Tag: 2019 News

Christine Suh was not an attorney and was not otherwise authorized to represent Allstate’s insureds. She overcame that obstacle by creating and, with help from Christina Chang (Suh’s mother), and others, operating eight sham law offices.

Suh paid several individual attorneys a monthly fee of $3,000 to use their names and state bar numbers. Suh and Chang procured Allstate’s insureds as “clients,” filed 318 insurance claims on their behalf (not authorized by and without the knowledge of the individual attorneys), and diverted insurance proceeds to their personal use.

Allstate Insurance Company and several related companies (collectively, Allstate) brought this action under Insurance Code section 1871.7 (Insurance Fraud Prevention Act) on behalf of the People of the State of California against Christine Suh, Christina Chang (Suh’s mother), and others for insurance fraud in violation of Penal Code section 550 (section 550), which makes it unlawful to submit false or fraudulent claims to an insurance company.

A jury found in favor of Allstate and imposed over $6 million in civil penalties. Suh appeals from the ensuing judgment, arguing the trial court should have stayed this action pending the resolution of a criminal investigation of her conduct. Suh, joined by Chang, also argues that the insurance claims they submitted to Allstate were not fraudulent because, although the insureds were not actually represented by attorneys, the information in the claims forms was accurate.

The Court of Appeal affirmed the judgment in the published case of People v Suh.

Suh argues the trial court’s ruling in response to her ex parte motion for stay “forced [her] to have to choose between asserting her Fifth Amendment privilege and risking substantial monetary jeopardy in the civil action on one hand, and waiving her Fifth Amendment privilege and subjecting herself to criminal jeopardy on the other hand.”

Suh made her request for a stay, not in a regularly noticed motion, but in an ex parte application. A court will not grant ex parte relief in any but the plainest and most certain of cases. The rules governing ex parte applications in civil cases require that “[a]n applicant . . . make an affirmative factual showing . . . of irreparable harm, immediate danger, or any other statutory basis for granting relief ex parte.”

“The trial court here acted well within its discretion in denying Suh’s application. Suh did not make a showing of irreparable harm, immediate danger, or any other basis for ex parte relief.”

Suh and Chang argue Allstate’s theory that the insurance claims they submitted “were false or fraudulent was based solely on the testimony that the claims submitted to it were submitted by a [sic] ‘sham law firms.’ No evidence was presented that the claims were ‘false or fraudulent’ in any other regard.

“Suh and Chang read the insurance fraud statutes too narrowly. Unlawful conduct under section 550 does not require a misstatement of fact in the insurance claim.”

An insurance claim is fraudulent under section 550 and section 1871.7, subdivision (b), when it is “characterized in any way by deceit.”

The Trump administration suffered a blow when a federal judge blocked a key rule about drug price disclosures just hours before it was scheduled to take effect.

U.S. District Judge Amit P. Mehta in Washington, D.C., on Monday sided with a coalition of drug companies and blocked the Trump administration from implementing a policy that would require prescription drug manufacturers to disclose list prices in TV ads.

In May of 2019, the U.S. Department of Health and Human Services (“HHS”) published a final rule that regulates the marketing of prescription drugs. The rule requires drug manufacturers to disclose in any television advertisement the list price – also known as the wholesale acquisition cost – of a 30-day supply of the drug (“WAC Disclosure Rule”).

Merck & Co., Inc.; Eli Lilly and Company; and Amgen Inc.- and the National Association of Advertisers, Inc., a membership organization contend in a lawsuit they filed, that the WAC Disclosure Rule is unlawful. Plaintiffs advance two primary arguments.

First, they argue that the Rule exceeds HHS’s authority, because Congress neither expressly nor impliedly granted HHS the power under the Social Security Act to regulate drug marketing. Second, they maintain that the WAC Disclosure Rule is compelled speech that violates the First Amendment. Plaintiffs have asked the court to halt the WAC Disclosure Rule before it goes into effect.

The court found that HHS lacks the statutory authority under the Social Security Act to adopt the WAC Disclosure Rule. Neither the Act’s text, structure, nor context evince an intent by Congress to empower HHS to issue a rule that compels drug manufacturers to disclose list prices. The Rule is therefore invalid.

The court went on to conclude that “no matter how vexing the problem of spiraling drug costs may be, HHS cannot do more than what Congress has authorized. The responsibility rests with Congress to act in the first instance.”

It is not immediately clear how the administration will proceed, but the ruling threatens to rob President Trump of an important victory in the fight over drug costs.

Drug companies fought the rule from the start, arguing it would confuse consumers because a drug’s list price – which doesn’t reflect the discounts negotiated with insurers or through patient assistance programs – is often higher than what the patient actually pays.

Tricia Neuman, senior vice president of the Kaiser Family Foundation, said the administration and Congress are working on other drug pricing initiatives, but the decision is “certainly a setback for the administration.”

Neuman said drug pricing transparency “in and of itself is unlikely to have a huge impact on prices. There are a number of other proposals the administration and Congress are moving forward with that will have a more significant impact.”

But those initiatives, like tying what Medicare pays for drugs to what other countries charge, or even allowing Medicare to directly negotiate drug prices, are not close to being completed, and it’s not certain they will ever be finalized.

A drug industry lobbyist called the decision a “Pyrrhic victory,” because it would likely spur Congress to act.

“They won the battle and got the rule defeated, but now it’s likely going to be in legislation,” the lobbyist said, adding that it’s an easy bipartisan issue for lawmakers to support.

Bipartisan legislation introduced by Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and Sen. Dick Durbin (D-Ill.) would codify the HHS regulation into law. The bill could be added to a legislative package that Grassley is trying to push through the committee.

A companion bill in the House is sponsored by Rep. Francis Rooney (R-Fla.).

Sedgwick has signed an agreement to acquire York Risk Services Group. Following the close of the transaction, Sedgwick will gain more than 60 offices across the US and nearly 5,000 employees, taking its total workforce up to nearly 27,000.

Once approved, the deal would mark Sedgwick’s third acquisition of a TPA in five years. The Memphis, Tennessee-based company purchased Cunningham Lindsey in 2018 and T&H Global Holdings, owner of VeriClaim, in 2014.

Sedgwick Group President Michael Arbour said during an interview that the purchase of York will enhance the company’s scope of services and improve its access to talent in the claims industry. He said York is active in some market segments where Sedgwick has little presence, such as with Longshore and Harbor Workers’ Compensation and Defense Base Act claims and the administration of group risk pools.

He noted that York also is in a strong position as a service provider for public agencies and provides managed care services for other claims administrators. Sedgwick also provides managed care services, but only to clients for whom it adjusts claims, he said.

“We’ve admired them as a friendly competitor for years,” Arbour said. “They do a lot of things that we do and they do a lot things that we don’t do.”

“Joining forces with Sedgwick will provide enhanced capabilities for York’s clients and new opportunities for our associates,” said Thomas Warsop, chairman and CEO of York. “It’s great news for all.”

“At Sedgwick, taking care of people is at the heart of everything we do,” North said. “Bringing together the expertise and capabilities of Sedgwick and York will allow us to serve more customers in more places and show an unprecedented number of people how caring counts.”

BofA Merrill Lynch and Morgan Stanley & Co. LLC served as financial advisors to Sedgwick, and Simpson Thacher & Bartlett LLP and Clifford Chance US LLP served as legal advisors. Jefferies LLC and J.P. Morgan Securities LLC served as financial advisors to York, and Fried, Frank, Harris, Shriver & Jacobson LLP served as its legal advisor. BofA Merrill Lynch and Morgan Stanley Senior Funding, Inc. have provided committed debt financing for the transaction.

The closing of the transaction is subject to customary conditions and regulatory approvals. The terms of the agreement were not disclosed.

Sedgwick isn’t the only third-party administrator on a buying spree. Also on Monday, Fairfax Financial Holdings’ Riverstone subsidiary announced that it has acquired Rockville Risk Management Associates and its sister company, ER Quinn Co.

Joe Paduda, owner of the employer consulting firm Health Strategy Associates, said the merger of the two TPAs – both of which adjust workers’ compensation claims – is not surprising.  “There’s no question there will be more consolidation in the industry,” he said in an email. “Worker’s comp is a shrinking business and consolidation is a foregone conclusion.”

Congress is cranking up the pressure on the Food and Drug Administration (FDA) to draft rules to regulate cannabis-based products.  Lawmakers legalized the use of hemp-based cannabidiol (CBD) products late last year in the farm bill, sending the agency scrambling to figure out new rules around regulating a unique product that is both a drug and a dietary supplement.

But Congress is signaling that it is growing impatient as the FDA looks for a solution and may not wait on the sidelines for much longer.

“In Congress, some are itchy [for action],” said Jonathan Miller, general counsel for the industry advocacy group U.S. Hemp Roundtable.  Miller said some lawmakers have been privately circulating potential legislation, but he doesn’t expect any formal push from Congress until at least later this fall. “If their patience ends [and FDA doesn’t act], there will be an effort for legislation,” Miller said.

The FDA held a public hearing at the end of May, and experts and industry representatives said it was a good start but did not advance the ball much in terms of giving clarity from a federal level. People who attended the meeting said they left without any new sense of the agency’s timing on creating new regulations.

During the 10-hour hearing, acting FDA Commissioner Ned Sharpless made no promises about timing, but FDA officials were clear that they wanted more data from the public. Sharpless said the agency was essentially operating in uncharted waters.

In particular, FDA wants more information about dosing levels, including how much CBD is safe to consume, and any long-term exposure risks. The agency is also focused on the effects CBD has on children, elderly and pregnant women.

Public comments concerning FDA’s role are due July 16, after the agency extended the deadline for an additional two weeks.

CBD is derived from the marijuana plant but doesn’t give users a high. Ever since the farm bill passed, CBD products have been appearing online and on the shelves of convenience stores, coffee shops and nutrition stores in select states.

In the meantime, lawmakers from both parties are trying to nudge FDA to act. A provision in the House appropriations package that passed last month sets aside funding for FDA to study and set specific levels of CBD to put in food and drinks.

Senate Majority Leader Mitch McConnell (R-Ky.) met with Sharpless last week, and urged the agency to speed up the timing on CBD regulation. “Congress’s intent was clear with the passage of the Farm Bill that these products should be legal, and our farmers, producers and manufacturers need clarity as well as a workable pathway forward regarding the agency’s enforcement,” McConnell said in a statement. “Like my constituents, I am anxious to know the FDA’s plans to ensure public access to safe CBD products,” he added.

Sen. Ron Wyden (R-Ore.) did not meet with Sharpless personally, but last week sent a letter to the agency urging FDA to set an interim policy by Aug. 1 that would allow products containing hemp-derived CBD to be manufactured and sold as food and dietary supplements. Wyden said it was “fully unacceptable” for FDA to suggest it may take up to five years to issue rules. “The regulatory confusion and uncertainty surrounding CBD cannot continue for that length of time,” Wyden wrote.

A doctor who operates a medical clinic in West Hollywood where he specializes in treating HIV patients has been taken into custody pursuant to federal charges that allege he engaged in a long-running scheme to defraud health insurance companies in connection with the brand-name human growth hormone Serostim.

James T. Lee, 71, of West Hollywood, was taken into custody on Tuesday afternoon after being escorted from Austria by federal law enforcement agents.

After a federal grand jury returned a 10-count indictment on June 6, Lee was arrested in Vienna at the request of the United States. Lee subsequently waived extradition and agreed to return to the United States.

The indictment against Lee charges him with one count of conspiracy to commit health care fraud, six counts of health care fraud, one count of making false statements relating to health care matters, and two counts of witness tampering.

Lee allegedly engaged in a scheme to divert Serostim – an injectable human growth hormone that is FDA-approved for HIV-positive patients – from legitimate HIV patients to other people who purchased the drug for its purported anti-aging properties. The Food and Drug Administration has approved Serostim for use only by HIV patients with wasting or cachexia who are also receiving antiretroviral therapy.

According to the indictment, from at least May 2011 until February 2019, Lee wrote prescriptions for Serostim to HIV patients, who obtained the drugs and used their Medicare Part D benefits to pay for the drugs. Lee then then illegally purchased the Sersotim back from patients, so that he could re-sell the Serostim. Lee allegedly re-sold the Serostim for a significant profit to other patients who were not HIV-positive, and who used the human growth hormone to build muscle and for other cosmetic purposes.

The indictment alleges a second part of the scheme in which Lee allegedly submitted claims to health insurance companies for Serostim injections, claims that were fraudulent because Lee did not actually provide the Serostim injections to the patients at his office. According to the indictment, many of the patients did not receive the full amount of Serostim that Lee billed to the insurance companies, or they received Serostim that Lee had purchased from other patients.

Lee allegedly twice engaged in witness tampering during meetings with a patient that were recorded without Lee’s knowledge. During those meetings, Lee encouraged the patient to provide false information to federal agents who were investigating the case. Lee coached the patient to lie about the Serostim scheme, including by falsely stating that kickback payments from Lee were merely overpayments from the insurance companies, according to the indictment.

During the course of the conspiracy, Lee and his co-conspirators submitted at least $14.2 million in claims to the insurance companies for Serostim injections, which resulted in payments of approximately $5.9 million, according to the indictment. The scheme allegedly defrauded Health Net, which is a private health benefit plan, and the Government Employees Hospital Association, which is a health benefit plan that provides health insurance coverage to certain former United States government employees.