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Researchers Say Drug Prices Are Based on “What the Market Will Bear”

The increasing cost of prescription drugs in the United States has become a source of concern for patients, prescribers, payers, and policy makers.

In order to determine the origins and effects of high drug prices in the US market and to consider policy options that could contain the cost of prescription drugs, researchers reviewed the peer-reviewed medical and health policy literature from January 2005 to July 2016 for articles addressing the sources of drug prices in the United States, the justifications and consequences of high prices, and possible solutions.

Their review published in the Journal of the American Medical Association concluded that per capita prescription drug spending in the United States exceeds that in all other countries, largely driven by brand-name drug prices that have been increasing in recent years at rates far beyond the consumer price index.

In 2013, per capita spending on prescription drugs was $858 compared with an average of $400 for 19 other industrialized nations. In the United States, prescription medications now comprise an estimated 17% of overall personal health care services.

The most important factor that allows manufacturers to set high drug prices is market exclusivity, protected by monopoly rights awarded upon Food and Drug Administration approval and by patents. The availability of generic drugs after this exclusivity period is the main means of reducing prices in the United States, but access to them may be delayed by numerous business and legal strategies.

The primary counterweight against excessive pricing during market exclusivity is the negotiating power of the payer, which is currently constrained by several factors, including the requirement that most government drug payment plans cover nearly all products. Another key contributor to drug spending is physician prescribing choices when comparable alternatives are available at different costs.

Although prices are often justified by the high cost of drug development, there is no evidence of an association between research and development costs and prices; rather, prescription drugs are priced in the United States primarily on the basis of what the market will bear.

Drug prices are higher in the United States than in the rest of the industrialized world because, unlike that in nearly every other advanced nation, the US health care system allows manufacturers to set their own price for a given product. In contrast, in countries with national health insurance systems, a delegated body negotiates drug prices or rejects coverage of products if the price demanded by the manufacturer is excessive in light of the benefit provided. Manufacturers may then decide to offer the drug at a lower price. In England and Wales, for example, the National Institute for Health and Care Excellence considers whether a new drug passes a cost-utility threshold before recommending it for coverage by the National Health Service.

In workers’ compensation claims, and in other systems, one factor that undermines competition among treatment alternatives is the separate roles of patients, prescribers, and payers: physicians write prescriptions, pharmacists sell medications, and patients or their insurers pay for them. This separation has traditionally insulated physicians from knowing about drug prices or considering those prices in their clinical decision making and can similarly remove many patients with good drug coverage from considering the price of the medications they “purchase.”

The most realistic short-term strategies to address high prices include enforcing more stringent requirements for the award and extension of exclusivity rights; enhancing competition by ensuring timely generic drug availability; providing greater opportunities for meaningful price negotiation by governmental payers; generating more evidence about comparative cost-effectiveness of therapeutic alternatives; and more effectively educating patients, prescribers, payers, and policy makers about these choices.

Cell Captives Becoming Popular Self-Insurance Tool

A feature article on the Risk and Insurance website reports that cell captives have become extremely popular self-insurance tools for companies of various sizes across all sectors, with cell legislation enacted in more than half of U.S. states and cell formations now outstripping stand-alone captive formations in many onshore and offshore captive domiciles.

In its simplest form, a captive is a wholly owned subsidiary created to provide insurance to its non-insurance parent company (or companies). Captives are established to meet the risk-management needs of the owners or members. They are essentially a form of self-insurance whereby the insurer is owned wholly by the insured. Once established, the captive operates like any commercial insurer – i.e., it issues policies, collects premiums and pays claims, but it does not offer insurance to the public – and it is regulated as a captive, rather than as a traditional insurer.

The International Association of Insurance Commissioners (IAIS) defines a captive as “an insurance or reinsurance entity created and owned, directly or indirectly, by one or more industrial, commercial or financial entities, other than an insurance or reinsurance group entity, the purpose of which is to provide insurance or reinsurance cover for risks of the entity or entities to which it belongs, or for entities connected to those entities, and only a small part if any of its risk exposure is related to providing insurance or reinsurance to other parties.”

The type of entity forming a captive varies from a major multinational corporation to a nonprofit organization. Captives are held by the vast majority of Fortune 500 companies as an alternative method of risk financing (e.g., Gold Medal Insurance Co. was established by General Mills as a captive and Allstate was originally set up as a captive by Sears & Roebuck Co.). The industries with the greatest number of captives are finance, real estate, construction and manufacturing. Over the past several years, there has been particular growth in areas such as health care, property development and securitization for life insurers. A corporation that forms a captive will normally organize the captive as a subsidiary. Because few companies are in the business of insurance themselves, most captive parents will hire an outside firm, often an insurance company or captive manager, to manage the captive for them.

The captive concept took a while to catch on. It gained momentum in the mid-to-late 1980s during the hard commercial insurance market, when liability coverage was either unavailable or unaffordable for many buyers. Over the past three decades, there has been significant growth in the captive market. Today, there are more than 5,000 captives that do business around the world in a variety of industries, compared to roughly 1,000 in 1980. Almost 3,000 captives are domiciled in the Caribbean; 1,200 captives are domiciled in Europe and Asia; and more than 1,000 captives are domiciled in the United States.

Companies form captives to mitigate their exposure to a wide range of risks. Practically every risk underwritten by a commercial insurer can be provided by a captive. The majority of captives provide mainstream property/casualty insurance coverage such as general liability, product liability, workers’ compensation, director and officer (D&O) liability, auto liability and professional liability (e.g., medical malpractice).

Captives also provide specialized coverage for unusual or hard-to-insure risks (e.g., terrorism risk). Oil companies have used captives to gird against environmental claims related to infrequent but potentially high-cost events. Other types of nontraditional insurance coverage that a captive could underwrite includes credit risk, pollution liability, equipment maintenance warranty and employee benefit risks, including medical benefits, personal accident and, in some cases, whole life insurance.

Captive insurance structures can be classified into three main categories: Single Parent Captives, Group Captives, and Core Cell Captive Insurance Companies also known as Cell Captives or Core Cell Companies. Cell Captives are entities consisting of a core and an indefinite number of cell entities which are kept legally separate from each other. Each cell has dedicated assets and liabilities ascribed to it, and the assets of an individual cell cannot be used to meet the liabilities of any other cell.

Captive Resources L.L.C., a Schaumburg, Ill.-based captive consulting firm, saw nearly $100 million in new premiums last year for the 27 group captives that it advises, said Sandra Duncan, vice president of operations. The member-owned groups include 2,600 companies nationwide in a variety of industries, including manufacturing, distribution, trucking and agriculture. It estimates that the total member-owned group captive market represents $1.3 billion to $1.5 billion in written premiums – about 70% of which has come from companies that joined in the past decade. Recent interest in group captives has been driven by the improving economy, greater credit availability, and a hardening workers comp market, she said.

Indemnification Clause Obligates Employer to Pay Injured Employee Tort Claims

Aluma Systems Concrete Construction of California entered into an agreement with Nibbi Bros. Inc. to design and supply the materials for wall formwork and deck shoring at Nibbi Bros. Inc. construction project.

The terms of the Contract included an indemnification provision that required Nibbi to defend, indemnify and hold harmless Aluma against any and all claims, actions, expenses, damages, losses and liabilities, including attorneys fees and expenses, for personal injuries rising from or in connection with this contract “except to the extent such claims, actions, expenses, damages, losses and liabilities are caused by the acts or omissions of [Contractor]…”

Subsequently, two lawsuits were filed by Nibbi employees against Aluma alleging that in August 2011, the employees were injured after a shoring system designed by Aluma collapsed. The Employee Lawsuits alleged the collapse was due to Aluma’s negligence. Aluma tendered the Employee Lawsuits to Nibbi for defense and indemnification, but received no response.

Subsequently, Aluma sued Nibbi for indemnification based on a specific provision in the parties’ contract. The trial court sustained Nibbi’s demurrer to Contractor’s complaint without leave to amend, relying on the allegations in the underlying lawsuit that set forth claims only against Aluma and not against Nibbi the employer. Thus they argued that the exception applied since the allegations claim only “acts or omissions” of Aluma.

The Court of Appeal reversed and remanded in the published case of Aluma Systems Concrete Construction v Nibbi Bros. Inc.

The parties agreed that pursuant to Labor Code section 3864, an employer is only liable to indemnify a contractor pursuant to the terms of the contract. They dispute whether the indemnity provision – which applies to claims and damages in connection with the Contract “except to the extent” they are “caused by the acts or omissions of Aluma – applies to the Employee Lawsuits.

Nibbi argues the Employee Lawsuits allege solely Aluma’s negligence and the indemnification provision therefore does not apply. Aluma argues that the provision may apply because Aluma is jointly and severally liable for all economic damages in the Employee Lawsuits, including any attributable to the negligence of Nibbi or others, as long as Aluma’s negligence is partially responsible.

Because the employees were working for Employer at the time of their injuries, they cannot sue Employer for damages but must pursue benefits through the workers’ compensation system. This limitation on Employer’s liability does not extend to third parties, however, and the employees may sue Contractor for damages caused by its negligence.

Here the indemnification provision applies to “claims: and the Employer argues this indicates the allegations of the Employee Lawsuits control the provision’s application. But the provision also requires indemnification for Contractor’s “damages” and “losses.”

The court of appeal concluded that there is “no basis to restrict the damages and losses so indemnified to the allegations of the Employee Lawsuits, rather than to the damages Contractor is ultimately found liable for.”

Pasadena Physician Sentenced to Four Years in Fraud Case

A doctor from Pasadena who falsely certified that at least 79 Medicare and Medi-Cal patients were qualified for hospice care because they were terminally ill – when, in fact, the vast majority of them were not dying – has been sentenced to four years in federal prison.

Boyao Huang, 43, was sentenced on Monday by United States District Judge S. James Otero. In addition to the prison term, Judge Otero ordered Huang to pay $1,344,204 in restitution.

At the conclusion of a two-week trial in May, Huang was found guilty of four counts of health care fraud for participating in a scheme related to the Covina-based California Hospice Care (CHC). Between March 2009 and June 2013, CHC submitted approximately $8.8 million in fraudulent bills to Medicare and Medi-Cal for hospice-related services, and the public health programs paid nearly $7.4 million to CHC.

A second doctor who was convicted at trial – Sri Wijegoonaratna, known as Dr. J., 61, of Anaheim, who was found guilty of seven counts of health care fraud – is scheduled to be sentenced by Judge Otero on February 13, 2017.

“This scheme preyed upon dozens of patients and their families who were led to believe that their worst nightmare had come true – that they had life-ending illnesses,” said United States Attorney Eileen M. Decker. “Criminals such as the defendants in this case who steal from taxpayers by defrauding the Medicare system and who victimize vulnerable individuals like medical patients deserve significant prison sentences.”

In addition to the two doctors, eight other defendants were charged in the scheme and have pleaded guilty to health care fraud charges. Those other defendants include a Placentia woman who purchased CHC in 2007 and operated the facility after being charged and incarcerated in another health care fraud scheme. Priscilla Villabroza, 70, who pleaded guilty in December 2015 to one count of health care fraud, was sentenced in June to eight years in federal prison.

As part of the CHC fraud scheme, Villabroza and her daughter – who was the nominal owner while Villabroza was in custody – paid patient recruiters known as “marketers” or “cappers” to bring in Medicare and Medi-Cal beneficiaries. CHC nurses performed “assessments” to determine whether the beneficiaries were terminally ill and, regardless of the outcome, Wijegoonaratna and Huang certified that the beneficiaries were terminally ill – even though the vast majority of them were not dying. CHC personnel altered medical records in response to Medicare audits to make the beneficiaries appear sicker.

By the time the scheme was shut down in June 2013, Medicare and Medi-Cal had paid millions of dollars for medically unnecessary hospice-related services.

The investigation into California Hospice was conducted by the United States Department of Health and Human Services, Office of Inspector General; the Federal Bureau of Investigation; the California Bureau of Medi-Cal Fraud & Elder Abuse; and IRS Criminal Investigation.

This case is being prosecuted by Assistant United States Attorney Steven M. Arkow of the Major Frauds Section and Assistant United States Attorney Leon W. Weidman, Special Counsel to the United States Attorney.

Indicted or Convicted Criminals Filed $600 Million in Liens

The Department of Industrial Relations and its Division of Workers’ Compensation reported that $600 million in liens against injured employees’ claims for workers’ compensation benefits have been filed by convicted or criminally indicted parties from 2011 through 2015.

“While California has made great strides in increasing benefits to injured workers, improving appropriate care and reducing employers’ costs, we are pursuing legislation to prohibit criminal and indicted providers from lining their pockets through liens and to address the assignment of liens,” said Christine Baker, DIR Director.

California’s workers’ compensation law allows certain claims for payment of services or benefits provided to or on behalf of injured workers to be filed as a lien against an employer in an employee’s claim for workers’ compensation benefits.  The filing of a lien generates collateral litigation between the lien filer and defendant (insurer or employer) over the validity of the claim and the necessity, extent and value of any services provided.  The parties may then settle on an amount due or adjudicate the dispute in a lien trial before the Workers’ Compensation Appeals Board.

SB 863 (De León), which took effect on January 1, 2013, included a number of provisions to reduce costs by reducing the volume of lien claims and lien claim litigation in the workers’ compensation system, including the reestablishment of lien filing fees to preclude frivolous lien filings, creation of an Independent Bill Review system to remove most billing disputes from litigation, and restrictions on the ability of third parties to collect on assigned lien claims.

Despite these efforts, the 68 businesses comprising the top one percent of lien filers filed more than 273,000 liens totaling $2.5 billion in accounts receivable on adjudicated cases between 2013 and 2015.  Two of the business owners are indicted and three others have pled guilty.  Legislation is underway to stay liens of physicians or providers who are criminally charged with workers’ compensation fraud, medical billing fraud, insurance fraud, and Medicare or Medi-Cal fraud.

Assignments of Accounts Receivables are proving fertile ground for fraud

The assignment of liens by service providers to those who file and collect on liens are, in essence, the buying and selling of injured workers’ treatments and fertile ground for presenting fraudulent claims.  DIR’s review of filing dates indicates that lien claimants tend to wait until after the primary case is settled rather than seeking early resolution of medical necessity.  Even if lien claimants – especially those who bundle and buy or sell accounts receivables – only make pennies on the dollar, returns can still be high.  

DIR say it is leading an effort to identify and address strategies for improved anti-fraud efforts in the workers’ compensation system. DIR and the Department of Insurance convened working groups in June to gather stakeholder input and evidence of fraudulent activity in the system.  At the direction of the Secretary of the California Labor and Workforce Development Agency, DIR will be preparing a report on further recommendations to the Governor and the Legislature by no later than Fall of 2016.

Indian Tribe PEO Organizer Gets Prison Sentence

Former Roseville businessman Gregory J. Chmielewski had what seemed like a brilliant idea: Create an alternative low-cost version of workers’ compensation insurance, at a time when the price for traditional coverage was soaring out of sight in California. Chmielewski was one of a handful of entrepreneurs who thought they could profit from the crisis by partnering with Indian tribes. He convinced the Fort Independence Community of Paiute Indians, in Inyo County, to bankroll a company that would offer discount coverage by using tribal laws to cut through the red tape plaguing the state-run system.

The company they created, Independent Staffing Solutions of Roseville, signed up dozens of clients but fell apart after four years in business. Independent Staffing was unable to pay its bills despite hauling in $225 million in revenue from employers during its brief life.

What went wrong? In a written plea agreement filed in U.S. District Court in Sacramento, Chmielewski said he siphoned $7.3 million from Independent Staffing in order to fund his personal real estate investments.

And last week he was sentenced by U.S. District Judge Garland E. Burrell Jr. to three years and five months in prison for mail fraud in connection with his misappropriation of funds from his insurance business into his own personal accounts for his personal use,

Chmielewski set up a professional employer organization called Independent Management Resources (IMR), later operating under the name Management Resources Group (MRG). He diverted and misappropriated millions of dollars from MRG accounts for his personal use. He caused over $7.3 million to be paid out of MRG’s accounts to other unrelated companies that he controlled. Eventually, the company experienced serious cash flow problems and was forced to cease operations, leaving approximately 117 injured workers with approximately $1.8 million in unpaid claims.

Acting U.S. Attorney Talbert stated: “Many of the victims harmed in this scheme were companies in California’s construction industry, whose employees worked as roofers, general laborers, and other jobs where injuries can occur. The defendant’s actions left many injured workers without the benefits they expected and deserved. Our office is committed to prosecuting large-scale schemes such as this that hurt employers and workers alike.”

“The license to operate a business is not a license to steal from those whom you are hired to protect,” said Cindy S. Chen, Acting Special Agent in Charge, IRS Criminal Investigation. “The misconduct of Chmielewski harmed those that needed his help during a time they were very vulnerable. Today’s sentence demonstrates IRS Criminal Investigation’s determination to combat financial fraud in all types of schemes.”

This case was the product of an investigation by the United States Postal Inspection Service; the Internal Revenue Service, Criminal Investigation; and the California Department of Insurance. Assistant U.S. Attorneys Heiko P. Coppola and André Espinosa prosecuted the case.

Yet Another Study Questions Value of Meniscus Surgery

A new study published in the British Medical Journal says that exercise therapy is as effective as surgery for middle aged patients with a common type of knee injury known as meniscal tear (damage to the rubbery discs that cushion the knee joint).

The researchers suggest that supervised exercise therapy should be considered as a treatment option for middle aged patients with this type of knee damage.

According to the story reported in Medical News Today, every year, an estimated two million people worldwide undergo knee arthroscopy (keyhole surgery to relieve pain and improve movement) at a cost of several billion US dollars. Yet current evidence suggests that arthroscopic knee surgery offers little benefit for most patients.

So researchers based in Denmark and Norway carried out a randomized controlled trial to compare exercise therapy alone with arthroscopic surgery alone in middle aged patients with degenerative meniscal tears.

A randomized controlled trial is one of the best ways for determining whether an intervention actually has the desired effect.

They identified 140 adults (average age 50 years) with degenerative meniscal tears, verified by MRI scan, at two public hospitals and two physiotherapy clinics in Norway. Almost all (96%) participants had no definitive x-ray evidence of osteoarthritis.

Half of the patients received a supervised exercise program over 12 weeks (2-3 sessions each week) and half received arthroscopic surgery followed by simple daily exercises to perform at home.

Thigh muscle strength was assessed at three months and patient reported knee function was recorded at two years.

No clinically relevant difference was found between the two groups for outcomes such as pain, function in sport and recreation, and knee related quality of life. At three months, muscle strength had improved in the exercise group. No serious adverse events occurred in either group during the two-year follow-up.

Thirteen (19%) of participants in the exercise group crossed over to surgery during the follow-up period, with no additional benefit.

“Supervised exercise therapy showed positive effects over surgery in improving thigh muscle strength, at least in the short term,” say the authors. “Our results should encourage clinicians and middle aged patients with degenerative meniscal tear and no radiographic evidence of osteoarthritis to consider supervised structured exercise therapy as a treatment option.”

How did this situation – widespread practice without supporting evidence of even moderate quality – come about, ask two experts in a linked editorial? “Essentially, good evidence has been widely ignored,” say Teppo Järvinen at the University of Helsinki and Gordon Guyatt at McMaster University in Canada.

“In a world of increasing awareness of constrained resources and epidemic medical waste, what we should not do is allow the orthopaedic community, hospital administrators, healthcare providers, and funders to ignore the results of rigorous trials and continue widespread use of procedures for which there has never been compelling evidence,” they conclude.

Medical care under the California workers’ compensation system is based upon evidence based medicine.  One would hope that the UR and IMR process has physicians who are aware of the findings of these studies when they make a decision to allow or turn down a request for treatment.

New Study Supports Apportionment in Degenerative Joint Disease Claims?

Osteoarthritis (OA), also known as degenerative joint disease, is a condition in which cartilage – the tissue that protects the end of each bone in a joint – wears away, causing the underlying bones to rub together. This can cause pain, swelling, and poor joint movement.

As the condition worsens, the bones may lose shape. Additionally, growths called bone spurs may arise, and bits of bone and cartilage can break off and float around the space in the joint. This can trigger an inflammatory response that exacerbates pain, as well as cartilage and bone damage.

OA is the most common form of arthritis in the United States, affecting around 27 million American adults. While the condition can arise in all age groups, it is most common among people aged 65 and older.

There is no cure for OA, only therapies that can help manage symptoms. These include pain and anti-inflammatory medications, such as nonsteroidal anti-inflammatory drugs (NSAIDs) and corticosteroids. In some cases, joint surgery may be required.

Osteoarthritis is often a factor in workers’ compensation orthopedic claims, especially claims based on a continuous trauma theory. While it is true that OA may be aggravated by work factors, at the same time the permanent disability benefit can be apportioned to causation.

An now a new medical study reveals new information about the causation of OA.

A report in Medical News Today says that researchers have uncovered evidence that cellular senescence – whereby cells stop dividing – is a cause of osteoarthritis, and they suggest targeting these cells could offer a promising way to prevent or treat the condition.

Cellular senescence is the process by which cells stop dividing. Senescent cells accumulate with age and can cause severe damage to tissues and organs, contributing to a number of age-related diseases.

Study co-author Dr. James Kirkland, director of the Robert and Arlene Kogod Center on Aging at Mayo Clinic in Rochester, MN, and colleagues publish their findings in The Journals of Gerontology, Series A: Biological Sciences and Medical Sciences.

“Osteoarthritis has previously been associated with the accumulation of senescent cells in or near the joints, however, this is the first time there has been evidence of a causal link. We believe that targeting senescent cells could be a promising way to prevent or alleviate age-related osteoarthritis. While there is more work to be done, these findings are a critical step toward that goal.”

The concept that there is a relationship between degenerative joint disease and aging is not new. However, apportionment to the aging process is difficult in litigation when faced with arguments that the aging process alone as a causative factor is “speculative.” However, adding an understanding of the cellular mechanism behind degenerative joint disease to the apportionment argument in litigation weighs in on the side that any speculation is now less likely.

WCAB Permits Settlement of SJDB With “Thomas” Finding

Juan Pablo Beltran filed an Application alleging he sustained an industrial cumulative trauma injury to his head and back due to repetitive heavy work while employed as a laborer by Structural Steel Fabricators. The employer denied applicant’s claim based upon the affirmative defense that applicant did not report the injury prior to his termination for cause.

The parties submitted a walk through Compromise and Release Agreement settling applicant’s claim for $12,500.00, which included his potential entitlement to a Supplemental Job Displacement Benefit voucher. Upon receipt of the Compromise and Release Agreement, the WCJ suspended action on the settlement agreement and set the matter for trial, noting on March 24, 2016, that the parties may not settle or commute the Supplemental Job Displacement Benefit voucher. The WCJ then reset the matter for a status conference after defendant filed a Petition for Removal.

According to the WCJ’s Report and Recommendation on Petition for Reconsideration, the WCJ requested defendant strike the language that applicant was not entitled to a Supplemental Job Displacement Benefit voucher. When defendant would not agree, the WCJ approved the Compromise and Release Agreement with the additional language, “Parties may not settle or commute SJDV per LC §4658.7(g) CCR§10133.31 (h).”

The WCAB granted reconsideration in the panel decision of Juan Pablo Beltran v Structural Steel Fabricators and SCIF.

In 2012 the Legislature passed SB863 which amended the provisions of workers’ compensation law pertaining to Supplemental Job Displacement Benefits, which replaced vocational rehabilitation benefits that were terminated in 2004. A provision was added prohibiting the settlement or commutation of a claim for the Supplemental Job Displacement Benefit voucher. According to the Assembly Floor Analysis, the prohibition on settlement of the Supplemental Job Displacement Benefit voucher was to prevent the “cashing out” of the retraining voucher.

Defendant argues on reconsideration that where there is a good faith dispute as to the compensability of a claim of injury, the parties should be permitted to settle applicant’s entitlement to the Supplemental Job Displacement Benefit voucher, analogizing to the situation which existed with respect to the settlement of vocational rehabilitation benefits that was addressed in Thomas v. Sports Chalet (1977) 42. Cal.Comp.Cases 625 [Appeals Board En Banc].

The prohibition against settlement of the Supplemental Job Displacement Benefit voucher is analogous to the prohibition against settlement of vocational rehabilitation benefits, which Thomas held could be resolved in a Compromise and Release Agreement only when a serious and good faith issue exists, which if resolved against the applicant would defeat all right to compensation.

Here, an injured worker’s entitlement to the Supplemental Job Displacement Benefit voucher is conditioned upon both the acceptance of liability for a claimed industrial injury by the employer and the existence of permanent partial disability, or a determination of these issues after trial. Where an employer denies liability and raises an affirmative defense that could potentially defeat all right to compensation, a prohibition on settlement of the Supplemental Job Displacement Benefit voucher would require a trial to determine injury and the existence of permanent partial disability in every case. The Board in Thomas recognized that this would result in “effectively doing away with settlements,” despite the existence of good faith disputes that could totally bar recovery.

Accordingly, we hold that, as in Thomas, where the trier of fact makes an express finding based upon the record that a serious and good faith issue exists to justify a release, a compromise and release agreement may be: approved by the Board which will relieve the employer from liability for the Supplemental Job Displacement Benefit voucher.

9th Circuit Says DOJ Cannot Prosecute Marijuana Violators

The 9th Circuit Court of Appeal, which presides over California and other western states, just ruled that the Department of Justice cannot spend money to prosecute people who violate federal drug laws but are in compliance with state medical marijuana laws. The ruling in US v Steve McIntosh et. al, prevents federal law enforcement from funding prosecution of anyone who obeys a state’s medical marijuana laws.

Despite laws passed by various states to the contrary, the sale of marijuana is still illegal under federal law. However, in 2014 congress passed a budget rule which prohibits the Department of Justice from using federal funds to interfere in the implementation of state marijuana regulations.

The ruling involves ten cases that are consolidated interlocutory appeals and petitions for writs of mandamus arising out of orders entered by three district courts in two states within our circuit. All Appellants have been indicted for various infractions of the federal Controlled Substances Act (CSA). They have moved to dismiss their indictments or to enjoin their prosecutions on the grounds that the Department of Justice (DOJ) is prohibited from spending funds to prosecute them.

In McIntosh, five codefendants allegedly ran four marijuana stores in the Los Angeles area known as Hollywood Compassionate Care (HCC) and Happy Days, and nine indoor marijuana grow sites in the San Francisco and Los Angeles areas. These codefendants were indicted for conspiracy to manufacture, to possess with intent to distribute, and to distribute more than 1000 marijuana plants.

In Lovan, the U.S. Drug Enforcement Agency and Fresno County Sheriff’s Office executed a federal search warrant on 60 acres of land located on North Zedicker Road in Sanger, California. Officials allegedly located more than 30,000 marijuana plants on this property. Four codefendants were indicted for manufacturing 1000 or more marijuana plants and for conspiracy to manufacture 1000 or more marijuana plants.

In almost all federal criminal prosecutions, injunctive relief and interlocutory appeals will not be appropriate. Federal courts traditionally have refused, except in rare instances, to enjoin federal criminal prosecutions.

Here, however, the Court said that Congress has enacted an appropriations rider that specifically restricts DOJ from spending money to pursue certain activities. It is “emphatically . . . the exclusive province of the Congress not only to formulate legislative policies and mandate programs and projects, but also to establish their relative priority for the Nation. Once Congress, exercising its delegated powers, has decided the order of priorities in a given area, it is for . . . the courts to enforce them when enforcement is sought.” A “court sitting in equity cannot ‘ignore the judgment of Congress, deliberately expressed in legislation.’”

The Appropriations Clause plays a critical role in the Constitution’s separation of powers among the three branches of government and the checks and balances between them. “Any exercise of a power granted by the Constitution to one of the other branches of Government is limited by a valid reservation of congressional control over funds in the Treasury.” The Clause has a “fundamental and comprehensive purpose . . . to assure that public funds will be spent according to the letter of the difficult judgments reached by Congress as to the common good and not according to the individual favor of Government agents.”

The ten cases were therefore remanded back to the district courts. “If DOJ wishes to continue these prosecutions, Appellants are entitled to evidentiary hearings to determine whether their conduct was completely authorized by state law, by which we mean that they strictly complied with all relevant conditions imposed by state law on the use, distribution, possession, and cultivation of medical marijuana. We leave to the district courts to determine, in the first instance and in each case, the precise remedy that would be appropriate.”

Despite the outcome, however, Judge Diarmuid O’Scannlain wrote that medical marijuana purveyors should not feel immune from federal law. “Congress could restore funding tomorrow, a year from now, or four years from now,” he wrote, “and the government could then prosecute individuals who committed offenses while the government lacked funding.”