers with Disproportionate Earnings Losses for Supplemental Payments.

“This program is another example of the benefits that SB 863 brought about for injured workers,” said DIR Director Christine Baker. “Many workers face economic hardship when they suffer disabling work injuries and this supplement will help them regain some of those lost earnings.”

DIR inaugurated the new program with an online portal as well as kiosks that connect to the portal in its Division of Workers’ Compensation (DWC) offices across the state, allowing injured workers to easily file the application in five steps. Section 17305 of the new regulations state “An application must be submitted by electronic means through the Department of Industrial Relations web site. The Department will make access to this web site available at each Division of Workers’ Compensation Information and Assistance Office location in the state.”

To be eligible for the Return-to-Work Supplement, the individual must have received the Supplemental Job Displacement Benefit (SJDB) Voucher for an injury occurring on or after January 1, 2013. All completed applications will be reviewed for eligibility within 60 days from the date of filing. Payment to workers will be made within 25 days of the eligibility determination.

Regulations for the Return-to-Work Supplement Program were approved by the Office of Administrative Law (OAL) and filed with the Secretary of State on April 6, 2015. These regulations will be implemented on April 13 and are authorized by Labor Code section 139.48.

Commencing 30 days after the effective date of these regulations, and continuing until the Administrative Director of the Division of Workers’ Compensation amends Form DWC-AD 10133.32 to include notice of the Return-to-Work Supplement application process, all Vouchers issued shall be accompanied by a cover sheet, prepared by the claims administrator, containing the following notice: “Because you have received this Voucher and are unable to return to your usual employment you may be eligible for a Return-to-Work Supplement. You must apply within one year from the date this Voucher was served on you. You should make a copy of the Voucher which you will need to apply for the Return-to-Work Supplement. Details about the Return-to-Work supplement program are available from the Department of Industrial Relations on its web site, www.dir.ca.gov, or by calling 510-286-0787.”

An application for the Return-to-Work Supplement must be received by the Return-to-Work Supplement Program within one year from the date the Voucher was served on the individual or within one year from the effective date of these regulations, whichever is later.

The Return- to-Work Supplement Program will provide a supplement of $5,000.00 to each eligible individual who submits a complete application by the deadline. The payment will be made within 25 days of the date the decision of the Director on the application and will be paid in one lump sum. Payment shall be made directly to the individual and is not assignable before payment. The amount of this supplement may be adjusted by the Director based on further studies conducted by the Director in accordance with Labor Code section 139.48.

An individual dissatisfied with any final decision of the Director on his or her application for the Return-to-Work Supplement may, file an appeal at the Workers’ Compensation Appeals Board (WCAB) District Office.

Former State Senator Ron Calderon, a Democrat from Montebello, was indicted in February 2014 on 24 felony charges including bribery, money laundering and tax fraud. They include accepting $88,000 in bribes in exchange for official actions involving bills affecting the film industry and workers’ compensation benefits. He has pleaded not guilty and his trial is now set for August 11. These charges carry a maximum sentence of 400 years in prison.

Capitol sources confirmed the Los Angeles Times report that federal prosecutors have served subpoenas on about 10 staff members in the California Legislature who may be called as witnesses in the trial, It does not appear that any of the subpoenas issued so far are for senators, although Assemblyman Adam Gray’s office confirmed he has been subpoenaed based on his work as a former aide to Calderon. Gray was Sen. Calderon’s legislative director from 2008 to 2011, advising him on bills coming up for votes.

Some elected officials are expected to be called as witnesses, according to Assistant U.S. Atty. Mack E. Jenkins. “We are subpoenaing public officials for the Aug. 11 trial date,” Jenkins said. “They are potentially witnesses. It doesn’t necessarily mean they will testify, but it means they may potentially testify, so we want to make sure they are available during the trial.” Jenkins would not say how many subpoenas have been issued, but Capitol sources who spoke on condition of anonymity because they are not authorized to comment on the case said about 10 had been delivered.

Another former Calderon staffer who has been contacted in the past by federal prosecutors is Assemblyman Adam Gray (D-Merced). A spokesman for Gray said Friday that Gray has been subpoenaed as a former staffer.

Senate President Pro Tem Kevin de León’s office refused to clarify whether the Los Angeles Democrat had been subpoenaed, but in a statement, spokeswoman Claire Conlon said, “Senator de León has been asked to assist the prosecution as a witness in the Calderon trial and, as has been the case from the very beginning of this process, he will readily and fully participate. Since the senator’s been cooperating in this matter for nearly two years, he expected to be called and he’s prepared to serve as needed.” De León’s name is mentioned 56 times in the affidavit laying out the federal government’s allegations that Calderon accepted $88,000 in bribes from an undercover agent and a hospital executive. According to the affidavit, Calderon sought de León’s support for legislation to maintain workers’ compensation rules that aided hospital executive Michael D. Drobot, as well as a bill to give tax credits to low-budget independent films. An undercover federal agent posing as a movie producer gave a $5,000 campaign contribution to de León, which the senator later returned.

The former senator has denied any wrongdoing. A year after his indictment on federal corruption charges, Calderon awaits his day in court, working as an acquisitions manager at Red Hill Real Estate Solutions at 652 Mesa Dr., in Corona. The company specializes in buying distressed properties.  “He is doing very well,” said his attorney, Mark Geragos. “He’s working and he’s got enormous support from his friends and family.” The attorney said Calderon is helping with the 330,000 pages of discovery documents provided by the U.S. attorney’s office, including tapes and transcripts for 2,200 recorded telephone calls and meetings.

Geragos called the case “the definition of entrapment,” saying, “Most of these so-called offenses were completely manufactured by the government at the cost of millions of dollars to the taxpayer.” Assistant U.S. Atty. Mack E. Jenkins said his side is ready with a counter-argument. “The legal standard for entrapment is that there must be no predisposition toward bribery” by the defendant, Jenkins said. “We believe we can meet the legal standard that there was predisposition.”

Geragos, who has represented pop star Michael Jackson, actress Wynona Ryder and singer Chris Brown, has also represented other political figures, including former Rep. Gary Condit, former Los Angeles City Councilman Nate Holden and Whitewater figure Susan McDougal, a former business partner of then-President Clinton. Geragos said Calderon would not be the only state lawmaker called to testify at the trial, which is set for Aug. 11. “I think it’s without question that there will be lawmakers called as witnesses, and not necessarily just by the defense.”