Tag: 2023 News

The California Attorney General in partnership with the U.S. Department of Justice, announced a settlement with the owner of one of California’s largest chains of pain management clinics over allegations that he defrauded Medi-Cal and Medicare of millions of dollars.

Dr. Francis Lagattuta and his business, Lags Spine & Sportscare Medical Centers Inc (Lags Medical Clinics), which ran more than 20 facilities in California’s Central Valley and Central Coast, carried out medically unnecessary tests and procedures on thousands of patients, and billed Medi-Cal and Medicare for these services over the course of more than five years.

The settlement totals nearly $11.4 million. The funds were allocated in proportion to losses faced due to the alleged fraud scheme. The United States will receive around $8.5 million, California will receive over $2.7 million, and Oregon will receive over $130,000. Dr. Lagattuta will also be barred for five years from serving any Medi-Cal beneficiaries, billing for services to any Medi-Cal beneficiary, or receiving reimbursement for any services provided to any Medi-Cal beneficiary.

The settlement amount of $11,388,887 is based on Lagattuta’s and Lags Medical’s ability to pay and includes proceeds from Lagattuta’s sale of a remotely operated underwater vehicle.

The settlement resolves allegations that, from 2018 to 2021, Lagattuta and Lags Medical performed medically unnecessary surgeries to implant spinal cord stimulators, which is an invasive surgery of last resort for the treatment of chronic pain. Lagattuta paid a psychiatrist to state to Medicare and Medicaid insurers that the psychiatrist had performed a necessary psychological evaluation on each patient prior to receiving the surgery and that the patient did not have any preexisting psychological or active substance abuse disorders that would adversely affect their response to the surgery. But Lagattuta and Lags Medical knew that the psychiatrist did not perform in-person psychological evaluations of any patients and ignored indications that many patients suffered from psychological or substance use disorders before receiving spinal cord stimulation surgery.

Lagattuta and Lags Medical also allegedly performed medically unnecessary skin biopsies to test patients for small fiber neuropathy. As part of the settlement, Lagattuta and Lags Medical acknowledged that Lagattuta created what he named an “Artificial Intelligence Team” of non-provider staff who were required to order at least 150 skin biopsies per week for patients without the consent of the patients’ treating providers at Lags Medical. Each biopsy order stated that the patient had identical symptoms of small fiber neuropathy, yet those symptoms were generally inconsistent with those patients’ actual symptoms. Lagattuta and Lags Medical also acknowledged as part of this settlement that, if a patient refused a skin biopsy, Lags Medical told the patient that they would reduce their opioid medication and instructed the patient’s provider to immediately taper the patient’s medication

Finally, the settlement resolves allegations that Lagattuta and Lags Medical performed medically unnecessary definitive urine drug testing, which identifies the concentration of specific medications, illicit substances, and metabolites in urine samples. Blanket orders of urine drug testing – identical orders for all patients without regtard to each patient’s individualized medical necessity for the test – are not covered by Medicare. Lagattuta and Lags Medical acknowledged that they made identical orders of urine drug tests for all patients to be tested every four months and ordered the maximum number of drug panels for each patient, using Healthcare Common Procedure Coding System Code G0483. Lags Medical’s CEO stated to Lagattuta that performing urine drug tests on all their patients “[s]hould be a big money maker” and called it “Operation GO483!” When a new consultant for Lags Medical told Lagattuta that it was “medically unnecessary but also wasteful” to order the maximum number of drug panels for each patient, Lagattuta directed a Lags Medical executive not to contact the consultant “because she might report us. For anything.”

The civil settlement includes the resolution of claims brought under the qui tam or whistleblower provisions of the False Claims Act by Steven Capeder, Lags Medical’s former operations director and marketing director. Under those provisions, a private party can file an action on behalf of the United States and receive a portion of any recovery. The qui tam case is captioned United States and California ex rel. Steven Capeder v. Francis P. Lagattuta, M.D., Lagz Corporation, Spine & Pain Treatment Medical Center of Santa Barbara, Inc., and LAGS Spine & Sportscare Medical Centers, Inc., No. 2:18-cv-2928 KJM KJN (E.D. Cal.).

As part of the settlement Capeder will receive approximately $2.1 million whistleblower fee.

On May 19, 2021, he California Department of Health Care Services (DHCS) temporarily suspended select Lags Medical Centers locations from participation in the Medi-Cal program because of an ongoing investigation by the California Department of Justice (DOJ), Division of Medi-Cal Fraud and Elder Abuse, involving allegations of fraudulent billing and potential patient harm.

On May 25, 2021, DHCS learned that Lags Medical Centers voluntarily closed 29 California locations even though DHCS only suspended seven National Provider Identifier numbers associated with up to 17 locations, potentially impacting about 20,000 beneficiaries access to pain management care.

The Los Angeles Times published a comprehensive report on the abrupt closure of the Lags Clinics.

The County of Santa Clara operates a health care service plan called Valley Health Plan, which is licensed and regulated by the Department of Managed Health Care (DMHC) under the Knox-Keene Act. The Knox-Keene Act applies to private and public entities that operate health care service plans.

State and federal laws require hospitals and other medical providers to provide emergency medical services regardless of the patient’s insurance status or ability to pay. If the patient is enrolled in a health care service plan, the Knox-Keene Act requires the plan to reimburse the medical provider for providing such emergency care. If no contract exists between the plan and medical provider, the plan must pay the “reasonable and customary value” of the emergency care provided.

In 2016 and 2017, the Doctors Medical Center of Modesto, Inc., and Doctors Hospital of Manteca, Inc., provided emergency medical services to three patients enrolled in Valley Health Plan. The two Hospitals are licensed acute care hospitals in the Central Valley, but did not have a contract with the County governing the rates payable for medical services provided to Valley Health Plan enrollees.

The Hospitals submitted to the County claims for reimbursement totaling approximately $144,000 for the services provided. The County paid the Hospitals approximately $28,500. The Hospitals challenged the reimbursement decisions by submitting written administrative appeals, which the County denied.

The Hospitals then sued the County for the remaining amounts based on the Knox-Keene Act’s reimbursement provision. The trial court found that the Hospitals could state a quantum meruit claim against the County. On petition for writ of mandate, the Court of Appeal disagreed, holding that the County is immune from suit under the Government Claims Act and that no exception to immunity applies.

The California Supreme Court disagreed with the Court of Appeal and reversed in the case of County of Santa Clara v Superior Court – S274927 (July 2023)

The case called upon the California Supreme Court to determine how the Government Claims Act should be interpreted and whether a litigant may circumvent sovereign immunity with a common law claim founded on equitable principles. The Supreme Court concluded that the Government Claims Act does not bar the Hospitals’ action against the County.

Hospitals and other medical providers are required by law to provide emergency medical services without regard to the patient’s insurance status or ability to pay. (42 U.S.C. § 1395dd(b); Health & Saf. Code, § 1317, subds. (a) & (b).)

If the patient is enrolled in a health care service plan, by statute the plan must reimburse the medical provider for providing such emergency care under the Knox-Keene Health Care Service Plan Act of 1975. (Health & Saf. Code, § 1340 et seq.

If the plan does not have a contract with the medical provider addressing the reimbursement rate, the plan must pay the provider the “reasonable and customary value” of the emergency care provided. (Cal. Code Regs., tit. 28, § 1300.71, subd. (a)(3)(B).) If the plan fails to pay the reasonable and customary value of such services, the medical provider may sue the plan directly for reimbursement under a quantum meruit theory. (Prospect Medical Group, Inc. v. Northridge Emergency Medical Group (2009) 45 Cal.4th 497, 506 (Prospect Medical Group); Bell v. Blue Cross of California (2005) 131 Cal.App.4th 211, 216–217 (Bell).)

The Supreme Court concluded that “the immunity provisions of the Government Claims Act are directed toward tort claims; they do not foreclose liability based on contract or the right to obtain relief other than money or damages. (Gov. Code, § 814.)”

“The Hospitals have not alleged a conventional common law tort claim seeking money damages. Instead, they have alleged an implied-in-law contract claim based on the reimbursement provision of the Knox-Keene Act, and seek only to compel the County to comply with its statutory duty. Accordingly, the County is not immune from suit under the circumstances and the Hospitals’ claim may proceed.”

Healthcare spending is still on the rise, according to a new analysis from the Health Care Cost Institute (HCCI). Median per person healthcare spending increased by 24 percent from 2017 through 2021, HCCI’s latest Healthy Marketplace Index shows.

But healthcare spending varied significantly depending on where people lived. For example, patients in metropolitan areas with the highest utilization rates paid nearly three times more for healthcare services that year compared to their neighbors in metropolitan areas with the lowest utilization rates.

Rising medical prices impacted healthcare spending, with overall spending growth reflecting a 9 percent increase in prices, on average, and 14 percent increase in service use, on average.

The American Medical Association (AMA) reports health spending in the U.S. increased by 2.7% in 2021 to $4.3 trillion or $12,914 per capita. This growth rate is substantially lower than 2020 (10.3% percent). This substantial deceleration in spending can be attributed to the decline in pandemic-related government expenditures offsetting increased utilization of medical goods and services that rebounded due to delayed care and pent-up demand from 2020.

Although physician services was the second largest category of health spending, prior to the pandemic, spending on physician services generally grew more slowly than spending in the other large categories of personal health care. Physician spending grew by an average of 3.8% per year between 2009 and 2019 while hospital services (4.5%) and clinical services (6.6%) had higher growth rates.

In 2020, spending on physician services grew 7.0%, a substantially higher growth rate compared to previous years. This acceleration was driven by spending on federal relief programs (classified as “other federal programs” in the following chart). Spending growth decreased to 5.1% in 2021 as the decline in pandemic-related government expenditures offset the rebound in utilization of medical goods and services.

A Health Affairs study from May 2022 found that vertical consolidation – for example, health systems buying physician practices – resulted in a 12 percent increase in primary care physician prices and a 6 percent increase in specialist prices. Research has also shown similar price increases when markets experience horizontal consolidation, which is when hospitals merge or acquire other hospitals.

Hospital markets tended to be less concentrated in larger metropolitan areas, such as San Franciso, New York City, and Philadelphia. Meanwhile, according to HCCI’s analysis, the most concentrated areas were metropolitan areas with populations of less than 350,000 in 2021. The most concentrated areas included Johnson City, Tennessee, Kingsport, Tennessee, and Wilmington, North Carolina.

HCCI notes that a potential factor in market consolidation is the degree to which patients from one metropolitan area seek care in a neighboring region.

Healthcare spending is only expected to rise, with the latest healthcare spending projections from federal actuaries estimating healthcare to account for nearly 20 percent of gross domestic product (GDP) by 2031.

HCCI’s Healthy Marketplace Index provides interactive reports in which readers can compare prices and hospital market concentration across metropolitan areas.

House and Senate members from both parties have launched at least nine bills, parts of which may be packaged together this fall, that take aim at Pharmacy Benefit Managers (PBMs), companies that channel prescription drugs to patients. And NPR just published a primer to help decipher this recent activity.

Members from both parties talk indignantly about PBM behavior and have fired up bills to address it. The Senate Finance Committee, whose jurisdiction over Medicare and Medicaid gives it a lead role, has introduced a bill that would prohibit PBMs from collecting rebates and fees calculated as a percentage of a drug’s list price, to discourage PBMs from favoring expensive drugs.

The committee also plans legislation to require PBMs to pass along discounts directly to seniors, allow patients to use the pharmacy they prefer, and release more information about where their money ends up.

Sen. Bernie Sanders, who leads the Senate Health, Education, Labor and Pensions Committee, introduced a bill that bans spread pricing, while measures in the Senate and House would crack down on PBM practices seen as harming independent and rural pharmacies. Other measures require more transparency or limit patient waits for drug approvals.

PBMs, were created in the 1960s to help employers and insurers select and purchase medications for their health plans. The industry mushroomed as prescription drug spending grew about 200-fold between 1967 and 2021. In addition to negotiating discounts with manufacturers, PBMs set payment terms for the pharmacies that buy and dispense the drugs to patients. In effect, they are the dominant middlemen among drugmakers, drugstores, insurers, employers, and patients.

There are around 70 PBMs in the U.S. Through mergers, three of them – CVS Caremark, Optum Rx, and Express Scripts – have come to control 80% of the prescription drug market, and each brings in tens of billions of dollars in revenue annually. The PBMs control the drug pipeline from manufacturers to the pharmacy counter.

Their buying power allows them to obtain discounted drugs for health plans while setting prices and terms for sales at drugstores. The big three are part of massive conglomerates with important stakes in almost every sector of health care; each of them owns a powerful health insurer – Aetna, UnitedHealth, and Cigna, respectively – as well as pharmacies and medical providers.

Other sectors of health care are alarmed by the power of the PBMs and are appealing to the Biden administration and Congress to rein them in. Drugmakers are especially up in arms, but employers, pharmacies, doctors, and even patients chafe at PBM practices like “spread pricing,” in which the companies pocket money negotiated on behalf of health plans.

Non-PBM-affiliated pharmacists, from mom and pop stores to large chains like Kroger, say the PBMs squeeze their businesses by forcing them to sign opaque contracts that include clawbacks of money long after sales take place. PBMs often steer patients using expensive drugs to their affiliated pharmacies, cutting revenue to independents.

Doctors say PBMs act as gatekeepers for the insurers they represent, blocking or slowing coverage of necessary drugs.

Finally, the pharmaceutical industry has lost a share of sales revenue to PBM middlemen in recent years – even while getting most of the bad publicity for high drug prices. (The median launch price for newly marketed brand-name drugs went from $2,100 to $180,000 a year between 2008 and 2021, yet net revenues for drug companies have stagnated in recent years.)

PBMs in some cases prefer high producer list prices, because the rebates that drugmakers pay the PBMs in exchange for favorable health plan coverage of their drugs often are calculated as a percentage of those list prices.

In recent months ominous ads about prescription drugs have flooded the TV airwaves. Perhaps by design, it’s not always clear who’s sponsoring the ads or why.

The Pharmaceutical Research and Manufacturers of America (PhRMA), the trade group for most of the big drug companies, is the top driver of the anti-PBM campaign. Some of the ads are sponsored by the PBM Accountability Project, a pop-up lobby, funded partly by the drug industry, that includes unions and patient advocates whose membership complains of restrictive PBM and insurance industry policies.

In one PhRMA ad, a smarmy guy in a suit snatches away a young woman’s prescription. The Pharmaceutical Care Management Association, the PBM trade group, has responded with its own ads, blaming drug companies for high prices and for “targeting your pharmacy benefits.” AHIP, the health insurance lobby, has piled on with its own campaign.

Meanwhile, several states have taken a pragmatic path to lower PBM-related costs, using high-tech auctions to get the best deals for their employee health care plans.

In January 2022, Robert Foster, of Morgan Hill, a retired San Jose Police officer with a side security business was convicted of $1.13 million in insurance fraud, $18 million in money laundering to cover it up, tax evasion, and worker exploitation.

Foster pleaded no contest to a series of felony fraud charges and will be sentenced to three years in county jail and two years of mandatory supervision. Foster will repay $1.13 million to Everest National Insurance and the Employment Development Department.

Foster owns Atlas Private Security (now Genesis Private Security) with his wife, Mikaila Foster, who also pleaded no contest to a variety of related fraud charges

In one instance, an “off-the-books” security guard suffered severe injuries during a crash while driving an Atlas security vehicle. Robert Foster responded to the guard’s $1 million medical bill by telling the insurance company that the guard was not an Atlas employee. Investigators found records showing that the guard was driving an Atlas vehicle and wearing an Atlas uniform at the time of the collision.

The probe also uncovered that the Fosters allegedly hid millions of dollars of payroll through a complex subcontractor masking scheme. Employees were paid by a different security company, which had no knowledge of the employees’ hours, wages, or schedules. Instead, the other company simply moved money from the Fosters’ firm to the employees so that the Fosters could avoid paying their fair share of taxes, workers’ compensation insurance, and overtime wages.

And this month, a 52-year-old San Jose man has pleaded no contest to felony insurance fraud after he used his company to hide payroll for the security company run by the Fosters.

Nam Le operated Defense Protection Group to launder millions of dollars in payroll for Atlas Private Security. For operating an under-the-table subcontractor scheme, Le was paid $0.50 to $1 per hour of payroll he helped hide.

Le will be sentenced next year for the fraud charges and faces prison if he fails to pay more than $100,000 in restitution.

After the Department of Labor questioned Le about the subcontractor scheme, he met with Robert Foster, and Richard McDiarmid, 62, Vice President of Operations for Atlas and former Emeryville police officer, at the Matrix Casino and asked to leave the conspiracy. Instead, the trio decided to expand the scam.

In all, Le helped launder approximately $18 million for Atlas Security. He is ordered to pay approximately $109,000 in restitution and penalties, including $60,000 back to the State of California Department of Insurance. If all restitution is paid by sentencing, he will serve six years of formal probation and one year in county jail. If he has not paid all restitution by sentencing, he will be sentenced to four years in state prison.

The six-month investigation was spearheaded by the Santa Clara County District Attorney’s Bureau of Investigation in collaboration with the California Department of Insurance, Employment Development Department, CA Department of Justice Division of Medi-Cal Fraud and Elder Abuse, and United States Department of Labor. This case paralleled the formation of the DA’s Workforce Exploitation Task Force.