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Tag: 2019 News

LA Basin Home to Half of Indicted Medical Providers

For most of this decade, the average medical cost per indemnity claim in California has declined. Anti-fraud measures by the Department of Industrial Relations (DIR), the California Department of Insurance (CDI), local district attorneys and insurer special investigative units also contributed to the significant reduction in medical costs. As part of this effort, the DIR has, as of August 2019, indicted and/or suspended more than 500 medical providers from participating in the California workers’ compensation system.

In 2018, the WCIRB published a study evaluating the potential impact of medical fraud enforcement.

The 2018 study showed that over 7% of total medical payments were made to Indicted Providers, who rendered more than 4% of the medical services in the second half of 2012. By the second half of 2017, the shares of both medical payments and transactions to these Indicted Providers had fallen by over two thirds.

The WCIRB has now released Treatment Patterns of Medical Providers Indicted for Fraud in California Workers’ Compensation, a follow-up analysis to its 2018 study that evaluated the potential impact of medical provider fraud enforcement.

The new research brief compares the treatment patterns and types of services rendered by indicted/suspended providers (indicted providers) to non-indicted/suspended providers (other providers) as well as the regional variations and differences in treatment levels on cumulative trauma (CT) claims. The WCIRB’s findings include:

The average total medical paid per indicted provider was 10 times higher than other providers between 2013 and 2018, largely because indicted providers treated significantly more injured workers and rendered more services per injured worker.

The shares of medical payments for medical-legal (ML) and medical liens of indicted providers were two to three times higher than other providers. Indicted providers were also paid a significantly higher share for complex office visits and ML evaluations.

Indicted providers in the Los Angeles Basin accounted for about half of indicted providers linked to WCIRB data, but they received more than 90 percent of the medical payments made to these indicted providers. The share of indemnity claims involving CT within the LA Basin was consistently higher for indicted providers between 2013 and 2015, yet the pattern did not hold in 2016.

Actuary Finds Self-Insurance Saves 21%

The California Self-Insurer’s Security Fund (SISF) released findings of a study conducted by Bickmore Actuarial. The study compares the overall cost of workers’ compensation self-insurance with the cost of traditional workers’ compensation insurance. The study examined workers’ compensation costs for 14 California self-insured employers across a variety of industries and with different self-insured retentions.

Based on a sample of 14 self-insurers, Bickmore estimated self-insurance savings of 14% to 28% versus full insurance. The average savings are 21%.

The 14 self-insurers that we evaluated are in a variety of industries and retain over $150,000,000 in annual workers’ compensation loss and allocated loss adjustment expense (ALAE), as projected by their independent actuaries. The self-insured retentions (SIRs) of those included in our evaluation range from $250,000 to $2,500,000.

In order to estimate self-insurance savings Bickmore started with projected ultimate loss & ALAE detailed in each self-insurers’ actuarial study, and then we added industry-wide loads for both insurance and self-insurance. The self insurance savings are largely driven by the reduction in commissions, insurance company other acquisition costs, and insurance other/general expenses (including premium tax). For 2017 the California Workers’ Compensation Insurance Rating Bureau (WCIRB) has estimated these costs to total 18% of premium.

The key difference between the low and high savings estimates is the assumed insurance company profit. Historically, California insurance company workers’ compensation profit has been highly variable by year. The low savings estimates assume no insurance underwriting profit. The high savings estimates assume insurance company profit is roughly 10% of premium, which the WCIRB has estimated insurance company profit to be for the 2017 year.

In addition to the costs previously discussed, the study adjusts for the estimated cost of excess insurance purchased by the self-insurer, self insurance assessments from the California Department of Industrial relations (DIR), and charges by the California Self-Insurers’ Security Fund (SISF).

WCIRB Finds LA Basin Claims Highest in State

The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) released the 2019 WCIRB Geo Study, which underscores regional differences in claim characteristics across California. The web-based interactive map allows you to quickly view key measures across regions.

The study’s key findings include the following:

— Even after controlling for regional differences in wages and industrial mix, indemnity claim frequency is significantly higher in the Los Angeles Basin and significantly lower in the San Francisco Bay Area.

— Regional differences in indemnity claim frequency have been fairly consistent over time and across industries. The LA/Long Beach region has had the highest frequency, and the Peninsula/Silicon Valley region has had the lowest frequency during all available years. The difference between these regions has grown in each of the last two years. Since 2013, the largest improvement in relative indemnity claim frequency is in the Fresno/Madera region, and the greatest deterioration has been in Orange County and the Imperial/Riverside region.

— Regional differences in severity are more muted than in frequency. Even after controlling for regional differences in industrial mix, limited average incurred on indemnity claims is highest in the San Luis Obispo, Santa Barbara and Ventura regions and lowest in the San Bernardino/West Riverside region.

Pharmaceutical costs throughout the state have dropped dramatically over the last several years, and the prevalence of opioid prescriptions for claims with pharmaceutical payments has also dropped dramatically. The largest decreases in pharmaceutical costs have occurred in Southern California regions, which had the highest pharmaceutical spending at the beginning of the study period. This has decreased the differences in pharmaceutical costs across regions over time.

— The share of cumulative trauma claims as a percent of all claims is much higher in the Los Angeles Basin than in other parts of the state, and that gap has generally widened over time.

— Both medical-legal costs and paid allocated loss adjustment expenses (ALAE) are significantly higher in the Bakersfield and Los Angeles Basin regions than in the remainder of the state.

— The share of open indemnity claims has decreased substantially in all regions since 2013. The largest decreases have been experienced in the Los Angeles Basin regions that had the highest initial open indemnity claim shares. These changes have narrowed regional differences over time.

— Incurred loss development regional differences observed were relatively modest. In general, development appeared higher than average in more urban areas, with the highest in the Los Angeles/Long Beach region and the lowest in the Fresno/Madera region.

CMS Reporting Threshold Unchanged for 2020

As required by Section 202 of the SMART Act, CMS is required to annually review its costs relating to recovering conditional payments as compared to recovery amounts.

Since 2017, CMS has maintained its threshold of $750.00 across all Non-Group Health Plan (NGHP) lines of business to include workers’ compensation, general liability, and no-fault insurance.

The threshold means that in scenarios where the Total Payment Obligation to Claimant (TPOC)/settlement amount is $750.00 or less, the claim does not need to be reported and CMS will not require reimbursement of conditional payments.

CMS has again reviewed the costs related to collecting Medicare’s conditional payments and compared this to recovery amounts.

Beginning January 1, 2020, the threshold for physical trauma-based liability insurance settlements will remain at $750. CMS will maintain the $750 threshold for no-fault insurance and workers’ compensation settlements, where the no-fault insurer or workers’ compensation entity does not otherwise have ongoing responsibly for medicals.

This means that entities are not required to report, and CMS will not seek recovery on settlements, as outlined above.

Please note that the liability insurance (including self-insurance) threshold does not apply to settlements for alleged ingestion, implantation or exposure cases. Information on the methodology used to determine the threshold is provided at

Hey – Not So Fast! Treatment Guidelines are Often Wrong

When Vinay Prasad, MD, was a resident, strict control of blood glucose for patients in the intensive care unit was considered an important goal. “We really chased tight glycemic control in the medical ICU, but of course, just a few years later, a randomized control trial – NICE-SUGAR – came out showing that that actually led to net harm without benefit,” he said.

That’s just one example of a medical reversal, which occurs when new and superior research contradicts and supersedes existing clinical practice. It’s a phenomenon in which Dr. Prasad, an associate professor of medicine at Oregon Health & Science University and the author of Ending Medical Reversal: Improving Outcomes, Saving Lives, is an expert.

He and a team of colleagues from OHSU published a comprehensive review of randomized clinical trials in the Journal of the American Medical Association, The Lancet, and the New England Journal of Medicine identifying 396 medical reversals.

At least a dozen of these reversals related specifically to emergency medicine, while many others had at least some relationship to emergency care, trauma, and critical care. A few examples:

Mechanical chest compressions with the LUCAS device, in use since 2003 for treating patients in cardiac arrest, was found in the LINC randomized, controlled trial to have no significant effect on survival compared with manual CPR in patients with out-of-hospital cardiac arrest. The ability to achieve ROSC with the mechanical device was inferior to manual chest compression during resuscitation. (JAMA. 2014;311[1]:53)

Early and aggressive intervention with the early goal-directed therapy (EGDT) protocol for ED patients in whom sepsis is suspected was widely adopted after one positive study in 2001. It was later found to confer no added survival benefit compared with usual care and to contribute to increased ICU resource utilization. (JAMA. 2017;318[13]:1233)

The REACT-2 trial found that routine use of an immediate total-body CT scan as part of trauma workup did not reduce in-hospital mortality compared with conventional imaging and selective CT scanning in patients with severe trauma. (Lancet. 2016;388[10045]:673)

Platelet transfusion after acute hemorrhagic stroke associated with antiplatelet therapy was a common practice in the ED (as well as in neurosurgery and stroke units), but the 2015 PATCH study found worsened survival in the platelet transfusion group (68%) compared with the standard care group (77%). (Lancet. 2016;387[10038]:2605)

Drugmakers to Invest $2B in Gene Therapies

Eleven drugmakers led by Pfizer and Novartis have set aside a combined $2 billion to invest in gene therapy manufacturing since 2018, according to a Reuters analysis, in a drive to better control production of the world’s priciest medicines.

The full scope of Novartis’ $500 million plan, revealed to Reuters in an interview with the company’s gene therapy chief, has not been previously disclosed. It is second only to Pfizer, which has allocated $600 million to build its own gene therapy manufacturing plants, according to filings and interviews with industry executives.

Gene therapies aim to correct certain diseases by replacing the missing or mutated version of a gene found in a patient’s cells with healthy copies. With the potential to cure devastating illnesses in a single dose, drugmakers say they justify prices well above $1 million per patient.

The senior vice president of Pfizer’s global gene therapy business, acknowledged drugmakers take a “leap of faith” when they make big capital investment outlays for treatments before they have been approved or, in some cases, even produced data demonstrating a benefit. The rewards are potentially great, however.

Gene therapy is one of the hottest areas of drug research and, given the life-changing possibilities, the FDA is helping to speed treatments to market. It has approved two so far, including Novartis’s Zolgensma treatment for a rare muscular disorder priced at $2 million, and expects 40 new gene therapies to reach the U.S. market by 2022.

There are currently several hundred under development by around 30 drugmakers for conditions from hemophilia to Duchenne muscular dystrophy and sickle cell anemia.

The proliferation of these treatments is pushing the limits of the industry’s existing manufacturing capacity. Developers of gene therapies that need to outsource manufacturing face wait times of about 18 months to get a production slot, company executives told Reuters. They are also charged fees to reserve space that run into millions of dollars, more than double the cost of a few years ago, according to gene therapy developer RegenxBio.

As a result, companies including bluebird bio, PTC Therapeutics and Krystal Biotech are also investing in gene therapy manufacturing, according to a Reuters analysis of public filings and executive interviews. They follow Biomarin Pharmaceutical Inc, developer of a gene therapy for hemophilia, which constructed one of the industry’s largest manufacturing facilities in 2017.

The FDA is keeping a close eye on standards. This comes amid the agency’s disclosure in August that it is investigating alleged data manipulation by former executives at Novartis’ AveXis unit.

Daniel Capen Sentenced to 30 Months in Prison

A spinal surgeon was sentenced to 30 months in federal prison for participating in a long-running health care fraud scheme in which he received at least $5 million in kickbacks for performing hundreds of spinal surgeries. The overall scheme resulted in more than $580 million in fraudulent bills being submitted, mostly to California’s worker compensation system.

Dr. Daniel Capen, 70, of Manhattan Beach, was sentenced by United States District Judge Josephine L. Staton, who also ordered Capen to forfeit $5 million to the United States and pay a $500,000 fine.

Capen, an orthopedic surgeon specializing in spinal surgeries, pleaded guilty in August 2018 to conspiracy to commit honest services fraud, and soliciting and receiving kickbacks for health care referrals.

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

Capen received kickbacks for referring surgeries to Pacific Hospital and also for using medical hardware from a Pacific Hospital-affiliated entity during the spinal surgeries he performed. He also received kickbacks for referring medical services such as urine and drug testing to Pacific Hospital-affiliated entities.

In total, between 1998 and 2013, Capen accounted for approximately $142 million of Pacific Hospital’s claims to insurers, on which the hospital was paid approximately $56 million. Capen admitted to receiving at least $5 million in kickbacks during the course of his crimes.

Drobot is serving a five-year prison sentence for conspiracy and paying illegal kickbacks, and has admitted that he orchestrated a wide-ranging fraudulent kickback scheme where paid more than $50 million in bribes to doctors to steer hundreds of millions of dollars in spinal surgeries to his hospital. Drobot ultimately profited millions of dollars from the scheme. Drobot currently faces additional federal criminal charges for allegedly violating a court forfeiture order by illegally selling his luxury cars.

Seventeen defendants have been charged in connection with the scheme, and 10 of them have been convicted, including Drobot and his son. Another doctor – Timothy James Hunt, 55, of Palos Verdes Estates – was sentenced in late September to two years in federal prison after he admitted taking illegal kickbacks.

The investigation into the spinal surgery kickback scheme was conducted by the FBI; IRS Criminal Investigation; the California Department of Insurance; and the United States Postal Service, Office of Inspector General.

This case is being prosecuted by Assistant United States Attorneys Joseph T. McNally of the Violent and Organized Crime Section, Scott D. Tenley of the Santa Ana Branch Office, Ashwin Janakiram of the Major Frauds Section, and Victor A. Rodgers of the Asset Forfeiture Section.

Medical-Legal Fee Schedule Amendments Update

The Division of Workers’ Compensation provided an update on the development of amendments to the Medical-Legal Fee Schedule.

The division is close to finalizing the fee schedule, and intends to begin the rulemaking process by the end of the year and will hold a public hearing in early 2020. The development of the draft amendments included comprehensive review by those who work in and utilize California’s workers’ compensation system.

The division posted proposed amendments in May 2018 and after soliciting proposals and obtaining feedback from the industry, posted a revised proposal last August incorporating input from stakeholders including medical providers, public and private employers, attorneys, insurance carriers, advocates and policymakers.

The division continues to meet with stakeholders as it refines its proposed amendments and fixed fee schedule to improve the quality of medical reports, eliminate complexity factors and increase fees for medical-legal testimony. Updates on the proposed regulation including information on the public hearing will be posted on DWC’s proposed regulations webpage.

Exclusivity Rule Bars Suit for Lead Poisoning

Deville worked at Exide’s hazardous waste treatment and storage plant in Vernon for 29 years. At that location, Exide recycled automotive batteries, which recovered the lead used in the batteries. Deville was a forklift driver and furnace operator.

On April 24, 2013, the Department of Toxic Substance Control (DTSC) ordered Exide to suspend operations in Vernon because plant operations were causing discharge of illegal amounts of lead into the air, water, and soil.

Before operations at Exide’s Vernon facility were halted, Deville experienced what he calls two “profound” health-related incidents at work. On one occasion, Deville lost consciousness while cleaning one of the facility’s furnaces. On the second occasion, which also arose in connection with cleaning one of the furnaces, Deville felt dizzy, left the furnace, and went to a restroom where he produced a urine stream that he says was black in color.

In June 2016, more than three years after these two alleged incidents and suspension of operations at Exide’s Vernon plant, Deville sued Exide and certain Individual Defendants, alleging unspecified injuries caused by exposure to lead and other hazardous chemicals while working at the Vernon facility.

Deville alleged he was injured by defendants’ collective failure to properly use and store hazardous and toxic substances at the Vernon plant, to disclose fully and accurately the risks presented to human health presented by the chemicals used at the plant, to remediate or clean up contaminants, and to provide proper safety equipment and training.

The Individual Defendants argued, among other things, that all of Deville’s claims were precluded by workers’ compensation exclusivity principles. The trial court sustained the Individual Defendants’ demurrer without leave to amend.

Exide separately demurred to the operative complaint, making the same workers’ compensation exclusivity argument (among others) on which the Individual Defendants had prevailed. The trial court sustained Exide’s demurrer without leave to amend and dismissed the case.

The dismissals were affirmed in the unpublished case of Deville v. Bloch.

The Individual Defendants’ demurrer was properly sustained without leave to amend because the operative complaint alleges the Individual Defendants were acting within the scope of their employment and did not allege any facts that would satisfy the two exceptions to workers’ compensation exclusivity rules when individual defendants (as opposed to an employer) are sued.

Similarly, Exide’s demurrer to the bulk of Deville’s claims was properly sustained because the operative complaint does not adequately allege facts establishing any of the elements of the fraudulent concealment of injury exception to workers’ compensation exclusivity on which Deville relies to maintain his action.

State Agencies Paid $20M Too Much for SCIF Insurance

Ten California state agencies paid $20 million more for workers’ compensation insurance than they could have had selected a different insurer, according to a California State Auditor’s report published Thursday.

State law allows state agencies to decide how to provide workers’ compensation benefits to their employees. Almost 90 percent of them choose to do so using a master agreement that the California Department of Human Resources (CalHR) negotiated on their behalf with the State Compensation Insurance Fund (State Fund).

Under the master agreement, state agencies reimburse State Fund for the actual cost of workers’ compensation claims, rather than paying for insurance or maintaining a workers’ compensation reserve.

According to CalHR data, nearly 190 agencies provided benefits through the master agreement in fiscal year 2017-18, while 32 agencies opted to purchase insurance from State Fund.

The State Auditor then reviewed the costs of 10 of the 32 agencies that purchased insurance from State Fund in fiscal year 2017-18. It found that each of these agencies consistently paid more in insurance premiums than it would have paid had it provided benefits under the master agreement.

It estimated that from fiscal years 2013-14 through 2017-18, these 10 agencies collectively paid an average of $5.7 million per year in premiums but would have paid an average of less than $1.6 million per year under the master agreement.

In fact, had the 10 agencies used the master agreement, they could have saved the State more than $20 million during the period the Auditor reviewed.

However, CalHR is not required to assist agencies in deciding whether purchasing workers’ compensation insurance or using the master agreement is likely to be more cost-effective for them.

State Fund does not always provide state agencies with enough time to review settlement authorization requests before the mandatory settlement conferences. State Fund must obtain approval from agencies before entering into settlements, unless the agencies have authorized State Fund to settle cases without such preapproval.

State Fund and several of the agencies reviewed indicated that State Fund should provide agencies with 30 days to review settlement requests before the settlement conferences. However, State Fund did not provide agencies with 30 days to respond to the settlement requests for eight of the 15 claims reviewed..

To ensure that all state agencies provide workers’ compensation in the most cost-effective manner, CalHR should provide each agency that purchases workers’ compensation insurance with a cost-benefit analysis every five years that compares the cost of purchasing this insurance through State Fund with the cost of obtaining coverage through the master agreement. State Fund. CalHR agreed to implement this recommendation.

State Fund should create and follow a policy to provide settlement authorization requests to agencies at least 30 days before settlement conferences. State Fund did not agree with the Auditor’s recommendation, asserting that it will strive to meet a guideline that State Fund will complete settlement requests at the earliest opportunity.