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Court of Appeal Rules Against Cal/OSHA in Valley Fever Case

The California Flats Solar Project is a large solar power plant built on part of a former cattle ranch in the southeastern corner of Monterey County. Granite Construction was involved as a subcontractor in the construction of this project.

The Monterey County Planning Department required the primary project contractor to prepare and implement a worker training program about Valley fever before any grading activity. Consistent with these requirements, the owner of the project site created a Valley fever fact sheet, a Valley fever training program, and a Valley fever management plan for the project. The project general contractor, in turn, created a safety plan that identified Valley fever as a potential risk and described methods for mitigating this risk. Granite Construction also discussed Valley fever in safety instructions to its employees.

In May 2017, Cal/OSHA began an inspection of the project worksite, which ultimately centered on the potential exposure of Granite Construction’s employees to Coccidioides, the fungus which causes Valley fever. During their site visits, Cal/OSHA staff did not wear respiratory protection to prevent their own potential exposure to Coccidioides. Nor did they test the site for Coccidioides, though staff assumed that tests were available to determine the presence of the fungus. No evidence in the record shows that any Granite Construction employee contracted Valley fever. Nor does any testimony show that any person who visited the worksite contracted Valley fever.

Cal/OSHA issued a citation to Granite Construction for allegedly violating three regulations. It alleged Granite Construction violated one regulation because it required its employees to wear masks without first providing a medical evaluation to determine their fitness to wear them. And it alleged the company violated two other regulations because it exposed its employees to dust containing a harmful fungus – namely, Coccidioides, the fungus that causes Valley fever – and failed to implement adequate measures to limit this exposure.

After Granite Construction disputed these allegations, an ALJ rejected the Division’s claims. The ALJ reasoned that no credible evidence showed that Granite Construction required its employees to wear masks and no reliable evidence showed that Coccidioides was present at the worksite.

But after the Cal/OSHA petitioned for reconsideration, the Occupational Safety and Health Appeals Board reversed on these issues and ruled for Cal/OSHA. The trial court later denied Granite Construction’s petition for writ of administrative mandate seeking to set aside the Board’s decision.

On appeal from the trial court, the Court of Appeal reversed in the unpublished case of Granite Construction Co. v. Occupational Safety and Health Appeals Bd. – C096704 (September 2023). It agreed with Granite Construction’s claim that insufficient evidence shows its employees were exposed to Coccidioides. But it ejected its additional claim that it allowed (rather than required) its employees to wear masks, finding sufficient evidence supports the Board’s contrary ruling on this point.

Granite Construction challenged the Board’s finding that it violated California Code of Regulations, title 8, section 5144(a)(1) – a finding that was largely premised on the Board’s conclusion that the company exposed its employees to Coccidioides because no evidence showed Coccidioides was present at the worksite.

Over the years, the Board has discussed two competing standards for evaluating whether an employee has been exposed to an atmospheric contaminant within the meaning of this regulation. It established the first standard – the “harmful exposure” standard – decades ago. Under this standard, the Division must show “ ‘[a]n exposure to dusts, fumes, mists, vapors, or gases . . . [o]f such a nature by inhalation as to result in, or have a probability to result in, injury, illness, disease, impairment, or loss of function.’ ”

The Board has since suggested that an alternative standard – the “zone of danger” standard – might be more appropriate in evaluating alleged violations of section 5144(a)(1). Under this alternative standard, the Division must show either that the employees have been or are in the zone of danger or ‘that it is reasonably predictable by operational necessity or otherwise, including inadvertence, that employees have been, are, or will be in the zone of danger.

To date, the Division has yet to decide which of these two standards – the “harmful exposure” standard or the “zone of danger” standard – is the appropriate one in cases involving alleged violations of section 5144(a)(1). It has instead, in each case it has considered these standards, found it unnecessary to decide between the two standards because it concluded that both favor the same result.

In its decision here, the Board noted that the “harmful exposure” standard is the one it has applied in past decisions involving section 5144(a)(1). But at the same time, it noted it might have reason to “overrule” this approach and apply the “zone of danger” standard – which it characterized as its “typical exposure analysis.”

The Court of Appeal concluded that under either standard, the Board’s finding that employees were exposed to dusts containing Coccidioides lacks evidentiary support.

“Here, however, nothing we have found in the record shows that any part of the worksite “present[ed] [a] danger to employees.” The CDC, to be sure, has said Coccidioides is endemic in California. But that does not mean that the fungus is present everywhere in the state (or for that matter, everywhere in Monterey County) – which even Division staff conceded.”

“The Department of Industrial Relations, moreover, has indicated that Monterey County and seven other counties have relatively high rates of Valley fever, with rates over 10 per 100,000 people. But that does not mean that Coccidioides was present (or even likely present) at the worksite here. Nor does it even show a meaningful probability that the fungus was present.”

And although Monterey County and even Granite Construction demonstrated concerns about Valley fever and took steps to limit potential exposure, that too does not show that Coccidioides was actually present. All this evidence instead only shows, with no degree of certainty, that the worksite might have presented a danger to employees because Coccidioides might have been present in the soil. That, however, is insufficient to support the Board’s finding that the worksite was in fact a zone of danger.”

Biomarkers Can Confirm Long COVID With 94% Accuracy

More than three years into the pandemic, millions of people claim to have suffered from Long COVID. For those who have claimed workers’ compensation benefits, Long COVID cases are the most costly. According to a new study, there soon may be scientific methods to confirm their condition.

According to a report by NBC News,scientists may have found clear differences in the blood of people with Long COVID — a key first step in the development of a test to diagnose the illness.

Researchers from Yale School of Medicine and the Icahn School of Medicine at Mount Sinai, with contributions from Stanford University, were able to identify a range of biomarkers and predict with 94% accuracy who had long COVID.

The research is among the first to prove that “Long COVID is, in fact, a biological illness,” said David Putrino, principal investigator of the new study and a professor of rehabilitation and human performance at the Icahn School of Medicine at Mount Sinai in New York.

Post-acute infection syndromes (PAIS) may develop after acute viral disease. Infection with SARS-CoV-2 can result in the development of a PAIS known as “Long COVID.” Individuals with Long COVID frequently report unremitting fatigue, post-exertional malaise, and a variety of cognitive and autonomic dysfunctions, however, the biological processes associated with the development and persistence of these symptoms are unclear.

In the new study published this month in Nature, 273 individuals with or without Long COVID were enrolled in a cross-sectional study that included multi-dimensional immune phenotyping and unbiased machine learning methods to identify biological features associated with Long COVID.

Several differences in the blood of people with Long COVID stood out from the other groups.

The activity of immune system cells called T cells and B cells — which help fight off germs — was “irregular” in Long COVID patients, Putrino.said.  He also said that one of the strongest findings was that Long COVID patients tended to have significantly lower levels of a hormone called cortisol.

“It was one of the findings that most definitively separated the folks with Long COVID from the people without Long COVID,” Putrino said. The finding likely signals that the brain is having trouble regulating hormones. The research team plans to dig deeper into the role cortisol may play in Long COVID in future studies.  A major function of the hormone is to make people feel alert and awake. Low cortisol could help explain why many people with Long COVID experience profound fatigue, he said.

Meanwhile simply boosting a person’s cortisol levels in an attempt to “fix” the problem is not yet recommended.

Dr. Marc Sala, co-director of the Northwestern Medicine Comprehensive COVID-19 Center in Chicago, called the findings “important.” He was not involved with the new research. “This will need to be investigated with more research, but at least it’s something because, quite frankly, right now we don’t have any blood tests” either to diagnose Long COVID or help doctors understand why it’s occurring, he said.

CWCI Study Shows SB 863 Cost Reductions Bottomed Out by 2015

A new California Workers’ Compensation Institute study finds that average paid losses on California workers’ compensation lost-time claims fell immediately after legislative reforms (SB 863) took effect a decade ago, but then gradually increased up until the pandemic hit.

Currently, average paid losses on claims at all valuation points within 60 months of injury are above their post-reform lows, with only the most developed data on older claims — 72-month data on accident year (AY) 2016 claims — still showing declines in loss payments in the wake of the 2012 reforms.

Using data from CWCI’s Claims Monitoring Application on nearly 570,000 indemnity claims for injuries that occurred during the 10-year span ending in December 2022, the study tracks average paid losses at 6, 12, 24, 36, 48, 60 and 72 months post injury, breaking out the results by accident year to identify growth trends.

In addition to average total losses, the study notes the average medical and indemnity payments at each level of development and compares the loss payments for claims from 5 key industry sectors and from different regions of the state.

Average total paid losses within the first year of injury fell immediately after the 2012 reforms took effect but bottomed out in AY 2014 and started to trend up in AY 2015, continuing to increase through AY 2020. Average 24-month loss payments bottomed out in AY 2016, then trended up through AY 2019, the latest year for which 24-month data are available.

For the first time in 7 years, the 6- and 12-month average paid losses fell slightly in AY 2021 (the second year of the pandemic) while the 6-month payments on AY 2022 claims edged up slightly, so average total losses in the initial months after injury have changed little since the pandemic began.

Unlike the 6-, 12- and 24-month data, there are no COVID claims in the 36-, 48-, 60- and 72-month results as data at those levels of development is not available beyond AY 2019 and the pandemic began in AY 2020. More developed data on older claims show average total losses declined through AY 2016, but beginning with AY 2017 claims, paid losses at 36, 48, and 60 months began to rise, so the 72-month trendline, which now runs through AY 2016, is the only one that is still declining from the post-SB 863 level.

A review of average 24-month paid medical losses shows they declined from AY 2013 through AY 2016, but between AY 2017 and AY 2020 they jumped by 16.6%, which helped fuel the increase in the 24-month total loss trend. Much of that increase occurred in AY 2019 (+4.5%) and AY 2020 (+6.2%), and notably, 24-month data on claims from both those years included payments for medical services delivered during the pandemic.

Temporary disability comprises most of the indemnity paid in the first 2 years after a job injury, and despite some year-to-year fluctuations, the average indemnity paid at 6 months increased 40.6% from AY 2013 to AY 2022, the average indemnity paid at 12 months rose 27.7% from AY 2013 to AY 2021; and the average indemnity paid at 24 months fluctuated from AY 2013 to AY 2017 but increased for AY 2018, AY 2019, and AY 2020 claims, resulting in a 22.7% net increase between AY 2013 and AY 2020.

In the first few years after SB 863 took effect, the 36-month trendline for indemnity payments tracked with those at the shorter development periods, first fluctuating in a narrow range then gradually trending up to a peak in AY 2019. Average indemnity payments at the longer-term valuations, which are more affected by PD, were flatter, with a net increase of 3.4% in the 48-month payments from AY 2013 to AY 2018; a net decrease of 1.3% in the 60-month payments from AY 2013 to AY 2017; and a net decrease of 1.8% in the 72-month payments between AY 2013 and AY 2016.

The Institute study also examines differences in 24-month total loss trends for AY 2013 to AY 2022 indemnity claims from 5 industry sectors (construction; health care; clerical; food service; and agriculture); and for claims from injured workers living in 7 distinct regions of the state (San Diego, the Inland Empire/Orange County; Los Angeles County; the Central Coast; the Central Valley, the Bay Area, and the North Counties/Sierras), as well as for claims from out-of-state workers.

CWCI has published its study in a Research Update report, “California Workers’ Compensation Claims Monitoring: Medical & Indemnity Development, AY 2013 – AY 2022.

3M Resolves Defective Military Earplug Cases for $6 Billion

The 3M earplug litigation represents the largest mass tort in U.S. history. There have been more than 300,000 claims in which veterans accuse 3M and Aearo Technologies, a company acquired by 3M in 2008, of producing faulty earplugs that failed to protect their hearing from noise damage when they received them from the U.S. military.

3M manufactured, marketed and sold its Combat Arms Earplugs, Version 2 (CAEv2) from 1999 to 2015,with an alleged design defect which hampered their effectiveness.

3M announced that it has reached an agreement with the court-appointed negotiating plaintiffs’ counsel to resolve the Combat Arms Earplug litigation against Aearo Technologies (Aearo) and 3M. The settlement comes after 3M failed to move the lawsuits into bankruptcy court in hope of limiting its liability.

Under the agreement, 3M will contribute a total amount of $6.0 billion between 2023 and 2029, which is structured under the agreement to include $5.0 billion in cash and $1.0 billion in 3M common stock.

This settlement is a tremendous outcome for veterans of Iraq and Afghanistan who put their lives on the line for our freedom,” said Duane Sarmiento, the Veterans of Foreign Wars (VFW) national commander. “For those who came home with hearing damage due to 3M’s faulty earplugs, this is not only compensation, it’s a statement that their sacrifices won’t be ignored.”

Last summer, Aearo Technologies filed for bankruptcy as a separate company, accepting responsibility for all the liability claims. The move was intended to give Aearo leverage in bankruptcy court to reach a settlement with the plaintiffs. 3M said it would pay for any settlement Aearo reached.

U.S. Bankruptcy Court Judge Jeffrey Graham in Indianapolis dismissed Aearo’s bankruptcy filing in June. The judge said Aearo did not qualify for bankruptcy protections as a distressed company since it had 3M’s promise to pay for a settlement. Aearo plans to appeal the ruling, as reported in The Wall Street Journal.

In February, VFW filed an Amicus Curiae brief to the Seventh Circuit Court of Appeals in support of claimants seeking relief from 3M for defective ear protection. 3M had tried to shift the blame to its subsidiary Aearo Technologies, who it said was responsible for the defective earplugs and who had filed Chapter 11 bankruptcy, to avoid paying claimants. The bankruptcy appeal is being held in abeyance pending finalization of the settlement.

This agreement, reached through the mediation process that 3M has previously disclosed, is structured to promote participation by claimants and is intended to resolve all claims associated with the Combat Arms Earplug products.

The agreement includes all claims in the multi-district litigation in Florida and in the coordinated state court action in Minnesota, as well as potential future claims. The Florida and Minnesota courts are entering orders to support implementation of the agreement.

3M also added to its announcement that this “agreement is not an admission of liability. The products at issue in this litigation are safe and effective when used properly. 3M is prepared to continue to defend itself in the litigation if certain agreed terms of the settlement agreement are not fulfilled.”

Aearo and 3M are actively engaged in insurance recovery activities to offset a portion of the settlement payments, and Aearo initiated insurance recovery litigation against its carriers in June related to the litigation.

According to Fox Business News, the settlement amount is significantly less than the $10 billion to $15 billion that some analysts predicted the case would cost the company. Still, the settlement will impact financial results. 3M will record a $4.2 million pre-tax charge in the third quarter, which “represents the $5.3 billion pre-tax present value of contributions under the agreement net of 3M’s existing accrual of approximately $1.1 billion related to this matter,” the company detailed.

More information about the settlement is available at

Costly Healthcare Presumption of AOE/COE Law Failed – This Year

National Nurses United, with nearly 225,000 members nationwide, is the largest union and professional association of registered nurses in U.S. history.

In 2009, California Nurses Association/National Nurses Organizing Committee played a lead role in bringing state nursing associations across the nation together into one national organization, National Nurses United (NNU). At its founding convention, NNU adopted a call for action to counter what it called “the national assault by the healthcare industry on patient care conditions and standards for nurses,” and to promote a unified vision of collective action for nurses.

This legislative year, nurses across California were instrumental in the introduction of A.B. 1156, authored by Assemblymember Mia Bonta (D-Oakland) and sponsored by California Nurses Association (CNA). The organization held a press conference about the proposed law on April 5 at the Kaiser Permanente Oakland Medical Center.

This bill would define “injury,” for a hospital employee who provides direct patient care in an acute care hospital, to include infectious diseases, cancer, musculoskeletal injuries, post-traumatic stress disorder, and respiratory diseases. The bill would include the 2019 novel coronavirus disease (COVID-19) from SARS-CoV-2 and its variants, among other conditions, in the definitions of infectious and respiratory diseases. The bill would create rebuttable presumptions that these injuries that develop or manifest in a hospital employee who provides direct patient care in an acute care hospital arose out of and in the course of the employment. The bill would extend these presumptions for specified time periods after the hospital employee’s termination of employment.

Fortunately for California employers, A.B. 1156 was last found In the Assembly Insurance Committee as of March 2023. It failed deadline the deadline to move from policy committee to fiscal committee as of April 28, 2023. Thus the measure did not proceed to be passed by the Legislature in the current session, but technically is still alive for 2024 consideration.

The California Chamber of Commerce, and a number of other business organizations opposed A.B. 1156. It pointed out that in 2019, SB 567 (Caballero) included presumptions for a very similar, more narrow list of illnesses and injuries. The Senate Committee on Labor, Public Employment and Retirement issued an analysis concluding that there was no evidence supporting the need for this presumption. It also warned that “the creation of presumptive injuries is an exceptional deviation that uncomfortably exists within the space of the normal operation of the California workers’ compensation system,” and to not limit them “would essentially consume and undermine the entire system”.

Two of the most recent iterations of this bill, SB 893 (Caballero) and SB 567 (Caballero) received 0 and 1 Aye votes in committee, respectively. SB 213 (Cortese) did not receive a motion in Assembly Insurance last year.

In 2014, AB 2616 (Skinner), the only version to make it to the Governor’s desk, was vetoed by Governor Edmund G. Brown, Jr. In his veto message he stated, “This bill would create a first of its kind private employer workers’ compensation presumption for a specific staph infection — methicillin-resistant Staphylococcus aureus (MRSA) — for certain hospital employees. California’s no-fault system of worker’s compensation insurance requires that claims must be ‘liberally construed’ to extend benefits to injured workers whenever possible. The determination that an illness is work-related should be decided by the rules of that system and on the specific facts of each employee’s situation. While I am aware that statutory presumptions have steadily expanded for certain public employees, I am not inclined to further this trend or to introduce it into the private sector.”

New Law Facilitates Physicians and Dentists from Mexico Program

In 2002 the Mexico Pilot Program, was established in California by AB 1045. It was designed to bring physicians and dentists from Mexico with rural experience, who speak the language, understand the culture, and know how to apply this knowledge in serving the large Latino communities in rural areas who have limited or no access to primary health care services.

Proponents of the measure were concerned about addressing primary care physician and dentist shortages while maintaining a high quality of care.

The bill authorized up to 30 licensed physicians specializing in family practice, internal medicine, pediatrics, and obstetrics and gynecology and up to 30 licensed dentists from Mexico to practice medicine or dentistry in California for up to three years, and required the individuals to meet certain requirements related to training and education.

The bill specified that any funding necessary for the implementation of the program, including the evaluation and oversight functions, was to be secured from nonprofit philanthropic entities and further stated that implementation of the program could not move forward unless appropriate funding was secured from nonprofit philanthropic entities.

The Medical Board of California (MBC) received the necessary philanthropic funding in 2018 to initiate the program and began taking the necessary steps for implementation. As of April 2019, MBC began accepting applications for the Mexico Pilot Program. MBC received the required funding commitments necessary for program implementation in December 2020. MBC reports that as of September 2022, MBC had issued 21 licenses to qualified Mexico Pilot Program applicants.

The Board anticipates approving a cohort of eight additional applicants (for a total of 30, the maximum under the law) in spring 2023.

Mexico Pilot Program physicians are authorized to practice in the following MBC-approved community health clinics: Clinica de Salud del Valle de Salinas in Monterey County; San Benito Health Foundation in San Benito County; Altura Centers for Health in Tulare County and; AltaMed Health Services Corporation.

In August 2022, the Center for Reducing Health Disparities (CRHD) at the University of California, Davis released its first annual progress report of the Mexico Pilot Program.

The Medical Board of California and the Dental Board of California requires a licensee, at the time of issuance of a license, to provide specified federal taxpayer information, including the applicant’s social security number or individual taxpayer identification number. The licensing board is prohibited from processing an application for an initial license unless the applicant provides that information where requested on the application.

Governor Newsom has signed A.B. 1395 into law. For purposes of the Pilot Program, the boards are now authorized to issue a 3-year nonrenewable license to an applicant who has not provided an individual taxpayer identification number or social security number if the applicant meets specified conditions. The applicant would be required to immediately seek an appropriate 3-year visa and social security number from the federal government within 14 days of being issued the medical license and immediately provide the medical board with their social security number within 10 days of issuance of that card by the federal government. The bill would prohibit the applicant from engaging in the practice of medicine until the board determines that these conditions have been met.

There was no opposition to this new law shown in the Legislative History.

Dismissed Felony Results in City Worker Losing PERS Retirement

Elaine Estrada, was a former employee of the City of La Habra Heights. On April 28, 2016, the Los Angeles County District Attorney’s Office filed a felony complaint against Estrada that charged her with one count of misappropriation of public funds in violation of Penal Code section 424, subdivision (a), (count 1), and one count of embezzlement by a public officer in violation of Penal Code section 504 (count 2).

As to both counts, it was alleged that, between April 1, 2007 and July 31, 2009, Estrada removed payroll deductions, and as a result, did not pay the required employee share for dependents covered on her plan. The City did not discover the alleged conduct until an audit in 2012 because Estrada was responsible for the payroll and timekeeping of all City employees.

Estrada pled no contest to a felony that arose out of the performance of her official duties. Under the terms of Estrada’s plea agreement, the conviction was later reduced to a misdemeanor under Penal Code section 17 and then dismissed under Penal Code section 1203.4.

Government Code section 7522.72 provides that if a public employee is convicted of a felony for conduct arising out of or in the performance of his or her official duties, the employee forfeits certain accrued retirement benefits, which “shall remain forfeited notwithstanding any reduction in sentence or expungement of the conviction.” Thus California Public Employees’ Retirement System (CalPERS) determined that Estrada forfeited a portion of her retirement benefits as a result of her felony conviction.

Estrada appealed the forfeiture action. The ALJ found CalPERS was correct in its determination that Estrada was convicted of a felony arising out of her official duties as an employee of the City. As a result, the ALJ concluded that Estrada forfeited her right to retirement benefits for the period from September 1, 2007, the earliest date of the commission of the felony, through June 28, 2017, the date of her felony conviction.

On August 6, 2019, after the ALJ issued the proposed decision but before the Board adopted it, Estrada returned to criminal court. Following an off the-record conference with Estrada’s counsel and a deputy district attorney, the court stated that it was granting a request to issue a nunc pro tunc order. The court then found “nunc pro tunc that on June 28th, 2017, the defendant pleaded to the felony but was not convicted.” The court further found that “on January 3rd, 2018, the defendant was convicted of a misdemeanor and sentenced to a misdemeanor.” At the request of Estrada’s counsel, the court added that “[t]he record will so reflect that the defendant did not suffer a felony conviction in this case.”

Estrada filed a petition for writ of administrative mandate in Los Angeles County Superior Court seeking an order directing CalPERS to set aside its forfeiture decision and to reinstate her retirement benefits. Estrada argued that she was entitled to retain her retirement benefits because she was convicted of a misdemeanor, not a felony, and the criminal case against her was dismissed. The trial court denied Estrada’s petition.

The Court of Appeal affirmed the denial in the published case of Estrada v. Public Employees’ Retirement System -B317848 (September 2023).

On Appeal Estrada contends that her retirement benefits were not subject to forfeiture under section 7522.72 because she withdrew her plea to the felony and entered a new plea to a misdemeanor, and the criminal case was later dismissed. The Court of Appeal Disagreed.

Under the plain language of section 7522.72, a public employee’s accrued retirement benefits are subject to forfeiture upon his or her conviction of a job-related felony. While section 7522.72 does not define the terms “convicted” or “conviction,” the general rule in California is that ” ‘[a] plea of guilty constitutes a conviction.’ ” (People v. Banks (1959) 53 Cal.2d 370, 390 – 391; accord, People v. Laino (2004) 32 Cal.4th 878, 895.) “A guilty plea ‘admits every element of the crime charged’ [citation] and ‘is the “legal equivalent” of a “verdict” [citation] and is “tantamount” to a “finding” [citations]’ ” (People v. Wallace (2004) 33 Cal.4th 738, 749.)

This interpretation of section 7522.72 is also consistent with the legislative purpose of statute. … section 7522.72 is part of PEPRA (of the California Public Employees’ Pension Reform Act of 2013) , which was enacted to close loopholes and to curb abusive practices that existed in California’s public pension system.”

“Our conclusion in this case is further supported by Danser v. Public Employees’ Retirement System (2015) 240 Cal.App.4th 885, in which the Court of Appeal considered section 75526, a benefit forfeiture statute applicable to judges.”

The order denying the petition for writ of administrative mandate was affirmed

FTC Pushback Over Private Equity Firm’s Medical Practice Buyouts

The Federal Trade Commission sued U.S. Anesthesia Partners, Inc. (USAP), the dominant provider of anesthesia services in Texas, and private equity firm Welsh, Carson, Anderson & Stowe, alleging the two executed a multi-year anticompetitive scheme to consolidate anesthesiology practices in Texas, drive up the price of anesthesia services provided to Texas patients, and boost their own profits.

The FTC’s complaint, filed in federal district court, alleges that USAP and Welsh Carson, which created USAP, engaged in a three-part strategy to consolidate and monopolize the anesthesiology market in Texas. First, they executed a roll-up scheme, systematically buying up nearly every large anesthesia practice in Texas to create a single dominant provider with the power to demand higher prices. Second, USAP and Welsh Carson further drove up anesthesia prices through price-setting agreements with remaining independent practices. Third, USAP sidelined a significant competitor by striking a deal to keep it out of USAP’s territory.

The FTC alleges that USAP’s multi-pronged anticompetitive strategy and resulting dominance has cost Texans tens of millions of dollars more each year in anesthesia services than before USAP was created.

“Private equity firm Welsh Carson spearheaded a roll-up strategy and created USAP to buy out nearly every large anesthesiology practice in Texas. Along with a set of unlawful agreements to set prices and allocate markets, these tactics enabled USAP and Welsh Carson to raise prices for anesthesia services-raking in tens of millions of extra dollars for these executives at the expense of Texas patients and businesses,” said FTC Chair Lina M. Khan. “The FTC will continue to scrutinize and challenge serial acquisitions, roll-ups, and other stealth consolidation schemes that unlawfully undermine fair competition and harm the American public.”

As the FTC’s complaint states, New York-based Welsh Carson created USAP in 2012 after observing that anesthesiology in Texas was made up of small practices competing against one another, which allowed insurers to negotiate lower prices for themselves, for their clients, and ultimately for patients. Welsh Carson saw a chance to profit by eliminating this competition.

Since its creation, USAP has acquired more than a dozen anesthesiology practices in Texas. As it bought each one, the FTC says, USAP raised the acquired group’s rates to USAP’s higher rates – resulting in a substantial mark-up for the same doctors as before. This roll-up strategy has made it the dominant provider of anesthesia services in Texas and in many of the state’s metropolitan areas, including Houston and Dallas. USAP’s size and prices now dwarf those of its rivals.

The FTC’s complaint also alleges that USAP sought to further drive-up prices by:

– – Entering or maintaining price-setting arrangements: USAP entered into or maintained arrangements that allowed USAP to charge its own market-leading prices for services that were provided by independent anesthesia groups at key hospitals in Houston and Dallas.

– – Forming a market allocation arrangement: USAP and Welsh Carson secured a promise from another large anesthesia services provider to stay out of USAP’s territory.

The FTC alleges that USAP and Welsh Carson’s conduct amounts to unlawful monopolization, unlawful acquisitions, a conspiracy to monopolize, unfair methods of competition, and unlawful restraints of trade. Such conduct violates the FTC Act and the Clayton Act.

The FTC is seeking equitable relief necessary to remedy the impact of USAP and Welsh Carson’s anticompetitive conduct and to prevent the recurrence of such conduct.

The Commission vote to authorize staff to file for a permanent injunction and other equitable relief in the U.S. District Court for the Southern District of Texas was 3-0.

September 18, 2023 – News Podcast

Rene Thomas Folse, JD, Ph.D. is the host for this edition which reports on the following news stories: Attorney Fees and Costs – “The Tail that Wags the (Litigation) Dog”. Jury Acquits L.A. Sheriff’s Deputy of Workers’ Comp Fraud Charges. Fast Food Unions, Restaurants and Newsom Strike Last Minute Deal. DOL Proposes New Rule for Temporary Farm Worker Protections. OWC Proposes Changes to Longshore Penalty and Penalty Appeal Rules. L.A. County Health Initiative to Pay $1.3M Tt Resolve HIPAA Violations. Sutter Coast Hospital Pharmacy on Probation for “Major Deficiencies”. Firefighter Death Count from Toxic Exposure Increasing 22 Years After 9/11. VR Technology Successfully Used to Train Surgeons and Treat Patients. VA Continues to Fumble Electronic Health Record Rollout.

Allstate’s Argument to Avoid Hospital Lien was “Disingenuous”

In December 2017 the Long Beach Memorial Medical Center treated Vernon Barnes for injuries he received in a car accident. Afterward Barnes submitted a personal injury claim to Allstate, which insured the driver Barnes claimed was at fault in the accident. The Medical Center informed Allstate by letter that Barnes had incurred $116,714.67 in expenses for his treatment at the Medical Center and that the Medical Center was asserting a lien for that amount under the Hospital Lien Act (HLA).

Under the Hospital Lien Act (HLA) (Civ. Code, §§ 3045.1-3045.6), “when a hospital provides care for a patient, the hospital has a statutory lien against any . . . settlement received by the patient from a third person responsible for his or her injuries, or the third person’s insurer, if the hospital has notified the third person or insurer of the lien.” (Mercy Hospital & Medical Center v. Farmers Ins. Group of Companies (1997) 15 Cal.4th 213, 215 (Mercy Hospital).) The HLA prohibits an insurer from paying a patient without paying the hospital the amount of its lien, or as much as can be satisfied from 50 percent of the patient’s recovery from the tortfeasor or insurer.

In February 2020 Barnes and Allstate settled his claim for $300,000. The settlement agreement provided Allstate would pay this amount by sending Barnes’s attorneys three checks: one made payable to Medicare for $24,230.93, one made payable to Barnes and his attorneys for $159,054.40, and one made payable to Barnes and the Medical Center for $116,714.67, the amount of the lien. The settlement agreement also provided Barnes and his attorneys would indemnify, defend, and hold harmless Allstate and its insured against claims by the Medical Center or anyone else with a statutory right of recovery against Allstate and its insured.

Later in February 2020 Allstate sent Barnes’s attorneys a check for $116,714.67 made payable to Barnes and the Medical Center. That check, however, was never deposited, and by March 2021 it had expired. At that time Allstate sent Barnes’s attorneys a second check for the same amount made payable to the same parties (the March 2021 check). To Allstate’s knowledge, that check was never cashed.

In May 2021 the Medical Center filed this action against Allstate, asserting a single cause of action for violating the HLA. The Medical Center alleged that Allstate, having received written notice of the Medical Center’s lien regarding Barnes’s medical treatment, violated the HLA by paying Barnes to settle his personal injury claim without paying the Medical Center the amount of its lien.

Allstate filed a motion for summary judgment which the the trial court granted, ruling Allstate’s two-payee check, which was never cashed, satisfied its obligation under the HLA. The Court of Appeal reached the opposite conclusion and reversed in the published case of Long Beach Memorial Medical Center v. Allstate Ins. Co. -B321876 (September 2023).

Allstate argues that giving Barnes’s attorneys a check for $116,714.67 made payable to Barnes and the Medical Center constituted a payment to the Medical Center for the amount of its lien. As in the trial court, Allstate declines to specify which check made payable to the Medical Center as co-payee—the February 2020 check or the March 2021 check—Allstate claims satisfied its payment obligation to the Medical Center.

Citing Crystaplex Plastics, Ltd. v. Redevelopment Agency (2000) 77 Cal.App.4th 990 (Crystaplex), Allstate argues the check(s) in question constituted payment to the Medical Center because a “check issued to multiple payees, delivered to one payee, is delivery of a check.”

However “Allstate may have constructively delivered the check(s) to the Medical Center does not mean Allstate made a ‘payment’ to the Medical Center.

On the contrary, as a general rule – a check of itself is not payment until cashed . . . .(Hale v. Bohannon (1952) 38 Cal.2d 458, 467; accord, Cornwell v. Bank of America (1990) 224 Cal.App.3d 995, 1000; see Navrides v. Zurich Ins. Co. (1971) 5 Cal.3d 698, 706 [a “check is never a payment of the debt for which it is given until the check itself is paid or otherwise discharged’”]; Hale, at p. 467 [the “mere giving of a check does not constitute payment’”]; Mendiondo v. Greitman (1949) 93 Cal.App.2d 765, 767 [same]; Art Frost of Glendale v. Hooper (1955) 130 Cal.App.2d Supp. 903, 906 [“[u]ntil the check involved here was cashed, . . . the obligation of the drawer remained in existence”]; Bas s v. Olson (9th Cir. 1967) 378 F.2d 818, 820 [“under governing California law, mere possession of an uncashed check is not equivalent to payment,” and therefore, “prior to the actual presentation of the check at the bank,” the defendant, who physically possessed the check,”was never ‘paid’”].)

The Court of Appeal then concluded that there “is no evidence either check Allstate made out to the Medical Center as a co-payee was ever cashed. In fact, it appears undisputed that neither was.”

And Allstate’s argument the Medical Center suffered no harm because it could ‘resolve’ its lien with Barnes seems disingenuous: The obvious point of including Barnes as co-payee was to empower him to negotiate keeping some portion of the amount of the Medical Center’s lien for himself.