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340B Contract Pharmacy Drug Discount Controversy Intensifies

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The 340B program, created under 42 U.S.C. § 256b, requires drug manufacturers to sell outpatient drugs at steep discounts to safety-net hospitals and clinics. Those providers can then bill insurers at full price and keep the difference. In 2010, the Health Resources and Services Administration (HRSA) began allowing covered entities to contract with an unlimited number of outside pharmacies to dispense 340B drugs, and those arrangements have multiplied since.

A University of Pennsylvania study finding that 340B contract pharmacies spread mainly into wealthier, whiter neighborhoods remains one of the most contested pieces of evidence in the fight over the federal drug discount program. The fight has sharpened in 2026 with a federal appeals court split over state contract pharmacy laws, a new Medicare payment proposal and a new Department of Health and Human Services analysis of the program’s incentives. The study, a research letter titled Assessment of US Pharmacies Contracted With Health Care Institutions Under the 340B Drug Pricing Program by Neighborhood Socioeconomic Characteristics, was published June 17, 2022, in JAMA Health Forum, an open-access journal in the JAMA Network.

The Penn researchers used HRSA’s 340B database, Census data and the national provider registry to track 91,740 pharmacies from 2006 through 2019. They found that participation was nearly flat before the 2010 policy change and then surged, so that by 2019, 29.9 percent of all U.S. pharmacies held a 340B contract. Retail pharmacies made up 92 percent of them. The finding that drew the most attention compared how 340B and non-340B retail pharmacies changed between 2011 and 2019. Relative to other pharmacies, the share of 340B contract pharmacies fell 7.0 percent in neighborhoods with a median family income below $45,000 and rose 3.6 percent in neighborhoods at or above $80,000. It also fell in predominantly Black and Hispanic neighborhoods and in the most socially deprived areas, while the change in rural neighborhoods was not meaningful. Meanwhile, retail pharmacies overall grew slightly in disadvantaged areas, which the authors said showed the pattern was specific to 340B contracting.

The authors concluded that the growth was concentrated in affluent, predominantly white neighborhoods. In a Penn Leonard Davis Institute summary, they wrote that discounted drugs “appear to go more and more to pharmacies in wealthier communities” and that large retail chains have benefited. They acknowledged one key limitation: they could not see whether 340B discounts actually reached low-income patients. A patient who lives in a poor neighborhood can still fill a prescription at a pharmacy in a wealthier one.

Hospitals objected immediately. Speaking to 340B Report, American Hospital Association general counsel Melinda Hatton said the study “suffers from many flaws that seriously undermine its reliability.” She called its demographic conclusions misleading because the study did not account for differences among communities, particularly rural areas that may have fewer minority residents. The AHA also pointed out that one author had received pharmaceutical industry grants for other research. The study’s disclosures list industry grants and fees received by Doshi and Li, all reported as unrelated to this work, and the study itself was funded by Penn and federal research grants. Covered entities and their advocates generally argue that contract pharmacy savings fund care for vulnerable patients wherever the pharmacy is located.

Later research has added to the picture. A 2023 study in the American Journal of Managed Care, Income Differences Between Locations of 340B Entities and Contract Pharmacies, looked at 2019 contracts and found that the median household income where a contract pharmacy was located averaged about 35 percent higher than where its covered entity was located. That was true for both hospitals and federal grantee clinics. Its authors acknowledged the study was funded by Gilead Sciences. A 2022 county-level study by Nikpay and colleagues found a split: pharmacies contracting with hospitals tended to be in lower-poverty areas, while those contracting with safety-net clinics were more often in areas with higher uninsured rates.

The data still matter because contract pharmacies are now at the center of the 340B dispute. An October 8, 2026 brief from HHS’s Office of the Assistant Secretary for Planning and Evaluation, Mission vs. Margin: Misaligned Incentives in the 340B Drug Pricing Program, reports that contract pharmacies grew from about 1,300 in 2010 to more than 31,000 by mid-2026. It also reports that five companies, Cigna, CVS Health, UnitedHealth Group, Walgreens and Walmart, account for 77 percent of them. The ASPE brief does not cite the Penn study. It argues more broadly that the program’s financial incentives have drifted from its safety-net mission, and hospital groups dispute that view.

Courts are divided over whether states may force manufacturers to honor 340B pricing at contract pharmacies. On March 31, 2026, a Fourth Circuit panel in PhRMA v. McCuskey upheld a preliminary injunction against West Virginia’s contract pharmacy law, finding it likely preempted by federal law. The Fifth and Eighth Circuits had upheld similar laws in Louisiana and Arkansas. The AHA has urged the full Fourth Circuit to rehear the case, warning that the ruling could jeopardize hospitals that serve low-income patients. The ASPE brief also notes that the Centers for Medicare & Medicaid Services proposed in July 2026 to cut Medicare payment for 340B-acquired drugs, and that HRSA announced a revised 340B rebate pilot on August 3, 2026, after a court paused the original version.

For employers and health plans, the stakes go beyond geography. Under 340B, plans typically pay full price for drugs that covered entities buy at a discount, and the ASPE brief cites an estimate that self-insured employers may face a $5.2 billion cost increase from lost manufacturer rebates. Whether contract pharmacy revenue is reaching the patients the program was designed to help is the question the Penn study raised but could not answer, and it remains unresolved.

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DOI Announces Insurance Long-Term Solvency Planning Regulation

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California-based insurers will soon have to show state regulators how they expect to stay solvent through 2050. Insurance Commissioner Ricardo Lara has finalized the Long-Term Solvency Planning Regulation, which requires domestic insurers to document how climate change, cyber threats, artificial intelligence and other emerging risks could affect their finances over the coming decades. According to the Department of Insurance’s announcement of the final rule, the regulation took effect October 26, 2026, and insurers’ first long-term solvency plans must be assembled and available to department examiners by January 1, 2028.

The department calls the rule the first of its kind in any U.S. state. It applies to insurers domiciled in California, across all lines of business, and adds a new section 2319.7 to Title 10 of the California Code of Regulations under the rulemaking file REG-2025-00025. The department cites its authority under Insurance Code § 739.9, and ties the rule to the risk-based capital provisions of Insurance Code § 739.2. Subdivision (d) of that section says insurers should try to hold capital above the minimum risk-based capital levels, as a cushion against risks the formula does not fully measure. The new regulation in effect asks insurers to document how they are analyzing those additional capital needs.

The rule operates in two tiers. Under the draft text the department released for public workshop in October 2025, every domestic insurer must maintain and keep current its data on risk mitigation technologies used by its policyholders, along with any analysis of how well those measures have performed and are expected to perform. Insurers that wrote more than $50 million in direct premium nationwide in the prior calendar year face the more extensive requirements. Because the threshold resets each year, an insurer’s status can change from one year to the next.

Those larger insurers must assess which emerging risks and opportunities are material to their underwriting, investments or operations. The draft groups these into four categories. The first is technology, including the growing scale and complexity of data, data quality and cybersecurity. The second is physical climate risk, covering both acute extreme-weather events and slower, compounding changes such as sea-level rise, water availability and temperature extremes. The third is transition risk as the economy shifts away from greenhouse-gas-emitting technologies, including the effect of future government action. The fourth is a catch-all for other risks likely to grow more volatile over 20 years, such as economic trends or litigation.

For the risks they find material, those insurers must document their analysis and mitigation strategies with projections for 2030, 2040 and 2050. On the climate side, the draft calls for stress tests of forward-looking climate scenarios, explanations of how the scenarios were chosen and where the uncertainties lie, and analysis of investment concentrations and exposure to catastrophic events such as extreme heat, severe convective storms, flooding, earthquakes and hurricanes. Insurers must also set long-term investment strategy targets with performance metrics and interim checkpoints, and describe how they will identify opportunities for new products, such as coverage for low- or zero-emission infrastructure. Finally, they must explain whether their climate and technology risk expertise is built in-house or bought from outside vendors.

The plans are not filed publicly. The department describes the oversight as confidential and conducted through its financial examinations, comparing it to the Federal Reserve’s supervision of U.S. banks. In its June 12, 2026 announcement of the formal proposal, the department said the rule draws on approaches used by the Bank of England, the Banque de France, the Dutch central bank, Canada’s chief insurance regulator and the Monetary Authority of Singapore, as well as the International Association of Insurance Supervisors’ climate risk framework. Lara said in that release that resilience “is not optional, it is a global responsibility.”

The rule has been more than a year in development. The department published a workshop draft in October 2025 and held a public workshop that November, issued a formal notice of proposed action in June 2026, and held a virtual public hearing on July 28, 2026.

Industry groups pushed back during the process. As reported by InsuranceNewsNet, the American Property Casualty Insurance Association argued that property and casualty carriers write mostly short-duration business and plan on three- to five-year horizons, and that the $50 million threshold sweeps in far smaller companies than the NAIC’s Own Risk and Solvency Assessment (ORSA) and climate disclosure survey do. Other trade representatives, quoted by Digital Insurance, called projections out to 2040 or 2050 too speculative and said the reporting duplicates existing ORSA requirements. Consumer and environmental groups pressed from the other direction. A July 2026 coalition letter from 11 organizations, including United Policyholders, Public Citizen and the Greenlining Institute, urged standardized reporting, science-based emissions targets that extend to underwriting, and plans to keep insurers from withdrawing from markets they serve. The department’s announcement of the final rule says it builds on the June proposal, but the summaries available do not detail what changed in the final text.

For employers and policyholders, the rule does not change premiums, coverage terms or claims handling. Its significance lies in solvency oversight. It gives California regulators an early look at whether the carriers headquartered in the state, including those writing commercial and workers’ compensation coverage, have thought through threats that could erode their capital long before those threats show up on a balance sheet.

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Court Limits Attorney Client Privilege in Fair Chance Act Investigation

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California’s Fair Chance Act, Government Code § 12952, bars employers with five or more employees from asking about an applicant’s conviction history until after a conditional job offer is made. If the employer then wants to withdraw the offer because of a conviction, it must first conduct an individualized assessment of whether the conviction has a direct and adverse relationship with the specific duties of the job, weighing the nature and gravity of the offense, the time that has passed, and the nature of the job. The employer must then give the applicant written notice of its preliminary decision, allow a response, and consider that response before making the decision final.

In a new court of appeal published opinion, Walter J. interviewed with the City of Torrance for a custodian position in September 2022 and received a contingent offer. A Department of Justice background report showed a string of misdemeanor convictions beginning in 1996, along with a 2001 felony conviction for false personation. Walter submitted materials he believed showed rehabilitation. The City accepted several of his explanations, agreeing that one conviction had been dismissed, that he had rehabilitated from a domestic battery conviction, that the felony was too old to be relevant, and that his driving offenses did not matter for the custodian job. It nonetheless rescinded the offer based on a 2019 conviction for fighting in a public place, concluding the offense was recent and relevant to a job requiring daily interaction with coworkers and the public, and citing its zero-tolerance workplace violence policy.

Walter filed a complaint with the Civil Rights Department (CRD) in October 2023. In its response, the City laid out a narrative of how it had followed the statute, identified the two decision makers who performed the assessment, and asserted that it had complied with section 12952. In October 2024, CRD filed a director’s complaint and expanded the matter into a group or class investigation into whether the City was disqualifying applicants based on certain types of crimes without adequate individualized assessments.

CRD served document requests seeking the City’s assessment templates, forms, and instructions, along with the assessment and reassessment records for every applicant denied employment because of criminal history since January 1, 2022. Torrance acknowledged it had responsive documents but withheld all of them, asserting attorney-client privilege and work product protection because the assessments were prepared with counsel. An assistant city attorney declared that the two template documents reflected her conclusions about what the law requires, and that two City human resources employees consulted her on each assessment and documented her legal advice. The City refused to produce a privilege log, instead supplying a list of 23 applicants whose criminal histories had been reviewed the same way as Walter’s.

CRD petitioned the Los Angeles County Superior Court under Government Code § 12963.5 for an order compelling compliance with its investigative requests. Judge Virginia Keeny granted the petition, finding that the City had waived any privilege by raising the adequacy of its individualized assessments as a defense to CRD’s investigation. Relying on Wellpoint Health Networks, Inc. v. Superior Court (1997) 59 Cal.App.4th 110, the court added that applying that rule to CRD investigations was especially appropriate, because otherwise an employer could escape its duty to properly analyze criminal history records simply by handing the task wholesale to in-house counsel. The court also rejected the City’s vagueness and overbreadth objections, a ruling the City did not challenge on appeal. Torrance appealed under section 12963.5, subdivision (d), which makes such orders immediately appealable.

In the published case of Civil Rights Department v. City of Torrance, No. B352855 (September 2026), the California Court of Appeal, Second Appellate District, Division One, affirmed the superior court’s order compelling the City to produce its Fair Chance Act assessment templates and individualized assessment records, holding that the City waived any attorney-client or work product protection by asserting that it had complied with section 12952. The opinion, authored by Justice Weingart and joined by Presiding Justice Rothschild and Justice Bendix, was filed as unpublished on September 29, 2026, and the court certified it for publication on October 27, 2026.

The court reviewed the privilege ruling for abuse of discretion, citing Costco Wholesale Corp. v. Superior Court (2009) 47 Cal.4th 725. CRD had argued that the documents were never privileged to begin with, because the dominant purpose of the assessments was an ordinary human resources function rather than obtaining legal advice, and that Torrance was routinely involving a lawyer to shield hiring decisions from scrutiny. The panel found it unnecessary to decide that question, resting its decision entirely on waiver.

The court explained that privilege is waived when a party puts an otherwise privileged communication directly at issue and disclosure is essential to a fair adjudication, a rule drawn from Southern Cal. Gas Co. v. Public Utilities Com. (1990) 50 Cal.3d 31 for the attorney-client privilege and People v. Superior Court (Jones) (2021) 12 Cal.5th 348 for work product. Wellpoint applied that principle to an employer defending a hostile work environment claim by pointing to an investigation conducted by attorneys; an employer that relies on the adequacy of such an investigation cannot then invoke privilege to block examination of it.

The panel endorsed the trial court’s reasoning, particularly its concern about delegation to counsel. The assistant city attorney had acknowledged she is involved in hiring whenever an applicant has a criminal history, and the City conceded at oral argument that it had withheld every document reflecting both the assessment and reassessment process. By routinely involving a lawyer and then claiming privilege, the court said, Torrance was seeking to shield all internal records of its decision-making.

The court rejected the City’s argument that the trial court should have evaluated each document individually. As the party asserting privilege, the City bore the burden of establishing the facts supporting it under Costco, and it offered no basis for distinguishing one document from another. Because CRD is investigating the City’s compliance with section 12952, the court saw no reason the waiver would reach some documents but not others.

The court likewise rejected the City’s claim that, unlike the employer in Wellpoint, it had never put the sufficiency of its assessments at issue. The City could not simultaneously assert compliance with section 12952 and deny that the adequacy of its assessments was in play, the court reasoned, because compliance turns on whether the assessments considered the statutory factors and the applicant’s response. The court pointed to California Code of Regulations, title 2, § 11017.1, subdivision (c)(1), which requires a reasoned, evidence-based determination of whether a conviction is directly and adversely related to the job, and observed that an employer “may not go through the motions.” By claiming it complied with the statute and regulations, Torrance put at issue how it performed its individualized assessments and waived any privilege as to their content.

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75% CTE Rate in Post Mortem Study of 2,362 of Former NFL Players

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About three of every four former National Football League players who died between 2008 and 2023 likely had chronic traumatic encephalopathy, or CTE, according to a Boston University study published October 28, 2026, in JAMA Network Open. The researchers put the bias-adjusted prevalence at 74.5% among the 2,362 former players who died during that 16-year period. News coverage describes it as the first population-level estimate of CTE among deceased NFL players.

CTE is a degenerative brain disease associated with repeated head impacts, and it can be definitively diagnosed only by examining the brain after death. That has long made its true frequency hard to measure. Earlier research relied on brains donated to research banks, and families of players who showed symptoms in life are more likely to donate. A widely cited 2017 Boston University analysis found CTE in 99% of donated NFL players’ brains, a figure critics argued was inflated by that selection effect.

The new study, titled “Bias-Adjusted Prevalence of Chronic Traumatic Encephalopathy Among Deceased National Football League Players,” tries to correct for donation bias. According to reporting by The Boston Globe and Science News, the team started with nearly 400 former players whose brains were in Boston University’s brain bank. About 94% of those donors had CTE. The researchers then used death certificate data from the National Death Index on every former player who died during the study period. They also considered records of dementia and cognitive symptoms, along with age at death, position played, and years in the league. Players with cognitive symptoms were about five times more likely to have their brains donated, and the team adjusted for that difference when extending its estimate to players whose brains were never examined.

ABC News reported that the researchers also estimated 27.2% of the former players had dementia during their lifetimes, a figure the authors said likely understates the true rate. For comparison, the Globe reported that CTE prevalence in the general population is estimated at under 1%. It added that former NFL players may be roughly four times more likely than the general population to develop dementia and other neurodegenerative diseases.

The authors acknowledge that no adjustment can remove every source of bias. Senior author Yorghos Tripodis, a Boston University biostatistics professor, told ABC News that the estimate did not drop below 60% even under very conservative assumptions. Lead author Julia Gallini, a doctoral candidate at the Boston University School of Public Health, cautioned in the Globe that the result is an estimate for deceased former players and does not predict the share of current players who will develop CTE. Not every case of CTE produces symptoms, and symptoms tend to appear in later stages of the disease. The players’ head impacts also often began in youth, high school, or college football rather than in the pros, according to co-author Daniel Daneshvar of Mass General Brigham.

The study refines an August 2026 analysis by several of the same researchers. That earlier work, which Insurance Journal reported was led by Daneshvar, examined former players who died between 2016 and 2021. It set a conservative minimum of about one in four with CTE. ABC News reported that the earlier study’s plausible range ran from 25% to 98%, and Tripodis said the team wanted to narrow that range. Dr. Ramon Diaz-Arrastia of the University of Pennsylvania, who was not involved in the study, told the Globe it is a paper the field “has been waiting on for a long time.”

The NFL pointed to the statement it issued after the August study, saying it continually works to make the game safer and remains committed to providing resources for players’ well-being. The NFL Players Association told the Globe that such studies are critical to understanding football’s long-term effects.

For employers and insurers, the findings bear on the cumulative-trauma and occupational-disease claims that former professional athletes have long pursued, including in California’s workers’ compensation system. A credible population-level estimate of brain disease among NFL veterans could figure in how such claims are evaluated and reserved, although the study itself does not address compensation or causation in any individual case. The researchers’ emphasis on exposure beginning in youth and amateur football may also interest carriers that write coverage for schools, colleges, and youth sports organizations, as well as other contact-sport employers.

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October 26, 2026 – News Podcast

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Rene Thomas Folse, JD, Ph.D. is the host for this edition which reports on the following news stories: Physicians’ Liens Fail for Lack of Causation Substantial Evidence. Walmart Settles Single Store Heat-Recovery/PAGA Case for $400K. Cal/OSHA Cites Employers $212,500 for Fatal Tunnel Collapse. Public Money for Materials Triggers Prevailing Wages on Project. California DOI Adds Optional Pre-Filing Rate Review Process. Instacart to Pay $5M to Settle DOJ, EEOC Claims. Newsom Signs Three New Workplace A.I. Laws for 2027. Non-Opioid Pain Injection Beats Exparel in Phase 3 Trial.

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Busy Schedule No Defense to State Fund Premium Audit Suit

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In February 2022, Creditors Adjustment Bureau, Inc., suing as assignee of the State Compensation Insurance Fund, filed a collection action in Fresno County Superior Court against Barry Halajian, doing business as Industrial Electrical. The complaint sought $86,858.26 allegedly owed under four workers’ compensation insurance policies. According to the complaint, the insurer priced each policy at inception using an estimate based on Halajian’s own representations. When the insurer later tried to audit his payroll records as the policies allowed, he refused to cooperate, so the insurer calculated an estimated premium that increased his balance. Halajian refused to pay.

The bureau served Halajian by leaving the summons and complaint at the commercial mailbox center he used for all correspondence on his policies, and then mailing a second copy to that address—the same address Halajian later listed on his own court filings. He did not respond, and the court entered his default on May 25, 2022.

In August 2022, Halajian moved to set aside the default for excusable neglect under Code of Civil Procedure section 473, subdivision (b). He did not challenge service. Instead, he said extensive out-of-town travel and a heavy work schedule kept him from answering. The trial court denied the motion in November 2022, explaining that a “press of business” excuse is generally not a ground for relief and that Halajian had shown no effort to contact a lawyer or ask the plaintiff for more time. Because the court said it strongly preferred to decide the case on the merits, however, it denied the motion without prejudice so he could try again with a better factual showing.

Halajian’s second motion, filed in January 2023, simply elaborated on the same excuse. He declared that a construction project about 90 minutes from Fresno kept him working out of town from January through early April 2022, often 12 to 15 hours a day, and that he sometimes went days without checking his mail. Most of the motion argued the merits of his defenses. In May 2023 the court denied relief with prejudice, finding that neither a busy schedule nor a decision to proceed without counsel amounts to excusable neglect and that the merits of his defense were irrelevant to that question. Reconsideration was denied.

The court entered a default judgment on January 13, 2025. Halajian then moved to vacate it, invoking the court’s equitable power to set aside judgments for extrinsic mistake or fraud. He argued that he never received notice of the request for default judgment, that his defenses were meritorious, that he deserved leniency as a self-represented litigant, and that the bureau lacked standing. The court denied the motion in May 2025, noting he had not attached a proposed answer, that a defaulted party is not entitled to notice of the default judgment request, that he offered no evidence he had paid his premiums, and that he provided no new explanation for failing to answer. A further reconsideration motion was denied, and Halajian appealed in pro. per.

In the unpublished case of Creditors Adjustment Bureau, Inc. v. Halajian, No. F090331 (October 2026), the Fifth District Court of Appeal affirmed the default judgment, holding that the trial court did not abuse its discretion in refusing to set aside either the entry of default or the default judgment. The opinion, filed October 20, 2026, was not certified for publication, so under California’s rules of court it generally may not be cited or relied on by courts or parties in other cases. The court awarded the bureau its costs on appeal to the extent not covered by Halajian’s fee waiver.

As a threshold matter, the court rejected the bureau’s argument that the appeal should be dismissed or narrowed. Although it found Halajian’s briefing difficult to parse at times, it liberally construed his notice of appeal and briefs as challenging both the entry of default and the default judgment. That also disposed of the bureau’s contention that reversing only the judgment would be an “idle act” because the underlying default would still stand.

On the merits, the court reviewed the denial of relief for abuse of discretion. It acknowledged the strong policy, stated in Elston v. City of Turlock (1985) 38 Cal.3d 227, that doubts under section 473 are resolved in favor of the party seeking relief and that only very slight evidence is required. But the court emphasized that the policy has limits. The test, under Zamora v. Clayborn Contracting Group, Inc. (2002) 28 Cal.4th 249, is whether a reasonably prudent person in similar circumstances might have made the same error, and California courts have long held that the press of business is not excusable neglect. Elston itself observed that a litigant who was simply busy with other matters would not qualify. The court also relied on Bellm v. Bellia (1984) 150 Cal.App.3d 1036, which upheld denial of relief to a defendant overwhelmed by holiday-season sales orders.

The court analyzed the statutory and equitable requests together because both turned on the same question: why Halajian failed to answer in 2022. Equitable relief requires satisfying the “stringent three-pronged test” described in Rappleyea v. Campbell (1994) 8 Cal.4th 975 and Pittman v. Beck Park Apartments Ltd. (2018) 20 Cal.App.5th 1009: a meritorious defense, a satisfactory excuse for not defending in the first place, and diligence in seeking relief. Under Manson, Iver & York v. Black (2009) 176 Cal.App.4th 36, relief for extrinsic mistake or fraud is unavailable where the moving party’s own negligence allowed the mistake to occur. Across his motions, Halajian offered only his work schedule, and his equitable motion merely pointed back to the justification he had already given. The trial court acted within its discretion in rejecting it.

The court distinguished the cases Halajian relied on. Olivera v. Grace (1942) 19 Cal.2d 570 involved a litigant left mentally incapacitated by a head injury, a condition the opposing party exploited. Rappleyea involved a clerk’s miscommunication about a filing fee after a timely response. Gamet v. Blanchard (2001) 91 Cal.App.4th 1276 involved a disabled, out-of-state litigant whose attorney withdrew and who received confusing orders from the court. Halajian, by contrast, was validly served under Code of Civil Procedure section 415.20, which permits service at a private commercial mailbox, as recognized in Sweeting v. Murat (2013) 221 Cal.App.4th 507. He never disputed service and apparently took no action until August 2022.

Halajian’s reliance on Zamora and Minick v. City of Petaluma (2016) 3 Cal.App.5th 15 for the idea that failing to pick up his mail was an understandable mistake also failed. Both cases involved errors by counsel—a clerical mistake in one and an attorney’s serious illness in the other—raised within about a week. Section 473 distinguishes attorney fault from a client’s own negligence, and Halajian’s default resulted from his own conduct.

Finally, the court rejected Halajian’s remaining arguments. Self-represented litigants are held to the same procedural rules as attorneys, citing County of Orange v. Smith (2005) 132 Cal.App.4th 1434. His challenges to the insurer’s corporate structure and the bureau’s standing to sue on its behalf were summarily rejected as without merit, and due process arguments raised for the first time in his reply brief were not considered.

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SB574 – California is First State to Pass AI Rules for Lawyers

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California has become the first state to regulate lawyers’ use of generative artificial intelligence by statute. Gov. Gavin Newsom signed Senate Bill 574 on September 30, 2026, and its new rules take effect January 1, 2027. The law bars attorneys from handing the practice of law over to AI tools. It also requires lawyers to verify AI output and to personally verify every citation in a court filing, to disclose AI use to the court, and to keep confidential client information out of AI systems that are not access-restricted. Arbitrators face new limits as well.

SB 574, authored by Sen. Thomas Umberg (D-Santa Ana), was one of 13 AI-related bills the Governor signed the same day. The Governor’s announcement described the measure as keeping lawyers responsible for practicing law by barring them from fully turning over core legal work, such as drafting briefs or exercising legal judgment, to AI. The bill responds to a steady stream of court decisions sanctioning lawyers for filing briefs with fabricated, AI-generated case citations.

The core duties appear in a new Business and Professions Code section 6068.1, which is part of the State Bar Act and applies to all California-licensed attorneys, including in-house counsel. The section provides that an attorney may use generative AI to assist in the practice of law but may not delegate the practice of law to it. Existing duties of competence and diligence are expressly preserved.

On confidentiality, attorneys may not enter confidential, personal identifying, or other nonpublic information into a generative AI system unless access to it is limited to the attorney and people the attorney has authorized who are themselves obligated to protect the information. The law defines personal identifying information broadly to include dates of birth, Social Security and driver’s license numbers, addresses and phone numbers of parties and witnesses, medical or psychiatric information, financial information, account numbers, and sealed or otherwise confidential material. In practical terms, commentators read this as keeping client data out of public, consumer-grade AI tools.

Attorneys using AI must also take reasonable steps to verify the accuracy of its output, including all case and statutory citations, and must correct any erroneous or “hallucinated” output in material they use. That verification duty is not limited to litigation. Finally, attorneys must disclose their use of generative AI to the court for all documents submitted to the court, and must consider whether to disclose AI use in content they provide to the public. The law defines generative AI as a system that can generate derived synthetic content that emulates its training data. That definition covers drafting and research tools but not conventional search engines, predictive analytics, or automated data processing.

Separately, the bill amends Code of Civil Procedure section 128.7, California’s counterpart to federal Rule 11. As amended, any brief, pleading, motion, or other paper filed in any California court may not contain citations that a responsible attorney has not personally verified. That requirement applies whether or not AI supplied the citation, and regardless of where the attorney is licensed. Violations are enforced through section 128.7’s existing sanctions procedures. These include a 21-day safe-harbor period to withdraw or correct a challenged paper, sanctions limited to what is needed to deter repetition, and joint responsibility of the law firm for violations by its partners, associates, and employees absent exceptional circumstances.

A new Code of Civil Procedure section 1282.1 bars arbitrators from delegating any part of their decision-making to a generative AI tool. It also bars them from relying on AI-generated information outside the record without first making appropriate disclosures to the parties and, where practical, letting the parties comment. The bill also amends Business and Professions Code section 6173, which concerns State Bar oversight of alternative dispute resolution providers. A new Code of Civil Procedure section 180 directs the Judicial Council to consider whether to update its nonbinding judicial administration standard on judges’ use of generative AI. The Assembly committee analysis of the bill describes its purpose as codifying safeguards for those receiving legal services.

Law firm commentary has broadly agreed that the law codifies duties lawyers already had, while adding statutory teeth and leaving several key terms undefined. The most frequently flagged gap is that the statute never defines what it means to “delegate” the practice of law. The law does not resolve how attorney-client privilege and work-product protection apply to AI-generated material. It further suggests that the arbitrator provisions may be stricter than the American Arbitration Association’s rules for AI-led arbitration, under which an AI drafts a preliminary award for a human arbitrator to review.

King & Spalding flags two drafting questions. First, read literally, the disclosure clause could require an attorney who used AI for anything to say so in every court filing. The firm suggests the better reading limits disclosure to AI use in preparing the particular document. Second, the statute does not say which attorney is “responsible” for verifying citations when several lawyers work on a filing. The firm adds that handing the check to a second AI tool is unlikely to satisfy the personal-verification requirement. It advises companies to make sure their outside-counsel billing guidelines do not discourage the required checks, and to configure internal AI tools to protect confidential information. The Metropolitan News-Enterprise characterized the law as codifying warnings already issued by courts and the State Bar.

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Supreme Ct Sends City of Salinas Case Back for Ct. of Appeal Review

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Lance D. Miraco, a former City of Salinas police officer, filed a workers’ compensation claim in December 2020 alleging cumulative injury through the end of 2013 to his back and right leg, along with gastritis, reflux, insomnia, and hypertensive cardiac disease. After trial, the workers’ compensation judge (WCJ) found industrial injury but ruled the heart claim time-barred under Labor Code § 5405, fixing the cardiac date of injury under § 5412 in June 2013.

Miraco filed a timely petition for reconsideration at the Salinas district office on October 16, 2023. Under the version of Labor Code § 5909 then in effect, a petition was deemed denied unless the Workers’ Compensation Appeals Board (WCAB) acted within 60 days of filing — here, by December 15, 2023. The petition was scanned into the EAMS system, but the district office did not transmit the case to the Board until January 12, 2024, apparently after Miraco’s counsel’s office called to check on it. According to Miraco, Board staff said a new decision timeline would run once the file arrived. On March 12, 2024, the Board invoked Shipley v. Workers’ Comp. Appeals Bd. (1992) 7 Cal.App.4th 1104, treated its deadline as tolled until it received the file, granted reconsideration, and found the cardiac claim was not time-barred.

The City and its claims administrator, CorVel, petitioned for a writ of review. In a published opinion filed August 20, 2025, City of Salinas v. Workers’ Comp. Appeals Bd. (2025) 113 Cal.App.5th 801, No. H052062, the Sixth Appellate District affirmed the Board. The panel agreed with Zurich American Ins. Co. v. Workers’ Comp. Appeals Bd. (2023) 97 Cal.App.5th 1213 and the First District’s opinion in Mayor v. Workers’ Comp. Appeals Bd. (2024) 104 Cal.App.5th 1297 that the 60-day deadline is mandatory and that late action exceeds the Board’s jurisdiction. But it went further, holding that the deadline does not touch the Board’s fundamental jurisdiction, so equitable tolling remained available in a narrow class of cases. Applying the three-part test of Saint Francis Memorial Hospital v. State Dept. of Public Health (2020) 9 Cal.5th 710 — timely notice, lack of prejudice, and reasonable, good-faith conduct — the court found tolling justified because Miraco acted diligently and was misled by an administrative delay he did not cause. The court also declined the Board’s request to wait for the Supreme Court’s pending decision in Mayor.

The California Supreme Court granted the City’s petition for review on November 19, 2025, and deferred briefing pending its decision in Mayor (S287261), the lead case on the same question.

In a minute order in the case of City of Salinas v. Workers’ Compensation Appeals Board (Miraco), No. S293212 (October 2026), the California Supreme Court transferred the matter back to the Sixth Appellate District with directions to vacate its 2025 decision and reconsider the cause in light of Mayor v. Workers’ Comp. Appeals Bd. and Ross Valley Sanitation Dist. (2026) 20 Cal.5th 874. The order, a minute order issued Wednesday, October 21, 2026, under California Rules of Court, rule 8.528(d), states that under the court’s Administrative Order 2021-04-21 and the comment to rule 8.1115(e)(3), the Court of Appeal’s published opinion is now “depublished” or “not citable.”

The Sixth District’s opinion can no longer be cited as authority, and the Court of Appeal must decide the City’s challenge anew. The Supreme Court did not rule on the merits of Miraco’s cardiac claim.

A grant-and-transfer order carries no written reasoning of its own; the controlling analysis is in Mayor, decided unanimously on August 24, 2026, in an opinion by Justice Evans. There, the Board had granted an employer’s reconsideration petition 144 days after filing, again citing an administrative irregularity and Shipley.

Mayor actually agreed with Salinas on one point: the § 5909 deadline does not implicate the Board’s fundamental jurisdiction. But the high court rejected the step that decided Salinas. Equitable tolling, the court explained, excuses litigants from filing deadlines such as statutes of limitations. The Board is neither a party nor a litigant, and § 5909 is not a statute of limitations but a deadline for the adjudicator itself to act. The court said it knew of no precedent applying tolling to a decisional deadline imposed on an adjudicative body, and found that self-tolling conflicts with the statute’s evident purpose of keeping reconsideration petitions from languishing. It also held that a writ of mandate in the Court of Appeal is a proper way for an affected party to enforce § 5909.

The court recast Shipley as a due-process decision rather than a tolling decision, and disapproved it to the extent it suggests every party has a due-process right to Board review after the deadline passes. Mayor expressly named City of Salinas as an example of the Board routinely invoking Shipley to work around its own systemic file-transfer failures. The court left open that narrow due-process circumstances might still permit late action, but said it is the adversely affected petitioner — not the Board — who must assert that claim, and that mere expiration of the deadline is not enough.

On remand, the Sixth District therefore cannot rest on equitable tolling. Absent a due-process showing of the kind Mayor left open — and Miraco’s account of assurances from Board staff may prompt that argument — his petition would appear to have been denied by operation of law in December 2023, leaving the WCJ’s time-bar finding intact. How the Court of Appeal resolves that question remains to be seen.

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L.A. Takedown Charges 15 in $2B Health Insurance Fraud Schemes

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Federal prosecutors in Los Angeles have charged 15 defendants, six of them medical professionals, in a series of health care fraud cases that together involve about $2 billion in allegedly fraudulent claims to public and private health plans. The centerpiece is a sober-home scheme that the Justice Department describes as the largest substance abuse treatment fraud case it has ever prosecuted, with more than $1.6 billion billed to private insurers. The charges were announced on October 22, 2026, by the U.S. Attorney’s Office for the Central District of California.

Eight defendants were arrested on the day of the announcement, most of them making initial appearances in federal court in downtown Los Angeles and three in federal courts in Texas and Illinois. The investigations were carried out by the FBI, IRS Criminal Investigation, the Drug Enforcement Administration, the HHS Office of Inspector General, the U.S. Marshals Service and, in one case, the California Department of Justice. Prosecutors from the U.S. Attorney’s Office worked alongside trial attorneys from the Justice Department’s National Fraud Enforcement Division, which the department created in April 2026.

The largest case, United States v. Young, charges Nathan Young and his father, David Young, both of Los Angeles, along with Honey Phipps and Cody Phipps of Greenville, Texas. According to the indictment, the Youngs controlled dozens of purported treatment companies in the Los Angeles area and elsewhere and used “body brokers,” including the Phippses, to recruit homeless people and attendees of recovery support groups from around the country. Prosecutors allege the group targeted people whose insurance policies paid the most generous reimbursements, and in many cases fraudulently enrolled them in new policies for which they were not eligible. Recruits were allegedly lured with free flights, cash, housing, cars, gift cards and drugs.

The indictment describes a two-tier system in which “premium” patients with high-paying coverage received hotel stays and private apartments, while others were placed in crowded, unsanitary housing. Prosecutors allege patients were cycled through the facilities to keep billing regardless of medical need, were sometimes sedated or physically prevented from leaving, were coached to fake symptoms to qualify for detox, and in some instances were encouraged to use drugs or alcohol to become eligible for treatment. The billed “therapy” allegedly consisted largely of Zoom sessions with more than 100 attendees, where patients needed only to turn on their cameras. The four defendants face conspiracy, health care fraud and wire fraud charges, along with counts under the Eliminating Kickbacks in Recovery Act (18 U.S.C. § 220), a 2018 law that criminalizes kickbacks for referrals to recovery homes, treatment facilities and laboratories and, unlike the Medicare-focused anti-kickback law, reaches private insurance. A related defendant, Nicholas Moore of North Myrtle Beach, North Carolina, who served as an area manager and nominal owner of several of the Youngs’ facilities, has pleaded guilty to conspiracy and admitted helping submit $199 million in fraudulent claims to insurers.

A second case targets alleged patient harm. Dr. Harold Tabaie, an Anaheim cardiothoracic surgeon, and his business partner Hany Malek, a Tarzana chiropractor, are charged with billing Medicare roughly $135 million for medically unnecessary atherectomies, an invasive procedure that uses a bladed catheter to clear plaque from arteries. The indictment alleges that Malek posed as a medical doctor to diagnose arterial disease, that Tabaie performed procedures on patients without such disease, and that the clinics billed under other providers’ names to hide Tabaie’s unusually high volume. Prosecutors also allege kickbacks to patients in the form of free rides, groceries, gift cards and utility payments. According to the release, the case was flagged by data analytics showing Tabaie was an extreme national outlier for atherectomy billing. Malek separately faces bank fraud charges tied to an allegedly fraudulent Paycheck Protection Program loan.

Three hospice cases account for more than $138 million in alleged Medicare billings. Geoffrey Jimenez of Los Angeles is charged by complaint with enrolling non-terminal seniors, recruited at community centers, in his Transitions Hospice; prosecutors say the company’s non-death discharge rate of about 85 percent was more than four times the national average, and that Jimenez controlled more than a dozen other hospices that billed over $107 million. Dr. Richard Keech, an 83-year-old Torrance physician and hospice medical director, is charged with signing false certifications of terminal illness that caused more than $10 million in claims. Armani Raffi of Van Nuys is charged with running four interconnected Sherman Oaks hospices that allegedly billed about $21 million, with marketers paid $1,500 to $1,800 per referral.

The remaining cases involve kickbacks and drug fraud. Two physicians, Hassan Badday of Los Angeles and Robby Ayoub of Huntington Beach, are charged in separate indictments with taking per-patient kickbacks to sign genetic testing orders billed to Medicare by a Houston laboratory, in violation of the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)). Thomas Mladinich of Newport Beach, who according to the release has entered a plea agreement, is charged with taking $150,000 to $250,000 in kickbacks for steering addicted patients to a rehab facility that billed private insurance and required a 21-day stay before recruiters were paid; many patients allegedly left on exactly day 21. Christina Mareik of Whittier, first charged by complaint in June 2026, has now been indicted in a roughly $270 million Medi-Cal pharmacy scheme that allegedly exploited the program’s temporary suspension of prior-authorization requirements during a payment-system transition. Finally, Walnut physician Dejun Wang is charged with selling prescription drug samples, including Ozempic, Mounjaro and Rybelsus, to San Gabriel Valley pharmacies that repackaged and dispensed them.

The Young case is a reminder that private commercial coverage, not just Medicare and Medi-Cal, is a primary target of patient-brokering schemes, and that recruiters may manipulate enrollment to steer people into the richest-paying policies. The Tabaie case also illustrates the growing role of outlier analytics in detecting fraud; Assistant Attorney General Colin M. McDonald warned providers that “the data will lead us to you.” Officials’ loss figures vary somewhat: the release headline cites $2 billion, while a statement attributed to FBI Director Kash Patel puts losses at $1.8 billion. The earlier June 2026 Los Angeles takedown, linked above, also included a federal workers’ compensation fraud case against an Orange County psychiatrist.

All of these charges are allegations. As the Justice Department notes, indictments, complaints and informations are not evidence of guilt, and every defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt. Victims in the Tabaie matter can find case information on the department’s victim notification page, and more on the national strike force program is available from the Health Care Fraud Unit.

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Physicians’ Liens Fail for Lack of Causation Substantial Evidence

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Ann Lindley worked as an administrator for Golden State Manor/Tao Tai Homes. In 2017 she filed several workers’ compensation claims. Among them were specific injury claims for September 1, 2016 and October 1, 2016 involving her right arm, left foot, leg, and ankle, and a cumulative trauma claim for January 1, 2003 through October 17, 2016. In stipulations, the cumulative claim was described as covering her neck, arms, wrists, back, legs, and other orthopedic body parts. The claims involved several carriers, including Oak River Insurance Company (administered by Berkshire Hathaway HomeState Companies) and AIG Claims Services.

Lindley never obtained an award on these claims. She resolved them, along with two related claims, through compromise and release agreements approved in 2020 and 2021. The 2021 settlement cited a good faith dispute over liability. That left the liens of two physicians who had treated her: Edwin Haronian, M.D., whose lien was for $11,188.97, and Jonathan Kohan, M.D., a secondary treating physician in pain management.

Two orthopedic panel qualified medical evaluators (PQMEs) had examined Lindley. Dr. Schaffzin reviewed more than 7,500 pages of records. Both he and Dr. Halbrecht took detailed histories and concluded that her complaints were not industrial. Both attributed her right elbow and related upper extremity conditions to a July 18, 2007 motor vehicle accident and the elbow surgery that followed. Dr. Halbrecht described the 2007 accident as occurring while Lindley worked for a different employer.

The lien claims went to trial on June 16, 2022, on a single issue: whether Lindley sustained an injury arising out of and in the course of employment (AOE/COE). Testimony was not taken, and the matter was submitted on the documentary record. In a July 6, 2022 decision, the workers’ compensation judge (WCJ) found no industrial injury on any of the claimed dates or during the cumulative period. The WCJ found the PQME reports more reliable and concluded that the reports of Drs. Haronian and Kohan were not substantial medical evidence. Both liens were ordered to take nothing and dismissed with prejudice. Dr. Haronian petitioned for reconsideration, which the Board granted to allow further study.

In the WCAB panel decision of Lindley v. Golden State Manor/Tao Tai Homes, Nos. ADJ10895246, ADJ10895160, ADJ10629441 (October 2026), the Workers’ Compensation Appeals Board affirmed the WCJ’s decision. That left in place the findings that Lindley sustained no industrial injury and that the lien claimants – Drs. Haronian and Kohan – take nothing. Commissioner Jose H. Razo wrote the opinion. Deputy Commissioner Patricia A. Garcia and Commissioner Joseph V. Capurro concurred.

The Board started with the burden of proof. An applicant must prove industrial causation by a preponderance of the evidence under Labor Code sections 3202.5 and 3600. Citing South Coast Framing, Inc. v. Workers’ Comp. Appeals Bd. (2015) 61 Cal.4th 291, the panel addressed the standard for proving industrial causation. A lien claimant litigating its right to payment “stands in the shoes” of the employee, and under Labor Code § 5705 and the Board’s en banc decision in Kunz v. Patterson Floor Coverings, Inc. (2002) 67 Cal.Comp.Cases 1588, it must prove every element of its claim, including injury AOE/COE. Because Lindley settled without a finding of industrial injury, Drs. Haronian and Kohan had to establish industrial causation themselves.

The Board then applied the familiar standard for substantial medical evidence. A medical report does not qualify if it rests on an inadequate history or examination, an incorrect legal theory, or speculation, or if it fails to explain its reasoning. The panel cited E.L. Yeager Construction v. Workers’ Comp. Appeals Bd. (Gatten) (2006) 145 Cal.App.4th 922, Braewood Convalescent Hospital v. Workers’ Comp. Appeals Bd. (Bolton) (1983) 34 Cal.3d 159, and Kaiser Foundation Hospitals v. Workers’ Comp. Appeals Bd. (Martin) (1985) 39 Cal.3d 57. It also cited Rosas v. Workers’ Comp. Appeals Bd. (1993) 16 Cal.App.4th 1692 and Kyle v. Workers’ Comp. Appeals Bd. (1987) 195 Cal.App.3d 614 for related principles governing the Board’s review of medical evidence.

Measured against that standard, Dr. Haronian’s October 2020 report fell short. The panel agreed with the WCJ that it did not fully review Lindley’s medical history. In particular, it did not discuss her prior injuries, including the 2007 car accident and resulting elbow surgery, and it appeared to include no review of records from before 2017. The report also did not explain why Dr. Haronian disagreed with the PQMEs. Dr. Kohan’s report likewise lacked a complete history and analysis and did not address causation for the cervical spine, right shoulder, left ankle, or right elbow.

By contrast, the panel found that both PQMEs had completed full evaluations, reviewed extensive records, taken detailed histories, and explained their conclusions. Their reports were therefore substantial medical evidence supporting the finding of no industrial injury. Dr. Haronian had argued that the PQMEs’ apportionment discussions, histories, and examinations were inadequate and had asked, in the alternative, for new PQME reports. Having found the PQME reports sufficient, the Board left the WCJ’s decision in place without ordering further development of the record.

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