Category: Daily News

The California Attorney General, along with a coalition of attorneys general from 47 states, the District of Columbia and five U.S. territories, announced a $600 million settlement with one of the world’s largest consulting firms, McKinsey & Company (McKinsey).

McKinsey & Company is an American worldwide management consulting firm, founded in 1926 by University of Chicago professor James O. McKinsey, that advises on strategic management to corporations, governments, and other organizations.

Under the leadership of Marvin Bower, McKinsey expanded into Europe during the 1940s and 1950s. In the 1960s, McKinsey’s Fred Gluck – along with Boston Consulting Group’s Bruce Henderson, Bill Bain at Bain & Company, and Harvard Business School’s Michael Porter – transformed corporate culture.

McKinsey advised opioid makers on how to “turbocharge” sales of OxyContin, propose strategies “to counter the emotional messages from mothers with teenagers that overdosed” on OxyContin, and help opioid makers circumvent regulation.

The firm also advised Purdue Pharma to offer pharmacies rebates based on the number of overdoses and addictions they caused.

In February 2021, McKinsey reached agreements with attorneys general in 49 states, five U.S. territories, and the District of Columbia. Across the settlements, the firm agreed to pay nearly $600 million to settle investigations into its role in promoting sales of OxyContin.

The settlement also resolves California’s investigation into the company’s role in advising opioid companies, helping those companies promote their drugs, and profiting from the opioid epidemic. California will receive $59,613,603.99 from the settlement.

In addition to providing funds to address the crisis, the agreement calls on McKinsey to prepare tens of thousands of its internal documents detailing its work for Purdue Pharma and other opioid companies for public disclosure online.

When states began to sue Purdue’s directors for their implementation of McKinsey’s marketing schemes, McKinsey partners began corresponding about deleting documents and emails related to their work for Purdue.

California’s drug formulary, which went into effect January 1, 2018, was intended to reduce frictional costs in the workers’ compensation system; restrict inappropriate prescribing, especially that related to opioids; and ensure that injured workers receive medically necessary medications in a timely manner.

In the July 1, 2018 Pure Premium Rate Filing, the WCIRB estimated that the drug formulary would reduce pharmaceutical costs by 10 percent, resulting in an overall 0.5 percent reduction in the advisory pure premium rate level.

The WCIRB’s initial estimate was based largely on projected reductions in the use of opioids, compounds, physician-dispensed drugs and brand name drugs when a generic alternative was available.

The WCIRB has updated the cost impact evaluation of the Drug Formulary, utilizing additional pharmaceutical transaction information in 2019 through the pre-pandemic period in 2020, in its Cost Impact of California’s Drug Formulary – Two-Year Checkup research brief.

Key findings in the research brief include:

– – While pharmaceutical costs had been declining sharply prior to implementation of the formulary, the decline accelerated in 2018 and continued at a somewhat slower rate through 2019 and the pre-COVID-19 period in 2020.
– – The share of prescriptions for drugs not subject to prospective UR in accordance with the formulary continued to increase in 2019 and early 2020, while that of drugs subject to UR continued to decline.
– – The share of pharmaceutical payments for opioids, compounds and brand name drugs with generic alternatives dropped sharply in 2018 and continued to drop at a similar rate in 2019 and early 2020.
– – While the share of pharmaceutical payments for physician dispensed drugs started to increase slightly toward the end of 2019, on an annual basis, the share of payments to these drugs continued to decline during the two years of the formulary implementation.
– – The continued downward trend in pharmaceutical costs through early 2020, as well as the continued decreases in the proportion of drugs not subject to UR, opioids, compounds, physician-dispensed drugs and brand name drugs with generic equivalents suggest the formulary is achieving its intended effects.

The COVID-19 pandemic and the resultant stay-at-home orders have affected the patterns of medical treatment of California injured workers. While elective medical services were suspended during the early weeks of the pandemic, pharmaceutical use has increased throughout the pandemic. The increases have driven the average drug payments in the system above the prepandemic level. Most of the increases came from non-opioid pain medications.

Given that the formulary impact on drug utilization and costs may be mixed with the impact of the stay-at-home orders during the ongoing pandemic, this updated evaluation focused on the pre-COVID-19 pandemic period and assessed how the drug formulary affected prescription drug utilization and costs during this period.

President Joe Biden nominated Julie Su, the head of California’s labor agency, on Wednesday as the deputy U.S. secretary of labor, potentially putting another Californian in a top administration job and focusing a brighter spotlight on the state’s ongoing unemployment fraud scandal.

If confirmed by the Senate, Su would be tasked with helping to lead a sprawling department that oversees laws that regulate worker standards and pay, workplace safety, workers’ compensation, unions, family and medical leave and more. She would work in partnership with Boston Mayor Marty Walsh, Biden’s nominee for labor secretary, if he is confirmed.

Julie A. Su is currently the Secretary of the California Labor and Workforce Development Agency. Governor Gavin Newsom appointed Su in January of 2019 to serve as his cabinet advisor on labor issues and employment programs for workers and businesses throughout California.

Secretary Su oversees the state departments and boards that enforce labor laws, including minimum wage and occupational safety standards, provide state disability and unemployment insurance benefits, fund workforce training and apprenticeship programs, combat wage theft, protect injured workers, and arbitrate public sector contract disputes.

Su is a nationally recognized expert on workers’ rights and civil rights who has dedicated her distinguished legal career to advancing justice on behalf of poor and disenfranchised communities, and is a past recipient of a MacArthur Foundation “Genius” grant.

As California Labor Commissioner from 2011 through 2018, Su enforced the state’s labor laws to ensure a fair and just workplace for both employees and employers. A report on her tenure released in May 2013 found that her leadership has resulted in a renaissance in enforcement activity and record-setting results. In 2014, she launched the first “Wage Theft is a Crime” multi-media, multilingual statewide campaign to reach out to low-wage workers and their employers to help them understand their rights and feel safe speaking up about labor law abuses.

Prior to her appointment as California Labor Commissioner, Su was the Litigation Director at Asian Americans Advancing Justice-Los Angeles, the nation’s largest non-profit civil rights organization devoted to issues affecting the Asian American community. In her 17 years as a civil rights lawyer, Su brought landmark lawsuits resulting in millions of dollars for low-wage workers and policy changes in California and the United States protecting immigrant victims of crime and human trafficking. In 1995, she was the lead attorney for Thai garment workers who were trafficked into the United States and forced to sew behind barbed wire and under armed guard in an apartment complex in El Monte, California. Su is known for pioneering a multi-strategy approach that combines successful impact litigation with multiracial organizing, community education, policy reform, coalition building, and media work.

Su has taught at UCLA Law School and Northeastern Law School. She is a graduate of Stanford University and Harvard Law School and began her career with a Skadden Fellowship. Su is the daughter of Chinese immigrants and speaks Mandarin and Spanish

A West Los Angeles pharmacy and its owner pleaded guilty to federal criminal charges stemming from a scheme in which millions of dollars in reimbursements for compounded drugs were generated through the payment of illegal kickbacks for patient referrals and by fraudulently paying patients’ copayments.

41 year old Navid Vahedi, who lives in Brentwood, pleaded guilty to one count of conspiracy to commit health care fraud and payment of illegal remunerations. Vahedi also entered a guilty plea to the felony offense on behalf of his business, Fusion Rx Compounding Pharmacy.

Vahedi and Fusion Rx admitted routing millions of dollars in kickback payments through the businesses of two marketers to steer prescriptions for compounded drugs to Fusion Rx. As part of the scheme, Vahedi and the two marketers provided physicians with preprinted prescription script pads that offered “check-the-box” options on the form to maximize the amount of insurance reimbursement for the compounded drugs.

From May 2014 to at least February 2016, Fusion Rx received approximately $14 million in reimbursements on its claims for compounded drug prescriptions.

As part of its contracts with various insurance networks, Fusion Rx was obligated to collect copayments from patients. Because the copayments might discourage patients from requesting expensive and potentially unnecessary compounded drug prescriptions, Fusion Rx did not collect copayments with any regularity and, in other instances, it provided gift cards to patients to offset the amount of the copayments, according to court documents.

After an audit raised concerns that Fusion Rx’s failure to collect copayments would be discovered, Vahedi directed Fusion Rx funds to be used to purchase American Express gift cards, which were then used to make copayments for certain prescriptions without the patients’ knowledge. Fusion Rx then submitted claims on these prescriptions to various insurance providers, falsely representing that patients had paid the required copayments.

A sentencing hearing is scheduled for  June 28, at which time Vahedi will face a statutory maximum sentence of five years in federal prison. Both defendants have agreed to pay restitution related to the copayment reimbursement part of the scheme, which is estimated to be $4,405,926.

In addition to his obligation under the plea agreement to pay restitution, Vahedi also agreed to forfeit $1,338,511.

Under the terms of the plea agreements, Fusion Rx has also agreed to pay a fine sufficient to divest itself of all its remaining assets, Vahedi has agreed to have his pharmacist license revoked, and both Vahedi and Fusion Rx will be excluded from federal health care programs such as Medicare and Medicaid going forward.

The two marketers involved in the scheme – Joshua Pearson, 41, of St. George, Utah, and Joseph Kieffer, 40, of West Los Angeles – previously pleaded guilty in this case and are scheduled to be sentenced by on May 24 and June 28.

On May 22, 2006, Mesa Pharmacy filed Articles of Incorporation. A year later, Pharmacy Development Corporation sprang into existence. Both use the same pharmacy permit number PHY50766 doing business as Mesa Pharmacy VII in Irvine California.

John Garbino became involved with Mesa in late 2011 or 2012. There is a contract between his wholly owned company, Trestles Pain Management, to market Mesa’s pharmaceutical services to doctors. Those doctors would then submit prescriptions to Mesa for fulfillment.

According to the facts found by the WCJ, “Mesa went from a company barely squeaking by to an entity raking in hundreds of millions of dollars essentially overnight.”

Mesa provided expensive compounded medications to injured workers and has been a major lien claimant with millions of dollars of liens that are currently outstanding and unpaid.

Garbino was ultimately charged by federal authorities and convicted of Medicare fraud, preventing him from participating in the Workers’ Compensation System. His association with Mesa Pharmacy was examined by the DWC and found to be sufficient to place Mesa on the list of suspended providers under Labor Code §4615.

Mesa Pharmacy challenged that decision, claiming that Garbino never held a position with Mesa that would subject them to the suspension.

A trial followed on the issue of “whether John Garbino, who was convicted of Medicare fraud, was a 10% or greater owner, a director, an officer, or had de facto control of the Lien Claimant, Mesa Pharmacy.”

After taking extensive testimony and documentary evidence, the WCJ found that Garbino had de facto control of Mesa Pharmacy in the WCAB case of Melvin Garcia Galdames v Vinyl Technology.

The WCJ reasoned in part that “In order to be considered a corporation with an existence separate and apart from those who ran it, there were simple steps that had to be taken.”

“Mesa had to have a board of directors. On paper it did – but the people listed on those papers weren’t aware of it or admitted to being figureheads. Garbino ended up listed as an owner of Mesa with the Arizona Pharmacy Board. And while that doesn’t prove he was an actual owner, it does show that no one was paying attention to who was being asserted by the corporation as having ownership interest in legal filings in other states. That creates a strong inference that there was no actual corporate structure at Mesa, they just made it up with whatever names seemed to be the best fit at the time.”

“Mesa Board of Directors had to keep regular accounts of their dealings…. People allegedly serving on the board couldn’t recall having meetings outside of an occasional vague memory. This court ordered Mesa to produce the corporate minutes. They could not, or would not, do so.“

“The court can, and does, look to whether the facts demonstrate that there was a person behind the curtain pulling on the strings. Garbino showed up, turned on the music, and Kurtz and the others waltzed into the pile of cash that stood to be made. He told them what to do and how to do it. He connected them with financers. He supplied the pool of doctors to write the prescriptions Mesa would fill. He made them rich on paper. He was the catalyst that catapulted Mesa from a corner drug store to being in reach of nationwide chain status. Mesa’s two-bit cast of grifters with a reasonably intelligent front-man found a real crook to teach them to do business. Now they have to live with the taint of his wrong-doings.”

Floyd Skeren Manukian Langevin, LLP Hearing Representative John Castro participated in this trial.