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California Has Mixed Scorecard in WCRI Medical Price Index Report

The Workers Compensation Research Institute (WCRI) released the sixth edition of its annual Medical Price Index for Workers’ Compensation (MPI-WC). The MPI-WC, like the Consumer Price Index for medical care (CPI-M), measures price inflation. It tracks the actual medical prices paid for each of the major services delivered to injured workers in 25 states over the past 12 years.

“This will help public policymakers and system stakeholders understand how prices paid for medical professional services for injured workers in their state compare with other states and know if prices in their state are rising rapidly or relatively slowly,” said Dr. Richard Victor, WCRI’s executive director.
“They can also learn,” said Victor, “if the reason for price growth in their state is part of a national phenomenon or whether the causes are unique to their state and, hence, subject to local management or reform.”

The method used to construct the MPI-WC is similar to the CPI-M, which is published by the U.S. Department of Labor’s Bureau of Labor Statistics. However, the MPI-WC is a more focused measure of workers’ compensation price growth than the CPI-M. In particular, the CPI-M includes the prices of all medical services provided to the U.S. population; the majority of these services have little or no relevance for tracking medical prices for the care provided to injured workers. The MPI-WC focuses only on those medical services that are commonly provided to injured workers – largely related to diagnosis and treatment of trauma and orthopedic conditions.

Additionally, changes in prices paid under workers’ compensation systems are likely to be related to regulation choices made by the states. The CPI-M for professional services did not track the workers’ compensation price trends well for the study states with fee schedules. For study states without fee schedules, growth in the CPI-M for professional services was fairly similar to workers’ compensation price trends over the study period.

The MPI-WC tracked medical prices paid in 25 large states from calendar year 2002 through June 2013 for nonhospital, nonfacility services billed by physicians, physical therapists, and chiropractors. The medical services fall into eight major groups: evaluation and management, physical medicine, surgery, major radiology, minor radiology, neurological and neuromuscular testing, pain management injections, and emergency care. The 25 states included in the MPI-WC, which represent nearly 80 percent of the workers’ compensation benefits paid in the United States, are Arizona, Arkansas, California, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, and Wisconsin.

The eleven year graph for “Professional Services” from 2002 to 2013 shows that California is well below the median of states without fee schedules, and consistently below the median of states with fee schedules. It was not as frugal with Evaluation and Management Services that slightly exceeded the median of states with fee schedules for a few years in the middle of the study. However, for Professional Surgery services, California exceeded the median of states with fee schedules for all years after 2003.  California appears to have an expensive community of surgeons.

WCAB Panel Rejects Jurisdiction Over Hospital Lien Claim

Rudy Gallardo’s claim of industrial injury to his low back and right shoulder while employed by Southern California Edison was settled by compromise and release. Before the settlement he received two back surgeries performed at Huntington Hospital. What remained to be adjudicated was a dispute concerning the lien claim of Huntington Hospital in the amount of $43,870 pursuant to the Official Medical Fee Schedule (OMFS) in addition to the $18,050 already paid by Edison. Huntington initially billed $130,610.59 for the services it provided, but was paid $18,050.00 by Blue Cross of California on behalf of Edison. Huntington filed a workers’ compensation lien for the $112,560.59 balance it claimed was due, but it was subsequently stipulated that the total fee allowed by the OMFS is $61,920.00, and Huntington amended its claim to $43,870.00, which is the difference between the $18,050.00 paid by BCC and the $61,920.00 allowed by the OMFS.

The fee dispute was presented at a lien trial. Two contracts were received into the record. The first was a 23 page January 1, 2002 “Comprehensive Contracting Hospital Agreement” (CCHA) made between Blue Cross of California and Huntington. The second was a seven page August 1, 2006 “Workers’ Compensation Network Access Agreement” made between Edison and “BC Life and Health Insurance Company,” which is a Blue Cross of California subsidiary.

The WCJ issued her December 23, 2013 decision finding that defendant was obligated to pay the additional $43,870.00 to Huntington pursuant to the OMFS. Edison Petitioned for Reconsideration which was granted in the panel decision of Rudy Gallardo v Southern California Edison and Huntington Hospital.

Defendant contended that the WCAB lacks jurisdiction over the fee dispute and that it is not liable to Huntington for the additional amount because it earlier paid $18,050 to Huntington in accordance with the express agreement between Huntington and Blue Cross of California (BCC), which established the amount to be paid consistent with Labor Code sections 4906 and 5304.1.The WCAB panel agreed and reversed.

Labor Code Section 5304 provides as follows: “The appeals board has jurisdiction over any controversy relating to or arising out of Sections 4600 to 4605 inclusive, unless an express agreement fixing the amounts to be paid for medical, surgical or hospital treatment as such treatment is described in those sections has been made between the persons or institutions rendering such treatment and the employer or insurer.”

In prior decisions the WCAB held that the language in the Blue Cross ‘Comprehensive Contracting Hospital Agreement,’ expressly provides for Blue Cross to contract with ‘Other Payors’ to provide access to a hospital’s medical services. Such ‘Other Payors’ are noted to consist of other insurers, including workers’ compensation insurers. (See e.g., Recovery Resources, Inc. v. Workers’ Comp. Appeals. Bd (Gordon) (2009) 74 Cal. Comp. Cases 881 [writ denied]; See Ferguson v. Handee Market (2005 Cal. Wrk. Comp. P.D. Lexis 22[)]; Waters v. Los Angeles Clippers (2005 Cal. Wrk. Comp. P.D. Lexis 15.)

“The $18,050 fee paid by defendant to Huntington by way of the chain of contracts was pursuant to an “express agreement fixing the amounts to be paid” as described in section 5304, and under that section the WCAB does not have jurisdiction over the fee dispute. Huntington’s contention that BCC did not follow the terms of their contract in accordance with section 4906 does not change the fact that the WCAB is without jurisdiction because there is an express agreement fixing the amounts to be paid. A different forum must be used by Huntington to adjudicate its breach of contract claims.”

Inspector General Warns About Electronic Health Records Potential for Fraud

The federal government is rewarding doctors and hospitals for moving to electronic health records – and will soon punish them if they don’t – even though these records currently make it easier for health care providers to defraud government-paid health programs, fraud experts say. The Department of Health and Human Services’ inspector general charged in December that the basic auditing safeguards that also help to prevent fraud for electronic health records (EHRs) weren’t in place in many hospitals, or they were being used, but vulnerable to corruption.

Yet, according to the story in USA Today, the Centers for Medicare and Medicaid Services still doesn’t require health care providers to keep their audit systems on. Reed Gelzer, a former primary care doctor who is now an EHR consultant to the federal government and private groups, says that means the health records that are maintained electronically can be easily falsified, altered or otherwise misrepresented. “There have been billions spent on these systems and incentives paid to providers, but there is no private or government agency that provides oversight,” said Dan Bowerman, a Philadelphia chiropractor who has assisted in many state and federal fraud investigations.

Preventing EHR fraud is a “top priority” for CMS, spokesman Aaron Albright said in an e-mail response. “We are working to create strong standards for validating electronic health records to ensure that we allow beneficiaries to receive the care they need and at the same time protect taxpayers from fraud, waste and abuse,” he said.

A 2009 federal law requires that certified EHRs have to be used in a “meaningful manner.” This includes e-prescribing, sharing health information and allowing providers to submit clinical quality measures, such as patient care outcomes. Electronic records can be enormously beneficial in medicine because they improve patient care and cut costs – key goals of the Affordable Care Act – by allowing doctors and pharmacists to coordinate treatment. That reduces medical errors and avoids duplication of procedures. HHS has spent more than $22.5 billion in financial incentives for doctors and hospitals to use EHRs, and those that don’t will soon have their Medicare payments reduced.

The problems occur when the records aren’t audited for reliability or checked for cloned records, said Bowerman, a former medical director at a major insurer. Questionable electronic documentation systems allow providers to add notes to existing records or create new records where none existed before. Some health care providers who are the subject of insurance company audits or criminal investigations have created such records, Bowerman said.

The push for EHRs comes as funding for fraud prevention has been on a downward trend, federal data show, though some funding is set to increase in 2015. Even though the Health Care Fraud and Abuse Control program and Medicare Integrity Program recover more than $8 for every $1 spent, the two programs only make up about 0.22% of total federal health care expenditures, Gelzer estimates using federal and congressional data. CMS is working on new standards and ways to identify when records are copied and used inappropriately in future notes, wrongly modified or altered by date or author. The agency said it is also trying to identify best practices for detecting fraud and abuse associated with EHRs with the help of contractors.

New Study Says Steroid Injections Ineffective for Back Pain

Steroid injections widely used to treat back pain offer little or no real benefit, according to a new study of 400 patients published in the New England Journal of Medicine and summarized by an article by Reuters Health.

Those who received the drug mixed with the painkiller lidocaine scored no better on measures of disability and leg pain after six weeks than patients in a control group who received lidocaine injection alone. “These (injections) are so commonly used and the steroids do pose an added risk to patients without much benefit,” the study’s lead author Dr. Janna Friedly of the University of Washington in Seattle told Reuters Health. “I do hope patients and their doctors will be more cautious about using them” for spinal stenosis, she said.

Lumbar spinal stenosis is a narrowing of the passageway surrounding spinal nerves in the lower back. The resulting nerve compression is painful and the number one reason older adults have spinal surgery. The combination of glucocorticoid steroids and an anesthetic is supposed to reduce nerve inflammation and swelling in the surrounding tissue. Roughly 550,000 procedures – at a cost ranging from $500 to $2,000 per injection – are done each year just among Medicare recipients.

“Certainly, this study raises serious questions about the benefits of epidural glucocorticoid injections for spinal stenosis,” Dr. Gunnar Andersson of Rush University Medical Center in Chicago writes in an accompanying editorial in the New England Journal of Medicine. “It’s looking like it may be a little harder to justify doing those injections for spinal stenosis in patients. But it doesn’t show it’s not effective at all,” said Dr. D. Scott Kreiner, co-chairman of the guidelines committee of the North American Spine Society, who was not involved in the research.

In the editorial, Andersson said if patients decide to have injections anyway, a second one should be avoided if there is no effect from the first. Because many insurance companies require the injections before surgery is approved, the new finding, combined with the U.S. Food and Drug Administration’s warning that they can cause paralysis, nerve damage or death, “suggest that this requirement should be reconsidered,” he said.

Friedly predicted that the findings will meet with some resistance among doctors because “these are injections that are commonly performed and people believe that they work,” which is why the results were surprising. “There are not a lot of effective treatments for pain and symptoms associated with spinal stenosis,” she said. “We still have a lot of unanswered questions about what alternative treatments are effective.”

Major Drugmakers Lack Interest in New Antibiotic Development

An article in Reuters paints a glum picture of the future of antibiotics as a tool for modern medicine. “The drugs don’t work – and neither does the market, when it comes to antibiotics.” Take gonorrhea, a sexually transmitted disease contracted by more than 100 million people a year: it used to be easily treatable but has now developed superbug strains that are drug-resistant and are spreading around the planet. Tuberculosis is a similar tale. Totally resistant forms of the lung infection emerged in India just a few years ago and have now been detected worldwide. Hospital patients in Africa with untreatable TB are often simply sent home to die. It’s a glimpse of what Britain’s chief medical officer Sally Davies calls the “apocalyptic scenario” of a post-antibiotic era, which the World Health Organization says will be upon us this century unless something drastic is done.

Waking up to the threat, governments and health officials are getting serious about trying to neutralize it. It may seem like a question of science, microbes and drugs – but in truth it is a global issue of economics and national security. The debate moved to center stage last week when British Prime Minister David Cameron launched a global review of the crisis, securing specific support from U.S. President Barack Obama and German Chancellor Angela Merkel. That builds on a resolution passed at the World Health Assembly in Geneva in May recognizing the pressing need for the world to act in the fight to combat increasing resistance.

Britain’s chief medical officer Sally Davies said in an interview with Reuters “This is…not a science issue. This is an issue of markets and economics.”

In recent decades, drugmakers have slashed investment in antibiotics because of poor returns from a class of low-priced medicines that are only used for short periods, even as overuse of existing drugs has spurred the spread of resistance. As a result, the world’s biggest investor in the field today is a little-known U.S. firm, Cubist Pharmaceuticals, with an annual research budget for antibiotics of $400 million. The industry complains its bug-killing medicines are severely undervalued – and they have a point.

Just over a year ago, Johnson and Johnson won approval for the first drug in 40 years that provides a new way to treat TB, yet sales of Sirturo are forecast by analysts to total just $75 million this year. Compare that to Gilead Sciences’ new hepatitis C drug Sovaldi – carrying an eye-watering U.S. price tag of $1,000 per pill – which is tipped to sell more than $8 billion in 2014.

For companies like Cubist the current situation is not all doom and gloom. The exit of bigger players has reduced competition, while recent steps to ease the regulatory path to market have helped and the U.S. Generating Antibiotics Incentives Now (GAIN) Act now ensures some extra patent life. Indeed, the U.S. Food and Drug Administration has approved two new drugs from Cubist and Durata Therapeutics for acute bacterial skin infections in the last two months. That’s encouraging but a more fundamental fix is still needed.

Workers’ Compensation – Where Did All The Money Go?

Pursuant to Section 11759.1 of the California Insurance Code, the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) has prepared this report containing estimated California workers’ compensation costs for 2013 based on insured employer experience including payments made by the California Insurance Guarantee Association (CIGA).

Calendar year 2013 earned premium totaled $14.4 billion (as compared to the $12.1 billion of premium earned in 2012). Total insurer paid losses (i.e., excluding payments made by CIGA) in 2013 were $8.4 billion, or 58% of calendar year earned premium. Combining insurer paid losses with a $1.9 billion increase in total insurer loss reserves resulted in total insurer incurred losses, excluding payments made by CIGA, of $10.3 billion, or 72% of the premium earned in 2013.In 2013, $5.2 billion, or 61% of total loss payments, were for medical services. $3.4 billion, or 39% of total loss payments, were for indemnity benefits (including vocational rehabilitation benefits).

In total, California insurers have incurred about $5.3 billion in expenses in 2013, or 37% of 2013 earned premium. In total, incurred losses and expenses in calendar year 2013 were $15.6 billion, or 108% of earned premium. Based on insurer statutory Annual Statement information, the WCIRB estimates policyholder dividends incurred in 2013 to be 0.4% of 2013 earned premium, resulting in an underwriting loss of $1.3 billion, or 8.8% of premium.

Although generally part of incurred indemnity losses rather than expenses, the amount paid in 2013 to applicant attorneys was derived from the WCIRB’s Annual Expense Call. In 2013, applicant attorneys were paid $457 million. (In 2012, applicant attorneys were paid $450 million.)

At the bottom end of paid medical expenses, 4% was paid for medical cost containment programs, 3% for medical legal evaluations, 2% for medicare-set-asides, Physicians on the other hand were paid 36% of the dollars allocated to this category. The top five recipients by percentage were general and family practice physicians, followed by physical therapists, clinics, orthopedists and then radiology services. Chiropractors were ninth with 1.3% of total medical paid. Psychiatrists were 11th and psychologists 13th on the list.

By medical legal specialty, orthopedists had 66% of the number of reports, followed by psychiatry at 14% and internal medicine and cardiology at 6%. Thus the ortho/psyche combination continues to be a popular combination punch.

In terms of money flowing to injured workers, temporary disability was 48% and permanent partial disability payments followed at 42%. Life pensions took 3% of the dollars while total permanent disability was 4%. Death benefits were 2% of paid indemnity benefits.

DIR Approves New Alternative Security Program for Self Insureds

Department of Industrial Relations Director Christine Baker approved the implementation of the 2014/15 Alternative Security Program (ASP), which frees $7.54 billion in working capital and provides self-insured California businesses greater financial flexibility.

The ASP is a first-in-the-nation, innovative program operated by the non-profit California Self Insurers’ Security Fund with the California Department of Industrial Relations (DIR). The program provides financial guarantees to replace security deposits required to collateralize self-insured workers’ compensation liabilities.  The participation fee for the guarantee program was also reduced 10% versus last year.  These added savings make the program and costs even more competitive for California businesses.

“Self-insurance and the ASP are two innovative ways that California supports businesses and helps them reinvest their capital,” said DIR Director Christine Baker. “With workers’ compensation representing a significant expense to businesses, this program benefits both the businesses and the larger California economy.”

All employers in California are required to have workers’ compensation insurance to protect themselves and workers, and to minimize the impact of work-related injuries and illnesses. Meeting this requirement can be accomplished either by buying an insurance policy, or through obtaining authority from DIR’s Office of Self Insurance Plans (OSIP) to self-insure the businesses’ workers’ compensation liabilities. “Self-Insurance offers tremendous advantages and substantial cost savings to California employers,” said OSIP Chief Jon Wroten. “With program improvements and streamlining efforts, it is now possible for a company wanting to enter self-insurance to move from initial application to fully insured in less than 2 weeks.”

Self-insured employers are required to maintain a deposit to collateralize their risk in an amount equal to estimated liabilities as determined by an actuary. This deposit, which can be posted in cash, letters of credit, surety bonds or securities, limits the employer’s ability to use the cash or credit line to expand their business. In contrast, ASP member’s cash or line of credit is freed up allowing them to invest this capital back into their businesses while the ASP assumes responsibility of their security deposit posting requirement.

California currently has more than 9,850 employers protecting more than 4 million workers representing a total payroll of $177 billion through self-insurance workers’ compensation plans. One of every four California workers is protected by a self-insurance plan. Self-insured employers in California represent large and midsized private companies, industry groups, and public entities such as city, county, state and school districts.

More information of California’s workers’ compensation self-insurance program is available at OSIP’s website .

Civil Suit Between Carrier and Applicant Attorneys Not Protected by SLAPP Statute

The Boccardo Law Firm and one of its partners, John C. Stein, filed an action in San Joaquin Superior Court on behalf of Albert Carabello, alleging that he had been injured when his pickup collided with a vehicle operated by Beverly Casby. Casby was insured with a policy limit of $100,000. At the time of the collision, Carabello was acting in the course and scope of his employment. Old Republic was the workers’ compensation insurer for Carabello’s employer. It provided benefits which it claims exceeded $100,000. It filed a complaint in intervention in the San Joaquin action, asserting a right to reimbursement of these expenditures. Casby raised the affirmative defense of Witt v. Jackson (1961) 57 Cal.2d 57, which limits the ability of an employer, or its insurer, to obtain reimbursement out of an injured worker’s recovery against a third party where the employer’s own negligence contributed to the worker’s injuries.

Carabello and Casby agreed to settle the case for her $100,000 policy limits. Old Republic’s claim to reimbursement, however, remained unresolved. Accordingly, Casby’s insurer made the settlement check payable to Carabello, Boccardo, and Old Republic. Stein and counsel for Old Republic therefore signed a written stipulation stating “that the $100,000.00 settlement money . . . will be deposited into an interest bearing account” and that “[s]ignatures of both parties will be required to withdraw any money.” It was apparently understood that the funds would be placed in Boccardo’s client trust account. The settlement check was duly endorsed and deposited.

The Court set a settlement conference and trial on the motion of Old Republic for “apportionment of settlement proceeds” and the Witt v. Jackson defense to their lien. Before this was heard, counsel for Old Republic filed a notice of lien seeking to recover $111,026.33 “against any settlement of [sic] judgment in this action.” At the same time, counsel filed a request to dismiss Old Republic’s complaint in intervention with prejudice. Stein also dismissed the Carabello complaint with prejudice. The request recited that it was made “[a]s to defendants Beverly Casby and Gerald Casby only” and that “Plaintiff and Intervenor have Trial August 9, 2010 to resolve liens.” However, the dismissal of the complaint meant that there was no longer any pleading before the court seeking affirmative relief.

Boccardo then filed a motion authorizing release of the settlement funds to Carabello. He argued that by dismissing its pleading, Old Republic had forfeited any right to litigate the issue of employer negligence, and thus to recover on its lien. The trial court, however, concluded that the dismissal of all affirmative pleadings had deprived it of any power to grant the requested relief. In a formal order the court wrote, “This case has been dismissed in its entirety. This Court has no further jurisdiction.” It does not appear that either party sought relief from this order.

Stein wrote to counsel for Old Republic indicating that he intended to distribute the deposited funds. He again asserted that by dismissing its complaint Old Republic had given up the right to seek reimbursement. He took issue with a prior assertion by opposing counsel “that the matter can be litigated before the WCAB” He offered to forbear from withdrawal for one week to “give you time to go to the WCAB and get a Restraining Order prohibiting me from disbursing my settlement.” Old Republic apparently did nothing. On July 28, Stein wrote that having just received the court’s formal order disclaiming the power to grant relief, he was disbursing the funds to his client forthwith.

Old Republic petitioned the WCAB to order disbursement of the settlement proceeds. A workers’ compensation judge denied Old Republic’s petition for disbursement. He found that the settlement funds had already been “disbursed by applicant’s counsel.” He also concluded that the WCAB lacked jurisdiction to grant the relief sought by Old Republic. The WCAB granted reconsideration and issued a decision finding that it had jurisdiction over the issues presented, and remanding them for trial.

Old Republic also filed a civil complaint alleging that the stipulation was a binding contract between Carrabello [sic], and The Boccardo Law Firm. The first cause of action alleges that Boccardo and Stein “breached this contract” by disbursing the settlement proceeds without the signature and/or consent of Old Republic. After a successful demurrer to some of the causes of action, Boccardo filed a motion to dismiss the remaining causes of action under the anti-SLAPP law (§ 425.16) which the court denied in part and denied the motion to stay proceedings. Boccardo appealed. The Court of Appeal in the published case of Old Republic Construction Program Group v The Boccardo Law Firm ruled that the trial court correctly concluded that the first, fifth, and sixth causes of action, sounding respectively in breach of contract, negligence, and declaratory relief. did not arise from the parties’ stipulation for purposes of the SLAPP act. The conduct at the center of all three causes of action is defendants’ withdrawal and disbursement of the settlement funds that were the subject of the stipulation between defendants and counsel for Old Republic. There is no suggestion that this noncommunicative conduct had any connection to any issue of public concern or interest. It therefore falls outside the protection of the SLAPP act statute.

259 Million Prescriptions of Opioids Written in One Year

U.S. health care providers wrote 259 million prescriptions for opioid painkillers in 2012, enough to give a bottle of the pills to every adult in the country,says a new report from the federal Centers for Disease Control and Prevention. According to the summary in USA Today, the report shows prescribing rates vary widely by state for drugs best known by brand names such as Vicodin, Percocet and OxyContin. The highest rates are in the Southeast, led by Alabama. Providers in that state wrote 143 prescriptions for every 100 residents, while providers in Hawaii, the state with the lowest rate, wrote 52 for every 100 people, nearly three times fewer. Other states with very high rates include Tennessee and West Virginia; states with low rates include California and New York.

Rates of painful illness and injuries do not vary enough from place to place to explain the differences, CDC says. Instead, high prescribing rates often reflect inappropriate uses of the drugs – which contribute to high rates of opioid painkiller overdoses, officials say. “Overdoses from opioid narcotics are a serious problem across the country and we know opioid overdoses tend to be highest where opioids get the highest use,” says CDC director Tom Frieden. He says the medications “can be an important tool for doctors to use … but they are not the answer every time someone has pain.”

The medications, containing narcotics such as oxycodone and hydrocodone, are intended for moderate to severe pain, the kind common after surgery or a serious injury. But they are commonly abused. Even patients who start taking the medications for legitimate reasons can get addicted and face overdose risks. CDC says 46 people in the United States die from prescription painkiller overdoses each day.

When states take action, overdose deaths can fall, according to an accompanying report from Florida. That state experienced skyrocketing drug overdose rates, linked to largely unregulated painkiller “pill mills” between 2003 and 2009, the report says. After a series of actions – including new laws to regulate pain clinics and a new prescription monitoring program – opioid overdose deaths fell 27% between 2010 and 2012. Deaths from oxycodone alone fell 52.1%. The crack-down on over-prescribing led to the shut-down of 250 pain clinics, the report says. Researchers say some of the decline in deaths might be attributed to other factors, including a new abuse-resistant oxycodone formula introduced in 2010. But they say the state’s progress could be instructive for others.

“The take-home message is that the problem needs to be attacked from several different angles,” including policy changes and enforcement, says researcher Hal Johnson, a consultant to the Florida Department of Health and co-author of the report. He says an early look at 2013 data suggests overdose deaths in Florida continue to decline.

Court of Appeal Reduces Evidence Required In Medical Fraud Cases

Medical marketers are often used inside and outside of workers’ compensation to induce physicians to prescribe a variety of products such as compounded medications, DME and other items as “profit enhancement” schemes for a medical practice. Little attention has been given when responding to lien claims in these cases to the application of the Insurance Fraud Prevention Act provisions contained in Insurance Code section 1871 as a possible tool to defend those claims when a capper (ie. marketer) has been used to seduce to the doctor. The Court of Appeal in the published opinion in The State of California ex rel. Michael Wilson et al. et al. v. Superior Court of Los Angeles County, Bristol-Meyers Squibb Co may have opened the door to the use of this tool where a “person” was “employed” to recruit the doctor into a scheme, even without a prescription by prescription quid pro quo.

Michael Wilson, a former Bristol-Meyers Squibb Co. sales representative filed the underlying qui tam action against the drug maker. The California Insurance Commissioner later intervened and participated in the litigation.

The lawsuit alleges that in marketing its drugs, Bristol-Meyers Squibb Co., (BMS) engaged in a course of illegal and fraudulent conduct aimed at doctors, health care providers, pharmacists, and insurance companies. It alleges BMS targeted high-prescribing physicians, members of formulary committees, and sometimes their families, to be recipients of lavish gifts and other benefits (such as tickets to sporting events and concerts, free rounds of golf, resort vacations, meals, gifts, and other such incentives – characterized in the complaint as “kickbacks”), in order to induce physicians to prescribe BMS’s drugs and to reward them for doing so.  And it alleges the targeted physicians “wrote prescriptions and submitted them to the private insurance companies . . . as a result of kickbacks BMS provided to them.” The suit alleges that in carrying out this program, BMS effectively employed physicians and others to act as runners and cappers, paying them for the purpose of procuring patients whose prescriptions will be covered by insurance. This conduct, the suit alleges, violated the Insurance Fraud Prevention Act, Insurance Code section 1871.7, subdivisions (a) and (b), as well as a number of provisions of the Penal Code.

At issue in the case is the proof required to establish a violation of subdivision (a) of Insurance Code section 1871.7, a portion of the IFPA that relates to health insurance and workers’ compensation insurance fraud, informally entitled, “Employment of persons to procure clients or patients.” Subdivision (a) makes it unlawful to knowingly employ runners or cappers to procure clients or patients to obtain insurance benefits. The trial court ruled in favor of BMS on a summary judgment hearing, and the Court of Appeal granted writ review in part due to the dearth of appellate review of matters involving interpretation of section 1871.7,

The court of appeal reversed the dismissal of the claim, and remanded the case for further proceedings. In doing so, it clarified the requirements for proof of a case of violation of IFPA contained in section 1871.7.  Some of the language of the published opinion is as follows.

The conduct made unlawful by subdivision (a) is identified by a single verb: To employ. Subdivision (a)’s single verb makes a single act unlawful: “Employment”. What kind of employment is unlawful? Employment of a person or persons (“runners, cappers, steerers or other persons”), for a specified purpose: “. . . to procure clients or patients to perform or obtain services or benefits . . . that will be the basis for” an insurance claim. Subdivision (a) is violated by the employment of others with that objective; it does not make proof of that result a prerequisite to its violation. Based upon this language the Court of Appeal ruled “there can be a violation of subdivision (a) without proof that the item or service of value provided or promised to the physician caused a particular prescription to be written.”

Subdivision (a) identifies certain running and capping activities as unlawful without regard to whether the resulting services are competently rendered. Running and capping activities are disfavored and unlawful not just because they may often result in services that are excessive or unnecessary, but also because their purpose is to unfairly (and perhaps deceptively) obtain the benefits (clients, patients, prescriptions, claims, etc.) that otherwise might have gone to others who did not use the prohibited methods. In enacting section 1871.7, the Legislature could have concluded that using runners and cappers for the prohibited purpose tends to result in additional insurance claims and payments, that have substantial social costs despite their inability to be identified on an individual basis. Subdivision (b) identifies remedies for conduct that the Legislature has concluded leads to undesirable results that are rarely subject to available proof.

Section 1871.7 contains no specification that proof of unlawful conduct, or of causation, must necessarily be on a prescription-by-prescription or claim-by-claim basis, and such a requirement would be contrary to the statute’s clear purpose. While subdivision (b)’s final sentence requires proof of deceit and causation, section 1871.7’s primary focus is on the unlawful conduct identified in subdivision (a); the proof of resulting claims is required in order to measure the penalties to be assessed, not to define the targeted wrong – the employment of runners and cappers for the unlawful purpose. Yet the requirement that each prescription and claim to an insurer must be attributed to a quid pro quo arrangement involving the drug company and the physician shifts the focus from the conduct identified in subdivision (a) – which is unlawful without regard to its success in producing prescriptions and claims – to conduct that would constitute bribery and kickbacks, for which success is an essential element.

“Subdivision (a) remains a viable identification of running or capping activity as conduct that the Legislature has found to be unlawful, and to be “almost always” a harbinger of fraud.  (Analysis of Sen. Comm. on Crim. Proc., Sen. Bill 465 (1995-1996 Reg. Sess.) p. 5.)”

“Under the clear language of subdivision (b), the equitable and other remedies that do not constitute the “penalty prescribed in this paragraph” may be imposed without proof that a prescription or claim resulted from the unlawful conduct, or that any resulting claim was fraudulent or deceitful.”

“A substantial purpose for subdivisions (a) and (b)’s enactment is to enable the assessment of civil penalties for unlawful running and capping activities, without the practically impossible showing that a particular claim resulted from a particular violation.”

This opinion may provide new tools for the defense of certain medical lien claims.  The opinion specifies a broad and liberal interpretation of what is unlawful under 1871.7(a).  Thus for example, when a medical supplier hires a “person” to market a group of PTP’s to recommend or prescribe its products to industrially injured workers, is that in effect illegal “employment’ of a capper, runner, steerer or “other person?”  If so, there is no need to show quid pro quo, or any kickback, or a direct relationship with the prescriptions that were written. According to this decision, the use of a marketer alone is “almost always” a harbinger of fraud and thus conduct declared unlawful.  It remains to be seen if this can be a viable defense to liens in such cases.