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Tag: 2023 News

New Law Creates Rebuttable Presumption of Employer Retaliation

Governor Newsom signed Senate Bill No. 497 into law, the “Equal Pay and Anti-Retaliation Protection Act.” The new law amends California Labor Code sections 98.6, 1102.5, and 1197.5 to create a “rebuttable presumption of retaliation” if an employee experiences an adverse employment action within 90 days of engaging in any protected activity covered by the specified sections. This new law, which will become effective on January 1, 2024, also entitles a prevailing plaintiff civil penalties for each violation.

As explained by the California Supreme Court, Section 1102.5 of the Labor Code reflects the broad public policy interest in encouraging workplace whistle-blowers to report unlawful acts without fearing retaliation. (Green v. Ralee Engineering Co. (1998) 19 Cal. 4th 66). Under current law, penalties up to $10,000 can be assessed against an employer that is an LLC or corporation when the employer retaliates against an employee who was a whistleblower.

According to the author of this new law, “the fear of retaliation is still one of the main reasons workers are afraid to report labor violations. This is especially true for Black and Latinx workers who are more likely to experience retaliation. The Department of Industrial Relation’s most recent report of retaliation complaints filed with the Labor Commissioner’s Office found that just over 90% of retaliation claims were dismissed. In large part this is because when a complaint is filed with the Labor Commissioner’s office, the worker currently has the burden of proving that they were retaliated against because they were exercising their rights under the Labor Code. This burden of proof is extremely challenging for a worker who does not have the same level of access to information as the employer.”

The new law amends Labor Code Section 98.6 to allow the Labor Commissioner to identify retaliation more quickly. If a worker files a retaliation complaint with the Labor Commissioner and shows that their employer took a negative action against them within 90 days after exercising rights under the Labor Code, the employer must prove a legitimate reason for taking that negative action.

Similarly, this new law amends Labor Code Section 1197.5 to add a similar “rebuttable presumption” for any retaliation complaint under the Equal Pay Act. This kind of “rebuttable presumption” of retaliation already exists in other parts of the Labor Code, and is working well in protecting workers from immigration-related retaliation, such as threats of deportation, and retaliation for use of paid sick leave.

This new law also strengthens Labor Code Section 1102.5, the California Whistleblower Protection Act, by providing some financial relief to whistleblowers who report retaliation. Existing law requires some employers to pay a penalty of up to $10,000 to the State. The law would make sure that money goes directly to the worker victimized by illegal retaliation. The bill would also amend the law so that employers can’t use other corporate forms, such as limited liability partnerships, to evade paying penalties.

A coalition, including the California Chamber of Commerce, opposed the rebuttable presumptions in SB 497. It claimed there “is no justification for creating a presumption in these two code sections. Courts already take temporal proximity into account when evaluating retaliation claims and the courts should be allowed to consider other factors relevant to the specific case. Creating a presumption simply allows claims to proceed that should not be moving forward, which wastes valuable court and litigant resources.”

The California Labor Commissioner’s Office reported that in 2020, the Retaliation Complaint Investigation Unit (RCI) received 6,063 complaints. Of those cases, 2,067 were accepted for investigation by the Labor Commissioner. Among the complaints filed, 1,897 of them were for alleged retaliation prohibited under Section 98.6, 1,450 were for alleged retaliation prohibited under Section 1102.5, and 127 were for alleged retaliation prohibited under Section 1197.5

Nationwide Shortage of Physical Therapists is Especially High in California

According to survey data collected by the American Physical Therapy Association (APTA), the job vacancy rate for physical therapists in outpatient settings last year was 17%.

The “Hiring Challenges in Outpatient Physical Therapy Practice” report is based on analysis of survey responses from 133 outpatient physical therapy practices across the U.S. representing 2,615 clinics and nearly 11,000 full-time equivalent employee positions that included PTs, PTAs, and support staff. In terms of practice size, 62% of respondents were practices with between one and four sites; 4.7% reported owning more than 50 sites. The survey was conducted between May 25 and June 16 in collaboration with Vault Consulting.

In broad terms, the report reveals that the coronavirus pandemic ramped up an already-existing shortage of personnel in outpatient clinics, but that relocation and pay – rather than concerns about the pandemic – are the main factors driving employees’ decisions to leave a clinic. The result: vacancy rates that have reached “significant” levels, according to the report.

Among the findings:

– – The total vacancy rate reported by practices averaged 16%. Vacancy rates were highest for PTs, at 17%, followed by 14% for support personnel, and 13% for PTAs. Nearly 80% of respondents reported at least a 5% vacancy rate across all positions.
– – When asked to compare the number of job openings they had before the pandemic with current openings, 60% of respondents said vacancies had increased, with 40% of those estimating that vacancies had grown by 50% or more since 2019.
– – Nearly 41% of practices reported more turnover in the first part of 2022 compared with the same time period in 2019, with 18.5% reporting less turnover in 2022 compared with 2019.
– – When asked to rank why they think employees left their clinics, 37.3% of the business owners cited relocation as the primary reason, with 67.8% placing it in the top three reasons they lost employees. Pay was also a frequently cited reason for leaving, with 25.4% of respondents saying it was the primary reason for employee loss and 63.5% placing it among the top three.
– – Work-life balance figured heavily into the owners’ perceptions of why they lost employees, with 77.1% of respondents placing the issue in the top three reasons, and 22.9% saying it was the primary reason for employee loss.
– – Respondents believe that concerns about COVID-19 did not play a big factor in employee loss, with only 1.7% of owners saying it was the primary reason and 11.9% placing those concerns among the top three reasons for leaving.

Wait times are generally long across the nation, as patients tell of waiting weeks or even months for appoint-ents while dealing with ongoing pain or post-surgical rehab. But the crunch is particularly acute in rural areas and places with a high cost of living, like California, which has a lower ratio of therapists to residents – just 57 per 100,000, compared with the national ratio of 72 per 100,000, according to the association.

A follow up report by California Healthline said that the reasons are multifold. The industry hasn’t recovered from the mass defection of physical therapists who fled as practices closed during the pandemic. In 2021 alone, more than 22,000 PTs – almost a tenth of the workforce – left their jobs, according to a report by the health data analytics firm Definitive Healthcare.

And just as baby boomers age into a period of heavy use of physical therapy, and covid-delayed procedures like knee and hip replacements are finally scheduled, the economics of physical therapy are shifting. Medicare, whose members make up a significant percentage of many PT practices’ clients, has cut reimbursement rates for four years straight, and the encroachment of private equity firms – with their bottom-line orientation – means many practices aren’t staffing adequately.

There’s a shortage of physical therapists in all settings, including hospitals, clinics, and nursing homes, and it’s likely to continue for the foreseeable future, said Justin Moore, chief executive of the physical therapy association. “Not only do we have to catch up on those shortages, but there are great indicators of increasing demand for physical therapy,” he said.

Two Former Tustin Police Officers Face $188K Comp Fraud Charges

Two married former Tustin Police Officers have been charged with numerous felonies related to false workers’ compensation claims they filed with the City of Tustin, claiming they both suffered chronic back pain due to wearing their full duty belt and vest while on duty that prevented them from working.

Video surveillance, and the couple’s own photos and videos, showed the former officers engaged in an active lifestyle while being paid workers’ compensation wages for their injuries. The couple was documented vacationing in Mammoth that included mountain biking and boating, flying internationally to go on a scuba diving trip as well as working on various home improvement projects.

Kendal Hurd, 40, and her husband, Kyle Hurd, 38, have both been charged with multiple felony counts of insurance fraud as well as multiple counts of perjury or attempted perjury. If convicted of any of the charged felonies, they will lose any pension benefits that accrued from the date of the commission of the crime and they will be prohibited from working as peace officers in the future.

Kendal Hurd faces a maximum sentence of 11 years in state prison if convicted on all counts. Kyle Hurd faces a maximum sentence of nine years and six months in state prison if convicted on all counts.

Kendal Hurd worked as a police officer for the City of Santa Barbara for 2 ½ years before joining the Tustin Police Department in April 2015. Kyle Hurd worked as a police officer for the City of Montclair for three years before joining the Tustin Police Department in June 2014. They were terminated in July 2021.

Tustin Police Officer Kyle Hurd filed a workers’ compensation claim on December 7, 2018, claiming he was suffering constant back pain as a result of wearing his duty belt and gear, as well as getting in and out of his patrol car. Less than a year later, on October 16, 2019, after returning to work from the international scuba trip, Kendal Hurd filed a nearly identical workers’ compensation claim as her husband, alleging that her chronic back pain resulted from wearing her duty belt and vest as well as twisting while getting in and out of her patrol vehicle.

The Hurds both told their workers’ compensation doctors that their pain increased with activity and improved with rest. They never disclosed to their doctors that they in fact were capable of doing much more than what they represented.

The City of Tustin initiated the surveillance after both Kendal and Kyle Hurd had been receiving medical care for numerous months for the same condition without seeing improvement.

Surveillance revealed the couple engaging in active lifestyles, including sliding down a water slide, lifting children, riding bikes, paddle boarding, and going to Pilates classes, as well as spending time playing in the water at Lake Mission Viejo.

Those activities directly contradicted what the Hurds told their doctors and what they testified to at their depositions under oath. Kendal Hurd claimed she couldn’t lift more than three pounds unless supervised during physical therapy and she could not stand for longer than five minutes without experiencing severe pain.

After Kyle Hurd was suspended, it was discovered that he sent a text to one of his friends that bragged about receiving unnecessary medical treatment because he was a good actor.

Senior Deputy District Attorney Pam Leitao of the Insurance Fraud Unit is prosecuting this case.

Controversial New California Law Restricts Employer Arbitration Rights

Employers’ arbitration rights in California have been eroding. In recent years, there have been a number of legal challenges to the use of mandatory arbitration agreements in employment disputes, and some of these challenges have been successful. For example, in 2019, California Governor Gavin Newsom signed Assembly Bill 51 (AB 51) into law, which prohibited employers from requiring employees to sign arbitration agreements as a condition of employment.

However, this law was preempted by the Federal Arbitration Act (FAA) in the case of Chamber of Commerce v. Bonta. The Ninth Circuit Court of Appeals ruled in February 2023 that AB 51, which prohibited employers from requiring employees to sign arbitration agreements as a condition of employment, was preempted by the FAA. The court held that AB 51’s deterrent effect on arbitration agreements conflicted with the FAA’s policy of favoring arbitration.

And yet another highly controversial new law has just been been passed in California that again seeks to limit employers rights to appeal disputes about a trial court decision to mandate arbitration of employer-employee disputes. Governor Newsom has singed SB 365 into law.

Under existing law, Code of Civil Procedure Section 1294 identifies various orders or judgements which may be appealed by an aggrieved party, including an order dismissing or denying a petition to compel arbitration.

Code of Civil Procedure Section 916 further provides that, subject to exceptions, the perfecting of such an appeal stays proceedings in trial court. That is to say, when a party is denied in their effort to compel arbitration, upon their appeal, the court proceedings to adjudicate the underlying conflict are postponed until the appeal is decided.

SB 365 adds the sentence ” Notwithstanding Section 916, the perfecting of such an appeal shall not automatically stay any proceedings in the trial court during the pendency of the appeal” to CCP Section 1294. Thus, as of January 1, 2024, in the event a trial court declines to compel an employer’s motion to arbitrate a dispute with employees, and the employer appeals that denial, a stay of the proceeding in the trial court will no longer be an automatic protection of the employer’s rights.

The author of this law claimed that “SB 365 gives courts the discretion to prevent corporations from using a common delay tactic against workers and consumers – in both private and public enforcement actions – when a court has determined that a particular case cannot not be sent to arbitration. Current law allows corporate defendants to pause a consumer, government, or worker’s case by simply filing an appeal of a trial court’s denial of a motion to compel arbitration. Through this process, powerful corporations delay cases filed against them for typically one to three years.”

Earlier in this year, the California Chamber of Commerce added SB 365 to its 2023 Job Killer List and urged the legislature and the Governor to not allow it to become law. The Chamber’s efforts were not successful.

Nonetheless, this new law will likely be challenged for the same reasons as were successful in the Chamber of Commerce v Bonta litigation against AB 51 in February 2023.

At the federal level, California is under the jurisdiction of the 9th Circuit Court of Appeals which followed its 1990 precedent, under which an appeal from the denial of a motion to compel arbitration does not automatically stay district court proceedings. See Britton v. Co-op Banking Group, 916By contrast, however, most other Courts of Appeals to address the question have held that a district court must stay its proceedings while the interlocutory appeal on the question of arbitrability is ongoing. E.g., Bradford-Scott Data Corp. v. Physician Computer Network, Inc., 128 F. 3d 504, 506 (CA7 1997). F. 2d 1405, 1412 (1990).

To resolve that disagreement among the Courts of Appeals,last June the Supreme Court of the United States held that a district court must stay its proceedings while an interlocutory appeal on the question of arbitrability is ongoing in the case of Coinbase Inc., v Bielski – 22-105_5536 (June 2023). It concluded that “An appeal, including an interlocutory appeal, ‘divests the district court of its control over those aspects of the case involved in the appeal.”  This conclusion was supported by the Supreme Court’s interpretation of the Congressional intent in creating the Federal Arbitration Act which preempts state law. This conclusion was supported by a 1982 Supreme Court case, Griggs v. Provident Consumer Discount Co., in which the justices explained that an appeal “divests” a federal trial court of control “over those aspects of the case involved in the appeal.”

SB 365 is therefore at odds with Section 16(a) of the Federal Arbitration Act which sets up a “one-way” right to an immediate (“interlocutory”) appeal: The party seeking arbitration can appeal immediately if the trial court refuses to order arbitration, but the party opposing arbitration has no similar right if the trial court does order arbitration. And under the Coinbase decision, a stay of the trial court is automatic. It would seem that it is more likely than not that a challenge to SB 365 would be successful.

32 Legislators Concerned About Insurance Commissioner

Consumer Watchdog reports that thirty-two members of California’s Democratic Congressional Delegation wrote a letter to Insurance Commissioner Ricardo Lara this week expressing concern that a plan he announced in September would diminish the Insurance Commissioner’s regulatory power and threaten the consumer protections established in insurance reform Proposition 103.

The letter to Commissioner Lara, led by Representatives John Garamendi and Zoe Lofgren, said:

‘Your recent announcements, including the proposed Sustainable Insurance Strategy, seem to suggest dramatic changes to the Commissioner’s regulatory power that may result in a diminution of the authority granted by California voters and your ability to create a stable insurance market in our state. Proposals such as using proprietary forward-predicting models, expediting rate reviews that limit public comment, allowing insurance companies to abandon certain regions of the state, and incorporating reinsurance costs into Californian rates could threaten the important consumer protections established in Proposition 103 and in place since 1988. We believe it is important to keep California consumer interests at the forefront of your decision-making process.

‘We bring our concerns to your attention in anticipation of a comprehensive and transparent process of rulemaking, public hearings, and public comment on any proposed changes to the regulatory powers of the Commissioner and process for approving any rate increases for policyholders. Such a public process is necessary for the protection of consumers against unchecked corporate interests, and we strongly believe that any precipitous action should be subject to public scrutiny.’

Prop 103 made the Insurance Commissioner’s office an elected post and Representative Garamendi was the first elected Commissioner in California.

This month is the 35th anniversary of voters’ approval of Proposition 103, overcoming a record $63 million insurance industry campaign against it. Prop 103 implemented the strongest insurance consumer protections in the nation, according to the Consumer Federation of America, and has saved California homeowners, drivers and business owners hundreds of billions of dollars on their insurance. Consumer Watchdog’s challenges to excessive rate increases using Prop 103’s public participation process have saved consumers $4.6 billion since 2002. Read more about the law here or watch this 35th anniversary video.

Consumer Watchdog warned last week that the deregulation deal cut by Insurance Commissioner Ricardo Lara with the insurance industry will not expand access to affordable insurance for California homeowners or small businesses.

Documents uncovered by Consumer Watchdog through a public records request reveal – in their view – that the quid pro quo for allowing insurance companies to plunder California – the insurance industry’s “commitment” to resume the sale of insurance – is riddled with loopholes.

The documents containing the Commissioner’s plan show:

– – Insurers would be allowed to meet the deal’s only consumer benefit – their “commitment” to expand home insurance coverage in wildfire areas to 85% of their market share outside risky areas – by offering the same high cost, limited benefit coverage that homeowners are already guaranteed access to in the FAIR Plan today.
– – The commissioner could waive the “85% commitment” entirely for any insurer that claims it cannot meet it.
– – The bill’s other provisions to facilitate unjustified rate hikes mean consumers will be unable to afford the policies insurers are willing to sell.

View the documents and read more about what they reveal about the Commissioner’s deregulation deal with the insurance industry.

Nursing Facilities Owner Resolves Kickback Case for $45.6M

Prema Thekkek, her Vacaville-based management company, Paksn Inc., and six skilled nursing facilities (SNFs) owned by Thekkek and/or operated by Paksn have agreed to enter into a $45.6 million consent judgment to resolve allegations that they submitted or caused the submission of false claims to Medicare by paying kickbacks to physicians to induce patient referrals.

The six settling SNFs are Kayal Inc. (doing business as Bay Point Healthcare Center), Nadhi Inc. (doing business as Gateway Care & Rehabilitation Center), Oakrheem Inc. (doing business as Hayward Convalescent Hospital), Bayview Care Inc. (doing business as Hilltop Care and Rehabilitation Center), Aakash Inc. (doing business as Park Central Care & Rehabilitation Center) and Nasaky Inc. (doing business as Yuba Skilled Nursing Center) (collectively the SNF Defendants).

The Anti-Kickback Statute prohibits offering or paying remuneration to induce the referral of items or services covered by Medicare, Medicaid and other federally funded health care programs. It is intended to ensure that medical decision-making is based on the best interests of patients and not compromised by improper financial incentives to providers.

From 2009 to 2021, the SNF Defendants, under the direction and control of Thekkek and Paksn, systematically entered into medical directorship agreements with physicians that purported to provide compensation for administrative services, but in reality were vehicles for the payment of kickbacks to induce the physicians to refer patients to the six SNFs. Specifically, the defendants hired physicians who promised in advance to refer a large number of patients to the SNFs, paid physicians in proportion to the number of their expected referrals and terminated physicians who did not refer enough patients.

On one occasion, a Paksn employee told Thekkek that two physicians were being hired because “they are promising at least 10 patients for $2000 per month,” to which Thekkek responded, “good job. Make sure they give you patients everyday. [W]e can also expand to other buildings with them, if possible.”

On another occasion, an employee informed Thekkek that the defendants previously had paid a certain doctor “$1500 each month and he only send [sic] us 2 patients[,] so we didn’t pay him anything from Jan[uary] onwards.”

On a third occasion, Thekkek rejected a proposed stipend for a new medical director, explaining that the defendants had paid the previous medical director that amount because “we were getting admission[s] from him,” whereas she did not expect the new medical director to refer many patients. More generally, Thekkek complained that if her employees did not pay medical directors promptly every month, “[t]hese doctors will not give us patients.”

Under the settlement, n addition to entering into a $45,645,327.25 consent judgment, the defendants will make scheduled payments to the United States of at least $385,000 over the next five years. That payment schedule was negotiated based on the defendants’ lack of ability to pay.

The settlement stems from a whistleblower complaint filed in 2015 by Paksn’s former Vice President of Operations and Chief Operating Officer, Trilochan Singh, pursuant to the qui tam provisions of the False Claims Act, which permit private persons to bring a lawsuit on behalf of the government and to share in the proceeds of the suit. The Act also permits the government to intervene and take over the lawsuit, as it did in this case as to some of Singh’s allegations.

In addition to resolving their False Claims Act liability, the defendants have entered into a five-year corporate integrity agreement with the HHS-OIG which requires, among other compliance obligations, an Independent Review Organization’s review of their physician relationships.

AI is Revolutionizing The Workers’ Compensation Industry

Bill Zachry is known throughout the risk management industry as a champion of workers’ compensation reform. He currently serves as Chair of the Audit Committee on the board of the State Compensation Insurance Fund. Prior to serving on SCIF Board Bill spent ten years as the Chair of the California Fraud Assessment Commission.

He was the Group VP of Risk Management at Safeway / Albertsons for fifteen years. While there he was awarded Risk Manager of the year by RIMS, as well as workers’ compensation professional of the year from CCWC in 2016. He also spent three years as a Senior Fellow in the Sedgwick Institute where did research and writing on many risk management issues.

He currently authors a number of articles for the Workers’ Comp Thought Leadership Series. His recent article voiced his views on how “AI is Revolutionizing The Workers’ Compensation Industry.”

He wrote that AI represents the future of workers’ compensation. However, like all new technologies, AI is not without its challenges and detractors. Here are a few considerations Mr. Zachary points out as we embark on this transformative journey.

Data Privacy and Security: It is crucial to ensure the privacy and security of the sensitive data that AI systems use. Data privacy issues apply to both the products of the AI process and the data AI uses to produce those products. Privacy is particularly important when dealing with medical records and personal information.

There are currently extensive state and federal privacy laws, rules, and regulations that require careful management. The federal government and others are also working on additional focused AI regulations and compliance issues that will complement current regulations, adding complexity to data access.

Bias and Fairness: Historical data often contains potential bias due to a lack of standard definitions for much of the data held by claims, safety, and underwriting operations. This is especially true for risk assessment, safety programs and claims processing. It is important to ensure that new AI systems are trained with diverse and representative data to avoid discriminatory outcomes.

Interoperability: Significant challenges will arise in integrating AI systems with existing software and databases in the workers’ compensation industry. A standardized data dictionary and glossary would facilitate the development and integration of AI into existing systems. While the Medicare Set Aside and the Rating Bureaus have created islands of consistent data, more work is needed.

Regulatory Challenges: Many potential regulatory hurdles may slow down the adoption of AI in workers’ compensation. Aligning AI technologies with existing regulations and standards is difficult due to the overlap and lack of coordination among industrial and non-industrial disability programs, medical care programs, and the absence of accurate and consistent definitions throughout the entire system. One example of increased governmental oversight and additional regulations is the pending Presidential executive order concerning AI technology.

Training and Education: Like the implementation of any new technology, it is essential to train and educate current workers’ compensation professionals about AI systems. Ensuring that adjusters and other stakeholders understand how to use AI tools effectively and interpret the outputs is crucial. Recognizing AI hallucinations is a specific skill that will need to be taught.

Ethical Considerations: All new technology can be used for both good and bad. Significant ethical dilemmas may arise when AI systems are used in decision-making processes, such as determining claims eligibility or settlement amounts. This underscores the importance of transparent and accountable AI systems and responsible management of those systems.

Human-AI Collaboration: AI can significantly complement the work of human claims adjusters rather than replace them. There are substantial benefits to adopting a collaborative approach where AI assists professionals in making informed decisions. However, if AI completely removes the human element, it may not optimize the potential results derived from the new technology.

Legal and Liability Issues: As with all new technology, if misused or used ignorantly, significant potential legal and liability issues may arise if AI systems make incorrect predictions or decisions. These concerns are magnified by the potential for AI to occasionally have hallucinations, with the entire output being based on bad or non-existent data. One current example making the rounds is the legal brief that included citations of cases that do not exist. Ultimately, the responsibility rests with humans to ensure there are no unintended consequences or mischief.

Misplaced Incentives: The workers’ compensation system is rife with misplaced incentives. AI does not eliminate these problems and may even exacerbate some of them driven by the misplaced incentives.

Ongoing Monitoring and Maintenance: As with all new technology, it is important to continuously monitor and maintain AI systems to ensure they remain accurate and up-to-date. Strategies for handling system failures or errors should be in place. No system improves without constant feedback and the identification of problems and errors. This axiom is particularly true for AI.

Stakeholder Acceptance: Without carefully gaining acceptance and trust from all stakeholders, including injured workers, employers, and insurance companies, AI will not succeed. Part of that acceptance is constant communication concerning what is being implemented, recognition of problems, and owning of mistakes. This should include transparent communication about AI’s role in the process.

Cost-Benefit Analysis: Most companies will not implement every idea all at once. The determination of which processes to implement should include an accurate cost-benefit analysis. This analysis should consider both the initial investment and the potential long-term savings and improvements in outcomes.

Integration with Other Technologies: AI thrives on accurate and timely data. Emerging technologies, such as telemedicine or wearable devices, can enhance injury prevention, improve medical treatment recovery, and reduce the costs of claims management by providing accurate and timely data.

New Federal Rules on PBMs Backfires on Small Pharmacies

KFF Health News reports that the Biden administration’s first major step toward imposing limits on the pharmacy benefit managers who act as the drug industry’s price negotiators is backfiring. Instead, it’s adding to the woes of the independent drugstores it was partly designed to help.

PBMs have long clawed back a fee from pharmacies weeks or months after they dispense a drug. A new rule, which governs Medicare’s drug program, is set to take effect Jan. 1 and requires PBMs to take most of their “performance fees” at the time prescriptions are filled.

The clawbacks have ballooned from about $9 million in 2010 to $12.6 billion in 2021, according to the Medicare Payment Advisory Commission, an agency created to advise Congress on the program for people who are 65 and older or have disabilities. Performance fees have also boosted Medicare patients’ prescription costs at the pharmacy counter by hundreds of millions of dollars, although insurers assert that the fees enable them to charge lower premiums.

Pharmacist groups supported the Medicare rule change, but they didn’t anticipate the PBMs’ response, which has been to demand they accept new contracts with draconian cuts to their payments for dispensing medicines, said Ronna Hauser, vice president of the National Community Pharmacists Association, which represents independent drugstores. If pharmacies refuse the contracts, they risk losing Medicare customers – likely to the same giant PBM conglomerates, which have absorbed a growing share of the pharmacy business in recent years.

PBMs sit at the center of the U.S. supply chain for drugs, where they say they negotiate lower prices for insurers – including Medicare – and for employers and their workers. But the organizations are loathed by independent drugstores, drugmakers, and patients alike, who accuse them of siphoning money from what is already the world’s most expensive health care system without providing additional value.

PBM practices even put the squeeze on national chains like Rite Aid, Kroger, and Walgreens, which aren’t part of the conglomerates. Even CVS Health, which owns one of the three leading PBMs, has closed stores or trimmed staff as it pushes consumers to mail-order pharmacy services.

In the early fall, PBM giant Express Scripts sent out confidential contracts announcing that in 2024 it will pay pharmacies roughly 10% below what they typically pay to buy wholesale brand-name drugs – meaning they could lose money on every prescription they fill, according to two independent pharmacists who received the documents. They declined to share the contracts because they are subject to nondisclosure agreements with Express Scripts.

For the first months of 2024, pharmacies will face a double whammy. PBMs will pay them less for the drugs they dispense, while the pharmacies also face clawbacks on drugs dispensed in the last quarter of 2023.

Some pharmacies are setting aside savings or taking out short-term loans to cover losses in the early months of next year. “I’m hoping we’ve made the right calculations and will get through this,” said Marc Ost, co-owner of Eric’s Rx Shoppe in Horsham, Pennsylvania.

Express Scripts has said it wants to help independent pharmacies survive, Doug Hoey, CEO of the National Community Pharmacists Association. said, but hasn’t responded to a June letter in which he asked the company to provide breathing space by imposing the 2023 clawbacks gradually over 12 months. CMS this month said it “strongly recommends” but does not require PBMs to come up with payment plans for pharmacies.

In its statement, Express Scripts said it was “committed to reimbursing pharmacies fairly, ensuring Medicare beneficiaries have safe, quality pharmacies in their network, and giving beneficiaries all available discounts at the pharmacy counter.”

San Joaquin County Pharmacy to Pay $1M in Civil Penalties

Nor-Cal Pharmacies Inc., doing business as Lockeford Drug located at 14090 E Highway 88 Lockeford CA 95237, and pharmacist/owner Lawrence Howen have agreed to pay $1 million in penalties to resolve allegations of violations of the Controlled Substances Act.

The defendants agreed to the entry of a permanent injunction against them that permanently bars them from dispensing controlled substances, owning a company that dispenses controlled substances, or employing another person that dispenses controlled substances.

The injunction, signed by U.S. District Judge Ana de Alba, includes findings that the defendants knew or deliberately ignored that they were dispensing controlled substances pursuant to prescriptions that were not for a legitimate medical purpose.

Specifically, the injunction states that the defendants dispensed 116,330 pills, including more than 100,000 oxycodone and hydrocodone pills, based on invalid prescriptions presented by Joe Anthony Bernal, a defendant charged in the Northern District of California in a separate criminal case (4:19-cr-00585).

They did so despite circumstances that were highly suggestive that Bernal was not presenting them with legitimate prescriptions. As also stated in the injunction, the defendants took no steps to determine the validity of Bernal’s purported prescriptions and were not concerned if those medications caused patient harm.

Bernal is charged with conspiring with several others to illegally acquire and distribute oxycodone and hydrocodone. The charges against Bernal are pending and are only allegations; he is presumed innocent until and unless proven guilty beyond a reasonable doubt.

“As a pharmacy that fills prescriptions for opioids and other dangerous drugs, the defendants had an obligation to fill only legitimate prescriptions,” U.S. Attorney Talbert said. “The defendants failed to comply with that obligation, and thereby failed in their responsibility to prevent the opioids from being diverted into illicit channels.”

“The defendants went from pharmaceutical provider to drug dealer when they knowingly provided controlled substances without a legitimate medical purpose,” said DEA Special Agent in Charge Brian M. Clark. “This egregious behavior by a trusted individual and entity not only fuels the fire of the opioid epidemic, but also wreaks havoc on the community they serve.”

This case was the product of an investigation by the Drug Enforcement Administration with assistance from the California Board of Pharmacy. Assistant U.S. Attorney Steven S. Tennyson handled the case.

State University Director Of Sports Medicine Sentenced to 2 Years

Scott Shaw, a former San Jose State University (SJSU) Director of Sports Medicine, was sentenced to serve 24 months in prison for unlawfully touching female student-athletes under the guise of providing medical treatment. The sentence was handed down by the Honorable Beth Labson Freeman, United States District Judge for the Northern District of California.

Shaw pleaded guilty to the charges on August 15, 2023. As part of the plea agreement, Shaw admitted that, between 2017 and 2020, he violated the civil rights of four students who played on women’s athletics teams by touching their breasts and buttocks without their consent and without a legitimate medical purpose.

According to court documents, from 2008 until August 2020, Shaw served as the Director of Sports Medicine and head athletic trainer at SJSU, a public university that is part of the California State University system, and was an employee of the State of California. His duties included treating injuries sustained by student-athletes at SJSU.

Shaw admitted that he engaged in all the conduct described above on SJSU’s campus, and in his capacity as an SJSU athletic trainer. Shaw admitted that female student-athletes allowed him to have physical contact with them only because of his status as an SJSU athletic trainer.

Shaw further acknowledged that female student-athletes sought treatment from him because they were in pain, seeking relief, and wanted to continue participating in SJSU Athletics. Further, the student-athletes trusted him because he was an experienced athletic trainer. Shaw also admitted that he inappropriately touched each of the student-athletes as described above without any legitimate diagnostic or treatment purpose and without seeking or securing their consent in advance. Shaw further admitted that his conduct was not the result of mistake, carelessness, or accident.

In sum, Shaw pleaded guilty to two counts of deprivation of rights under color of law, in violation of 18 U.S.C. 242. In addition to the prison term, Judge Freeman ordered Shaw to serve one year of supervised release, to begin after he has served his prison term, and to pay a $15,000 fine. Judge Freeman also scheduled a hearing to take place on February 6, 2024, to determine issues related to restitution.

Judge Freeman ordered Shaw to surrender on or before March 6, 2024, to begin serving his prison term.

“Today’s sentence sends a clear message that public school officials who exploit their positions of authority to sexually abuse and harass students will face serious consequences for their actions,” said Assistant Attorney General Kristen Clarke of the Justice Department’s Civil Rights Division. “The Justice Department will not tolerate violations of civil rights committed under the guise of legitimate medical treatment by those in positions of power and trust.”

“Scott Shaw was entrusted to care for athletes in the California State University system. Instead, he used his power over female athletes to violate their civil rights by sexually groping them without their consent and without any medical justification,” said First Assistant U.S. Attorney Patrick Robbins for the Northern District of California. “Such criminal assaults on college athletes will be investigated and prosecuted; anyone abusing their power over student athletes in this way should expect to spend time in prison for doing so.”

“A patient necessarily places enormous trust in a healthcare provider; that relationship is privileged and inviolable for good reason,” said FBI Special Agent In Charge Robert Tripp. “Shaw’s violation of that relationship is reprehensible, as was reflected in his sentence. I commend the student athletes for their moral courage in coming forward to challenge Shaw. Their bravery prevented Shaw from committing further harm to others, and civil rights violations will continue to be a top priority for the FBI.”

Assistant U.S. Attorney Michael Pitman for the Northern District of California and Trial Attorney MarLa Duncan and Attorney Advisor Sarah Howard of the Civil Rights Division’s Criminal Section are prosecuting the case. This case was investigated by the FBI.