Category: Daily News

The Division of Workers’ Compensation (DWC) has issued a notice of public hearing for proposed Workers’ Compensation Information system (WCIS) Electronic Data Interchange (EDI) reporting regulations. The public hearing has been scheduled for 10 a.m., Monday, July 14, 2014, in the auditorium of the Elihu Harris State Office Building, 1515 Clay Street, Oakland, CA 94612. Members of the public may also submit written comments on the regulations until 5 p.m. that day. Labor Code section 138.6 requires the Administrative Director of the DWC to develop a cost-efficient WCIS to accomplish four objectives:

1. Assist the Department of Industrial Relations to manage the workers’ compensation system in an efficient and effective manner.
2. Facilitate the evaluation of the efficiency and effectiveness of the benefit delivery system.
3. Assist in measuring how adequately the system indemnifies injured workers and their dependents.
4. Provide statistical data for research into specific aspects of the workers’ compensation system.

The statute requires that the data collected electronically by the WCIS be compatible with the EDI system of the International Association of Industrial Accident Boards and Commissions (IAIABC). The statute further directs the Administrative Director to adopt regulations specifying the data elements to be collected by EDI.

The initial regulations implementing Labor Code section 138.6 (California Code of Regulations, title 8, sections 9700 – 9704) became operative November 5, 1999. The regulations were amended in April 2006, primarily to require the electronic reporting of medical bill payment data. In 2010, the regulations were amended again to refine WCIS reporting by eliminating unnecessary data elements, adding relevant data elements, correcting errors in the text of the regulation, adding lien payment data elements for medical bill payment reporting, and updating the two California-specific implementation guides. The California EDI Implementation Guide for First and Subsequent Reports of Injury and the California EDI Implementation Guide for Medical Bill Payment Records, in conjunction with the more comprehensive guides issued by the IAIABC, explain how the data transmission is accomplished, explain how to edit data transactions, provide the required codes for transmitting data, and set forth the system specifications. Currently, workers’ compensation claims administrators adjusting approximately 95 percent of all workers’ compensation claims in the State are electronically reporting claim data information to WCIS.

The IABIABC is again updating its Medical Bill Data Reporting guidelines, moving from version 1.1 to Release 2.0. Correspondingly, the California EDI Implementation Guide for Medical Bill Payment Records is being updated to be consistent with IAIABIC’s Medical Bill Data Reporting Implementation Guide, Release 2.0. It is therefore necessary to also revise sections 9701 and 9702 of Title 8 of the California Code of Regulations, concerning transmittal of EDI to WCIS so that these regulations will not be inconsistent with the revised California EDI Implementation Guide for Medical Bill Payment Records and the IAIABC’s Medical Bill Data Reporting guidelines, Release 2.0.

These proposed regulations implement, interpret, and make specific Labor Code section 138.6, which mandates the development of the WCIS, requires data to be collected electronically to be compatible with the IAIABC EDI system, and requires data elements to be collected through EDI to be set forth in regulations. Changes in certain regulatory definitions and in the data elements to be reported have been proposed to bring WCIS into compliance with the new IAIABC requirements. The notice and text of the regulations can be found on the proposed regulations page.

Shocked by the rapid adoption of a new $84,000 hepatitis C treatment, U.S. health insurers are trying to make sure they aren’t blindsided by other drugs being developed and are looking for ways to limit their use from the day they are launched. According to the article in Reuters Health 30,000 people have received hepatitis drug Sovaldi so far, and that sales hit a record-breaking $2.3 billion within a few months. The treatment, typically 84 pills taken over 12 weeks, completely cures the disease in more than 90 percent of patients. As many as 3.2 million Americans are infected by hepatitis C, and the cost of giving most of them Sovaldi would surpass $200 billion. Some insurers have already put conditions on who can get the drug, and states including California and Texas have slowed or put treatment on hold while they study what to do.

Insurers warned that these unforeseen costs will cut 2014 earnings and require rate hikes. Now, at industry conferences, in conversations with investors, and in private, they are pushing Gilead’s rivals, a group that includes AbbVie Inc, Merck and Co and Bristol-Myers Squibb Co, to discount their own new hepatitis C treatments when they come to market starting this fall. Such a high-profile campaign by insurers before drugs are even approved is new.

They are also signaling they will restrict who can get coverage for new cholesterol drugs being developed by Amgen Inc, Pfizer Inc and a partnership of Regeneron Pharmaceuticals Inc and Sanofi SA. By law, insurers cannot deny access to new drugs if they represent a real improvement for patients, leaving drug companies with the upper hand in most price discussions. When comparable competitors, or a generic version is on the market about a decade later, insurers have room to steer patients away from the new drugs, and pharmaceutical companies cut prices steeply and give big discounts. But insurers have not faced such a highly effective drug aimed at a widespread disease that is so expensive and so quickly adopted. The previous record for a drug reaching blockbuster status was set in 2011, when hepatitis C therapy Incivek from Vertex Pharmaceuticals raked in $1.56 billion for the entire year. Sovaldi has sold more in a quarter of the time. As a result, insurers are taking a harder line on which patients should get Sovaldi, based on the drug’s clinical data.

Sovaldi is “game-changing” for insurers’ thinking, said John Whang, co-president of Reimbursement Intelligence, a consulting firm that helps pharmaceutical companies set prices. The only way for them to respond is to control the volume of treatment used, he said.

In a sign of how serious the industry has become, the largest insurer lobby group last week took Gilead to task at a public conference. “The company in this case is asking for a blank check and you can’t give anyone anymore a blank check because it will blow up family budgets, state Medicaid budgets, employer costs and wreak havoc on the federal debt,” said Karen Ignagni, president of America’s Health Insurance Plans.

Gilead argues that Sovaldi’s price is worth it, since it will replace even costlier spending on hospital visits and treatments for cirrhosis or liver failure. It has not budged on price for the hepatitis C drug, although Gregg Alton, Gilead’s executive vice president for corporate and medical affairs, acknowledged that insurers are going to start negotiating.

U.S. drug spending reached a record $329 billion in 2013, driven by a double-digit increase in prices for new cancer, HIV and hepatitis C therapies. Express Scripts, the nation’s largest pharmacy benefit manager, expects spending on such specialty drugs to rise an additional 63 percent from 2014 to 2016, driven by an 1,800 percent increase in hepatitis C drug costs.More scrutiny of new pricing is likely ahead as the country comes to terms with how it should pay for expensive drugs, according to John Castellani, Chief Executive Officer of leading drug industry lobby group Pharmaceutical Research and Manufacturers of America or PhRMA.

The next big price battle centers on a new class of cholesterol drugs known as PCSK9 inhibitors, which help the liver to clear “bad” LDL cholesterol from the blood. Large-scale studies show the new drugs can help patients who cannot tolerate, or get enough benefit from, the most widely-used cholesterol drugs, statins. The PCSK9 therapies are expected to cost thousands of dollars a year, far above the price of statins sold as generics. Drugmakers are expected to push for the new medicines to be used by 7 million to 20 million people, or up to 30 percent of the 71 million Americans with high cholesterol. Insurers already are questioning whether the estimates of use are legitimate. “There is really no need to take these new medications and spread them out across a larger community of people who will respond to existing treatments, many of which are generic,” Aetna Inc’s National Medical Director for Pharmacy Policy Ed Pezalla said in an interview.

A surge in prescription drug abuse among older Americans has been accompanied by a big increase in urine and blood tests nationwide. Part of an effort to detect that abuse, the tests generate millions of dollars for providers. Medicare, the government insurance system for the disabled and people 65 years and older, is footing the bill. One illustrative example, a review of Medicare data released last month by Reuters Health found three Connecticut doctors billed Medicare for nearly 24,000 drug tests in 2012 – on just 145 patients. Despite the extraordinary number, Medicare administrators paid the doctors a total of $1.4 million. Each of the doctors requested only the most expensive and comprehensive drug test, for as much as $94, rather than the simpler $19 one. This was done to improve the accuracy of the results, one said.

“Those numbers are ridiculously high,” said Dr Stuart Gitlow, acting president of the American Society of Addiction Medicine. “There is no medical indication I can think of that would require such frequency of testing. I can’t come up with a scenario at all.”

Medicare paid medical providers $457 million in 2012 for 16 million tests to detect everything from prescription narcotics to cocaine and heroin, according to the Reuters analysis. “In some parts of the country every doctor and his cousin is hanging out a shingle to do (addiction) treatment. There’s a tailor-made opportunity for ordering a profusion of tests instead of one,” said Bill Mahon, former executive director of the National Health Care Anti-Fraud Association. “It’s like turning on a spigot of money,” he said. Urine and blood tests are potential areas of fraud and abuse because guidelines for drug testing are vague, leaving the frequency of testing to the discretion of the provider.

Yet, there is often a legitimate need for such drug tests, to determine whether an addict has relapsed or to ensure that patients prescribed painkillers are taking them rather than selling them. In 2011, the average number of older Americans misusing or dependent on prescription pain relievers grew to about 336,000, up from 132,000 a decade earlier, according to the Substance Abuse and Mental Health Services Administration.

Aggressive plaintiff attorneys have tried for years to up the ante in workers’ compensation claims in various ways, including attempts at filing RICO cases against employers, carriers and claims professionals. Racketeer Influenced and Corrupt Organizations Act, commonly referred to as the RICO Act or simply RICO, is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization. But, a new appellate case in the 6th Circuit rules out a RICO case based upon a workers’ compensation claim. at least in that Circuit (Kentucky, Michigan, Ohio, and Tennessee).

Jay Brown claimed that he injured his shoulder while paving a road for his employer Ajax Paving, and sought workers’ compensation in Michigan. Ajax introduced medical testimony suggesting that the injury occurred outside of work. While the case remained pending before the Michigan administrative agency, Brown and Ajax settled. Brown, however, thought that Ajax had introduced false medical testimony and that it had done the same to other employees, and sued Ajax and its insurers, claims administrators and the doctor, under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1964(c).

The district court dismissed. The Sixth Circuit affirmed the dismissal. Under the Act, Brown must show that illegal racketeering activities have “injured [him] in his business or property.” The Sixth Circuit has held that “loss or diminution of benefits the plaintiff expects to receive under a workers’ compensation scheme does not constitute an injury to ‘business or property’ under RICO.” The case is Brown v. Ajax Paving Industries, Inc., No. 11-1391 (6th Cir. May 19, 2014)

The Sixth Circuit pointed out that, in Jackson v. Sedgwick Claims Management Services,731 F.3d 556 (6th Cir. 2013) (en banc), it had rejected a lawsuit challenging a scheme to introduce false testimony at workers’ compensation hearings, holding that “loss or diminution of benefits the plaintiff expects to receive under a workers’ compensation scheme does not constitute an injury to ‘business or property’ under RICO.” There, the circuit court continued, it gave two key reasons for its holding: One was that workers’ compensation compensated for personal injury, while RICO, with its spotlight on “business or property,” did not cover losses that flowed from personal injuries. Second, it reasoned, a contrary rule would allow RICO to police fraud in the workers’ compensation system, “planting the national banner on land traditionally patrolled by the States.” In the circuit court’s opinion, RICO did not speak with enough clarity to authorize such an intrusion.

In concluding, the circuit court added that Jackson applied not only to disputes between employer and employee, but also to an employee’s claims against insurers, claims administrators, and doctors – “all of the defendants.” RICO’s applicability “turns on the nature of the injury – that the plaintiff was ‘injured in his business or property.’… It does not turn on the nature of the defendant.”

The Sixth Circuit was the first federal appellate court to rule on the issue, but similar cases are pending across the country. A case was filed recently against York Risk Services Group in Arizona on behalf of injured firefighters. The case is Laurie Miller et al. v. York Risk Services Group. U.S District Court Judge John Sedwick denied York’s requests to dismiss the employees’ claims last December. Judge Sedwick found that the employees “possess a property right in their workers compensation benefits under Arizona law,” which allows them to have a property interest under RICO law, the opposite of the finding in Brown.

Arizona is in the United States Court of Appeals for the Ninth Circuit, (as is California) and the 9th Circuit is not bound by cases in the 6th Circuit. Nonetheless the opinion in Brown will be persuasive if not controlling law. Should the 9th Circuit differ when the York case ultimately reaches the appellate tribunals, it would be an invitation for the U.S. Supreme Court to weigh in, perhaps resolving the issue of the application RICO to workers’ compensation cases nationwide .But, an adverse ruling at the 9th Circuit would open the floodgates for RICO litigation in California unless the U.S. Supreme Court intervened. The 9th Circuit is generally viewed as the most liberal venue in the nation. Thus the York case needs to be carefully followed.

Shirley Lappi sustained a workplace injury in 2003 while working as an administrative assistant for the University of California at Irvine and she filed a claim against the University for workers’ compensation benefits.

In 2007, Lappi noticed the deposition of the Sedgwick claims examiner assigned to her case and sought production of all unprivileged documents pertaining to her case, including Sedgwick’s claims file. After the University moved to quash the deposition, the WCJ ordered the claims examiner to make himself available for deposition and to “produce all non-privileged portions of the claims file.” At the deposition, the claims examiner produced the claims file, which included computer notes identified as “Notepad Detail.” However, he produced none of these notes for the period after January 11, 2008, when the University initially retained counsel in this matter. Lappi made a further demand for the missing documents, which the University refused to produce on the basis of claimed privilege. The parties returned to court on February 28, 2012. The WCJ noted the parties were unable to agree on the release of the notes and ordered the University “to file a copy of computer ‘Notepad detail’ with the WCJ . . . for [an] in camera review of alleged confidentiality of said notes.”

The discovery dispute continued between the parties until it was ultimately removed to the WCAB for resolution. The WCAB noted that if the disputed documents “do not refer to an attorney’s communication, they may not be protected by the attorney-client privilege. Moreover, if a note with an action plan does not refer to an attorney’s impressions, it is difficult to see how the action plan would fall within the work product doctrine.” However, the WCAB explained that “it is not clear from the testimony at trial or from the petition whether the notes sought actually summarize or refer to attorney communications.” Given this dearth of concrete information, the WCAB concluded the WCJ’s decision requiring production must be rescinded and that the “best course is to return the matter to the WCJ so that she may appoint a special master” who would “conduct an in camera review of the disputed documents and to provide that report to the parties and to the WCJ.”

The University petitioned the Court of Appeal for review of the WCAB’s decision, presenting this question for determination: “Do the attorney-client privilege, the absolute work product doctrine and Evidence Code section 915 operate within workers’ compensation proceedings in the same fashion as in judicial proceedings; i.e., can the [WCAB] order an in camera review of documents in order to determine whether attorney-client privilege or the absolute [work product doctrine] apply despite Evidence Code section 915?” The answer to that question in the unpublished decision of Regents of the University of California v WCAB was: Yes they do and therefore, no it cannot.

Section 915 is found in division 8 of the Evidence Code (Evid. Code, § 900 et seq.), which governs privileges. It provides, in pertinent part that “the presiding officer may not require disclosure of information claimed to be privileged under this division or attorney work product under subdivision (a) of Section 2018.030 of the Code of Civil Procedure in order to rule on the claim of privilege . . . .” (§ 915, subd. (a).) Section 915 carves out some exceptions to this rule, none of which are applicable here. It is beyond dispute that section 915 would have prohibited the type of document review ordered by the WCAB if this dispute had arisen in the context of an ordinary civil case.

Labor Code section 5708 sets forth a general rule authorizing the WCAB to adopt its own “rules of practice and procedures” and specifies that in the conduct of hearings and investigations, the WCAB “shall not be bound by the common law or statutory rules of evidence and procedure.” However, when it comes to the treatment of privileged information specifically, division 8 of the Evidence Code trumps this provision of the Labor Code. Division 8 expressly applies to “any action, hearing, investigation, inquest or inquiry (whether conducted by a court, administrative agency, hearing officer, arbitrator, legislative body, or any other person authorized by law) in which . . . testimony can be compelled . . . .” Moreover, Evidence Code section 910 explicitly overrides any other statute which might otherwise be viewed as limiting application of the “rules of evidence” generally: “The provisions of any statute making rules of evidence inapplicable in particular proceedings, or limiting the applicability of rules of evidence in particular proceedings, do not make this division inapplicable to such proceedings.”

The Court of Appeal concluded that “In light of these provisions, it is clear that while the WCAB is free to adopt rules of practice and procedures which ignore the “rules of evidence” set forth in the Evidence Code, it nonetheless remains bound by the statutory requirements for dealing with privilege found in division 8 of that code, including section 915. As a consequence, the WCAB erred in this case when it ordered an in camera review of the University’s allegedly privileged documents by a special master for the purpose of assessing the merits of that privilege claim.”