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Another Drugmaker Settles Kickback Charges

Amgen Inc., a California-based biotechnology company, has agreed to pay the United States $24.9 million to settle allegations that it violated the False Claims Act. Amgen develops, manufactures, and sells pharmaceutical products, including products sold under the trade name Aranesp.

The settlement resolves allegations that Amgen paid kickbacks to long-term care pharmacy providers Omnicare Inc., PharMerica Corporation and Kindred Healthcare Inc. in return for implementing “therapeutic interchange” programs that were designed to switch Medicare and Medicaid beneficiaries from a competitor drug to Aranesp. The government alleged that the kickbacks took the form of performance-based rebates that were tied to market-share or volume thresholds. The government further alleged that, as part of the therapeutic interchange program, Amgen distributed materials to consultant pharmacists and nursing home staff encouraging the use of Aranesp for patients who did not have anemia associated with chronic renal failure.

“We will continue to pursue pharmaceutical companies that pay kickbacks to long-term care pharmacy providers to influence drug prescribing decisions,” said Stuart F. Delery, Acting Assistant Attorney General for the Justice Department’s Civil Division. “Patients in skilled nursing facilities deserve care that is free of improper financial influences.”

“By this agreement we are making important strides in holding drug manufacturers accountable for fraudulent and abusive practices not only in South Carolina but nationwide,” said William Nettles, U.S. Attorney for the District of South Carolina. “I am proud of the tireless work of this office to investigate this case across the country.”

This civil settlement resolves a lawsuit filed under the qui tam, or whistleblower, provision of the False Claims Act, which allows private citizens with knowledge of false claims to bring civil actions on behalf of the United States and share in any recovery. The False Claims Act suit was filed in the U.S. District Court for the District of South Carolina, and is captioned United States ex rel. Kurnik v. Amgen Inc., et al.

Acting Assistant Attorney General Delery noted that the settlement with Amgen, Inc. was the result of a coordinated effort among the Civil Division, the U.S. Attorney’s Office for the District of South Carolina, and the U.S. Department of Health and Human Services, Office of Inspector General.

This resolution is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover more than $10.3 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $14.2 billion.

The claims settled by this agreement are allegations only; there has been no determination of liability.

CWCI Studies Toxic Injuries

A new California Workers’ Compensation Institute (CWCI) “Injury Scorecard” on job injury claims identified as “other injuries, poisonings and toxic effects” finds that these claims often involve non-specific or ill-defined diagnoses; are more likely than other claims to involve attorneys and permanent disability payments; take longer to close; result in above average loss payments; and a disproportionate share of them (32.5%) are filed by Los Angeles County residents. CWCI compiled data for the Score Card from 169,287 open and closed claims for 2001-11 injuries in which the primary diagnosis fell into the “other injury, poisoning and toxic effect” category. As of January 2012, medical and indemnity benefit payments on those claims totaled nearly $3.1 billion.

The Score Card shows that during the 11-year span of the study, “other injury, poisoning and toxic effect cases accounted for 7.7% of California’s workers’ compensation claims, but 10.1% of workers’ compensation loss payments, as more than 1 out of every 5 of these injuries resulted in a permanent disability payment (vs. 1 in 6 injury claims overall), nearly 2/3 of the lost-time claims in this category involved an attorney (vs. less than half of all lost-time claims), and PD claims in this category took longer to close than other PD claims.

Notably, during the pre-reform era of 2001-03, average paid losses on other injury, poisoning and toxic effect claims were below the average for all claims, but unlike other types of injury claims, loss payments on these claims never declined following the 2002-2004 workers’ compensation reforms, and have remained above average since 2004. For example, the Score Card shows average loss payments at 36 months post injury on AY 2001-03 other injury, poisoning and toxic effect indemnity claims totaled $26,512 ($12,891 medical + $13,622 indemnity), or 8.9% less than the average for all indemnity claims. But, while average 36-month losses for all indemnity claims fell 13.9% in the 3 years after the reforms, average payments on indemnity claims in this category rose 17% to $31,015; then continued up for 3 more years, rising 30.7% to $40,547 ($23,801 medical + $16,746 indemnity) for AY 2007-09 claims – 38.8% above the average for all indemnity claims from the same era.

Aside from tracking average paid losses for 2001 through 2009 other injury, poisoning and toxic effect claims at 12-, 24- and 36-months post injury, the CWCI Score Card provides a profile of claimants in this injury category, as well as claim distributions by industry sector, the claimants’ county of residence, and cause and nature of injury. Several exhibits also compare other injury, poisoning and toxic effect claim results to those for all California workers’ compensation claims (these include exhibits showing the percentage of claims with PD payments within 3 years of injury; attorney involvement data; claim closure data; prescription drug distributions; breakdowns of medical development by Fee Schedule Section at 12 and 24 months post injury; notice and treatment time lags; and medical network utilization rates).

In addition to the Score Card on “other injury, poisoning and toxic effect” claims, recent Score Cards have examined medical back problems with and without spinal cord or root involvement; shoulder, arm, knee and leg sprains; head and spinal injuries without spinal cord involvement; and carpal tunnel syndrome. Injury Score Cards and summary Bulletins are available to CWCI members and subscribers who log on to

Investigators Search For Evidence of Pacific Hospital Kickbacks

The Wall Street Journal, in a new story published this week, claims that the U.S. attorney for the Central District of California is investigating allegations that the Pacific Hospital of Long Beach executive paid kickbacks to physicians so they would refer their patients for spine surgery at his facility. Over the past 15 years, Michael D. Drobot built a Southern California business empire centered on treating people with back problems, many of them workers’ compensation patients. At the heart of the operation is Pacific Hospital of Long Beach, a 184-bed facility that Mr. Drobot bought in 1997 and turned into a spine-surgery center.

Federal Bureau of Investigation agents raided the hospital and another company owned by Mr. Drobot earlier this month as part of what the agency termed a fraud investigation. Representatives for the FBI and the U.S. attorney’s office declined to give specifics about the probe.People familiar with it say it is focused on allegations that Mr. Drobot operated a kickback scheme, under which he allegedly paid doctors thousands of dollars for each spine surgery they referred to Pacific Hospital. Under California’s anti-kickback statute, it is illegal to pay money to induce patient referrals. The practice is also illegal under federal law if the patients referred are insured by government health programs such as Medicare or Medicaid.

“Mr. Drobot and the hospital categorically deny any accusation of impropriety concerning the hospital’s outstanding and world-class spinal treatment program,” Laura Salas Reyes, a spokeswoman for Pacific Hospital, said, adding that both Mr. Drobot and the hospital “are cooperating fully with authorities looking into the matter.”

In written responses to questions from The Wall Street Journal for a front-page article last year, Mr. Drobot denied paying kickbacks to doctors for patient referrals. The article identified Pacific Hospital as a prolific spine-surgery facility: From 2001 to 2010, according to state data, it performed 5,138 spinal fusions on workers’ compensation patients and billed $533 million for them – three times as much as any other hospital in California.

Spine surgery is among the most profitable businesses for hospitals nationwide. In California’s workers’ compensation system, it can be even more lucrative because hospitals are allowed to bill separately for spinal implants, creating room for abuse through excessively marked-up implant charges, according to fraud investigators employed by insurers.

Along with Pacific Hospital, Mr. Drobot owns a spinal-implant distributorship. Federal agents are investigating allegations he paid surgeons who agreed to use his distributorship’s implants $15,000 for each lumbar fusion and $7,500 for each cervical fusion they performed at Pacific Hospital, the people familiar with the probe said. Surgeons who didn’t use his implants were allegedly paid smaller sums, these people said.

Drobot’s distributorship resold implants made by Alphatec Holdings Inc. Documents reviewed by the Journal show that Pacific Hospital marked up the Alphatec implants supplied by Mr. Drobot’s distributorship sharply when it billed them to patients’ insurers – in excess of limits set by the California’s workers’ compensation division. Alphatec’s general counsel, Ebun Garner, said the firm let its contract with Mr. Drobot expire earlier this year after he violated it by charging excessive prices. Mr. Drobot didn’t reply to an inquiry put to him through the hospital about Mr. Garner’s version of events.

The U.S. attorney is probing allegations Mr. Drobot funneled the kickbacks to surgeons via another firm he owns that provides collection services to doctors, the people familiar with the probe said. In his answers to questions from the Wall Street Journal last year, Mr. Drobot denied any improper arrangements between the firm and surgeons operating at Pacific Hospital.

DWC Revises WCIS Penalty Regulations

The Division of Workers ’ Compensation has revised proposed regulations providing for the assessment of administrative penalties for Workers’ Compensation Information System (WCIS) reporting violations and posted them to the online forum where members of the public may review and comment on the proposal.

In addition, DWC has posted on the forum for comment a revised version of the California EDI Implementation Guide for First and Subsequent Reports of Injury (Version 3.1), a necessary tool in the electronic reporting of claim data to WCIS.

The proposed administrative penalty regulations implement Senate Bill 826, which amended Lab or Code section 138.6 by authorizing DWC to assess administrative penalties, up to $5,000 per year for each claims administrator, for a failure to report claim information or the failure to report such information accurately to WCIS. The proposed regulations provide:

  • Schedule of penalties capped at $5,000 against a claims administrator in any given year. The schedule provides for no more than $100 per violation for violations where a mandatory report is not submitted or not accepted, and no more than $50 per violation for violations involving specific errors or late filings.
  • Threshold rates of violations that are excluded from the calculation of penalty assessments.
  • A requirement for DWC to publish an annual report on the compliance of claims administrator s.

The revised WCIS implementation guide contains minor updates and corrections to the current version, (3.0), which became effective in November 2011. Changes address the manner of transmitting data to WCIS, the filing of annual and final reports, requirements for specific data elements, data edits, and secondary matching criteria.

The proposed penalty regulations are sections 9705.1 through 9705.2 in Title 8 of the California Code of Regulations.

The forum can be found online on the DWC website by clicking on current forums

Comments will be accepted on the forum until 5 p.m. on April 29. The DWC invites interest persons to participate in this important process

May 7 Meeting Set with MAXIMUS to Discuss IMR and IBR Communication

The Division of Workers’ Compensation has invited interested members of the public to a meeting May 7 to discuss the most efficient means of communication with Maximus Federal Services, the current independent medical and bill review organization. The meeting will be from 10 a.m. to noon in the auditorium of the Elihu Harris Building, 1515 Clay Street in Oakland

Principals from Maximus Federal Services will present an overview of how the requests for independent medical reviews (IMRs) and independent bill reviews (IBRs) are processed.

Workers’ compensation carriers and third party administrators are encouraged to join in this discussion regarding secure methods of transmitting documents and the best ways to handle billing and other communications issues.

Maximus Inc., trademarked as MAXIMUS, is an American for-profit privatizing company that provides business process services to government health and human services agencies in the United States, Australia, Canada, Saudi Arabia, and the United Kingdom. MAXIMUS focuses on administering government-sponsored programs, such as Medicaid, the Children’’s Health Insurance Program, health care reform, welfare-to-work, Medicare, child support enforcement, and other government programs. The company is based in Reston, Virginia, has 8,657 employees, and reported annual revenue of $1.05 billion in fiscal year 2012.

Over its nearly 40 year history it has not been without criticism. In October 2010, The Los Angeles Times reported that 146 medical workers, including doctors, nurses and pharmacists were allowed to keep working despite failing drug tests. MAXIMUS was awarded a $2.5 Million a year contract to run California’s confidential “diversion programs”. MAXIMUS contracted the work out to a subcontractor who in turn subcontracted the work to another company. The drug testing company was using the wrong standard of drug test from December 2009 to August 2010, resulting in medical workers who tested positive for drugs to continue working.

In October 2000 six state lawmakers in Wisconsin called for the termination of MAXIMUS’ W-2 contract, saying the firm has “broken faith with the state and poor people the agency serves in Milwaukee County.”

In November 1997, The Hartford Courant reported that MAXIMUS “gets minimal results” when it was hired by the State of Connecticut to manage a child care program for recipients of welfare. According to the Record-Journal, MAXIMUS “hired too few people, installed an inadequate phone system and fell weeks or months behind in making payments to day care providers.

WCIRB Report Shows 12% Increase In Average Rates

The Workers’ Compensation Insurance Rating Bureau of California has completed its report on insurer loss and premium experience valued as of December 31, 2012. This report is based on data reported to the WCIRB by insurers who wrote almost 100% of the statewide market.

California written premium (gross of deductible credits) for calendar year 2012 is approximately $12.5 billion. This is approximately 16% above the written premium reported for 2011 and 42% above the written premium reported for 2009.

The projected industry average charged rate (rates charged by insurers that reflect all rating plan adjustments except deductible credits, retrospective rating plan adjustments, terrorism charges, and policyholder dividends) per $100 of payroll for policies written between July 1, 2012 and December 31, 2012 is $2.60. This is approximately 12% above the average rate charged for 2011 and 24% above the average rate charged for 2009. However, the average rate charged in the second six months of 2012 remains approximately 59% less than the average rate charged in the second six months of 2003.

The WCIRB projects an ultimate accident year combined loss and expense ratio of 136% for accident year 2011, which is comparable to the 2009 and 2010 projections. The WCIRB preliminarily projects an ultimate accident year combined loss and expense ratio of 127% for accident year 2012. The combined ratios for the last four years are the highest since 2001.

The WCIRB projects indemnity claim frequency for accident year 2012 to be 2.7% above the frequency for 2011 and 12.8% above the frequency for 2009 (Exhibit 7). While projected indemnity claim frequency shows increases over the last three accident years, the 2012 frequency remains approximately 30% below the indemnity claim frequency experienced prior to the 2002 through 2004 reforms.

Court of Appeal Rules Against Nurse With Latex Allergy

Catholic Healthcare West owns and operates medical facilities in California and other states, including Mercy Medical Center Redding, a hospital and related facilities located in Redding, California. Janet Anderson started working at Mercy as a registered nurse in 1979.

In 2005, Anderson experienced medical symptoms – itching all over her arms and torso – that were consistent with an allergic reaction. Anderson went to the employee health department to undergo a “RAST” test for sensitivity to latex.

Before the results of the RAST test were known, Anderson was called to a meeting with the director of perioperative services, Jeanette Smith, and the OR manager, Kirk Williams. Smith had been hired by Mercy five months earlier to make the OR department financially more efficient and attract more physicians to perform surgeries at Mercy. As part of that effort, Smith evaluated Anderson’s position and duties and found them to be nonessential. Smith informed Anderson the position of OR data coordinator was being eliminated as part of a reorganization of the OR.At no time during the meeting was Anderson’s allergic reaction or the possibility the reaction was caused by latex exposure discussed. Anderson applied for and obtained a position as a circulating nurse in the outpatient surgery center.

Later it was determined that Anderson’s symptoms were related to latex sensitivity.

Anderson experienced another allergic reaction at work on March 11, 2005, and went to the emergency room. Anderson discussed the latex allergy with her supervisor at the outpatient surgery center who then designated one of the rooms as a latex-free area for Anderson to perform many of her duties. She continued to be reactive at work. Anderson stopped working and filed a workers’ compensation claim relating to the allergic reactions in March.

Anderson’s medical records described subsequent allergic reactions to latex in non-hospital settings and to such products as automobile tires, furniture, food products and food packaging. She was found to be sensitive to foods handled by food workers wearing latex gloves, and to latex on chairs and seats in movie theaters and restaurants. Her physician wrote on March 19, 2007, that Anderson “remains unemployable outside of her own home, which she has purposefully made latex free.” Later he released her to transitional (modified) work, full-time depending on location, with no exposure to latex products. Efforts were made by the employer to locate work but she could not be returned to outpatient surgery, or to any other clinical locations within or outside of the hospital proper due to possible latex exposure.

Anderson filed a civil action which alleged five causes of action under the California Fair Employment and Housing Act. After a court trial, judgment was entered in Mercy’s favor and Anderson appealed. The Court of Appeal in the unpublished decision of Janet Anderson v Catholic Healthcare West affirmed the judgment in favor of the employer. Anderson failed to demonstrate on appeal the trial court’s decision with respect to disability discrimination and wrongful termination based on disability was unsupported by substantial evidence.

Retired Athletes Plan Sacramento Protest

A battle between professional athletes and owners of football, baseball, basketball, hockey and soccer teams starts Monday. The Los Angeles Times reports that dozens of retired athletes plan a news conference on the steps of the state Capitol to denounce a bill that would make it harder for them to file workers’ compensation claims in California.

The measure, AB 1309 by Assemblyman Henry Perea (D-Fresno), seeks to close what he sees as a legal loophole that allows out-of-state players to file claims for compensation for sports injuries developed from years of pounding in the arena. An Assembly Insurance Committee hearing is set for April 24.

Opposing the bill are the players and their unions. The legislation interferes with collective bargaining agreements, said NFL Players Assn. Executive Director DeMaurice Smith. Among those players expected Monday are J.J. Stokes of the National Football League’s San Francisco 49ers, Jacksonville Jaguars and New England Patriots; Ickey Woods of the NFL’s Cincinnati Bengals; and Marty McSorley, who played hockey for half a dozen teams, including the Los Angles Kings and San Jose Sharks.

Perea counters that out-of-state players are taking advantage of an overly generous California law. “The question as I see it for the Legislature,” he said, “is whether it is fair to burden California’s system with these claims from out-of-state employees.”

More Details Emerge in Pacific Hospital of Long Beach Investigation

According to a new story in the Wall Street Journal, federal agents are looking into fraud allegations at companies owned by Michael D. Drobot, a hospital executive who built a Southern California business empire centered on treating spine injuries suffered by workers’ compensation patients. Last week, FBI and IRS agents conducted searches at the companies as part of a fraud investigation by the U.S. attorney for the Central District of California, said Laura Eimiller, a spokeswoman for the FBI’s Los Angeles field office. She added that the grand jury affidavit supporting the searches was sealed, and declined to provide specifics about the investigation.

The agents served search warrants on Pacific Hospital of Long Beach, a 184-bed facility owned and run by Mr. Drobot, and on Industrial Pharmacy Management LLC, a Drobot company based in Newport Beach that dispenses medications to patients in doctors’ offices.

“We look forward to working with the authorities to resolve the misunderstandings that led to” the searches, said Laura Salas Reyes, a spokeswoman at the hospital. A person at the drug-dispensing firm said no one was available to comment. Mr. Drobot and his attorney didn’t respond to requests for comment.

Mr. Drobot, 68 years old, acquired Pacific Hospital of Long Beach in 1997 and shifted its focus to spine surgeries for workers’ compensation patients. In a front-page article last year, the Wall Street Journal identified the hospital as one of the most prolific spine-surgery facilities in California. From 2001 to 2010, according to state data, it performed 5,138 spinal fusions on workers’ compensation patients and billed $533 million for them – three times as much as any other hospital in the state.

For a time, Mr. Drobot was in business with Paul Randall, a hospital marketer who served time in federal prison in the 1990s for racketeering. Mr. Randall said he recruited spine surgeons to operate at Mr. Drobot’s hospital, and the two said they operated a magnetic-resonance-imaging business together. Documents reviewed by the Journal last year showed that Mr. Randall was under investigation by the U.S. attorney’s office for allegedly inflating the cost of spinal implants and paying kickbacks to chiropractors and spine surgeons. Mr. Randall hasn’t been charged and has denied engaging in any illegal activities. On Monday, he and his attorney both declined to comment.

In January, the Wall Street Journal reported that Randall was a consultant paid millions of dollars by Tri-City Regional Medical Center, that It built up this business rapidly. Tri-City is a 107-bed facility just south of Los Angeles near Long Beach. The small hospital billed workers’ compensation insurers $65 million in 2010 for spinal fusions, up from less than $3 million three years earlier. Randall’s role for Tri-City was twofold: bringing surgery cases to the hospital by recruiting surgeons to operate there, and supplying metal implants for the surgeries through distributorships he owned. An official of Tri-City said the hospital ended its relationship with Mr. Randall in the middle of last year, a few months after it ousted the executive who had hired him.

Mr. Randall, 52 years old, an entrepreneur with a collection of sports memorabilia and a yen for gambling, began his career as a hospital marketer in the mid-1990s after serving a stint in federal prison for racketeering. He was convicted of the felony in 1993 for deals that involved buying wooden shipping pallets on credit and reselling them without paying the original vendors, and was sentenced to a 21-month term. After serving time in the Terminal Island federal correctional facility in Long Beach harbor, Mr. Randall went into business with Michael D. Drobot, the owner of Pacific Hospital of Long Beach.

A Naval officer in the Vietnam era, Mr. Drobot bought Pacific in 1997 and shifted its focus to spine care for workers’ compensation patients. For a decade, Messrs. Randall and Drobot operated a business that arranged for magnetic resonance imaging, or MRI, services. Randall was reportedly paid $25,000 a month to run the MRI business plus a share of profits. Mr. Drobot created several businesses focused on workers’ compensation patients: a van service to shuttle patients, a provider of Spanish interpretation and a distributorship of metal implants used in back surgery. His hospital became one of the most prolific spine-surgery facilities in California.

After a business dispute between the two men, Mr. Randall in 2008 moved to Tri-City, a hospital eight miles away that then focused on bariatric surgery. Tri-City, which is a nonprofit institution, paid Mr. Randall more than $3.2 million between 2008 and July 2011 as a business-development consultant. Mr. Randall recruited some of the same spine surgeons to Tri-City that he earlier introduced to Mr. Drobot at Pacific. By August 2011, Mr. Randall said, he was back to doing spine-surgery marketing work for Mr. Drobot at Pacific Hospital of Long Beach. . Mr. Randall said he signed a $100,000-a-month marketing agreement with Mr. Drobot – technically between Mr. Drobot’s spinal-implant distributorship and a Randall marketing firm – under which Mr. Randall is to provide services such as “recruiting surgeons to the medical staff of hospitals that use” implants Mr. Drobot distributes. Mr. Drobot said through a spokesman that he didn’t recall entering into any such contract and that he didn’t believe the signature on the document was his.

President Proposes Changes to Federal Comp System

President Barack Obama’s 2014 budget proposal sent to Congress on Wednesday calls for reforms to two federal workers compensation programs: the Federal Employees’ Compensation Act and the Defense Base Act.

According to the story on the Business Insurance website, the White House is proposing to act on longstanding recommendations by the Government Accountability Office and other federal organizations by converting retirement-age FECA beneficiaries to a “retirement annuity-level benefit.” FECA currently creates an incentive for federal employees injured on the job to continue receiving its benefits beyond their retirement age, according to the budget proposal.

“In addition, while state workers compensation systems have waiting periods for benefits to discourage less serious claims, FECA has a three-day waiting period for non-postal employees that is imposed too late in the claims process to be effective,” the proposal states.

The proposed changes also would impose a new up-front waiting period for FECA benefits and give the U.S. Department of Labor “additional tools to reduce improper payments.” The budget proposal does not provide specifics, but the FECA changes would save more than $500 million over 10 years, it says.

The president’s proposal also would replace the current Defense Base Act program with a governmentwide benefit fund that would bill individual federal agencies for their workers comp insurance costs. The DBA provides benefits for contract overseas workers on U.S. military bases and for workers on overseas public works projects.Under the DBA’s current structure, federal agencies pay for their insurance through a “patchwork” of individual contracts, and its costs now exceed benefits paid “by a significant margin,” according to the budget proposal. The proposal points out that the DBA’s caseload increased by nearly 2,600% from 2002 to 2011, with more than 11,600 claims filed in 2011.