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Tag: 2023 News

No Liability For Off Worksite, Weekend Sexual Misconduct Between Friends

Hanin Atalla and Erik Lund met in the “early fall” of 2017, during her last year of pharmacy school, when she did a six-week “business administrative rotation with Rite Aid.” The rotation entailed Atalla “shadow[ing]” Lund. Lund was Atalla’s “preceptor” for the rotation. Atalla did six other rotations besides the Rite Aid rotation as part of her pharmacy school requirements. When Atalla’s rotation with Rite Aid ended, Atalla celebrated at a dinner with Lund and his wife. Atalla stayed in close touch with Lund thereafter.

Starting from the time Atalla did her six-week rotation with Lund, she and Lund developed a social relationship. Over time, they became close friends. They were friends before Atalla started working at Rite Aid. Atalla also viewed Lund as a mentor.

Atalla and her husband celebrated a Friendsgiving at the home of Lund and his wife in 2017. Atalla and Lund texted frequently; they joked with one another in texts; they texted about personal matters; they texted about a wide range of things; and they sent multimedia messages to one another as well. They would go out to lunch together.

Atalla’s friendship with Lund continued after Atalla began working at Rite Aid in March 2018. They continued to text frequently about all kinds of things, including travel and vacations, exercise, weight loss, food, restaurants, getting together for meals, religious observances, family and relatives, their respective spouses, pets, social media, drinking and alcohol, birthdays, fashion, and work issues. They exchanged hundreds of texts. They would go out for coffee and meet up for lunch. In December 2018, Lund and his wife joined Atalla and her husband (and another couple) for dinner to celebrate Atalla’s birthday.

One month after Atalla and Lund dined together in celebration of her birthday, they engaged in their final text exchange, also on their personal cell phones. On January 4, 2019, a Friday night, Lund texted Atalla a “Live Photo” of him engaging in a sexual act by himself while he was drunk. The next morning, Lund texted Atalla, “Wanted to apologize I was embarrassing drunk last night.”

On Sunday, January 6, 2019, Atalla called her training pharmacist and said she was not feeling well and would not be able to work that week. On January 10, 2019, Atalla’s counsel, John Waterman sent a letter to Rite Aid asserting a claim of sexual harassment. Atalla’s counsel also advised that Atalla “will not be returning to work at Rite Aid.” Atalla’s counsel said he had already obtained a right-to-sue letter and would be filing a complaint that coming Monday, January 15, 2019.

Rite Aid interviewed Lund who admitted what he had done, and investigated whether there were any other complaints of sexual harassment against Lund; the investigation revealed none.

Rite Aid made the decision to terminate Lund on Monday, January 14, 2019. That same day, their counsel emailed a letter to Atalla’s counsel advising of Lund’s termination and assuring them, “Ms. Atalla remains an active employee in our system, and she is welcome to return to work.”

Rite aid concluded that Atalla had no intention of returning to work at Rite Aid and, rather, had decided to resign and pursue litigation. Accordingly, on January 21, 2019, Atalla’s status in Rite Aid’s system was changed to “resignation with the possibility of re-hire.” On January 22, 2019, Rite Aid sent Atalla a separation notice, along with her vacation payout.

Atalla filed a sexual harassment, failure to prevent sexual harassment, wrongful constructive termination, discrimination, and retaliation action against her former employer, Rite Aid Corporation and Thrifty Payless, Inc., dba Rite Aid.

The Rite Aid defendants brought a summary judgment motion. Rite Aid attached over 500 pages filled with text messages (along with images and photographs) exchanged between Atalla and Lund.

The trial court granted summary judgment noting that the “question is whether the harassment arose from a completely private relationship unconnected with the employment. I think defendants have met their burden of showing that this is the case. The Court of Appeal affirmed in the published case of Atalla v. Rite Aid Corporation -F082794 (March 2023).

The underlying goal of FEHA in this context is to provide effective measures to prevent workplace  harassment. (State Dept. of Health Services v. Superior Court (2003) 31 Cal.4th 1026, at pp. 1046-1047.)  “‘Under the FEHA … there is a need to determine whether sexual conduct that occurs off the worksite or after working hours constitutes an “unlawful employment practice” within the ambit of the act.’ “ (Myers v. Trendwest Resorts, Inc. (2007) 148 Cal.App.4th 1403, 1422, quoting § 12940 (italics added).)”

We affirm the trial court’s conclusion that Atalla has not raised a triable issue of material fact with respect to the required showing that Lund was acting in the capacity of a supervisor in the text exchange in which he sent the inappropriate texts. Rather, as the trial court found, Lund and Atalla had ‘an extensive texting relationship’ and their January 4, 2019 late-night text exchange, which ‘occurred outside the workplace and outside of work hours,’ was ‘spawned from a personal exchange that arose from a friendship between [them].’ Summary judgment is therefore proper as to Atalla’s sexual harassment claims.”

No ACOEM/MTUS Adoption Yet of New CDC Opiod Guidelines

2016 guidelines from the Centers for Disease Control and Prevention inspired laws cracking down on doctor and pharmacy practices for prescribing Opioids.

In July 2016, the DWC Administrative Director adopted and incorporated by reference the Opioids Guideline (ACOEM April 20, 2017) into the MTUS from the ACOEM Practice Guidelines in its regulations § 9792.24.4.

The first CDC guidelines “put everybody on notice,” said Dr. Bobby Mukkamala, chair of the American Medical Association’s Substance Use and Pain Care Task Force. Physicians reduced the number of opioid pills they prescribe after surgeries, he said. The 2022 revisions are “a dramatic change,” he said.

In November, the CDC released new guidelines, encouraging physicians to focus on the individual needs of patients. While the guidelines still say opioids should not be the go-to option for pain, they ease recommendations about dose limits, which were widely viewed as hard rules in the CDC’s 2016 guidance. The new standards also warn doctors about risks associated with rapid dose changes after long-term use.

And in an advocacy letter to the CDC on the proposed new guidance, ACOEM said “ACOEM is appreciative of the opportunity to provide feedback to the Centers for Disease Control and Prevention (CDC) regarding its Clinical Practice Guideline for Prescribing Opioids – United States, 2022 and is supportive of many of the changes made to CDC’s original Opioids Guideline (2016) and the overall review process.” Nonetheless it continued to recommend restraint in the prescribing of opioids

But Kaiser Health News says that some doctors worry the new recommendations will take a long time to make a meaningful change – and may be too little, too late for some patients. The reasons include a lack of coordination from other federal agencies, fear of legal consequences among providers, state policymakers hesitant to tweak laws, and widespread stigma surrounding opioid medication.

“We had a massive opioid problem that needed to be rectified,” said Antonio Ciaccia, president of 3 Axis Advisors, a consulting firm that analyzes prescription drug pricing. “But the federal crackdowns and guidelines have created collateral damage: patients left high and dry.”

Taking into account the perspective of chronic pain patients, the latest recommendations try to scale back some of the harms to people who had benefited from opioids but were cut off, said Dr. Jeanmarie Perrone, director of the Penn Medicine Center for Addiction Medicine and Policy.

“I hope we just continue to spread caution without spreading too much fear about never using opioids,” said Perrone, who helped craft the CDC’s latest recommendations.

Christopher Jones, director of the CDC’s National Center for Injury Prevention and Control, said the updated recommendations are not a regulatory mandate but only a tool to help doctors “make informed, person-centered decisions related to pain care.”

Dr. Stefan Kertesz, a professor of medicine at the University of Alabama-Birmingham said the new CDC guidance reflects “an extraordinary amount of input” from chronic pain patients and their doctors but doubts it will have much of an impact if the FDA and the Drug Enforcement Administration don’t change how they enforce federal laws.

Even for people with prescriptions, it’s not always easy to get the drugs they need. Pharmacy chains and drug wholesalers have settled lawsuits for billions of dollars over their alleged role in the opioid crisis. Some pharmacies have seen their opioid allocations limited or cut off, noted Ciaccia, with 3 Axis Advisors.

The new CDC Guidelines have yet to be incorporated into the ACOEM Guideline or the Workers’ Compensation MTUS.

Uber, Lyft, DoorDash Prevail in AB 5 – Prop 22 Appeal

In 2019, the California Legislature enacted Assembly Bill No. 5, which established a new test for distinguishing between employees and independent contractors for the purposes of the Labor Code and Unemployment Insurance Code.

In response, Davis White and Keith Yandell, supported by a group called Protect App-Based Drivers and Services proposed Proposition 22. Among the supporters of Protect Drivers and Proposition 22 were rideshare and delivery network companies such as Uber Technologies, Inc., Lyft, Inc., and DoorDash, Inc.

The voters approved Proposition 22 in November 2020, with 58.6 percent of voters in favor and 41.4 percent opposed. It added sections 7448 to 7467 to the Business and Professions Code.

Shortly afterwards, Hector Castellanos, Joseph Delgado, Saori Okawa, Michael Robinson, Service Employees International Union California State Council, and Service Employees International Union filed a petition for writ of mandate seeking a declaration that Proposition 22 is invalid because it violates the California Constitution.

The trial court granted the petition, ruling that the proposition (1) is invalid in its entirety because it intrudes on the Legislature’s exclusive authority to create workers’ compensation laws; (2) is invalid to the extent that it limits the Legislature’s authority to enact legislation that would not constitute an amendment to Proposition 22, and (3) is invalid in its entirety because it violates the single-subject rule for initiative statutes.

It issued a judgment ordering Katie Hagen, as director of the Department of Industrial Relations, not to enforce any of Proposition 22’s provisions.

Proposition 22’s proponents and the state appealed, arguing the trial court was mistaken on all three points.

The Court of Appeal agreed that Proposition 22 does not intrude on the Legislature’s workers’ compensation authority or violate the single-subject rule. But it concluded that the initiative’s definition of what constitutes an amendment violates separation of powers principles. Because the unconstitutional provisions can be severed from the rest of the initiative, it affirmed the judgment insofar as it declares those provisions invalid and to the extent the trial court retained jurisdiction to consider an award of attorney’s fees, and otherwise reversed in the published case of Castellanos v. State of California – A163655 (March 2023).

By placing the eligibility of app-based drivers for workers’ compensation benefits off-limits to amendment by the Legislature, Proposition 22 seeks to override constitutional responsibility delegated to the Legislature.

Thus the Court of Appeal concluded that sections 7465(c)(3) and (4) are facially invalid on separation of powers grounds because they intrude on the judiciary’s authority to determine what constitutes an amendment to Proposition 22, and section 7465(c)(4) fails for the additional reason that it intrudes on the Legislature’s authority by artificially expanding Proposition 22’s article II, section 10(c) shadow.

However, the proper remedy for the separation of powers violation is to sever section 7465(c)(3) and (4) and allow the rest of Proposition 22 to remain in effect, as the voters indicated they wished. (§ 7467, subd. (a).) rather than strike Proposition 22 in its entirety.

“The judgment is affirmed to the extent it declared sections 7465(c)(3) and (c)(4) invalid and to the extent the trial court retained jurisdiction to consider a motion for attorney fees under Code of Civil Procedure section 1021.5. In all other respects, the judgment is reversed. The matter is remanded to the trial court with instructions to enter a new judgment not inconsistent with this opinion.”

Feds Move to Rein In Health Insurance Prior Authorization Rules

Few things about the American health care system infuriate patients and doctors more than prior authorization, a common tool whose use by insurers has exploded in recent years.

Prior authorization, or pre-certification, was designed decades ago to prevent doctors from ordering expensive tests or procedures that are not indicated or needed, with the aim of delivering cost-effective care.

Originally focused on the costliest types of care, such as cancer treatment, insurers now commonly require prior authorization for many mundane medical encounters, including basic imaging and prescription refills. In a 2021 survey conducted by the American Medical Association, 40% of physicians said they have staffers who work exclusively on prior authorization.

This report by Kaiser Health News notes that in December, the federal government proposed several changes that would force health plans, including Medicaid, Medicare Advantage, and federal Affordable Care Act marketplace plans, to speed up prior authorization decisions and provide more information about the reasons for denials. Starting in 2026, it would require plans to respond to a standard prior authorization request within seven days, typically, instead of the current 14, and within 72 hours for urgent requests. The proposed rule was scheduled to be open for public comment through March 13.

Although groups like AHIP, an industry trade group formerly called America’s Health Insurance Plans, and the American Medical Association, which represents more than 250,000 physicians in the United States, have expressed support for the proposed changes, some doctors feel they don’t go far enough.

Meanwhile, some states have passed their own laws governing the process. In Oregon, for example, health insurers must respond to nonemergency prior authorization requests within two business days. In Michigan, insurers must report annual prior authorization data, including the number of requests denied and appeals received. Other states have adopted or are considering similar legislation, while in many places insurers regularly take four to six weeks for non-urgent appeals.

Waiting for health insurers to authorize care comes with consequences for patients, various studies show. It has led to delays in cancer care in Pennsylvania, meant sick children in Colorado were more likely to be hospitalized, and blocked low-income patients across the country from getting treatment for opioid addiction.

In some cases, care has been denied and never obtained. In others, prior authorization proved a potent but indirect deterrent, as few patients have the fortitude, time, or resources to navigate what can be a labyrinthine process of denials and appeals. They simply gave up, because fighting denials often requires patients to spend hours on the phone and computer to submit multiple forms.

Facing scrutiny, some insurers are revising their prior authorization policies. UnitedHealthcare has cut the number of prior authorizations in half in recent years by eliminating the need for patients to obtain permission for some diagnostic procedures, like MRIs and CT scans, said company spokesperson Heather Soules. Health insurers have also adopted artificial intelligence technology to speed up prior authorization decisions.

Probes Reveal Decades Long State Bar Unethical Conduct

Disgraced plaintiff personal injury lawyer Tom Girardi, once among the most successful and powerful plaintiff’s attorneys in the country, gave more than $1 million in gifts and payments to a state bar investigator and his wife, according to a corruption probe released Friday by the State Bar of California .

Throughout his more than 50-year career, Girardi had two claims to fame: he played a key role in winning a $333 million settlement for residents of Hinkley, California, in their lawsuit against Pacific Gas & Electric, a case that later became the basis for the film “Erin Brockovich.” Decades later, he and his wife Erika Jayne were cast on the reality show “Real Housewives of Beverly Hills.”

For years, Girardi faced accusations that he’d stolen money from clients and other lawyers. He was forced into bankruptcy in 2021, disbarred in 2022, and last month was finally indicted by two different federal grand juries, one in California and one in Illinois, on charges of embezzling more than $18 million of his clients’ money.

The State Bar decided to release the reports in furtherance of the agency’s public protection mission and its commitment to transparency and accountability. In releasing these reports, the State Bar has redacted information that is protected under the law, including California Business and Professions Code section 6086.1, and the right to privacy.

The first report was prepared by attorney Alyse Lazar, who in 2021 was retained by the State Bar to review 115 files of past complaints against Girardi. Her review, limited to documents in investigative files, identified numerous instances in which complaints were closed without complete investigations or despite the development of facts warranting discipline.

The second report was completed by Halpern May Ybarra Gelberg LLP, an outside law firm hired by the State Bar to conduct a wide-ranging investigation that was not limited to file review and included interviews of 74 witnesses and extensive evidence gathering. The May report details instances where Girardi’s efforts to buy relationships and exercise influence at the State Bar – at all levels – likely impacted the handling of some complaints against him, causing those complaints to be closed improperly.

During a 16-month investigation, May and his team reviewed over 950,000 documents, issued 23 subpoenas, and interviewed, either voluntarily or under compulsion, 74 witnesses. The May report indicates that Girardi intentionally cultivated relationships at many levels in the State Bar to increase his influence in the agency. The report outlines several instances of past State Bar staff exercising poor judgment, ignoring or poorly handling conflicts of interest, and otherwise behaving unethically. None of the individuals identified as engaging in unethical conduct remain affiliated with or employed by the State Bar.

“We found that Girardi maintained an extensive network of connections at all levels of the state bar,” the report reads. “As one witness told us, ‘[i]t’s almost like Girardi became part of the fabric at the State Bar.‘”

Other examples include:

– – Former State Bar employee Tom Layton, who was terminated in 2015, (and his wife) received gifts and payments estimated at over $1 million from Girardi, through his firm, while Layton was employed at the State Bar. Those payments and gifts were never properly disclosed.
– – Other State Bar employees and Board members accepted and failed to report gifts and other items of value from Girardi.
– – Relatives of staff members were employed by Girardi’s firm.
– – Staff in the Office of Chief Trial Counsel (OCTC) were improperly involved in matters assigned to outside conflict counsel.
– – Eight Girardi cases were closed by individuals who May determined had conflicts of interest at the time they worked on the cases. The report found that their conflicts tainted their decisions to close the cases.
– – Interim Executive Director Bob Hawley ghostwrote decisions in matters assigned to outside conflict counsel without disclosing that fact, including a decision to recommend closure of a complaint against Girardi.
– – Between 2013 and 2015, both the Executive Director’s Office and Office of General Counsel received reports about Girardi’s influence at the State Bar and connection to Layton and others but failed to investigate.
– – Former Executive Director Joe Dunn, who was terminated in 2014, and Hawley made questionable terminations of two OCTC attorneys who were advocating for disciplinary actions against Girardi.
– – On at least one occasion, Girardi successfully deployed his connections at the State Bar to discourage people from making complaints against him.

Murray Greenberg, who worked at the bar’s Office of Chief Trial Counsel for three decades and “was personally involved in the state bar’s handling of multiple Girardi cases that were closed without any public discipline to Girardi.” Among other things, Greenberg attended parties thrown by Girardi, and received concert tickets from him without disclosing them.

When we deposed Greenberg,” the May report reads, “he invoked his Fifth Amendment right against self-incrimination and refused to answer any questions about his relationship with Girardi or work at the state bar.”

Girardi has been diagnosed with late-onset Alzheimer’s disease, has been under his brother’s conservatorship for two years, and is now living in an assisted living facility in Orange County. Last month, a federal judge in Los Angeles ordered a mental competency hearing to determine whether Girardi is fit to stand trial.

PEO Owners Plead Guilty to $54M Insurance Fraud Scheme

54 year old Wesley Owens and 38 year old Beau Wilson, who both live in Atlanta Georgia, pleaded no contest to multiple felony counts of insurance fraud and conspiracy, charges that were pending against them in the Los Angeles Superior Court. The charges were filed after a California Department of Insurance investigation found the two defendants perpetrated a $54 million workers’ compensation insurance fraud scheme.

They both will be sentenced to 10 years formal probation, 60 days of community labor and are ordered to pay $350,000 cash prior to their final sentencing in restitution.

Wilson additionally agreed to sell five pieces of real property and remit the proceeds of the sale towards further restitution. Both also stipulated to an agreed additional $14.15 million owed in restitution during their 10 years of formal probation. If either defendant fails to fulfill the terms of their formal probation, or otherwise violates probation, they will be remanded to California State Prison for five years.

Owens owned and was the CEO of Bison Workforce Solutions, a Professional Employer Organization (PEO) based outside Atlanta, Georgia, that provided outsourced workers’ compensation insurance human resources, payroll, tax and other services to other businesses.

After receiving a referral from the State Compensation Insurance Fund, the Department launched an investigation which uncovered a massive workers’ compensation insurance fraud scheme perpetrated by Owens, Wilson, and other Bison employees.

The investigation found the company failed to pay approximately $29 million in premium as a result of its fraud and bilked its PEO customers out of approximately $25.5 million in fees they thought were paying for workers’ compensation insurance coverage.

The investigation found Owens would obtain workers’ compensation insurance for his company, Bison, and then use the documents provided to it by the insurance company to generate fraudulent Certificates of Insurance, which they would issue to PEO customers. The insurance carrier was told the policy was to cover a small, white-collar firm, not the PEO customers’ businesses which included agricultural workers, roofers, limo drivers, and a wide variety of other employees.

The investigation also found Wilson, who was aware of the fraud, recruited customers for Bison and received commissions for each client that used the fraudulent services.

Bison became unable to obtain workers ‘compensation because of its persistent fraud so the company entered into a business relationship with another firm that already had a workers’ compensation insurance policy. Owens and his coconspirators began using that firm’s documents to continue generating fake insurance certificates.

In order to conceal the fact that its policy was being misused to insure PEO customers, Bison began paying out claims itself. When the expense of this was too much for the company to sustain, it eventually stopped paying out claims and left workers uncovered by workers’ compensation insurance and with no recourse after being injured on the job.

The Department executed a search warrant in Georgia in conjunction with the Georgia Department of Insurance and conducted numerous interviews. On March 2, 2023, Owens and Wilson pleaded no contest.

Probation and sentencing is initially set for September 13, 2023.

WCAB Orders Bifurcated Trial in NFL Contested Jurisdiction Case

Matthew Jesse Ware played college football at UCLA, and also played for a number of professional teams. His career history according to public records included the Philadelphia Eagles (2004-2005). Arizona Cardinals (2006-2010). Virginia Destroyers (2012), and the Toronto Argonauts (2014).

He filed an Application for Adjudication of Claim against the Arizona Cardinals Football Club LLC which is currently pending trial and a disposition.

The Cardinals compete in the National Football League as a member of the National Football Conference West division, and play their home games at State Farm Stadium in Glendale, a suburb northwest of Phoenix.

The defendant “specially appeared” in this case for the purpose of contesting jurisdiction. A special appearance is for the purpose of objecting to the jurisdiction of the court over defendant without submitting to such jurisdiction. A general appearance is made where the defendant waives defects of service or jurisdiction and submits to the jurisdiction of court.

On July 15, 2022, defendant filed a Declaration of Readiness to Proceed requesting a Mandatory Settlement Conference on the issue of jurisdiction. Defendant averred it was specially appearing and requested a “bifurcated trial regarding jurisdiction and exemptions/exceptions to jurisdiction.”

Applicant objected to the DOR, asserting California retained subject matter jurisdiction over the claim, that discovery was ongoing, and requesting a status conference. Applicant asserted that, “[t]rial is premature in that at the current time discovery is still ongoing and a trial at this early stage in the litigation process would be a waste of the Court’s time and resources.”

On August 31, 2022, the parties proceeded to Mandatory Settlement Conference. The minutes of hearing state: “The defense attorney filed DOR requesting bifurcated trial on jurisdiction. Applicant attorney wants to proceed on all issues. The WCJ continues the present MSC, set on only DOR for bifurcated trial, to another MSC where applicant requests trial on all issues.The WCJ ordered that the matter be continued to another MSC on October 26, 2022 over defendant’s objection.”

Defendant’s Petition for Removal was granted by the WCAB in the case of Ware v Arizona Cardinals Football Club LLC ADJ13302605-ADJ15813943 (March 2023), and the case was returned to the trial level with instructions that the matter be set for MSC forthwith, and that the matter thereafter be set for trial on issues of California subject matter and personal jurisdiction.

In the Petition for Removal, the defendant asserts that setting this matter for an MSC “on all issues” is premature pending a determination of whether California has jurisdiction over this claim.

Defendant observes that the WCJ is empowered to bifurcate and try separate issues upon a showing of good cause, and thus contends that “without the ability to obtain a bifurcated trial on a critical threshold issue such as subject matter jurisdiction and/or personal jurisdiction, Defendant will be exposed to unreasonable and unnecessary litigation costs and medical expenses which they would otherwise be able to avoid altogether if they prevail at a bifurcated trial.”

The WCJ’s Report observes that bifurcated proceedings on jurisdiction would require the expenditure of time and judicial resources for separate proceedings, and may also require parties to travel to California from locations possibly outside the state.The WCJ asserts that the trial judge will be in the best position to evaluate defendant’s request for bifurcated proceedings following a review of the evidence, and that the defendant has not demonstrated it will suffer irreparable harm or prejudice by having the issue of jurisdiction considered at the time of trial with all other issues.

The WCAB panel observed that defendant is specially appearing in this matter for the purpose of contesting jurisdiction. Defendant’s July 15, 2022 DOR reiterates that it is specially appearing, and requests bifurcated trial proceedings limited to jurisdiction and possible exemptions and/or exceptions thereto.

The WCAB when on to conclude that while the parties to a matter are generally expected to “submit for decision all matters properly in issue at a single trial,” the WCJ may also order that the issues in a case be “bifurcated and tried separately upon a showing of good cause.” (Cal. Code Regs., tit. 8, § 10787(a).)

Here, we believe there is good cause to bifurcate and decide the issues of subject matter and personal jurisdiction. Applicant has indicated he is ready to proceed on all issues including jurisdiction, while defendant has indicated readiness to proceed on jurisdictional issues only.”

“If defendant prevails, there will be no need for further discovery or proceedings. If applicant prevails, the parties will then be able to develop the record on the merits of applicant’s claim, and if there is a determination that injury arose out of and in the course of employment, the defendant will no longer require a judicial determination of California jurisdiction prior to delivering any benefits due the applicant.”

“Here, we conclude that bifurcation and trial on threshold jurisdictional issues best meets the requirements for expedited resolution of threshold issues in furtherance of the prompt delivery of reasonable benefits.”

Fraud Resulted in Doctors Implanting Fake $16,000 Pain Devices

Prosecutors filed a two-count Indictment charging Laura Perryman, the former Chief Executive Officer of Stimwave LLC, a Florida-based medical device company, with a scheme to create and sell a non-functioning dummy medical device for implantation into patients suffering from chronic pain, resulting in millions of dollars in losses to federal healthcare programs.

Perryman, 54, of Delray Beach, Florida, has been charged with one count of conspiracy to commit wire fraud and health care fraud, which carries a maximum potential sentence of 20 years in prison, and one count of health care fraud, which carries a maximum potential sentence of 10 years in prison.

Stimwave was a medical device company that manufactured and distributed implantable neurostimulation devices designed to treat intractable, chronic pain.  Founded in 2010 by Perryman and others, Stimwave was headquartered in Pompano Beach, Florida. It was founded on the premise that its products would provide non-opioid alternatives to chronic pain management.

From at least in or about 2017 up to and including her termination in or about 2019, Perryman, as Stimwave’s CEO, engaged in a multi-year scheme to design, create, manufacture, and market an inert, non-functioning component of the Device – called the “White Stylet” – that served no medical purpose but was included with the Device through in or about 2020 in order to make the product financially viable for doctors to purchase.

When Stimwave originally brought the Device to market in or about 2017, it contained three primary components: (i) an implantable electrode array that stimulated the nerve; (ii) an externally worn battery that sat outside the body and wirelessly provided power to the Lead through the patient’s skin; and (iii) a separate implantable receiver measuring approximately 23 centimeters in length with a distinctive pink handle – called the “Pink Stylet.”  The Pink Stylet contained copper and, unlike the White Stylet, functioned as a receiver to transmit energy from the Battery to the Lead.

Stimwave sold the Device to doctors and medical providers for over approximately $16,000.  Medical insurance providers, including Medicare, would reimburse medical practitioners for implanting the Device into patients through two separate reimbursement codes, one for implantation of the Lead and a second for implantation of the Pink Stylet.  The billing code for implanting the Lead provided for reimbursement at a rate of between approximately $4,000 and $6,000, while the billing code for implanting a receiver, like the Pink Stylet, provided for reimbursement at a rate of between approximately $16,000 and $18,000.

Soon after the Device was released, physicians informed Stimwave that they were having trouble implanting the Pink Stylet in certain patients because the Pink Stylet was too long.  Stimwave and Perryman knew that the Pink Stylet could not be cut or trimmed to shorten it without interfering with the functionality of the Pink Stylet as a receiver, and without a receiver component for doctors to implant and seek reimbursement for, doctors would incur a substantial financial loss with every purchase of the Device, thereby making it more difficult for Stimwave to sell the Device to doctors and medical providers at the approximately $16,000 price.

However, Stimwave – at the direction of Perryman – did not lower the price of the Device so that its cost to doctors and medical providers could be covered by reimbursement for the implantation of only the Lead, nor did Perryman recommend that doctors not implant the Device or its receiver component in cases where the Pink Stylet could not fit comfortably.  Instead, Perryman directed that Stimwave create the White Stylet – a dummy component made entirely of plastic that served no medical purpose but which Stimwave misrepresented to doctors as a customizable receiver alternative to the Pink Stylet.  

The White Stylet could be cut to size by the doctor for use in smaller anatomical spaces and was created solely so that doctors and medical providers would continue to purchase the Device for use in those scenarios and continue to bill for the implantation of a receiver component.  To perpetuate the lie that the White Stylet was functional, Perryman oversaw training that suggested to doctors that the White Stylet was a “receiver,” when, in fact, it was made entirely of plastic, contained no copper, and therefore had no conductivity.  In addition, Perryman directed other Stimwave employees to vouch for the efficacy of the White Stylet, when she knew that the White Stylet was actually non-functional.

As a result of these misrepresentations regarding the functionality of the White Stylet, Perryman caused doctors and medical providers to unwittingly implant the non-functional White Stylet into patients and submit fraudulent reimbursement claims for implantation of the White Stylet to Medicare, resulting in millions of dollars in losses to the federal government.

Prosecutors announced the unsealing of a non-prosecution agreement with Stimwave, which filed for bankruptcy on June 15, 2022.Under the terms of the Agreement, Stimwave has accepted responsibility for its conduct by, among other things: (i) making admissions and stipulating to the accuracy of an extensive Statement of Facts; (ii) paying a $10,000,000 monetary penalty; and (iii) maintaining an adequate compliance program, to include employing a Chief Compliance Officer and holding regular compliance committee meetings. Stimwave is also required to cooperate fully with the Government.  Stimwave’s obligations under the Agreement will continue for a period of three years from the date of execution of the Agreement.  

The U.S. Attorney’s Office also unsealed a civil fraud lawsuit filed against Stimwave under the False Claims Act, and the parties’ settlement of that suit). The civil complaint also brings claims against Perryman under the FCA, which are pending.

PAGA Penalties Expanded to Include Sick Pay Act Violations

Kaiser Foundation Hospitals owns and operates hospitals and medical facilities throughout California. Ana Wood, a nonexempt employee, was paid hourly wages by Kaiser.

In February 2021, she filed a PAGA action against Kaiser alleging that as an aggrieved employee she was properly suited to act on behalf [of] the state, and collect civil penalties for all violations committed against other aggrieved Kaiser employees in California.

Her first cause of action claimed that Kaiser violated the California’s Healthy Workplaces, Healthy Families Act of 2014 by not paying sick leave at the correct rate. The second cause of action alleges that Kaiser wrongfully denied employees the right to use sick leave. In the third, Wood maintained that Kaiser violated Labor Code provisions regarding vacation pay.

Kaiser demurred to the first cause of action on the grounds that the California’s Healthy Workplaces, Healthy Families Act”does not authorize PAGA actions for civil penalties.” The court sustained the demurrer without leave to amend. Following voluntary dismissals (without prejudice) of the remaining causes of action, the court entered a judgment of dismissal in Kaiser’s favor.

The Court of Appeal (4th Dist.) reversed in the published case of Wood v. Kaiser Foundation Hospitals – D079528 (February 2023).

The procedural setting of this case perfectly framed the issue as one of statutory interpretation. The trial court sustained Kaiser’s demurrer without leave to amend, determining that a PAGA action is one brought “on behalf of the public” and since it seeks only civil penalties, is prohibited by Labor Code section 248.5, subdivision (e).

The last clause of section 248.5, subdivision (e) was the focus of this appeal. It provides that “any person or entity enforcing this article on behalf of the public as provided for under applicable state law shall, upon prevailing, be entitled only to equitable, injunctive, or restitutionary relief . . . .”

The Act (Labor Code, § 245 et seq.) generally requires employers to provide eligible employees with at least three paid sick days per year. The Labor Commissioner and the Attorney General are charged with enforcing this law. Violators may be assessed compensatory as well as liquidated damages, plus civil penalties.

In particular, did the Legislature mean to include – and thus restrict – actions by aggrieved employees to recover civil penalties under the Labor Code Private Attorney General Act of 2004 (PAGA) (§ 2698 et seq.) as defendant Kaiser contends? Or instead, as plaintiff Ana Wood argues, did the Legislature have in mind an entirely different statutory scheme, the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.)?

The Court noted that the phrase “enforcing this article on behalf of the public” in section 248.5, subdivision (e) is ambiguous. It is susceptible of at least two possible meanings. It could refer to a PAGA action, because relief under PAGA has been characterized as being “designed primarily to benefit the general public, not the party bringing the action.”

But how PAGA relief has been characterized by the courts and who it “primarily” benefits does not necessarily indicate that the Legislature had PAGA in mind when it referred to “enforcing this article on behalf of the public.” It might have instead been describing an action alleging a claim under the UCL, which can be brought on behalf of the public by various government officials, and in which even private individuals can seek public injunctive and restitutionary relief.

The Court of Appeal concluded that “the statute’s text and history provide compelling evidence that the phrase “on behalf of the public as provided under applicable state law” in section 248.5, subdivision (e) was intended to refer to actions prosecuted under the UCL – not PAGA. Accordingly, it reversed the judgment of dismissal.

This case is being closely followed by the employment law community, and will likely be appealed to the California Supreme Court. However, at this time it is a binding precedential decision.

Insulin Pricing Controversies Move From Drug Makers to PBMs

According to an article in The Lancet, retail insulin prices (the amount one pays without insurance) have skyrocketed. Between 2007 and 2018, the cost of some insulin products has increased by more than 200%. People with little-to-no health insurance coverage have reported paying more than $1000 per month when higher insulin doses are required.

In response to the crisis triggered by high prices, the state of California is investing in making their own low-cost insulin and the New England Journal of Medicine reports  a non-profit company is hoping to bring affordable insulin to the market. These two plans could potentially bestow on some who require insulin the kind of insulin accessibility that patients in all other high-income countries enjoy.

Civica Rx, a nonprofit company in Lehi, Utah, said last March that it plans to make and sell generic versions of insulin to consumers at no more than $30 per vial and no more than $55 for a box of five pen cartridges.

Following the political pressure on this issue over the last few years, Eli Lilly & Co.’s announcement this March that it is slashing prices for its major insulin products, perhaps hoping to ease some pressure on Big Pharma according to a report by . Kaiser Health News.

In 2018, Novo Nordisk, amid public rancor over rising insulin prices, considered a 50% cut, according to the report. But the company’s board decided against it, noting that “many in the supply chain will be negatively affected ($) and may retaliate.” The company also feared that irate insurers might retaliate against Novo’s blockbuster diabetes and weight-loss drugs like Ozempic, which compete against Lilly’s Mounjaro.

Sanofi and Novo Nordisk did not directly respond to Lilly’s price-dropping move but noted, in statements, that their discount programs already provide cheap insulin for those who need them. Millions of Americans have used these coupons, but patients say they come with red tape and can be unreliable.

The three big insulin makers have fought off competition that could lower prices across the board. They’ve done this, for example, by introducing their own, slightly less expensive “authorized generics,” which discourage other companies from entering the insulin market. It wasn’t until 2021 that a competitor brought a long-acting “biosimilar” insulin – essentially a generic version of Lantus – to the market, and it has barely made a dent. The company, Viatris, which since sold its product to Biocon Biologics, did win entry to one formulary by creating an essentially identical product, tripling its list price and offering PBMs a big rebate.

Kaiser Health News says that insulin has come to embody the perversity of the U.S. health care system as list prices for the century-old drug, which 8.4 million Americans depend on for survival, quintupled over two decades to more than $300 for a single vial. Just because Lilly – which sells about a third of the insulin in the United States – lowers its price doesn’t mean all patients will pay less, even in the long run.

These kinds of behaviors have increasingly drawn congressional attention, and drug manufacturing attack ad campaigns, and it also casts light on the profiteering methods of the drug industry’s price mediators – the pharmacy benefit managers, or PBMs – at a time when Congress has shifted its focus to them.

Drugmakers have long ceased to be the only, or even primary, villain of the insulin price scandal. The three companies that produce nearly all the insulin in this country – Lilly, Sanofi, and Novo Nordisk – posted stagnant or declining revenue from their versions of the drug in recent years despite the steadily climbing list prices they charged. They’ve even advised investors that they don’t see insulin sales as a high-profit area anymore.

The focus is now upon the gigantic pharmacy benefit managers – owned by CVS Health and insurance giaInts UnitedHealthcare and Cigna – that have aggressively played the insulin makers off one another in a way that mainly fattened their own accounts, as was revealed in a scathing 2021 Senate Finance Committee report.

In theory, when pharmacy benefit managers negotiate contracts with drug manufacturers on behalf of insurers, they pass along savings to patients. In practice, while the hard-nosed bargaining may benefit the well-insured, it can hurt patients on fixed incomes and others less able to afford their insulin.

To compete for access to insured patients, according to the report, the three insulin makers in the 2010s steadily increased rebates and fees paid to the powerful PBMs, which are owned by or allied with major insurers. This spurred drugmakers to keep raising their list prices, because the more they paid in rebates – calculated as a percentage of list price – the better their placement on insurance formularies, the complex lists of drugs insurers cover for patients.

In other words, the more the insulin makers compete, the more consumers – the unlucky ones, anyway – may pay.

Most of the insulin list price increases have gone to PBMs, the go-between companies. For example, Lilly earned about $25 for each Humalog injection pen from 2013 to 2018, while the list price increased from $57 to $106. Net prices have remained stable the past few years and insulin revenues actually declined last year, according to recent Sanofi and Lilly financial reports.

Trade secrecy makes it hard to see which portions of the kickbacks end up as profit or savings for pharmacy benefit managers, insurers, pharmacies, or patients. But patients who are uninsured, are underinsured, or pay high deductibles can end up with whopping insulin bills, because their copayments are tied to the drug’s list price.