Tag: 2018 News

In a case involving Lumbermens Mutual Casualty Company, the Appellate Court of Illinois issued its decision supporting the California Insurance Guarantee Association’s (CIGA) position that Lumbermens California workers’ compensation deposits may not be used to reimburse overhead and administrative expenses incurred in connection with the company’s liquidation, which began in 2013.

Lumbermens was a multi-state property and casualty insurance company organized under the laws of Illinois. Among other things, it provided workers’ compensation insurance services to California employers. California insurance law required Lumbermens to “deposit cash instruments;’ or “interest bearing securities” at a California bank , which would be held in trust for the benefit of “workers in [that] state” as a condition to Lumbermens writing workers’ compensation insurance in California.

For many years, Lumbermens was successful and earned profits from its insurance operations and, by year-end 2000, it ranked among the top 20 largest property and casualty insurance companies and the top 5 largest workers’ compensation insurers in the United States with $2. 7 billion in net premiums and more than $2 billion in surplus.

Beginning in 2003, however, Lumbermens began suffering from certain financial difficulties and, in July 2003, the company agreed to operate under a runoff plan subject to “corrective orders” issued by the Director of the Illinois Department of Insurance,. During this time, the Director issued over 500 corrective orders and Lumbermens’ liability was reduced from nearly $7 billion to just under $1 billion. By March 8, 2013, the Director filed a complaint for liquidation with a finding of insolvency. The liquidation order triggered the statutory obligations of state guaranty associations, such as CIGA, to pay the covered claims of Lumbermens’ insureds located within their respective states.

The The California Department of Insurance issued an administrative order directing that the funds held in Lumbermens’ special deposit be immediately transferred to CIGA and held in a segregated account.

The Director of the Illinois Department of Insurance claimed that the amount distributed to a guaranty association for administrative expenses would be reduced by the amount that the guaranty association has received, or can receive, from a special deposit. In other words, guaranty associations such as CIGA would be required to exhaust the funds held in their state’s special deposit before they could receive disbursements for administrative expenses from the general assets of the Lumbermens estate. The Director sought to prevent guaranty associations from receiving a preference by virtue of having access to a special deposit.

CIGA and the California Department of Insurance argued that the California Insurance Code plainly states special deposit proceeds must be used solely for the payment of compensable workers’ compensation claims. The department contended that general administrative expenses are not related to the payment of a specific workers’ compensation claims, so it is improper for Lumbermens to require CIGA to pay general administrative expenses such as rent, postage, telephone, lighting, cleaning, heating and electricity with funds held in a special deposit.

The appellate court agreed in the case of In re Liquidation of Lumbermans Mutual Casualty Company, and determined the special California workers’ compensation deposit is security for the payment of workers’ compensation claims in California and must be used exclusively to protect policyholders from insolvent insurers by providing an asset from which to pay compensable workers’ compensation claims.

Beverly Hills Radiologist Ronald Grusd and two of his corporations, California Imaging Network Medical Group and Willows Consulting Company, were sentenced in federal court on Monday, after a jury trial in December resulted in convictions on 39 felony fraud counts.

U.S. District Judge Cynthia A. Bashant imposed a sentenced of 10 years in custody and a fine of $250,000, and remanded Dr. Grusd into custody. His companies, California Imaging Network and Willows Consulting Company, were each required to pay a $500,000 fine, and an additional $15,600 in special assessments.

Grusd and the corporations were originally indicted by a federal grand jury in November 2015, when the U.S. Attorney’s Office and the San Diego District Attorney’s Office, working in conjunction with the Federal Bureau of Investigation and the California Department of Insurance, announced multiple arrests arising from a long-term, proactive health care fraud investigation targeting corruption and fraud in the California Workers’ Compensation system.

According to evidence presented at trial, Dr. Grusd and his companies paid kickbacks for patient referrals from multiple clinics in San Diego and Imperial counties in order to fraudulently bill insurance companies over $22 million for medical services.

Dr. Grusd negotiated with various individuals, including a primary treating physician, the payment of kickbacks for the referral of workers’ compensation patients for various medical services, including MRIs, ultrasounds, Shockwave treatments, toxicology testing and prescription pain medications.

After the patients were referred for the treatment or service, one of Dr. Grusd’s companies, California Imaging Network Medical Group, would fraudulently bill insurance companies for the procedures, concealing from both the patients and the insurers that substantial kickbacks had been paid in violation of California law.

Another of Dr. Grusd’s companies, Willows Consulting Company, funneled the kickback payments to those directing the referral of the patients from the various clinics. Records presented at trial showed that Dr. Grusd paid over $100,000 in bribes to secure the billings for hundreds of patients, with bribes paid on a per-patient or per-body-part formula.

Grusd’s practice, California Imaging Network Medical Group, operated clinics throughout California in San Diego, Los Angeles, Beverly Hills, Fresno, Rialto, Santa Ana, Studio City, Bakersfield, Calexico, East Los Angeles, Lancaster, Victorville and Visalia.

In imposing sentence, District Judge Bashant expressed concern that by paying incentives, Dr. Grusd applied pressure on the referring physician, and “made it highly questionable if all services were necessary,” a harm that the laws were designed to prevent.

Judge Bashant found that Dr. Grusd “clearly knew what he was doing.” Dr. Grusd, who had testified as to his extensive education, training, and expertise as a highly-decorated radiologist, claimed on the witness stand at trial that he was confused and did not know that what he was doing was illegal. Judge Bashant rejected this view, stating that Dr. Grusd was someone who decided to “find a way to defraud….then act dumb on the witness stand” when he got caught.

She imposed a sentencing penalty for Obstruction of Justice, finding that Grusd unequivocally committed perjury and lied at trial. The judge said she was concerned about the need for both general and specific deterrence: general, because health care fraud is an area where criminals are rarely caught, requiring a significant consequence in order to deter other would-be criminals.

In this case, specific deterrence was also applicable, because, in her view, there was a risk that Dr. Grusd could engage in further unlawful conduct in the future. “Dr. Grusd,” she noted, was someone who would “act smart enough to pull the wool over everyone’s eyes.”

Data on California workers’ compensation independent medical review (IMR) decisions issued in the first quarter of this year shows that the medical dispute resolution process established as part of the 2012 workers’ comp reforms continues to produce consistent outcomes.

There has been little change in the number of IMR determination letters and decisions; the percentage of modified or denied treatment requests that are upheld; the types of treatment requests reviewed; and the small number of physicians who are linked to a majority of the disputed medical service requests.

The latest IMR results come from a California Workers’ Compensation Institute (CWCI) review of IMR decision letters issued in the first three months of this year in response to applications sent to the state Division of Workers’ Compensation after a utilization review (UR) physician modified or denied a medical service requested for an injured worker.

The Institute’s review of the first quarter IMR decisions found that IMR doctors upheld the UR determination 90.6% of the time, while in 9.4% of the cases they deemed the service medically necessary and overturned the UR decision.

That uphold rate nearly matched the 91.2% rate noted for IMRs from the two prior years, and just as in each of the five years since the IMR process began in 2013, pharmaceutical requests represented almost half of the IMR decisions in the first quarter of 2018.

As in the past, requests for opioids were the most common pharmaceutical request submitted for IMR, accounting for 31.0% of all prescription drug IMRs in the first quarter, even though in 91.1% of the IMRs involving opioids, the UR modification or denial was upheld.

Those percentages could change in the future, as most of the first quarter IMRs involved UR decisions from 2017, prior to the January 1 implementation of the workers’ compensation prescription drug formulary and regulations, which set new limits and rules for prescribing opioids to injured workers in California.

The latest results also show that compound drugs represent a dwindling share of the prescription drug IMRs, accounting for just 2.1% of the pharmaceutical IMRs in the first quarter, down from 4.2% in 2017 and 8.1% in 2015, a decline that may be linked to the 98% uphold rate for compound drug denials and modifications submitted to IMR.

As in prior results, the latest IMR data also showed that a small number of physicians continued to account for a disproportionate share of the disputed medical services submitted for IMR. CWCI found that the top 1% of requesting physicians (117 providers) accounted for 44% of the disputed service requests, while the top 10 percent (1,169 providers) accounted for 85% of the disputed service requests.

Three additional doctors have been charged in three new cases for their roles in a 15-year-long health care fraud scheme that involved more than $40 million in illegal kickbacks paid to doctors and other medical professionals in exchange for referring thousands of patients who received spinal surgeries. As a result of the kickback scheme, more than $580 million in fraudulent bills were submitted, mostly to California’s worker compensation system.

David Hobart Payne, 60, an orthopedic surgeon who lives in Irvine, is scheduled to be arraigned in United States District Court on charges of conspiracy, honest services fraud, and using an interstate facility to aid in unlawful activity. A five-count superseding indictment returned by a federal grand jury on April 25 alleges that Payne was bribed approximately $450,000 to steer more than $10 million in kickback-tainted surgeries to Pacific Hospital of Long Beach.

Jeffrey David Gross, 52, an orthopedic surgeon who resides in Dana Point and Las Vegas, Nevada, appeared in federal court and pleaded not guilty to charges contained in a 14-count indictment returned earlier this year by a federal grand jury. Gross, who faces charges of conspiracy, honest services mail fraud and honest services wire fraud, was ordered to stand trial on August 7. The indictment alleges that Gross made at least $622,000 in exchange for performing and/or referring more than $19 million in kickback-tainted surgeries to Pacific Hospital.

In the third indictment being announced today, Lokesh Tantuwaya, 51, who maintains residences in Rancho Santa Fe and Rock Springs, Wyoming, was charged in February by a federal grand jury. The 13-count indictment charges Tantuwaya with conspiracy, honest services fraud, and using an interstate facility to aid in unlawful activity. Tantuwaya, who pleaded not guilty in April, has been ordered to stand trial on November 6. The indictment alleges that Tantuwaya received approximately $3.2 million in kickbacks for referring and/or performing $38 million in surgeries to Pacific Hospital.

The kickback scheme centered on Pacific Hospital of Long Beach, which specialized in surgeries, especially spinal and orthopedic procedures.

The owner of Pacific Hospital, Michael D. Drobot, conspired with doctors, chiropractors and marketers to pay kickbacks in return for the referral of thousands of patients to Pacific Hospital for spinal surgeries and other medical services paid for primarily through the California workers’ compensation system. During its final five years, the scheme resulted in the submission of over $500 million in fraudulent medical bills. To date, nine defendants have been convicted for participating in the kickback scheme.

If they were to be convicted of the charges in the indictments announced today, Payne, Gross and Tantuwaya would face potential sentences of decades in federal prison.

Artemio Elguea was a pizza delivery driver for Pizza Hut.. His general manager was Alex Rodriguez.

Elguea alleged that Rodriguez discriminated against him on the basis of his age – reducing his hours, stealing his tips, and allowing other employees (who were related to Rodriguez) to throw food at him. Elguea’s doctor placed him on medical leave for stress, and he never returned to Pizza Hut.

Elguea brought suit against PIzza Hut alleging age discrimination, related causes of action under the Fair Employment and Housing Act (FEHA) and other torts.

While this action was pending, Elguea was also pursuing multiple workers’ compensation claims. The four workers’ compensation cases were resolved by two simultaneous settlements, each for slightly less than $25,000 (to avoid MSA approval requirements). Each Compromise & Release was signed by Elguea, and one of his workers’ compensation attorneys, Diana Sparagna.

Each C&R had an addendum which specifically stated the following: “This Compromise & Release also includes resolution of all claims arising under any state or federal law regulation, including the California Fair Employment and Housing Act, federal and state wage and hour laws, federal and state False Claims Acts, Title VII of the Civil Rights Act, the Americans With Disabilities Act, the Family Medical Leave Act, the California Family Rights Act, the California Labor Code,…….(etc)”

Pizza Hut then moved for judgment on the pleadings in the civil case, based on the releases and, specifically, the broad language in the addenda to the C&R. The court granted judgment on the pleadings without leave to amend. The Court of Appeal affirmed in the unpublished case of Elguea v. Southern Cal. Pizza Co., LLC. Elquea also attempted to set aside the C&R at the WCAB, but his Petition in this regard was denied.

Elguea argued, among other things, that he does not understand English and was never informed in the workers’ compensation action that he was releasing his civil claims. Elguea asserted that he was represented by counsel in the FEHA action at the time of the workers’ compensation settlement, and nobody informed his FEHA counsel that the FEHA complaint was being addressed by the workers’ compensation settlement.

The Court of Appeal ruled that If the parties to the workers’ compensation proceeding include in their release an addendum which reflects an intention to reach beyond workers’ compensation, that addendum may be given effect and may encompass FEHA claims. (Jefferson v. Department of Youth Authority (2002) 28 Cal.4th 299, 301) “Given this controlling authority, we easily resolve the issues raised by Elguea on appeal.”

“Indeed, this case is stronger than Jefferson, in that the addendum to the workers’ compensation releases Elguea signed here expressly encompasses FEHA claims. In short, the trial court correctly concluded that a release which specifically includes FEHA claims does, in fact, release FEHA claims.”