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Sandoz Executive Pleads Guilty in Drug Price Fixing Case

Amid an industrywide price-fixing probe that has roped in some of the largest generics players, three executives have faced federal charges for their alleged roles. Now, the wide-ranging probe has snared another former exec – this time a big fish at Novartis’ generics unit.

Hector Armando Kellum, a former senior executive at Sandoz, pleaded guilty to federal conspiracy charges for his role in a scheme to fix prices for a range of the drugmaker’s products, including topical steroid clobetasol and antifungal nystatin triamcinolone cream.

Kellum faces 10 years in prison and a $1 million fine, prosecutors said in a release. In exchange for his plea, Kellum agreed to cooperate with the ongoing federal investigation.

Kellum’s plea has now confirmed Sandoz’s role in the scheme – easily the biggest company so far – but more generics giants could be in the firing line as the lineup of cooperating witnesses expands.

Kellum’s deal comes just two weeks after prosecutors charged Ara Aprahamian, a former sales executive at Taro Pharma. Aprahamian was charged Feb. 4 to three counts of conspiring to fix prices for the company’s generic drugs and lying to investigators.

Aprahamian was targeted for his stints as vice president of marketing and VP of sales and marketing between 2013 and 2016, during which he spearheaded two separate price-fixing campaigns with unnamed drugmakers in New Jersey and Pennsylvania then later lied about his role in the schemes, prosecutors said.

Federal prosecutors called Kellum and Aprahamian “co-conspirators” in the price-fixing scheme, with Kellum’s role falling between March 2013 and at least June 2015.

The report in FiercePharma also notes that in addition to Aprahamian, Jeffrey Glazer and Jason Malek, the former CEO and president of Heritage Pharmaceuticals, respectively, inked deals in 2017 to settle charges leveled the month before.

Prosecutors have also brought cases against two New Jersey-based drugmakers – including Heritage – for their roles in price-fixing schemes. In those cases, Rising Pharmaceuticals agreed in December to pay $3 million in exchange for a guilty plea in a scheme to set prices for hypertension med Benazepril HCTZ. Heritage reached a deal in March to pay $7 million to cooperate with the feds in their probe.

Kellum’s plea has now confirmed Sandoz’s role in the scheme – but more generics giants could be in the firing line.

In May, 44 states launched a mammoth case against 20 generic drug makers that Connecticut Attorney General William Tong called “the largest cartel case in the history of the United States.”

The suit directly named Maureen Cavanaugh, Teva’s former SVP and chief commercial officer in North America, and three lower-level executives who no longer work at the company. Aside from Teva, the lawsuit implicated Sandoz, Mylan, Pfizer and several other leading generic drug makers. It names current and former executives from Lupin, Glenmark and other companies.

National Safety Council Launches ” Work to Zero” Safety Report

Since 1913, the National Safety Council has used data, expertise and innovation to solve some of the toughest workplace safety problems. Yet over the past decade, as workplace injuries have declined, the number of fatalities has remained relatively flat, even increased in some years.

The Council’s Work to Zero initiative, supported by a grant from the McElhattan Foundation, aims to make workplace deaths a thing of the past.

Using decades of insight, data and an unparalleled network of safety leaders, it will identify the most promising technological innovations for eliminating workplace fatalities in our lifetime. In short, Work to Zero will serve as a hub of digital transformation in safety.

Work to Zero launched its first research report, Safety Technology 2020: Mapping Technology Solutions for Reducing Serious Injuries and Fatalities in the Workplace, at its inaugural Summit. The paper reviews the current state of safety technology, provides insight from interviews with more than 40 EHS professionals, and maps major sources and causal factors of workplace deaths to promising safety technologies.

The report looks at 18 different non-roadway hazardous situations in which workers are most likely to die and provides anywhere from five to eight potential technology solutions for each situation.

The Work to Zero Advisory Council is a volunteer group of EHS and technology experts composed of industry, academic, government and other thought leaders who strategically advise the Council on efforts to eliminate workplace deaths. Its primary responsibilities are to inform Work to Zero research projects by providing expertise, insight and access to networks that enrich the initiative, shape outreach and event projects, and engage external parties to broaden the initiative’s reach and knowledge.

The Advisory Council meets via bi-monthly teleconference meetings and bi-annual face-to-face meetings, such as at the NSC Congress & Expo, Campbell Institute Symposium and/or Annual Work to Zero Summit. If you are interested in learning more, email worktozero@nsc.org.

IHOP Cook Arrested for Fraudulent Comp Claim

California Department of Insurance detectives arrested Jonathan Quezada, 28, on multiple felony counts of insurance fraud and workers’ compensation insurance fraud after he allegedly falsified an insurance claim to receive unearned workers’ compensation benefits costing Californians over $22,000.

Quezada was working as a cook at an IHOP in La Mesa when he fractured his clavicle. He filed a workers’ compensation claim with his employer stating he got hurt at work while performing his normal job duties and told his employer and insurance representatives that he was cleaning grill grates in the IHOP kitchen when he slipped and fell.

After receiving a referral from the Preferred Employers Insurance Company, the California Department of Insurance launched an investigation which revealed Quezada lied about the circumstances of his injury.

Surveillance video showed he was injured at work, but that his injury was a result of play wrestling with a coworker, not performing his normal job duties as he claimed.

Quezada’s allegedly false statements allowed him to receive workers’ compensation benefits he was not entitled to, which cost Californians $22,781.

“The workers’ compensation system is intended to help honest workers who get hurt while doing their jobs get the benefits and assistance they need to support themselves and their families while they recover,” said Insurance Commissioner Ricardo Lara. “When people file fraudulent workers’ compensation claims they take advantage of this system and cost Californians millions of dollars every year in higher premiums.”

Quezada was arrested on February 12, 2020, and was booked at the Sacramento County Jail. Bail was set at $25,000. The San Diego District Attorney’s Office is prosecuting this case.

GEICO Uses RICO Statutes to Combat Vendor Fraud

Following several lawsuits in Arizona and Florida, GEICO has filed a federal lawsuit in California alleging an auto glass repair shop submitted fraudulent glass repair bills.

GEICO seeks to recover damages alleging violations of the Civil RICO statute and the California Business and Professional Code as well as claims for common law fraud and unjust enrichment.

GEICO alleges that owners Tal Elzari and Navid Vatankhahan used their business, Winaffix Auto Glass, in a fraudulent scheme to overbill for windshield glass replacement.

Their alleged scheme involved creating false glass invoices designed to mimic those from legitimate car dealerships in order to fraudulently claim they were using expensive original equipment glass rather than less expensive alternative glass. In fact, it is alleged that Winaffix never purchased the glass their invoices claimed. They are also alleged to have performed glass replacement services without a license to do so.

GEICO says it intends to file future lawsuits in California and around the country in its continuing efforts to protect its customers and the public from fraudulent glass repair operators.

“GEICO is committed to protecting our customers from the negative effect that insurance fraud has on premiums,” said James Jones, assistant vice president of claims in GEICO’s Poway, California, office. “These incidents of fraud hurt consumers in California because they cause premiums to increase, and we will continue to pursue them with a zero tolerance.”

Jones went on to say that GEICO has a long history of seeking out individuals and companies willing to commit fraud.

GEICO filed its case – Government Employees Insurance Company, et al. v. Winaffix Auto Glass, et. al. (2:20-cv-01401) – in the U.S. District Court for the Central District of California.

GEICO also seeks a declaration that any pending claims are not owed. GEICO is represented by Barry Levy and Steven Henesy of Rivkin Radler, LLP and Jean M. Daly and Tyler E. Sanchez of Murchison & Cumming, LLP.

Supreme Court Rules Workers Must be Paid for Security Checks

In a unanimous decision, the California Supreme Court in the case of Frlekin v. Apple Inc., just held that the time spent by employees waiting for and undergoing security checks of bags and other personal items is compensable time under California law, even when the policy only applies to employees who choose to bring personal items to work.

In California, employees in most industries must be paid for the time they are subject to the control of their employer, not just the time spent doing work. This is so because, since 1947, California has specifically departed from federal law and has provided greater protection to working employees.

Fisher Phillips points out that over the last several years, the question of whether the time employees spent having their bags checked at work is compensable has arisen in several different contexts, in California and across the country:

— In late 2014, the U.S. Supreme Court held that security checks are not compensable time under federal law because they are not part of the actual workday.
— However, because California law requires employees to be compensated not only when they are working but also when they are subject to their employer’s control, the trial court in this case certified a statewide class on Apple’s security check policy in 2015.
— A few months later, the trial court found in Apple’s favor finding that, because employees can choose whether or not to bring a bag into work, the application of the security check policy depended entirely the employees’ choice.
— Last year, the 9th Circuit Court of Appeals found that the time spent on mandatory security checks at Nike and Converse stores was likely compensable under California law, since California law no longer follows the federal “de minimis” doctrine that allows employers to not compensate for tasks that take only a short amount of time.

The California Supreme Court agreed in it’s new decision, that employee choice is a consideration but ruled that it was not the only consideration. Instead, the court provided a multi-factor test within which to analyze the employee-choice issue. Particularly with respect to “onsite employer-controlled activities,” whether the time is compensable depends on a number of factors, which include:

— The mandatory nature of the activity;
— The location of the activity;
— The degree of the employer’s control;
— Whether the activity primarily benefits the employee or employer; and
— Whether the activity is enforced through disciplinary measures.

In this case, the Supreme Court found that the time spent on bag checks at Apple cut in favor of compensable time under several of these factors: it occurred on the employer’s premises, employees subject to the policy were prevented from leaving the premise while waiting for and undergoing the security check; it was enforced through disciplinary measures; and, rejecting Apple’s argument that security checks benefit employees, the court found that the security check policy primarily benefited the employer as a theft prevention measure.

WCAB Allows Non-Comp Evaluations Into Evidence

Elisha Harden claimed injury to her cervical spine, lumbar spine and psyche on November 14, 2012 while employed as a probation assistant by the County of Sacramento.

The parties agreed to use Peter Mandell, M.D., as the orthopedic AME. Dr. Mandell evaluated applicant and issued reports addressing her industrial injury.

Joseph McCoy, M.D., evaluated applicant in 2016 as an orthopedic independent medical examiner (IME) in relation to her application for disability retirement. Richard Lieberman, M.D., evaluated applicant in 2016 as a psychiatric IME also for her claim for disability retirement. As part of Dr. Lieberman’s examination, applicant was given psychological testing, which was independently scored by psychologist Bernard Bauer. All reports were addressed to the Sacramento County Employees Retirement System.

On April 24, 2019, defendant served applicant with a copy of the reports of Dr. McCoy, Dr. Lieberman and Dr. Bauer. Defendant’s cover letter with these enclosures stated: “We will be providing these medical reports to QME Dr. Wantuch and AME Dr. Mandell in 20 days absent a timely objection from your office.”

On May 8, 2019, applicant sent a response to defendant’s letter objecting to providing these reports to the AME.

The sole issue at the trial held on July 10, 2019 was “Whether the reports of Dr. Joseph McCoy, Dr. Richard Lieberman, and Dr. Bernard Bauer obtained in the disability retirement proceeding shall be provided to the QME Dr. Elizabeth Wantuch and Dr. Peter Mandell over Applicant’s objection.

These reports were ordered inadmissible and defendant was ordered not to provide the reports to Dr. Wantuch and Dr. Mandell. Reconsideration was granted in the case of Harden v County of Sacramento.The WCJ order was rescinded, and the reports of Dr. McCoy, Dr. Lieberman and Dr. Bauer may be provided to the orthopedic AME Dr. Mandell and the psychiatric QME. The panel also ordered applicant’s objection to provision of these reports to the medical-legal evaluators to be overruled.

“In determining whether to admit evidence, we are governed by the principles of section 5708, which states that the Appeals Board “shall not be bound by the common law or statutory rules of evidence and procedure, but may make inquiry in the manner, through oral testimony and records, which is best calculated to ascertain the substantial rights of the parties and carry out justly the spirit and provisions of this division.” (Lab. Code, § 5708.) The right to present evi,dence implicates the right to due process. (Hegg/in v, Workmen’s Comp. Appeals Bd. (1971) 4 Cal.3d 162, 175 [36 Cal.Comp.Cases 93]; Pence v, Industrial Acci. Com. (1965) 63 Cal.2d 48, 51 [30 Cal.Comp.Cases 207].)”

Commissioner Razo dissented. “The parties may not circumvent the requirements of section 4062.2 in order to admit into evidence medical reporting that was not prepared in compliance with the Labor Code. Defendant cannot backdoor into the record evidence that implicitly addresses applicant’s level of permanent impairment and limitations from her industrial injury, and is therefore inadmissible under section 406l(i). (See Batten v. Workers ‘ Comp. Appeals Bd (2015) 241 Cal.App.4th 1009, 1014 [80 Cal.Comp.Cases 1256].) The majority view allows parties to circumvent the legislative intent to disallow privately retained medical experts.

The current workers’ compensation system in California is designed to provide two separate and structured medical evaluation paths to obtaining medical-legal evaluations. For medical treatment disputes, the Legislature created the utilization review (UR) process and independent medical review (IMR). For other disputes regarding AOE/COE, injury, causation, disability, etc., the Legislature enacted the agreed medical evaluator (AME) and the panel qualified medical evaluator (QME) selection process to enable parties to obtain medical-legal evaluations on these issues.

The legislative intent is to avoid “doctor shopping” and to keep litigation costs down. To allow the parties in this case to deviate from the procedures outlined in sections 4062-4062.2 opens the door to enable other types of medical- legal reports to be admissible outside of the legislative mandated process.”

Single Point of Failure – Pharmaceutical Roads Lead to China

The Coronavirus has helped expose China’s monopoly on drugs, and medical supplies that are essential for healthcare systems such as worker’s compensation claims.

In testimony this month before the Senate Committee on Homeland Security and Governmental Affairs, Scott Gottlieb, a physician and the former Food and Drug Administration commissioner in the Trump administration, explained in detail the extent of the U.S. pharmaceutical industry’s dependence on China:

About 40 percent of generic drugs sold in the U.S. have only a single manufacturer. A significant supply chain disruption could cause shortages for some of many of these products.

Last year, manufacturing of intermediate or finished goods in China, as well as pharmaceutical source material, accounted for 95 percent of U.S. imports of ibuprofen, 91 percent of U.S. imports of hydrocortisone, 70 percent of U.S. imports of acetaminophen, 40 to 45 percent of U.S. imports of penicillin, and 40 percent of U.S. imports of heparin, according to the Commerce Department. In total, 80 percent of the U.S. supply of antibiotics are made in China.

While much of the fill finishing work (the actual formulation of finished drug capsules and tablets) is done outside China (and often in India) the starting and intermediate chemicals are often sourced in China. Moreover, the U.S. generic drug industry can no longer produce certain critical medicines such as penicillin and doxycycline without these chemical components.

According to a report from the US-China Economic and Security Review Commission, China’s chemical industry, which accounts for 40 percent of global chemical industry revenue, provides a large number of ingredients for drug products. It’s these source materials – where in many cases China is the exclusive source of the chemical ingredients used for the manufacture of a drug product – that create choke points in the global supply chain for critical medicines.

Moreover, when it comes to starting material for the manufacture of pharmaceutical ingredients, a lot of this production is centered in China’s Hubei Provence, the epicenter of coronavirus. Most drug makers have a one to three-months of inventory of drug ingredients on hand. But these supplies are already being drawn down. Among big [active pharmaceutical ingredient] makers in Wuhan are Wuhan Shiji Pharmaceutical, Chemwerth, Hubei Biocause, Wuhan Calmland Pharmaceuticals.

Gottlieb notes that “80 percent of the U.S. supply of antibiotics are made in China.” The sourcing of this estimate is explained in greater detail in section three of the U.S.-China Economic and Security Review Commission’s 2019 report to Congress, titled – Growing U.S. Reliance on China’s Biotech and Pharmaceutical Products.”

The report notes that China is “the world’s largest producer of active pharmaceutical ingredients (APIs). The United States is heavily dependent on drugs that are either sourced from China or include APIs sourced from China.” The report further explains that although India is the world’s leading supplier of generic drugs, India gets 80 percent of its active pharmaceutical ingredients directly from China. The United States also imports 80 percent of its APIs from overseas (primarily from India and China) and “a substantial portion” of its generic drugs “either directly from China or from third countries like India that use APIs sourced from China.”

In other words, almost all pharmaceutical roads lead to China.

Furthermore, the report notes that China’s dominance of the chemical industry and global manufacturing of active pharmaceutical ingredients means that “the world is becoming increasingly dependent on China as the single source for life-saving drugs.

“The U.S. generic drug industry can no longer produce certain critical medicines such as penicillin and doxycycline, and the APIs needed to make these antibiotics are sourced from China,” the report states.

DWC Announces Online Doctors First Report Pilot Program

The Division of Workers’ Compensation (DWC) has launched an electronic filing pilot program for physicians to submit the Form 5021 Doctor’s First Report of Occupational Illness or Injury (DFR) online.

The pilot is available on a voluntary basis for physicians who agree to send their reports to DWC electronically rather than filing paper forms. Large volume filers such as hospitals are also invited to participate through electronic data interchange (EDI) submission.

Physicians who treat an injured worker are required by the Labor Code to file, within five days after initial examination, a complete report of occupational injury or occupational illness with the employer’s insurer or with the employer if self-insured. The forms are currently only available on paper.

As this is a pilot, physicians are not required to participate in the electronic filing program. DWC plans to draft regulations to require electronic reporting in the future with the goal of phasing out paper filing.

DWC has posted a web page with more information on the pilot program. To participate in EDI filing, contact dfr_edi@dir.ca.gov.

CWCI Study Shows Decline in Medical Treatment Counts

A new CWCI study details changes in the utilization and reimbursement of California workers’ comp physician and non-physician medical services from 2013 through 2018 – a 6-year span during which the state transitioned to a Resource-Based Relative Value Scale (RBRVS) fee schedule mandated by 2012 legislative reforms (SB 863).

The study, authored by Stacy Jones, Senior Research Analyst at the California Workers’ Compensation Institute (CWCI) examines data on 35.9 million medical services provided to injured workers in California to measure changes in the mix of services and payments across nine medical service categories from 2013, the last year under the old fee schedule, across 2014 through 2017, the 4-year period during which the state transitioned into the RBRVS schedule, and into 2018, the first year after the new schedule took full effect.

Overall claim volume fell 5.2% from 2013 to 2018, but that only partially explains the 28.4% decline in total service counts (identified by billing codes) and the 20.4% decline in aggregate payments during that period.

Examining the service counts by medical service category reveals wide variation, with reductions ranging from a 17.2% decline in physical medicine services to a 71.8% drop in pathology and laboratory services.

In addition, the study found that the declines in the number of unique claims associated with each service category also varied widely, ranging from a 4.4% decline in claims with physical medicine services to a 42.9% drop in claims with pathology and laboratory services. The varying reductions in the volume of services among the different categories, as well as updates to the service codes and service descriptions included in the new fee schedule, resulted in a reallocation of the fee schedule dollars, with an increased share paying for primary care, and a smaller share paying for specialty services, which was a key goal behind the adoption of the RBRVS fee schedule.

Between 2013 and 2018, the study found total payments for evaluation and management (E&M) and physical medicine services, which together comprised 68.3 percent of primary care delivered to injured workers in 2018, increased by 9.3% and 30.6% respectively, while total payments for the 7 other service categories all declined, dropping between 16.5% and 76.1%.

Some of the disparities between the utilization and total payment trends in the 9 service categories reflected the change in the average payment per service code. Calculating average payments for services in the 9 categories from 2013 through 2018, the study found that despite the reductions in the volume of services, average amounts paid to providers increased in 5 categories, with increases of 2.1% for surgery services; 28.5% for medicine services; 35.9% for durable medical equipment, prosthetics, orthotics and supplies; 39.4% for evaluation and management; and 57.6% for physical medicine.

On the flip side, average payments fell for pathology and lab services (-15.3%); radiology (-17.2%); and special services (-35.6%), where the decline was primarily due to lower report costs which reflect the RBRVS schedule’s elimination of separate fees for consultation services and associated reports.

The full study takes a detailed look at the professional medical service utilization and reimbursement trends, including shifts in the mix of specific services and payments within each of the 9 service categories, and the underlying changes to the fee schedule that prompted those moves.

CWCI has published the study in a Research Update Report, “Trends in the Utilization and Reimbursement of California Workers’ Compensation Professional Medical Services, 2013-2018” which is available to Institute members and subscribers in the Research section of its website.

San Diego Musicians Play Blues Tunes Over AB-5

Ari Herstand is a Southern California musician. Herstand told NBC 7 he relies on booking gigs in local venues to make ends meet but says, that has all changed. Herstand and other musicians said a new labor law is disrupting California’s music industry.

We’re actually thinking of leaving the state of California and going elsewhere because we can’t survive here,” said Herstand.

Herstand said Assembly Bill 5 is forcing him to act as an employee and an employer, just to earn money by playing his music.

“The bassists I’d normally cut him a check for $200, well now I have to put this bassist on payroll and pay payroll taxes. I have to incorporate myself, I have to get workers comp insurance, I have to get unemployment insurance, etc,” Herstand said.

Herstand said the process will cost him and prevent him from doing what he loves.

“My accountant estimated it will cost me an additional $6,000 a year just to comply with this law and the additional costs,” he explained.

AB 5 was co-authored by assemblymember Lorena Gonzalez and supporters said the bill provides benefits to those in the gig economy.

Assemblymember Gonzalez told NBC 7 for more than a year they’ve been engaging with artists about how this would impact their work.

It’s completely unrealistic for us to change our entire way of operating for this that wasn’t intended to help or hurt us,” said Herstand. “I know assemblywoman Gonzalez did not have ill intention for the music industry when she wrote this bill.”

Herstand is hoping to add an exemption to the law. If that doesn’t work, he said he’s teamed up with Senator Brian Jones for senate bill 881 to tackle this issue.

“I never thought when I got into music that one of the most effective, impactful things that I would’ve ever written would be a law for the state of California,” he said while laughing.

Assemblymember Gonzalez’s office told NBC 7 addressing the music industry this year is a top priority.