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Tag: 2021 News

Union Head to Serve 12 Years for Stealing Health Plan Funds

John S. Romero, 74, of Loma Linda, the former president of a Colton-based labor union was sentenced to 144 months in prison for stealing nearly $800,000 from the union’s health plan trust fund, which he used to pay for personal expenses including legal bills and a car loan for his son’s sports car.

At the conclusion of a five-day trial, a jury found Romero guilty of one count of conspiracy, 12 counts of theft in connection with health care, and one count of making a false statement to a government agency.

Romero appointed himself president of United Industrial Services Workers of America (UISWA) and trustee of the UISWA health plan trust fund. Money paid into the fund was supposed to be used exclusively for health care benefits of its participants. Instead, Romero stole the union’s health funds for the benefit of himself and his immediate family.

In furtherance of his scheme, Romero appointed a sham trustee who had no prior experience with unions. He also actively misled the third-party administrators of the health plan into making improper payments from the trust fund.

From 2008 to 2014, Romero embezzled health plan funds to pay a $110,000 personal civil judgment against himself and his son, John J. Romero, 55, also of Loma Linda. He also embezzled $40,000 to pay criminal defense lawyers who represented Romero in a separate case. Romero funneled more than $310,000 to himself by disguising the funds as rent payments on two properties he owned and held under a shell company.

In addition, he stole more than $300,000 in union health plan money to make “salary” payments to his family, even though none of his family members ever worked for the plan. He also used plan funds to pay off a $25,000 loan on his son’s Ford Mustang Shelby GT500 sports car.

Romero also filed a false financial report with the U.S. Department of Labor in which he concealed the existence of more than $100,000 in union receipts and disbursements that Romero held in a secret bank account and from which he made regular payments to his mistress.

Romero advanced his scheme by appointing his son as the secretary and treasurer of the union. He later appointed his ex-wife, Evelyn Romero, 71, as the UISWA president and trustee in 2010, shortly before Romero began serving a two-year federal prison sentence for making false statements to federal officials while he was president of a different labor union. Romero’s son, ex-wife, and daughter, Danae Romero, 42, of Loma Linda, pleaded guilty to criminal charges in this case. Evelyn and Danae Romero each were sentenced to two years’ probation in this case. John J. Romero was sentenced to time served in prison, plus three years of supervised release.

At a September 9 hearing, Judge Phillips ordered this case’s other defendants to pay restitution in the following amounts: Evelyn Romero – $316,502; John J. Romero – $273,350; and Danae Romero – $200,552.

Unapproved Comp Policy Arbitration “Side Agreements” Unenforceable

Adir International, LLC operates the Curacao chain of retail department stores. From 2004 to 2011, Travelers issued a workers’ compensation insurance policy to Adir. The policy was a “guaranteed cost” policy with standard language approved by the Commissioner.

Before issuing the policy to Adir, in accordance with Insurance Code section 11658, Travelers filed the policy with the Workers’ Compensation Insurance Rating Bureau for the Commissioner’s review. The Commissioner did not object to the policy. The policy did not contain an arbitration provision.

As an annual condition for issuing the policy, Adir executed a separate agreement with Travelers that contained the terms and conditions for the Retrospective Rating Plan Endorsement. The annual agreement introduced a requirement for binding arbitration of disputes.

On February 14, 2011, the Commissioner issued a letter to the Rating Bureau requesting it to “notify its member insurers” that the Commissioner “has prohibited the use of collateral agreements, which is synonymous with the term ‘side-agreement,’ concerning workers’ compensation insurance unless they are attached to the policy.” The Commissioner further stated that an insurer’s attempted enforcement of unfiled side agreements could constitute a violation of California law.

When Adir’s coverage expired on July 1, 2012, it did not renew its workers’ compensation insurance with Travelers. Travelers then sought arbitration regarding “the amount of premium currently owing to Travelers by Adir.

On March 13, 2015, Adir filed a complaint in the Los Angeles County Superior Court against Travelers. The Superior Court refused to rule on the validity of the arbitration clause, asserting that the arbitrator was to resolve that issue.

Adir then filed a motion with the arbitration panel, arguing that since the arbitration agreement was not “filed or approved by the Insurance Commissioner,” the agreement was “an illegal agreement and therefore unenforceable.” The arbitration panel denied Adir’s motion to dismiss Travelers’ arbitration claims.

On June 22, 2016, the Commissioner, in a precedential administrative decision (Matter of Shasta Linen Supply, Inc.) ruled that unapproved policy side agreements were illegal.

On July 20, 2017, the arbitration panel issued an interim award of $2,709,280 in favor of Travelers and against Adir. Before the arbitration panel issued a final award, on May 3, 2018, the Fourth District Court of Appeal issued Nielsen Contracting, Inc. v. Applied Underwriters, Inc. (2018) 22 Cal.App.5th 1096, which held that the trial court, not the arbitrator, should determine the enforceability of the specific arbitration provisions.

On June 18, 2018, under the trial court’s “inherent authority to reconsider its prior rulings,” Adir filed a renewed motion in the Superior Court, seeking to declare the arbitration provision in the agreement “void and unenforceable for illegality.” The trial court granted Adir’s renewed motion on August 23, 2018, declaring the arbitration provisions unenforceable and void.

Travelers appealed, and the Court of Appeal affirmed the finding in the unpublished case of Adir International v. The Travelers Indemnity.

A number of arguments made by Travelers on appeal were rejected, including its argument that the issue was preempted by the Federal Arbitration Act.

Cal-SARA – a New Non-Profit – Seeks Staffing Agency Reform

A new nonprofit, trade association, the California Staffing Agency Reform Association (Cal-SARA), has been established by staffing industry leaders to clean up the current marketplace, which it claims is inundated with fraudulent and black market workers’ compensation insurance.

“The increasing demand for a contingent or variable workforce, combined with the decreasing supply of employees and workers’ compensation insurers, has allowed a massive black market to grow virtually unchecked. These illegal practices put staffing agencies, injured workers and California taxpayers at risk. Regulators have thus far been unsuccessful in policing these activities causing the situation to get worse,” says Mark Bertler, Executive Director of Cal-SARA.

Cal-SARA says that legitimate staffing agencies are forced to compete with scam agencies that do not operate with legitimate workers’ compensation insurance. Illegal operations drive prices down below the cost of doing business, creating an unfair marketplace. Customers of the California staffing industry have come to accept these illegitimate operations, largely due to the unfilled and accelerating demand for workers. Regulators appear to be playing “whack-a-mole” and cannot seem to shut them down as fast as they pop up.

Cal-SARA will provide education, training and legal support for its members, as well as providing assistance to regulators and insurers. Cal-SARA will also act to protect its members from illegal and unethical activity by aggressively pursuing all parties who enable these illegal arrangements, including brokers and PEOs.

A robust and inclusive committee structure will ensure that Cal-SARA’s mission and goals are advanced. These committees include industry leaders on their education, governance, audit, membership and litigation committees.

“Self-reform is the fastest and most reliable way to clean up our industry,” says Bertler. “Unethical and unscrupulous actors continue to destroy the market by blatantly utilizing illegal business practices without fear of sanction or punishment,” he explains. “The temptation to cross the line and operate in this emerging and dangerous underground marketplace is often too great. Once they stop paying for workers’ compensation insurance, they may also resort to payroll tax fraud as well. Cal-SARA is in the process of generating a war chest of resources and talent to put an end to these crimes,” he adds.

Cal-SARA promotes legal and regulatory compliance in the sale of workers’ compensation insurance and advocates for the common business interests of its members in recognizing and eliminating workers’ compensation fraud in the temporary staffing/staffing/recruiting industries. To learn more and join the fight against staffing industry workers’ compensation fraud, visit https://www.cal-sara.org/.

SCIF Says Happy New Year With $39M Dividend

State Compensation Insurance Fund announced plans to distribute an approximate $39 million dividend to its qualifying policyholders with policies that took effect between Aug. 27 and Dec. 31, 2020.

This dividend equals approximately 10% of the estimated annual premium reported during that time period.

This announcement follows up State Fund’s August declaration of an approximate 10% mid-year dividend that applied to all policies incepted between Jan. 1 and Aug. 26, 2020. The dividend distribution for the entire year equals approximately $114 million.

Through 2020, State Fund is reporting approximately $1.13 billion in premium.

“This has been a very challenging year for our policyholders and we’re glad we can continue to support them with this dividend declaration,” said State Fund President and CEO Vern Steiner. “We took a number of actions during 2020 to help our policyholders, including accelerating the delivery of our 2019 dividend payments and providing more than $40 million in COVID-19 safety support grants. This latest declaration continues that support – all qualifying State Fund policyholders now know they can expect another dividend payment next year.”

Since its creation in 1914, State Fund has paid out more than $5 billion in dividends to policyholders.

State Fund policyholders will begin to receive dividend payments during the second half of next year.

Ohio AG Claims OptumRX Knowingly Overcharged State

The Ohio Attorney General’s office says it may have uncovered evidence in a court battle to show that a pharmacy benefit manager knowingly overcharged a state agency.

A report in the Columbus Dispatch says that among hundreds of thousands of emails obtained from PBM OptumRX as part of the litigation was one that appears to acknowledge that the multibillion-dollar corporation was not following the terms of its contract with the Ohio Bureau of Workers’ Compensation.

The PBM administered prescription drugs for workers injured on the job. In all, OptumRX overcharged the bureau on more than 1.3 million claims for generic medications, the lawsuit says. The contract, in effect from mid-2009 until the fall of 2018, called for the PBM to charge the lowest of four potential prices for generic drugs, including a measure from the Centers for Medicare and Medicaid known as the Federal Upper Limit, or FUL for short.

But in a series of May 2015 emails marked as “confidential,” John Spankroy, director of public sector account management for Catamaran, a company purchased by OptumRX, said the Federal Upper Limit was never applied, despite the contract.

He told Susan McCreight, senior director of public sector account management, “Per BWC contract we are supposed to be using pricing logic that includes lower of FUL for generics. None of the BWC price schedules has FUL as a cost source.

In a separate email, Spankroy told Bryce Owens, the Illinois-based PBM’s manager for pricing and analytics, “We do not see FUL included as a cost source option.”

Spankroy also acknowledged: “BWC is not aware of this (yet).”

The admission is highly relevant” to the central issue in the legal dispute: “whether OptumRX was required to follow the pricing terms included in the BWC contract,” said Yost’s legal team in a Dec. 16 court filing.

But Andrew Krejci, who is with Optum’s corporate communication office, says the federal FUL requirement was never part of the PBM’s agreement with the state.

“The plain language of the contract demonstrates that the lesser-of reimbursement methodology, which was agreed upon and utilized by the parties over the course of their almost decade-long relationship, incorporated three reimbursement options and CMS FUL was never one of them,” OptumRx said in a court filing.

The bureau dropped OptumRX more than two years ago after a consultant determined the PBM was vastly overcharging the state.

The same consultant later discovered that PBMs – including OptumRX – in Ohio’s Medicaid program, which pays for health care of the poor and disabled, were charging three to six times the standard rate, enabling them to take home nearly $250 million in a single year.

According to the lawsuit, which seeks unspecified damages, OptumRx overcharged the bureau on 57% of 2.3 million prescription claims from injured Ohio workers between January 2014 and September 2018.