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Tag: 2014 News

Postal Worker Gets Jail Time for Comp Fraud

United States District Judge Lawrence K. Karlton sentenced Robert Daniel Castillo, 50, of Vacaville,;to one year and one day in prison for workers’ compensation and disability benefits fraud. Judge Karlton also ordered Castillo to pay $138,997 in restitution.

“The American public expects Postal Service employees to be diligent and honest. Through its investigations, the Office of Inspector General helps to maintain that integrity. When US Postal Service employees’ actions turn to criminal violations, such as the abuse of the workers’ compensation program, those individuals are aggressively investigated by USPS OIG Special Agents,” said Scott Pierce, Special Agent in Charge, US Postal Service Office of Inspector General, Pacific Area Field Office.

According to court documents, on October 15, 1998, Castillo, while working for the U.S. Postal Service in Fresno, claimed that he had injured his lower back while on the job. He submitted a claim for workers’ compensation benefits. For more than 10 years, Castillo received federal workers’ compensation benefits based on that injury. Castillo also received Social Security Disability and Veterans Benefits based on claims of 100 percent disability. Altogether, Castillo received more than $6,000 a month based on his claimed disability. Castillo was observed playing basketball and softball, driving, shopping, washing a boat, performing yard work, and performing volunteer work. At doctor’s appointments and meetings with officials from the Department of Labor and Social Security, Castillo claimed an inability to do all of these things.

A federal grand jury indicted Castillo on July 19, 2012, and on April 24, 2013, he pleaded guilty to theft of United States property and false statements made to the government in seeking compensation payments the charges.

This case was the product of an investigation by the United States Postal Service, Office of Inspector General and the Social Security Administration, Office of Inspector General. Assistant U.S. Attorney Jared C. Dolan prosecuted the case.

California Has Four Out of Top Ten Comp Fraud Cases in Nation

In 2009 a website began tracking the Top Ten Fraud Cases by the amount of money involved, and 100% of the Top Ten between 2009-2012 involved employers or shady characters posing as legitimate businesses. The amount of employer fraud in terms of cost was staggering. In 2013 one California employee fraud case did crack the Top Ten, so the record is now 49-1 (employer fraud v. employee fraud) over the past five years. This year California has the distinction of having four out of the Top Ten in the nation.  Here is the list organized by the amount of fraud involved.

1) Florida: Owners of Diaz Supermarkets in Miami-Dade are Accused of $35 Million Fraud (4/16/13) – John Diaz and his wife Mercedes Avila-Diaz owned and operated four supermarkets in the Miami-Dade area. They have been arrested and accused of workers’ compensation fraud and other fraudulent transactions totaling $35 million. One business they operated had no coverage for employees for ten years. They allegedly engaged in a scam to help subcontractors obtain false certificates of insurance that allowed the subs to work for general contractors who required the certificates.

2) California: Hanford Farm Labor Contractor Convicted of Fraud in the Amount of $4,195,900 (12/6/2013) – Richard Escamilla, Jr. (47), owner of ROC Harvesting, misrepresented information to workers’ compensation insurance carriers by using new business names to obtain insurance and avoid providing a claim history. Escamilla pleaded guilty on October 29th and was sentenced to pay restitution of $4.1 million and serve six years in prison.

3) Michigan: Insurance Executive Embezzled $2.6 Million from Workers’ Comp TPA (06/06/2013) – Jerry Stage (67), the former CEO of a non-profit workers’ compensation insurance company, and George Bauer (55), the bookkeeper, both pleaded guilty to embezzling from the Compensation Advisory Organization of Michigan (CAOM) for more than a decade. Mr. Stage embezzled $2.6 million from the company and conspired with Mr. Bauer to cover up the embezzlement.

4) California: Employee Wasn’t Wheelchair Bound After All – Fraudulently Took $1.5 Million in Benefits (8/9/13) – Yolandi Kohrumel, 35, claimed for nine years that she was wheelchair bound after complications from toe surgery, but after she had collected $1.5 million in benefits, it was revealed her claim was false. Her father, a South African native, was also engaged in the scam. Both pleaded guilty to insurance fraud, grand theft and perjury. Ms Kohrumel was sentenced to one year in jail, plus restitution.

5) California: Father and Son Landscapers Accused of $1.45 Million in Insurance Fraud (5/7/13) – Jesse Garcia Contreras (57) and Carlos Contreras (33), who operate a Thousand Palms landscaping business, are accused of committing $1.45 million in insurance fraud. They are accused of defrauding the California State Compensation Insurance Fund by misclassifying employees from January 2008 to March 2012. Mr. Jesse Contreras is the president and CEO of Sunshine Landscaping and his son is Director of Accounting. If convicted, they each face up to 19 years and 8 months in prison.

6) Florida: Workers’ Compensation Check Cashing Operation Charged with $1 Million in Fraud (2/27/13) – As a result of an investigation of I and T Financial Services, LLC, a company that was allegedly set up to execute a large scale check cashing scheme for the purpose of evading the cost of workers’ compensation coverage, the company was shut down. Domenick Pucillo, the ringleader of the fraud scheme, was arrested and charged with filing a false and fraudulent document, forgery, uttering a forged instrument, and operating an unlicensed money service business. If convicted on all charges, he faces up to 45 years in prison. One million dollars was seized during this investigation.

7) California and North Carolina: Cleaning Company Owner Convicted of Underreporting Payroll and Ordered to Pay $898,000 (8/3/2013) – The president of Awesome Products, a cleaning company in California, was convicted and sentenced for underreporting his payroll by over $8 million, resulting in a premium loss of $898,000. Loksarang Dinkar Hardas (53) was sentenced to five years in state prison, stayed pending successful completion of 10 years of formal probation, a $250,000 fine, and restitution payment of $898,000. Notwithstanding his conviction, the town of Mount Airy, NC was standing by Mr. Hardas and willing to give his company taxpayer money in hopes that Awesome Products would build a manufacturing facility and create jobs in Surry County, NC.

8) West Virginia: Coal Company Contractor in Mingo County Caught in $405,000 Scam to Avoid Workers’ Comp Premiums (11/6/13) – Jerame Russell (50), an executive with Aracoma Contracting, LLC, a company that provided labor to coal companies on a contract basis, entered a guilty plea to a scam that involved funneling over $2 million through a local bank to pay employees in cash, thus avoiding payroll taxes and $405,000 in workers’ compensation premiums. Aracoma also bribed an insurance auditor to cover up its true payroll.

9) Ohio: Roofing Business Owners Guilty of $283,592 in Workers’ Comp Fraud (7/30/2013) – The owners of Triple Star Roofing were found guilty of fraud on July 15 for failing to report payroll to the Ohio Bureau or Workers’ Compensation(BWC). The company failed to report to the BWC from 2004 to 2008, resulting in under-reported premiums of $283,592.

10) Florida: Owner of Staffing Company arrested for $130,000 in Workers’ Comp Fraud (8/1/2013) – The owner of Preferred Staffing of America, Inc., a temporary staffing agency in Tampa, has been arrested for allegedly running an organized workers’ compensation fraud scheme. Preferred Staffing’s owner misled clients into believing that his company was a licensed professional employer organization (PEO) and could provide workers’ compensation insurance coverage. Employers were reportedly charged more than $130,000 for workers’ compensation insurance and other services that were never provided.

Amgen Faces Cal/OSHA Probe for Second Explosion in Last Year

One person was seriously injured and another was hurt this month in a “minor” explosion at biotech firm Amgen’s South San Francisco lab facility, a fire marshal confirmed. One employee suffered burns to their face and another employee suffered burns to their hands after an explosion that began in a “flammable liquids” cabinet in a third-floor laboratory, said South San Francisco deputy fire chief Travis Nuckolls. According to the report in the Mercury News, the explosion was reported about 3:30 p.m. Officials don’t know what caused the dangerous mixture to explode, but the cabinet in which the explosion occurred was knocked over from the force, and windows on the third floor were also blown out, fire officials confirmed. Nuckolls said at least one of the chemicals involved was ether.

According to a spokeswoman at the St. Francis Memorial Hospital burn unit in San Francisco, one patient was taken there with injuries deemed “noncritical.” She would not provide further information about the patient’s condition. The region’s other burn unit, at the Santa Clara Valley Medical Center in San Jose, reported no patients from Amgen.

All buildings in the complex in addition to the Amgen building were evacuated as a precaution. An Amgen spokeswoman did not respond to multiple calls for comment. Decontamination tents were set up for employees who may have been affected by chemicals or toxins that spread after the explosion, but Nuckolls said it had been determined early Wednesday night that nothing dangerous had gone airborne.

The incident was the second to injure a worker in the facility in the last year. In May, a worker for a waste disposal company was seriously burned while collecting waste at the facility. According to Cal-OSHA spokesman Peter Melton, the firm and two other businesses — Clean Harbors Environmental Service Inc. and Thermo Fisher Scientific Inc.’s Unity Lab Services — received “serious” citations for the May incident on Nov. 14. Melton said the most serious citation issued was in the amount of $77,400 to Clean Harbors Environmental Service Inc.

Clean Harbors, a San Jose-based company, provides hazardous waste disposal, emergency response, lab chemical packing, recycling, and vacuum services, among others. The person who was burned and hasn’t been identified was working for Clean Harbors and was attempting to collect flammable liquids from one of the labs at Amgen at the time of the incident, Melton added.

Fires and explosions at pharma manufacturing facilities are not unusual, but there are few reports of events at research facilities. An explosion in 2012 at a Teva Pharmaceutical Industries plant in Croatia killed four workers and injured 17 others. A fire in a boiler room at a Sandoz plant in Boucherville, Quebec, did not cause injuries but exacerbated a shortage of one of the products made at that Novartis plant.

Thousand Oaks-based Amgen is one of the world’s largest drugmakers, producer of popular osteoporosis drug Prolia and rheumatoid arthritis medication Enbrel.

Lien Claimant Aspen Medical Charged With $36 Million Comp Fraud

Four men will be arraigned on an indictment today for defrauding over $36 million from insurance companies in an overbilling scheme. Jeffrey Edward Campau, 39, Yorba Linda, Abraham Khorshad, 62, Beverly Hills, and Landen Alan Mirallegro, 38, Yorba Linda, are charged with 22 felony counts of submitting multiple fraudulent claims, 22 felony counts of manufacturing documents in support of a fraudulent claim, one felony count of conspiracy, and sentencing enhancements for aggravated white collar crimes for loss over $500,000 and special loss over $3.2 million. If convicted on all counts, they each face a maximum sentence of 53 years in state prison. The defendants are out of custody on $1.5 million bail each.

Ryan Nathanil McCracken, 29, Rancho Cucamonga, is charged with one felony count of conspiracy and faces a maximum sentence of five years in state prison if convicted. He is out of custody on $20,000 bail.

They are scheduled to be arraigned today, Jan. 22, 2014, at 9:00 a.m. in Department C-30, Central Justice Center, Santa Ana.

In 2005, Campau, Mirallegro, and Khorshad are accused of forming a durable medical equipment (DME) company named Aspen Medical Resources, LLC (Aspen). Between 2005 and 2013, the defendants are accused of renting out a DME machine similar in function to an ice pack or heating pad, which provided both hot and cold modalities to alleviate inflammation and/or pain for patients. The three defendants are accused of fraudulently overbilling insurance carriers for this DME in two ways: for rental of one machine as two separate hot and cold machines, and for renting the hot and cold units which were valued at less than $500 for as much as $15,500 to $17,500 per patient.

Campau, Mirallegro, and Khorshad are accused of submitting hundreds of claims to the State Compensation Insurance Fund, Liberty Mutual, AIG (Chartis), Zenith Insurance, Birkshire Hathaway Homestead Companies, County of Orange, County of San Bernardino, County of Riverside, American Claims Management, First Comp Insurance, CNA Insurance, Comp West Insurance, Employers Insurance, Farmers Insurance, State Farm Insurance, Fireman’s Fund, Tristar (City of Los Angeles), Gallagher Basset, Republic Indemnity, Sentry, and Travelers Insurance.

If a claim was not paid, the defendants are accused of filing a lien at the Workers Compensation Appeals Board and aggressively collecting on these fraudulent claims. McCracken was employed as the collection manager for Aspen and is accused of negotiating the liens at the Workers Compensation Appeals Board with the carriers;  McCracken is accused of receiving a commission on all of his collections. The defendants are accused of being informed by various insurance carriers that Aspen was billing for the units incorrectly,but continued to bill the same way and aggressively defended their fraudulent claims, making it more cost-effective for the insurance carriers to pay the fraudulent claims than fight them.

Campau, Mirallegro and Khorshad are accused of billing under other company names, National DME and Abrexis Orthocare LLC. They are accused of using different addresses and different Employment Tax Identification Numbers for each of these companies in order to mislead the insurance carriers and give the appearance that these companies were different companies and not Aspen. The defendants are accused of collecting over $12 million from insurance carriers under these business names.

Insurance companies contacted the Orange County District Attorney’s Office (OCDA) and the Department of Insurance, who jointly investigated this case. OCDA seized all assets of the companies, which are now under receivership. Deputy District Attorney Shaddi Kamiabipour of the Insurance Fraud Unit is prosecuting this case.

2014 Annual Report of Inventory Due April 1

The Division of Workers’ Compensation (DWC) Audit Unit has posted on its website the form claims administrators can use for the required 2014 annual report of inventory (ARI) for claims reported in calendar year 2013, along with advice for claims administrators. This posting replaces individual notices previously sent to claims administrators.

California Code of Regulations, Title 8, section 10104 requires claims administrators to file an annual report of inventory indicating the number of claims reported at each adjusting location for the preceding calendar year. The report must be filed with the DWC administrative director (AD) by April 1 of each year. Even if there were no claims reported in the prior year, the report must be completed and submitted to the DWC Audit Unit. Each adjusting location is required to submit an ARI, whether or not they receive a form for reporting claims from the Audit Unit, unless their ARI requirement has been waived by the AD.

A claims administrator’s obligation to submit an ARI can be waived if the AD determines that they are in compliance with electronic data reporting requirements of the Workers’ Compensation Information System (WCIS). When ARI requirements are waived, claims administrators must file an annual report of adjusting locations. This report is to be filed annually on April 1 of each calendar year for the adjusting location operations as of December 31 of the prior year; DWC has provided a form for this purpose.

Claims administrators are also required to report any change in the information reported in the ARI or annual report of adjusting location within 45 days of the effective date of the change.

WCIRB Launches Classification Search Tool

The WCIRB launched Classification Search – an online tool to help users search for and find the right standard classification based on keywords or industry groups. The tool includes other useful features including the pure premium rate history for each classification, classification phraseologies sorted numerically or alphabetically, and classification listings by industry group or other classification attributes. Classification Search is available in the Learning Center section of the WCIRB’s website ( and is accessible by both desktop and mobile browsers.

Classification Search allows users to do a full text search across all standard classifications or by industry group. Users may enter keywords to see a list of all classification phraseologies that contain the keyword or that are commonly associated with the keyword. Advanced search features allow users to combine or exclude keywords or use wildcard search characters.

“Questions about classifications – and which classifications apply to a business – are the number one reason that people call our customer service department,” according to Eric Riley, the WCIRB’s Chief Customer Officer. “This tool is the latest addition to the online resources we’ve created to give insurers, agents and brokers, and employers easy and effective access to the information they need.”

Next QME Examination Set for April 12

The Division of Workers’ Compensation (DWC) is now accepting applications for the Qualified Medical Evaluator (QME) examination set for Saturday, April 12.

QMEs are independent physicians certified by the DWC Medical Unit to conduct medical evaluations of injured workers. The application and exam packet can be downloaded from the DWC website .

Please note that Section 10 of the application requires the applicant to initial each of four boxes affirming the statements listed. The exam packet (which includes the Registration form, $125 Fee Notice, $15 Physicians Guide order form, 12 Hour Report Writing Provider list and the Reference List) may be downloaded here . The deadline for filing the exam applications is February 27, 2014.

In Northern California the examination will be held at the  South San Francisco Conference Center, 255 South Airport Boulevard inSan Francisco.  The Southern California examination will be at the Irvine Marriott Hotel, 18000 Von Karman Avenue in  Irvine. For more information please contact Joanne Van Raam at 510 628 2004 or Francine Wooley at 510 628 – 2038.

Orange County Attorney Jailed for Use of Cappers

Walter Martinez, 60, of Alta Loma, Calif. pled guilty to 43 felony counts of using cappers – recruiters paid from victims’ insurance settlement – to get clients for his practice. Martinez evidently embellished his scheme with at least three cappers. “The use of cappers is a problem because these individuals usually approach accident victims acting as an attorney with no training and give legal advice to people when they are vulnerable after a collision,” California Insurance Commissioner Dave Jones said in a statement.

The Department of Insurance Auto Insurance Fraud Task Force received information and documentation that indicated Martinez was using cappers. In this case, bank records showed that more than $250,000 in checks were written to the alleged cappers between 2009 and 2012.

Martinez was sentenced to one year in jail, followed by three years felony probation and a $91,000 fine. Two of the cappers sentenced were: Israel Gonzales, 34, of Rancho Cucamonga, who plead guilty to eight counts 750(a) IC; an Michael Melcher, 58, of Covina, who plead guilty to two counts 750(a) IC.

State Bar records reflect that Martinez was suspended for one year, stayed, actually suspended for five months, and was ordered to make restitution, take the MPRE and comply with rule 9.20 of the California Rules of Court. The order took effect Feb. 23, 2012. Martinez stipulated in the State Bar case to 10 acts of misconduct in six matters. The State Bar information claims that for almost four years, he operated a branch law office in Westminster that was run by two non-lawyers who engaged in conduct that constituted the practice of law. Although he was not aware of their misconduct, he was grossly negligent in not knowing that they were engaged in activities that constituted legal practice. He stipulated that by failing to supervise his employees, he allowed them to engage in the unlawful practice of law. Among other things, the non-lawyers signed up clients, negotiated and settled their claims, paid some settlement funds, accepted settlement funds for other clients but never distributed the money, and did not pay medical bills.

The Orange County district attorney conducted an undercover investigation of Martinez’ law offices, creating paperwork to make it look as if they had been in an auto accident. Martinez’ employee conducted intake and signed up the investigators as clients without any attorney oversight. The employee negotiated and settled the investigators’ claims, received settlement checks from an insurance company and gave the two 50 percent of the proceeds. Several months later, the superior court assumed jurisdiction of Martinez’ practice, which was shut down after the State Bar seized his files and froze his bank accounts.

NCCI Changes Experience Mod Rules in 36 States

In 36 states, the National Council on Compensation Insurance (NCCI) is the rating bureau that determines the rules for workers’ compensation and calculates the experience mods. Beginning in 2013, a substantial change to the experience mod calculation occurred. In 1991, the split point between primary and excess losses was set at $5,000. In 2013, it ballooned to $10,000.

According to the report in Property Casualty 360, in 2014 it’s going up to $13,500. Further, to disprove the theory that what goes up must come down, in 2015 it is predicted to exceed $15,000. The reason this amount keeps rising is simple: The cost of employee injuries has dramatically increased. Back in 1991, the average employee injury cost the insurance company around $3,000. In 2011, that amount approached almost $9,000. Because of this dramatic change, the experience mod needed adjusting.

The experience mod calculation splits injuries into two areas: primary loss and excess loss. The primary loss, which has been at $5,000, is counted 100 percent in the mod calculation. Everything above that is excess loss and it’s discounted depending on the size of the business. This means that the first dollars in the claim are the most important. So, if and employer suffered ten injuries at $5,000, the experience mod will be impacted more than if the employer recorded one $50,000 injury.

As the cost of employee injuries has increased, the impact that those injuries has had on the experience mod has decreased. It’s important to remember that the purpose of the experience mod is to adjust what an employer pays for workers’ compensation based on whether or not the employer is better or worse than the average similar business. NCCI has changed the split point in accordance with how the cost of employee injuries has changed, thus making the experience mod more responsive.

This will cause a change in the employer’s experience mod, and not necessarily a good one. It’s impossible to know without looking at a specific experience mod whether or not the change will positively or negatively impact the mod. But it can be said that businesses that are substantially worse than average will see a higher experience mod, while businesses that are better than average are likely to see a decrease in their experience mod.

SB 863 Roll Back Bill Dies An Early Death

SB 626 which was introduced last year by state Senator Jim Beall would have rolled back some of the key workers’ compensation reforms contained in SB 863.

The California Chamber of Commerce characterized SB 626 as “A California Chamber of Commerce-opposed “job killer” bill that severely undercuts the workers’ compensation reform deal agreed to by labor unions and employers in 2012 and would result in dramatic cost increases to California employers.” The Chamber goes on to state that “SB 626 distorts the entire balance of the deal and would decimate provisions anticipated to deliver hundreds of millions of dollars of costs savings, which were promised to be redirected to injured workers in the form of higher benefits. Already, important cost-saving reforms under SB 863 have been placed in doubt as a result of litigation from system vendors. Additionally, full regulatory implementation has not been completed, creating uncertainty over whether the savings will materialize. Meanwhile, California employers continue to see their workers’ compensation costs increase, due to higher medical treatment costs and an increase in the rate of claims filed.”

Specifically, the bill would eliminate a cornerstone cost-saving provision contained in SB 863 – independent medical review (IMR). Under SB 626, IMR decisions would be fully appealable to the WCAB taking medical necessity decisions away from physicians and putting them back in the hands of judges. It would also result in treatment delays for injured workers. The projected savings associated with IMR are estimated at around $400 million. It would repeal a provision in SB 863 that eliminates impairment ratings for psychiatric add-ons in some, but not all, cases. Numerous data-driven analyses demonstrated applicant attorneys had abused this add-on to artificially inflate permanent disability ratings. It would repeal a provision in SB 863 that prohibits a chiropractor from being a primary treating physician once the maximum number of chiropractic treatments has been received. It also unnecessarily limits utilization review and Independent Medical Review by requiring that the reviewing physician hold the same license as the physician requesting treatment. Current law requires reviewers to be competent to evaluate the specific clinical issues involved in the medical treatment and utilize relevant, evidence-based medical treatment guidelines, which are not state-specific.

A Senate Labor and Industrial Relations Committee hearing on SB 626 was set for January 15, 2014. This hearing would have been the first step in obtaining passage this legislative year. However, Senator Beall removed the bill from the Committee agenda fearing that it would not obtain enough votes to successfully win Committee approval. Thus, at this point, it would seem the SB 626 may have suffered an early death in 2014.

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