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L.A. Deemed Nation’s Hot Spot for Health Care Fraud

A CNN Investigation into fraudulent drug rehabilitation clinics concluded that the populous Los Angeles region is one of the nation’s top hot spots for health care fraud, and former state officials agree it is also ground zero for the rehab racket. To uncover this story on widespread fraud linked to California’s drug rehab program, CNN’s Special Investigations Unit has teamed up with the independent, nonprofit Center for Investigative Reporting as part of Anderson Cooper AC360’s “Keeping them Honest” reports.

Investigative reporters were were stationed in parked cars outside the offices of Able Family Support in the San Fernando Valley, counting the people who came and went on April 4. The clinic, reimbursed by taxpayers for each client it sees, offers in-person drug and alcohol counseling. And Able Family is thriving, according to its billing records.

But according to the reporters, no more than 30 people trickle into the rehab center on April 4 until the doors are locked 10 hours later.

The counting resumed a month later when the clinic submitted its bill to Los Angeles County seeking reimbursement — not for 30 people, but for 179. The government promptly paid it — $6,400 for clients Able Family reported it saw April 4. When told of the April 4 stakeout at Able Family, county regulators said they now have questions about whether the payments were legitimate. The findings merit a closer review but “look very incriminating,” said a spokeswoman for Los Angeles County’s substance abuse department. Able Family operates a small satellite clinic near downtown, the county noted — but a security guard there said about 25 people came to that office each day.

The simple stakeout on April 4 raises questions about the adequacy of government oversight of the program to help the poor and addicted, built on an honor system in which honor often is lacking. Oversight is marred by infrequent and cursory inspections and by a failure to act even when red flags appear. CIR and CNN have exposed how clinics use coercion and forgery to defraud a taxpayer-funded program meant to help struggling addicts..The investigation also found that people ineligible to run Medi-Cal clinics did not just slip through the cracks — they walked through doors regulators left wide open.

The Able Family Support Clinic’s director, Alexander Ferdman, would not explain the discrepancy. “I can’t explain, because you will cut and paste and edit, and my answers will be to a totally different question,” Ferdman said in a telephone interview, before hanging up. Felons are supposed to be blocked from running clinics. That didn’t stop Ferdman. He entered the rehab racket two years after leaving a Texas prison, where he served time for orchestrating an organized crime scam. Over the course of a decade, he built his clinic into a $2 million-a-year operation — all from taxpayer money. Prosecutors in Texas had pegged Ferdman as the ringleader of a scam that robbed auto insurers of millions. An indictment from the Travis County district attorney’s office says a team of fixers staged crashes and recruited actual crash victims as pawns to generate fake legal and medical bills. One witness described Ferdman as the man who paid off operatives from a briefcase full of cash.

CNN claims that Drug Medi-Cal paid out $94 million in the past two fiscal years to 56 clinics in Southern California that have shown signs of deception or questionable billing practices, representing half of all public funding to the program, CIR and CNN found. Over the past six years, more than half a billion dollars have poured into the program statewide.

AIG Ends Stand-Alone Excess Comp Insurance

Excess workers comp insurance is a challenging line to underwrite because it guarantees the payment of catastrophic worker claims that can remain open for decades.

But it’s precisely for that reason that self-insured employers want to purchase the excess coverage from an insurer that will be around for decades to come, experts say. It’s also why few underwriters offer the insurance as a stand-alone product.

And now, American International Group Inc. disclosed in a 2012 Securities and Exchange Commission filing that it had ceased writing stand-alone excess workers comp cover because of its extremely long tail and risks that make it “one of the most challenging classes of business to reserve for.”

Issues that escalate costs – such as obesity, opioid pain medication usage and Medicare set-aside requirements – have pushed excess workers comp underwriters to raise their prices and demand that clients assume greater retentions.

CWCI Says Industrial Obesity Claims On the Way

A new California Workers’ Compensation Institute (CWCI) report suggests that the number of work injury claims involving obesity could increase sharply, along with the associated costs, following the recent vote by the American Medical Association (AMA) to reclassify obesity as a treatable disease.

In mid-June, the AMA approved a resolution reclassifying obesity as “a disease state,” effectively declaring that one third of all Americans suffer from a medical condition that requires treatment, a move that is widely expected to increase pressure on doctors to address the condition when treating obese patients, and on health care payers to pay for obesity consultations and treatment. And that designation, according to the report, will likely affect diverse areas of employment, including the Americans with Disability Act and Equal Employment Opportunity Commission claims; life, disability, and workers’ compensation insurance; weight bias; insurer and provider responsibility; physician reimbursement; and diagnostic and procedure coding.

In workers’ compensation, obesity has historically been a co-morbidity – a condition that occurs at the same time, but usually independent of, an injury or illness. In the past, a medical provider might include an obesity co-morbidity code on their medical bill if they felt the condition needed to be addressed so that the work injury could be treated and the patient could recover and return to work (e.g., if an obese injured worker needed to lose weight before they could have back surgery.) Even as a co-morbidity, however, obesity in workers’ compensation has gone largely unreported. A CWCI survey from 2011 found that even though 28% of injured workers reported that they were obese, only 0.9% of the job injury claims from those workers included an obesity co-morbidity diagnostic code, indicating that obesity has only infrequently been deemed a condition that needed to be addressed in order to treat most work injuries and illnesses.

CWCI says that may change, however, if medical providers feel a greater responsibility to counsel obese patients about their weight and to treat the condition, especially if there is a greater likelihood that they will be paid for doing so. Aside from its status as a comorbidity, obesity could become a primary workers’ comp diagnosis, particularly in sedentary jobs like office work, or long-haul trucking, according to the report.

“In such scenarios the viability of the claim would likely hinge on proving that the work actually caused the obesity, which would be an issue ripe for dispute and which could lead to additional litigation,” the report states. “In light of the increasing evidence of genetic pre-disposition for various medical conditions, defining causation and relative causation will be critical in claims involving obesity, and also may arise in other employment areas such as pre-employment screening.”

The “disease” designation doesn’t bode well for employers or for long-term workers’ comp rates employers may be faced with paying if claims do rise, said Jerry Azevedo, a spokesman for the Workers’ Compensation Action Network, a group that represents the interests of employers. “The implications are grim, especially if statutory or case law proves ineffective in limiting employers’ liability to true industrial causation or direct compensable consequences,” Azavedo said. “Unfortunately, there’s a tension created through litigation in the workers’ comp system, where plaintiffs’ lawyers want to make everything under the sun a part of the injury claim to run up the bills and inflate benefits. Employers are forced to defend against that and have fought hard for policies that reinforce what should really just be common sense – which is employers should pay for what was directly caused by the work injury. ”

Scientists Investigate Cause of Arthritis Pain

Arthritis is a debilitating disorder with pain caused by inflammation and damage to joints. Yet, according to an article in Science Daily the condition is poorly managed in most patients, since adequate treatments are lacking — and the therapies that do exist to ease arthritis pain often cause serious side effects, particularly when used long-term. Any hope for developing more-effective treatments for arthritis relies on understanding the processes driving this condition.

A new study in the Journal of Neuroscience by researchers at McGill University adds to a growing body of evidence that the nervous system and nerve-growth factor (NGF) play a major role in arthritis. The findings also support the idea that reducing elevated levels of NGF — a protein that promotes the growth and survival of nerves, but also causes pain — may be an important strategy for developing treatment of arthritis pain.

To investigate the role of these abnormal sympathetic fibres, the McGill researchers used an agent to block the fibres’ function. They found that this reduced pain-related behaviour in the animals. “Our findings reinforce the idea that there is a neuropathic component to arthritis, and that sympathetic nerve fibres play a role in increasing the pain,” said McGill doctoral student Geraldine Longo, who co-authored the paper with Prof. Afredo Ribeiro-da-Silva and postdoctoral fellow Maria Osikowicz.

“We are currently using drugs to prevent the production of elevated levels of NGF in arthritic rats; we hope that our research will serve as a basis for the development of a new treatment for arthritis in the clinic,” said Prof. Ribeiro-da-Silva.

Apportionment of permanent disability in workers’ compensation cases can be based upon causation. As more information about the causation of arthritis is known, opportunities for employers to seek apportionment is enhanced.

Court of Appeal Affirms Employer Fraud Conviction

Michael Vincent Petronella owned several businesses, including The Reroofing Specialists, Inc., doing business as Petronella Roofing, Western Cleanoff, Inc., and Petronella Corporation. In September 2006, an SCIF claims adjuster received a telephone call from Petronella Roofing’s secretary, reporting an employee named Morales was still receiving workers’ compensation benefits although he had returned to work. The adjuster asked the secretary to provide documentation. She received a copy of Morales’s pay stub, reflecting he worked for Western. Noticing that Western had been reported to be dormant and removed from coverage under the policy, but was still listed as an active entity on the Secretary of State’s Web site, the adjuster reported the discrepancy to SCIF’s special investigations unit.

An SCIF claims manager compiled a list of 42 persons who filed workers’ compensation claims under Petronella Roofing’s policy whose payroll had not been reported to SCIF. A certified public accountant compared the payroll reports and audit documents defendant provided SCIF with the quarterly employee wage reports actually received by EDD. The accountant prepared a report reflecting the difference between the quarterly payroll defendant reported to EDD and the payroll reports he submitted to SCIF from the fourth quarter of 2000 to the fourth quarter of 2008. Over that 8-year span, the difference in payroll reported to EDD and that reported to SCIF exceeded $29 million.

The prosecution charged defendant with one count of grand theft, 36 counts of violating Insurance Code section 11880, subdivision (a), plus numerous tax evasion crimes. The information also alleged an enhancement under Penal Code section 186.11, subdivision (a). During trial, the court dismissed the grand theft charge at the prosecution’s request and granted defendant’s motion for acquittal on the bulk of the tax evasion charges. The jury found defendant guilty of 33 counts of violating Insurance Code section 11880, subdivision (a), but acquitted him on three other similar counts and the remaining tax evasion charges. As to counts 2 through 20, the jury returned true findings the prosecution of these charges began within four years of when the crime reasonably should have been discovered. Finally, the jury also found defendant engaged in a pattern of related fraudulent felony conduct resulting in over $500,000 in losses.

The superior court sentenced defendant to 10 years in state prison. It also and ordered him to pay $500,000 in restitution under Penal Code section 1202.4. Defendant appeals from the judgment raising numerous evidentiary, instructional, and sentencing issues. Both defendant and the People appeal from the trial court’s restitution award. The Court of Appeal reversed the trial court’s restitution order, but otherwise affirmed the judgment in the published case of The People v Michael Vincent Petronella.

The Court concluded that “a review of the trial court’s reasons for awarding SCIF $500,000 in restitution clearly indicates it abused its discretion in reaching this decision.” By ” failing to consider all of the evidence presented to it concerning restitution and relying on irrelevant factors to pick a figure out of thin air that was less than what the jury found to have been SCIF’s loss…” The matter was remanded to the Superior Court for further proceedings on the restitution award.

WCIRB Recommends 3.4% Increase In Pure Premium Rates

The insurer and public members of the WCIRB Governing Committee voted unanimously to authorize the WCIRB to submit two filings to the California Department of Insurance. The first filing will contain proposed changes to the Insurance Commissioner’s January 1, 2014 and January 1, 2015 workers’ compensation regulations and will be submitted to the CDI on August 9, 2013. The second filing, which will be submitted to the CDI on or around August 19, 2013, will contain proposed January 1, 2014 advisory pure premium rates.

Traditionally, the WCIRB submitted a single filing containing proposed changes to both the regulations and advisory pure premium rates. This year, the CDI and the WCIRB developed a bifurcated filing process in order to allow insurers more time to modify their operational systems to reflect any approved regulatory changes.

The proposed January 1, 2014 advisory pure premium rates that will be included in the WCIRB filing average approximately $2.62 per $100 of payroll, which is 3.4% above the industry average filed pure premium rate of $2.53 per $100 of payroll as of July 1, 2013.

These proposed advisory pure premium rates reflect the WCIRB’s most current evaluation of Senate Bill No. 863 (published October 12, 2012); however, these proposed advisory pure premium rates do not reflect any provision for the impact of the new physician medical fee schedule which is based on the Resource Based Relative Value Scale (RBRVS) and is under consideration by the Division of Workers’ Compensation (DWC). If the DWC adopts the new schedule, the WCIRB anticipates modifying its proposed advisory pure premium rates based on its evaluation of the cost impact of the new schedule on policy year 2014 medical costs.

The WCIRB’s August 9, 2013 regulatory filing will include proposed amendments to the California Workers’ Compensation Uniform Statistical Reporting Plan – 1995 (USRP), the Miscellaneous Regulations for the Recording and Reporting of Data – 1995 (Miscellaneous Regs) and the California Workers’ Compensation Experience Rating Plan – 1995 (ERP) effective January 1, 2014. The amendments to the USRP include (1) changes to the Standard Classification System, (2) changes to data reporting requirements to conform to national data reporting specifications, and (3) an amendment to provide for the use of collective bargaining agreements to validate an employee’s hourly wage rate for purposes of assignment to a high wage dual classification for audits on policies with an expiration date on or after January 1, 2014. Additionally, a number of amendments will be proposed to the USRP, Miscellaneous Regs and the ERP to facilitate a bifurcated filing process and for clarity and consistency.

The WCIRB will also propose a number of regulatory changes to be effective on January 1, 2015 including amendments to the USRP pertaining to policy reporting requirements and significant amendments to the ERP intended to constrain the impact of a single claim incurred during the experience period to 25 percentage points.

Fibromyalgia Study Finds SFPN – Nerve Fiber Damage

About half of a small group of patients with fibromyalgia — a common syndrome that causes chronic pain and other symptoms — was found to have damage to nerve fibers in their skin and other evidence of a disease called small-fiber polyneuropathy (SFPN). Unlike fibromyalgia, which has had no known causes and few effective treatments, SFPN has a clear pathology and is known to be caused by specific medical conditions, some of which can be treated and sometimes cured. The study from Massachusetts General Hospital (MGH) researchers will appear in the journal PAIN and has been released online.

“This provides some of the first objective evidence of a mechanism behind some cases of fibromyalgia, and identifying an underlying cause is the first step towards finding better treatments,” says Anne Louise Oaklander, MD, PhD, director of the Nerve Injury Unit in the MGH Department of Neurology and corresponding author of the Pain paper.

The term fibromyalgia describes a set of symptoms — including chronic widespread pain, increased sensitivity to pressure, and fatigue — that is believed to affect 1 to 5 percent of individuals in Western countries, more frequently women. While a diagnosis of fibromyalgia has been recognized by the National Institutes of Health and the American College of Rheumatology, its biologic basis has remained unknown. Fibromyalgia shares many symptoms with SFPN, a recognized cause of chronic widespread pain for which there are accepted, objective tests.

Designed to investigate possible connections between the two conditions, the current study enrolled 27 adult patients with fibromyalgia diagnoses and 30 healthy volunteers. Participants went through a battery of tests used to diagnose SFPN, including assessments of neuropathy based on a physical examination and responses to a questionnaire, skin biopsies to evaluate the number of nerve fibers in their lower legs, and tests of autonomic functions such as heart rate, blood pressure and sweating.

The questionnaires, exam assessments, and skin biopsies all found significant levels of neuropathy in the fibromyalgia patients but not in the control group. Of the 27 fibromyalgia patients, 13 had a marked reduction in nerve fiber density, abnormal autonomic function tests or both, indicating the presence of SFPN. Participants who met criteria for SFPN also underwent blood tests for known causes of the disorder, and while none of them had results suggestive of diabetes, a common cause of SFPN, two were found to have hepatitis C virus infection, which can be successfully treated, and more than half had evidence of some type of immune system dysfunction.

“Until now, there has been no good idea about what causes fibromyalgia, but now we have evidence for some but not all patients. Fibromyalgia is too complex for a ‘one size fits all’ explanation,” says Oaklander, an associate professor of Neurology at Harvard Medical School. “The next step of independent confirmation of our findings from other laboratories is already happening, and we also need to follow those patients who didn’t meet SFPN criteria to see if we can find other causes. Helping any of these people receive definitive diagnoses and better treatment would be a great accomplishment.”

DWC Posts Additional Modifications to OMFS

The Division of Workers’ Compensation (DWC) has issued a 15 day notice of modifications to proposed physician fee schedule regulations. Comments on the modifications will be accepted until Aug. 19. Modifications to the proposed physician fee schedule were made following stakeholder comments provided during a comment period that ended with a public hearing on July 17.

Under these proposed regulations

  • The maximum reasonable fee formulas are revised to apply average statewide geographic adjustment factors to the work, practice, and malpractice expense relative value units (RVUs) for procedures other than anesthesia.
  • A separate average statewide geographic adjustment factor will be applied to anesthesia services.
  • The transition conversion factors were revised in light of RAND’s refined modeling and application of the average statewide geographic adjustment factors.
  • The regulation was revised to clarify the applicability of the 1995 or 1997 evaluation and management documentation guidelines.
  • The proposed regulation was revised to clarify the hierarchy that should be used to determine payment for procedures with status indicator codes C, N, R, or I.
  • The proposed regulation was revised to clarify “AAs” are “certified anesthesiologist assistants” instead of the term used by Medicare, “anesthesia assistants.” Added clarifying language regarding applicability of the MEI to the workers’ compensation specific codes and updated the maximum reasonable fees to estimated 2014.

Text of the proposed amendments to the physician fee schedule and related documents listed above to be posted on the DWC rulemaking webpage. Members of the public are invited to present written comments regarding the proposed modifications by 5 p.m. on Monday, Aug. 19. DWC will consider only comments it has received by that time.

California Workers Comp Bonds Get AA Rating

Fitch Ratings affirmed the ‘AA’ rating on approximately $559.5 million in California Infrastructure and Economic Development Bank workers compensation relief bonds, series 2004A and 2004B. The bonds are limited obligations of the infrastructure bank, payable solely from pledged revenues consisting primarily of special bond assessments imposed by the California Insurance Guarantee Association (CIGA) upon all insurers providing workers compensation insurance policies in the state.The bonds are secured by a first lien on an unlimited, mandatory special assessment on all insurers writing workers compensation policies in the state. The special assessment is established annually at a level projected to provide 1.1x coverage, and supplemental assessments may be levied as necessary.

The bonds are secured by a first lien on a mandatory and unlimited special benefit assessment (SBA) charged to all insurers writing workers’ compensation policies in California. CIGA sets the SBA rate annually at a level projected to cover expected debt service by 1.1x; if insufficient, supplemental SBAs may be levied as necessary to ensure coverage. The minimum levy is 1% of net direct premium. CIGA’s calculation of the SBA includes a variance factor for series 2004B, which were issued as auction rate bonds and are held by the bank.

CIGA’s regular assessment on workers compensation insurers, levied at 1% of net direct premium, and the SBA are deposited first to the trustee to meet debt service requirements; regular assessments are available to CIGA thereafter. By statute, CIGA may use other resources including its regular assessment to pay bonds, but these funds are not pledged. Moreover, if an insurer’s payment is insufficient, amounts received are statutorily applied first to cover the SBA levy. Residual SBA revenues are held by the trustee and available for early bond repayment. A debt service reserve is also funded at maximum annual debt service.

Fitch noted that the California workers compensation system has undergone considerable reform over the last decade. Prior to reforms in 2003 and 2004, the market faced a high level of payouts, fierce price competition, and subsequent insurer insolvencies and voluntary departures from the market. Reforms included significant changes to medical delivery and treatment for injured workers, higher statutory deposit requirements for insurers, higher regular assessments on insurers, and authorization for up to $1.5 billion in bonds supported by the SBA.

The outstanding bonds were issued in 2004, with proceeds used by CIGA to pay claims on insolvent insurers. A second issuance, planned for 2006, was never undertaken. The remaining bond authorization, which was intended to expire in 2006, has been extended by the state’s legislature. Interest on the auction rate bonds is calculated on a weekly basis, linked to one of two short-term reference rates. The authorization provides flexibility to CIGA to refund the 2004B auction rate bonds, if necessary, should interest rates rise significantly. Any additional issuance also requires levying a sufficient SBA as well as consent of the state insurance commissioner.

Orthopedic Surgeon Faces Sexual Misconduct Charges

The Medical Board of California, Department of Consumer Affairs has filed an accusation against Ronald Glousman, M.D., of the Kerlan Jobe Orthopedic Clinic in Los Angeles alleging sexual misconduct while performing an evaluation of a workers’ compensation claimant. The Accusation is a public record and contains the following information.

The alleged victim was identified as “patient R.A., a Spanish-speaking male, who sustained injuries at work when a rack toppled over and struck him on the right shoulder and right side of his head. As a result, patient R.A. filed a worker’s compensation claim.” He then suffered two additional injuries including to his spine while at work.

The patient was then allegedly seen by Philip A. Sobol, M.D., at the Sobol Orthopedic Medical Group, Inc. in 2008 for a worker’s compensation evaluation. Dr. Sobol diagnosed R.A. with right shoulder sprain/strain/contusion/tendinitis, cervical sprain/strain with right upper extremity radiculitis, spondyolosis of the cervical spine at C4-C5, and a lumbar sprain/strain.

Because of the patient’s continued complaints about his right shoulder Dr. Sobol requested a worker’s compensation authorization for a surgical consultation with Ronald Glousman, M.D. (Respondent). Respondent is an orthopedic surgeon specializing in sports medicine, and shoulder, elbow, and knee injuries at Kerlan-Jobe Orthopaedic Clinic.

During the course of Glousman’s treatment of the claimants shoulder, he allegedly conducted an examination of patient’s hip and groin area on several occasions after asking the patient to remove his pants and underwear.

The accusation alleges that because “of what occurred in the last two follow up visits, the patient decided to record this examination. The patient positioned his cell phone’s video camera to capture a majority of the examination room and table.” Allegedly the patient obtained a video recording of sexual misconduct at the time of this visit, according to the allegations of the Accusation. Allegedly Dr. Glousman provided information to the Board about this event and “admitted that by the time he walked back into the examination room Respondent intended to engage in a sexual act with R.A.”

According to the Board, the conduct constitutes “sexual exploitation of a patient” in violation of law, for which the Board seeks to revoke his Physicians and Surgeons Certificate in addition to other relief.

The Accusation is in the preliminary stages of litigation, and Dr. Glousman of course can have evidentiary hearings to disprove any or all of these allegations, and his license status will be determined at the end of any litigation process he may follow.