Posts Tagged ‘fraud’

Cavalier Greed And Cruelty In Minnesota

Wednesday, September 21st, 2022

Yesterday, Federal authorities charged 47 people in Minnesota with conspiracy and other counts in what prosecutors said is, to date, the largest fraud scheme of the COVID-19 pandemic, a scheme that stole at least $250 million from a federal program that provides meals to low-income children.

According to the Justice Department, “The 47 defendants are charged across six separate indictments and three criminal informations with charges of conspiracy, wire fraud, money laundering, and bribery.”

Government prosecutors allege the defendants created companies that claimed to be offering food to tens of thousands of children across Minnesota — nearly all of whom did not exist, — then sought reimbursement for those meals through the U.S. Department of Agriculture’s food nutrition programs. Because the need was so great, some standards were waived and oversight was often minimal. The USDA allowed for-profit restaurants to participate, and allowed food to be distributed outside educational programs. The charging documents say the defendants exploited such changes “to enrich themselves.”

A non-profit called Feeding Our Future was central to the scheme.

The Federal Child Nutrition Program is used to feed low income children in daycare and afterschool organizations. It spends $4 billion a year to feed needy children across the country. Feeding Our Future received hundreds of millions of dollars from the program from 2019 through 2021.

Here’s how it worked.

The government alleges Feeding Our Future, a sponsor in the Federal Child Nutrition Program, established sponsorship contracts with nearly 200 federal child nutrition program sites throughout the state, knowing that the sites intended to submit fraudulent claims. The sites would submit the claims to Feeding Our Future, which would then submit them to the Minnesota Department of Education, which has historically administered the programs, primarily through school programs. With schools closed for the pandemic the rules of the nutrition programs were changed to allow for all of the new entrant providers and the relaxed rules.

Feeding Our Future became a sort of Third Party Administrator for the sham sites and collected 15% of the charges as its fee. It went from receiving and disbursing approximately $3.4 million in federal funds in 2019 to nearly $200 million in 2021.

According to the indictments, “The sites fraudulently claimed to be serving meals to thousands of children a day within just days or weeks of being formed and despite having few, if any, staff and little to no experience serving this volume of meals.”

The massive fraud was allegedly headed up by Aimee Bock, Feeding Our Future’s founder and executive director. The indictments also allege she and some of her employees received additional kickbacks, which were often disguised as “consulting fees” paid to shell companies Bock created.

Andy Luger, the U.S. Attorney for Minnesota, said the fraudsters billed the government for more than 125 million fake meals. He displayed one Form For Reimbursement that claimed a site served exactly 2,500 meals each day Monday through Friday — with no children ever getting sick or otherwise missing a meal.

Luger said, “These children were simply invented.”

Earlier this year, the U.S. Department of Justice made prosecuting pandemic-related fraud a priority. The department has already taken enforcement actions related to more than $8 billion in suspected pandemic fraud, including bringing charges in more than 1,000 criminal cases involving losses in excess of $1.1 billion.

In this case, one of the indictments offered a beyond-brazen example of the fraud. It described a small storefront restaurant in Willmar, in west-central Minnesota, that typically served only a few dozen people a day. Two defendants offered the owner $40,000 a month to use his restaurant, then billed the government for some 1.6 million meals through 11 months of 2021. They listed the names of around 2,000 children — nearly half of the local school district’s total enrollment — and only 33 names matched actual students. And where did the defendants get the names of the children they said the program fed? From a website that randomly provides the names of mythical children. That’s where.

As usual in these kinds of fraud schemes the defendants used the stolen money to buy homes, exotic cars, vacation junkets and expensive clothes and jewelry.

And what did Minnesota’s low income children get? They got hunger.

 

 

 

The Biggest Grifter In History?

Tuesday, June 14th, 2022

“A great deal of intelligence can be invested in ignorance when the need for illusion is deep.” – Saul Bellow, writer, Nobel laureate.

“There’s a sucker born every minute.” – P. T. Barnum (maybe).

Yesterday gave us the second Hearing of the Select Committee to Investigate the January 6th Attack, and it put a stake through the heart of any belief that the adults around Donald Trump following the 3 November presidential election actually thought he had won. They all knew that as more and more mail-in votes were counted, the curtain was slowly coming down on the Trump Presidency. And they all told him that.

He wouldn’t listen and turned for validation to the crazies in the room led by an apparently intoxicated Rudy Giuliani who told him, “Just go out and say you won.”

All the testimony yesterday, both in person and pre-recorded, confirmed that, regardless of what anyone told him, Trump’s need to stay in power “trumped” everything else. His minions would keep making wild accusations of fraud, and he would glom onto every one of them, one after another. His Attorney General Bill Barr testified this forced him into constant “whack-a-mole” investigations. Barr said he concluded Trump had become “detached from reality.”

None of this was surprising, although it was a little reassuring to realize nearly all the Republican professionals working on the election had an allegiance to the truth of the facts on the ground. Turns out that, with the exception of the Giuliani, Powell, Eastman cabal, Trump was just about the only off-the-rails person in the White House.

But what was surprising, what hit me like a high hard one to the side of the head, was the testimony of Amanda Wick, which the Committee saved until the end, their knock-out punch. Wick is the Senior Investigative Counsel for the Committee.

Wick laid out in exquisite detail how Trump saw his election defeat as a money-making opportunity of the first order.

Even before the polls closed Team Trump began sending out millions of email solicitations asking for money in order to “fight back” against the “radical left’s” attempt to steal the election. Millions upon millions of emails. Each telling supporters to “Step up” and “Fight back.” Wick testified, “Thirty minutes after the last email was sent, the Capital was breached.”

This tsunami of emails was easy for them, because the Trump campaign had been doing the same thing for the last couple of years. I know this because I would get the solicitations…every day, sometimes two or three times a day. Somehow the Republican National Committee (all the solicitations were signed at the bottom as coming from the RNC; maybe they did, maybe they didn’t) had my email and had decided I was a “top supporter of President Trump,” but had yet to contribute to his defense of our “American freedom,” and the President could “not understand why.” Now, they would give me “one more chance” to contribute, but it had to be done before 11:00pm that night, so President Trump could “see” my name on his daily list of “American Patriots.” In response, I would send nothing, and the next day they’d be back giving me “one more chance.”

Every one of the solicitations promised that my donation would be either 100%, 500%, or even 1,000% matched! By whom? They never said, and if I were a betting man I’d wager no such person existed.

I had never tried to cancel those things. They gave me a daily laugh. I would look at them and say, “Who falls for this stuff?”

Apparently a lot of people. Amanda Wick testified that between Election Day and January 6th those email solicitations raised $250 million for the Official Election Defense Fund.

Except there never was any Official Election Defense Fund, as campaign staffer Hannah Allred testified yesterday. Actually, the solicitations were “marketing tactics,” and the money went into a new Super PAC Trump had created right after the election, the Save America PAC.

Trump doled out some of the money to his political sycophantic cronies like Mark Meadows, who got $1 million for his Conservative Partnership Institute. Nearly a quarter of a million went to the Trump Hotel Collection.

As I watched this unfold, I realized all of this $250 million, and all the money raised from the daily solicitations prior to the election, had come in small donor donations from people around the country who had totally bought into the Cult of Trump. I pictured retired couples getting these solicitations as they sat around their kitchen tables telling themselves they were part of a great cause, and saying, “Let’s send another $25, honey.” People who were on fixed incomes and addicted to Fox News, Trump’s personal TV Network. Grandpas and Grandmas who were the soul of middle America and whose minds had been co-opted by Carnival Barker Donald Trump, and who now believed their way of life was being stolen by radical, leftist extremists in Washington, DC.

Donald Trump’s mythical Official Election Defense Fund was callous, cruel, disgusting, and the epitome of greed.

Has there ever been a bigger grifter in American history?

Thoughts Of The Day

Monday, January 18th, 2021

Was Azar intentionally lying, colossally incompetent, or both?

Given the last four years, I’m guessing Door Number 3.

Because both the Pfizer and Moderna vaccines require two shots, administered 21 and 28 days apart, respectively, Operation Warp Speed’s initial plan, announced in early December, was to hold back half the supply to make sure there was enough for the second shots. At the same time, the Trump Administration was saying it would vaccinate 20 million people by the end of the year.

On Tuesday, 12 January, as it became apparent the first doses of COVID-19 vaccinations were proceeding much slower than predicted (the 20 million prediction had turned into an 11.4 million reality), U.S. Secretary of Health and Human Services (HHS) Alex Azar announced the government was making all of the coronavirus reserve vaccine supply immediately available, urged states to provide shots to anyone 65 and older and warned governors that states with lagging inoculations could see their supply shifted to other places.

You could hear the collective country-wide sigh of relief. Help was on the way.

That is, until three days later when we learned the only place the “reserve supply” existed was in Alex Azar’s imagination, because the Administration admitted to state and federal officials it stopped stockpiling the second doses at the end of last year as it attempted to hit the 20 million goal. The reserve supply no longer existed. The states were left to scramble again, as they have throughout the pandemic. Remember the PPE fiasco? States were forced to compete against each other and the Feds to get any. Remember the Administration’s leadership about masking? Neither do I. I could go on.

This latest FUBAR catastrophe led President-Elect Joe Biden to tell the world the vaccine rollout was “a dismal failure.” Seems fairly accurate to me.

“Never ruin an apology with an excuse” – Benjamin Franklin

Here’s the way it worked. After the election, which he lost, Donald Trump spewed lie after lie about how he actually won “in a landslide.” And he convinced millions of people this was so. A new Quinnipiac poll reports 73% of Republicans believe there was “widespread fraud” in the election, which allowed Joe Biden to win. Trump’s two-month assault on truth led to the 6 January armed insurrection.

It is questionable whether he would have persuaded his millions of followers to believe the lies if he had not had profound assistance from Twitter, Facebook and conservative media. Case in point: the conservative outlet American Thinker which, with no investigation,  bought the Dominion Voting Machines stole-the-election line – again and again.

Yesterday, American Thinker “screwed its courage to the sticking post” and apologized. It was not one of those, “We did a bad thing, but we did it because…” things. No, this was an apology that would have made Ben proud. Here it is in full:

We don’t know what prompted American Thinker to so abjectly fall on its sword. I choose to think optimistically, believing journalistic ethics won the day. Regardless, this is how you do an apology.

Speaking of optimism

Why not end on a lighter note?

Back in pre-pandemic times (you remember those, don’t you?), when you wouldn’t think twice about sitting in a pub with friends discussing the metaphysics of Sartre, I once did just that with two friends, one a conservative republican with whom one could actually debate policy issues with smiles all around; the other, an MIT engineering professor.

We were talking about how people so often view the same thing in different ways, which led us to a discussion about optimism. That led to further discussion about the differences between people who were naturally optimistic and those who were naturally pessimistic.

One of us brought up the old glass half full or empty screed. I, the eternal optimist, said to me the glass was always half full. My conservative friend said he couldn’t help seeing it as half empty.

My friend from MIT said, “There’s too much glass.”

Stay safe – and, if you can, optimistic.

 

 

 

 

 

Kudos And Thanks To Work Comp Central’s Greg Jones

Wednesday, December 9th, 2015

Work Comp Central’s Greg Jones has relentlessly followed and reported on the Michael Drobot case in Southern California, a case that fairly oozes greed and sleaze.

For the uninitiated, Michael Drobot’s Pacific Health Corporation owned two hospitals, Pacific Hospital of Long Beach and Tri-City Regional Medical Center in Hawaiian Gardens. For around 10 years, he paid kickbacks to a number of doctors for referring spinal fusion patients to Pacific Hospital of Long Beach for surgery. In February, 2014, Drobot pleaded guilty to making the kickbacks, which are illegal, and for charging California’s workers’ compensation system, the U.S. Department of Labor and about 150 workers’ compensation insurers somewhere in the vicinity of $500 million dollars for the surgeries over the ten year period. At that time, we wrote about this with Honor Sold, Trust Betrayed: Unbridled Greed in California.

Drobot is also charged with bribing state senator Ron Calderon for his help in easing one of the SB 863 requirements, which we don’t need to go into here. Calderon has pleaded not guilty, and that case is moving through the system.

Throughout this sordid business, Greg Jones has been there, providing a valuable service with his spot-on reporting, most recently last week with his story (subscription required) that a number of the doctors who took the kickbacks, at $15,000 a pop, also had filed “more than 15,000 liens with a total claimed value of $93.8 million.” To get that story, Jones had to wade through what must have been a steamer trunk full of documents.

Personally, I owe a debt of gratitude to Mr. Jones. He found two errors in my post of 30 November, Workers’ Comp Fraud: The Michael Drobot Case Grinds On. I had written that the kickback scheme involved both of the Drobot hospitals. That was wrong. They only happened at Pacific Hospital at Long Beach. Also, I had written that Drobot had pleaded guilty to bribing Calderon. He did not. He is charged with doing it, and both he and Calderon have pleaded not guilty. Before Work Comp Central ran my post, Greg found the errors and made edits to correct them, for which I am grateful.

The Drobot case is complicated and it represents the bottom of the workers’ compensation bird cage. However, the solid reporting of Greg Jones shines an arc light on the sorry mess and will help to improve the system so that in the future the Drobots of the world will think twice about this kind of criminality.

 

 

Workers’ Comp Fraud: The Drobot Case Grinds On

Monday, November 30th, 2015

In late February, 2014, we wrote about the sordid tale of corruption perpetrated in southern California by Michael Drobot and his gang of thieves. Honor Sold, Trust Betrayed: Unbridled Greed In California describes the astonishing criminality of a large group of highly placed people whose job it was to care for others.

This from our original post:

Suppose you’re a doctor in California with a patient who complains that his back hurts a lot. Suppose further that Michael Drobot, the owner of California’s Pacific Health Corporation, will give you $15,000 if you refer your patient to his Pacific Hospital of Long Beach for lumbar fusion surgery, which may or may not be warranted. And what if Drobot’s Pacific Hospital were hundreds of miles away and that other qualified hospitals that wouldn’t pay you a kickback were much closer. What would you do?

The answer? Many doctors took the money and delivered up their patients to the Drobot surgical mill. Drobot paid the doctors in this scheme somewhere between $25 and $50 million.

Drobot’s two hospitals, Pacific Hospital of Long Beach and Tri-City Regional Medical Center in Hawaiian Gardens, billed thousands of mostly spinal fusion surgeries to California’s workers’ compensation system, the U.S. Department of Labor and workers’ compensation insurers. Over an eight year period, the hospitals were paid more than $500 million.

Drobot pleaded guilty in early 2014 to paying the kickbacks. He also pleaded guilty to bribing state Senator Ron Calderon to the tune of $100,000 for massaging the SB 863 legislation so that the fraud could continue for all of 2013. After his indictment in February, 2014, Calderon pleaded not guilty.

The wheels if justice have ground slowly but exceedingly fine in the nearly two years since. Former U. S. Attorney Andre Birotte, Jr., now a U. S. District Judge in California’s Central District, passed the baton to his replacement U.S. Attorney Eileen M. Decker. Last week Decker announced that Drobot’s CFO, James L. Canedo, and Paul Richard Randall, a “health care marketing recruiter” (he recruited doctors to refer patients in return for the illegal kickbacks) pleaded guilty to fraud, money laundering, conspiracy and other crimes. Also, two orthopedic surgeons, Philip Sobol of Studio City and Mitchell Cohen of Irvine, and Alan Ivar, a Las Vegas chiropractor who used to live in Southern California, have agreed to plead guilty to conspiracy and other charges.

There will certainly be more to come in this tale of sleaze.

Honor Sold, Trust Betrayed: Unbridled Greed in California

Wednesday, February 26th, 2014

“What is here?
Gold? Yellow, glittering, precious gold?”

— Timon of Athens by William Shakespeare
Suppose you’re a doctor in California with a patient who complains that his back hurts a lot. Suppose further that Michael Drobot, the owner of California’s Pacific Health Corporation, will give you $15,000 if you refer your patient to his Pacific Hospital of Long Beach for lumbar fusion surgery, which may or may not be warranted. And what if Drobot’s Pacific Hospital were hundreds of miles away and that other qualified hospitals that wouldn’t pay you a kickback were much closer. What would you do?
It is illegal under both California and Federal law to pay doctors for referring patients to hospitals. Yet, according to Andre Birotte, Jr., U.S. Attorney for the Central District of California, this is precisely what Drobot was doing on a massive scale in California from 2003 through 2008. The kickbacks amounted to between $20 million and $50 million. That was chump change compared to what Drobot netted from the surgeries. On Friday, Birotte announced that Drobot had pleaded guilty to paying the kickbacks in what amounted to a $500 million dollar fraud conspiracy and now faces up to 10 years in prison.
Drobot began building his health care empire in the mid-1990s. He bought a number of hospitals, but Pacific Hospital was his jewel in the crown. It was his “spine center,” and, according to U.S. Attorney Birotte, it is where doctors, who apparently think the Hippocratic Oath a mere suggestion, would refer patients for questionable lumbar fusion surgery at $15,000 per surgery. That is, unless the referral was for a cervical fusion, in which case the kickback was only $10,000. Needless to say, there were more lumbar fusions.
Workers compensation paid for all of this. More than 150 insurance companies were “ripped off,” according to Eric Weirich, Deputy Commissioner of the California Insurance Department’s Enforcement Branch.
The Los Angeles Times has been covering the Michael Drobot saga for the last 6 years. Drobot’s Pacific Health Corp. got itself out of big trouble in 2012 when it agreed to pay $16.5 million dollars to the government to avoid criminal conspiracy charges. From 2003 to 2008 it recruited homeless people, drove them to one of Pacific Health Corp’s hospitals and then charged Medicare and Medicaid for services never performed. The whole thing makes “ambulance chasing” look like a PBS donor acknowledgement.
But that little traipse into the dark side pales in comparison to the spinal fusion scheme.
In 2012, California SB 863 threatened to put more than a little crimp in Michael Drobot’s hose of money. Up until SB 863, Pacific Health Corp was paid highly inflated prices for both the surgeries and the surgical hardware, because it could charge duplicate invoices for the surgical implant hardware. The provisions of SB 863 would have severely limited duplicate payments beginning 1 January 2013. If Dobrot couldn’t collect the duplicate payments he wouldn’t be able to pay the kickbacks to get the patients he needed to keep the scheme going. He desperately wanted those provisions to be mitigated to some degree. To do that, he needed help.
He got it from friends in high places – the California Legislature. It’s a little murky as to method, but prior to final passage, SB 863 was changed to allow half the duplicate payments to continue, status quo, for all of 2013. The authorities have been looking into this, and U.S. Attorney Birotte has begun to reel in the fish.
The day before he indicted Michael Drobot, Birotte indicted state Senator Ron Calderon and his brother, former Assemblyman Tom Calderon, on 24 charges, including bribery and money laundering. Ron Calderon is alleged to have been paid more than $100,000 in bribes by Michael Drobot and in an FBI sting operation that Calderon thought was a film studio. If convicted, he faces up to 400 years in prison. And that’s the blood in the water that California’s media sharks now circle. Here’s an LA Times infographic of the Calderon family’s tree of connections and alleged corruption.
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However, as that great TV salesman, Ron Popeil, used to say, “But wait! There’s more!”
An FBI affidavit leaked to, of all places, Al Jazeera America, is making life uncomfortable for at least four other legislators, including Senate President Pro Tem Darrell Steinberg. Look deeply enough at this and one begins to think that Teapot Dome was nothing more than a benign business deal gone bad. (See the full associated Al Jazeera story: State Compensation Insurance Fund’s lawsuit against Michael Drobot)
Notwithstanding all of this, I keep coming back in my mind to those doctors, those chiropractors, those medical professionals who sold their souls and endangered their patients for all that “yellow, glittering, precious gold.” I ask, “Where is the outrage?” At some point, one hopes that U.S. Attorney Birotte turns his eyes to them.

News Roundup: Holiday Health Wonkery, Claims Webinar, Firefighter Hazards & more

Thursday, December 6th, 2012

Holiday Health Wonkery – Just a spoonful of latkes makes the medicine go down? Hank Stern hosts a Chanukah-themed Festival of Lights edition of Health Wonk Review at InsureBlog – it’s fun, interesting, and contains substantial wonkery.
Claims Webinar – Mark Walls, who many of you may know from his LinkedIn Work Comp Analysis Group fame, is hosting a complimentary 90-minute webinar on Tuesday, December 11: Take your Workers’ Compensation Claims Handling from Good to Great. Mark’s been plying his profession for 22 years, so you can’t get a better claims guide. Click through to see topics or to register.
Firefighter hazardsStop, drop, and roll: workplace hazards of local government firefighters, 2009 (PDF) – “When compared with all workers, firefighters are injured in similar ways but at a much higher rate, with work-related injuries caused by “stress, exertion, and other medical-related issues” accounting for the largest number of deaths and with risks of fatal injuries 25.7 percent higher and nonfatal injuries and illnesses over two times greater.” – BLS report by Gary M. Kurlick, economist in the Office of Compensation and Working Conditions, Division of Safety and Health Statistics, at the Bureau of Labor Statistics.
Chimp attack – Roberto Ceniceros of Business Insurance brings us the most recent development in the sad saga of the CT woman who was attacked by her employer’s pet chimp: Woman disfigured in chimp attack settles with owner’s estate for $4M. We’ve written about aspects of this horrific case in the past – see: the crazed chimp case, Exclusive Remedy” for Losing Your Face?, and (Uncompensable) Nightmare at Work.
Depression and Work Comp – Does your organization offer depression screening for injured workers? Risk Scenarios: Down for the Last Time offers case in which missed cues and poorly handled communication made a difficult workers’ compensation case much more painful than it should have been.
Mind over Matter – Osteoarthritisis is “the most common joint disorder” and occurs “due to aging and wear and tear on a joint.” Will arthroscopic surgery relieve related pain? Read about prior studies in Kneedless Surgery. For more debunking, see Gary Schwitzer’s HealthNewsReview, which has a mission of “helping consumers critically analyze claims about health care interventions and by promoting the principles of shared decision-making reinforced by accurate, balanced and complete information about the tradeoffs involved in health care decisions.” The site offers commentary, evaluations, and grading on health care journalism, advertising, marketing, public relations and other messages – a great consumer resource.
Fraud – Two pretty large cases of fraud hit our radar this week, proving that work comp fraud perpetrators can come in many flavors, even among those you pay to trust. On WorkCompWire, we learned about $2.7 million Florida fraud case involving a former correctional officer and at Managed Care Matters, Joe Paduda blogs that Pennsylvania County was defrauded by its risk manager to the tune of $490,000.
Telecommuting – In a recent Human Resource Executive, Carol Harnett makes the case that Telework is Good for Business, and she uses the experiences that many businesses had with Hurricane Sandy as examples. At LexisNexis, attorney John Stahl looks at work comp issues related to the mobile workforce and home-based employees.
Workplace Violence – The current issue of Risk Management Magazine has a Time Line of Workplace Homicides and at Risk Management Monitor, Ralph Metzner posts about preventing workplace violence.
News Briefs

New Hampshire: Are Injured Workers Avoiding Comp?

Thursday, September 6th, 2012

The Insider has come across an intriguing but ultimately frustrating study concerning the under-reporting of workers comp claims in New Hampshire. Under the auspices of the NH Department of Health and Human Services, the Behavioral Risk Factor Surveillance System survey (with the unfortunate acronym of BRFSS) conducted phone interviews with nearly 7,000 adults who were employed during 2008. About 340 people – close to 5 percent – reported that they had been injured at work sometime during the prior year – injured, that is, seriously enough to require “medical advice or treatment.” (Sigh, when you include “medical advice,” you might be including the first-aid-only incidents that should be excluded from the study.)
Here is the interesting – if somewhat compromised – nugget from the study. Among those who were injured, only 54 percent reported that their treatment was paid (“all or in part”) by workers compensation. The remaining 46% reported their treatment was paid for by private or government insurance (25%) or by other means (21%). Unfortunately, by the time you get down to the 150 people in the non-comp segment, the combination of small numbers and ambiguous questions seriously reduces our ability to draw any meaningful conclusions. The study may indicate substantial under-reporting, but to know for sure, the researchers are going to have to ask some more questions.
Focus on Comp
Because the survey is conducted by the Department of Health and Human Services, the focus on workers comp is, pardon the expression, almost accidental. In fact, the 2008 survey was the first time they included questions about workplace injuries and payment for related treatment. While I applaud their interest in comp, I hope they would consider adding just a few questions to make the survey more effective. Assuming the survey guarantees anonymity, the questions might include:
– For those reporting that they are self-employed, ask whether they carry workers comp insurance (it is optional in NH).
– For those reporting that they were injured, the follow-up questions should be limited to those who secured outside medical treatment (and not those seeking only “advice”).
– If comp paid just “part” of the treatment cost, who paid the remainder?
– For any worker whose treatment was not covered 100% by workers comp, ask whether they paid anything out of pocket (which would be a violation of comp law).
– If treatment was covered by a non-comp insurer, ask whether workers were instructed by their employer to report the injury as “non-work related” (employers giving this instruction and employees following it are committing insurance fraud).
– For any workers reporting injuries, ask whether they lost time from work due to the injury and whether they were paid for the time they missed. (Some employers are so determined to avoid the comp system, they pay wages for employees missing time due to injury, even beyond the state’s three day waiting period.)
Cost-Shifting?
Lurking in the shadows of this study is the distinct possibility that under-reporting is real and possibly instigated by employers trying to game the experience rating system; they are shifting costs onto forms of insurance that are less loss sensitive. In addition, Injured workers may fear retaliation for reporting legitimate injuries: they may face disciplinary action, may be fired, may be denied overtime or may even ruin the “days without accident” program that dangles the promise of a pizza lunch and drawing for a TV if a certain number of days are free from (reported) injuries.
The BRFSS study provides just enough data to tease us: there may be a serious issue here, but then again, there may be no problem at all. To the good folks in New Hampshire, let this be a word of encouragement. Your study, to put it rather harshly, may be kind of useless in its current form, but with a little tweaking, it might lead to genuine insight into the way injuries are managed in – and possibly diverted from – the state’s workers comp system.

Opioids: Altered Minds and Bottom Lines

Wednesday, August 29th, 2012

In this era of data mining and predictive analytics, it’s really not that difficult to project which comp claims are headed for “catastrophic” levels. Just follow the meds. A new study entitled “The Effects of Opioid Use on Workers Compensation Claims Cost in Michigan” establishes a direct link between long-acting medications and the eventual magnitude of the claim. Where short-acting opioids are involved, the claim is 1.76 times more likely to break the $100K barrier; with long-acting medications, the likelihood increases to a whopping 3.94. The researchers, including Jeffrey Austin White and Jack Tower of Accident Fund Holdings in Lansing MI, demonstrate what has been long known anecdotally: the use of opioids is an “independent risk factor for development of catastrophic claims.”
The study examined over 12,000 claims that opened and closed between January 2006 and February 2010. (Had they included claims that were still open, the numbers may have been even more dramatic.) In an effort to isolate just how much opioids drove up the costs, the study accounted for other risk factors including sex, age, attorney involvement, the number of medical treatments and claim duration.
Pain and Dr. Sajedi
There is a relatively simple logic at work: injuries cause pain and opioids alleviate extreme pain. The question, naturally, is which injuries require extreme pain relief and which could be managed with lesser medications. Far too many doctors are too quick to prescribe narcotics, even as they fail to implement the most elementary safeguards to ensure that the drugs are used properly and for as short a duration as possible. (A comparable problem exists with the overuse of antibiotics; doctor training clearly needs more emphasis on pharmacology.)
Which brings us to Dr. Ebrahim Sajedi, 46, an internal medicine specialist in California who gets good reviews from his patients. Trained at the Rochester School of Medicine, Sajedi was busted on 12 felony counts of prescribing medications without a legitimate purpose. He provided scripts for Vicodin, Adderall, Klonopin and similar drugs to four undercover police officers without examining them and for no medical purpose. Why buy drugs on the street when you can get the good stuff from a certified specialist?
Bottom Lines
The prevalence of strong drugs in the comp system should come as no surprise. We live in a culture where we are supposed to live pain free, virtually forever, stimulated and distracted in every waking moment. We can hardly fathom the pain that mankind endured in every generation up until recent times. There is a complex, perhaps ultimately incomprehensible alchemy that takes place when pain relievers are introduced into the body. But this relief comes at great cost and even greater risk.
In workers comp, the cost is borne by the employer. The quick pain fix of opioids inevitably finds its way to the employer’s bottom line in the form of prolonged absence from work, higher costs, higher experience mods and bigger insurance premiums. We have long suspected that injured workers on opioids stay out of work far longer than is medically necessary and often find themselves in the downward spiral toward a permanent disability lifestyle. With this Michigan study, we have further documentation that the promiscuous use of drugs undermines the recovery of injured workers and the financial stability of their employers.

Risk Transfer as Three-Card Monte

Tuesday, May 22nd, 2012

When you’re looking for ethically-challenged business practices, Florida is usually a good place to begin. The latest kerfluffle involves a toxic combination of very high deductibles for workers comp insurance and employee leasing companies. Oklahoma based Park Avenue Property and Casualty Insurance sold policies with deductibles as high as $1 million to PEOs. Think about that for a moment: a million dollar deductible is virtually self-insurance, as very few claims break that formidable barrier. Park Avenue, along with its successor companies, sold these policies to employee leasing companies, who in turn passed the coverage through to their client companies. With such a huge deductible, the coverage must have been relatively inexpensive compared to standard market rates.
Under large deductible programs, the insurance company pays all the bills and then seeks reimbursement from the client company, up to the deductible amount. It’s not hard to figure out the flaw in this business model: client companies will welcome the discounted premiums, but when it comes time to pay back the insurer for paid losses, they will be unable to cut the checks. Given the complete absence of regulatory-mandated collateralization for the claims liability, there is no way the insurer will be reimbursed for large loss claims.
That’s where the three-card Monte comes in: the insurer wrote these policies knowing full well that the deductibles would never be paid. That’s why Park Avenue morphed into Pegasus Insurance, which morphed into Southern Eagle Insurance, which flies off into the pastel sunset of bankruptcy.
Gaming Risk Transfer
The cards have been moved around at blinding speed, but who ends up paying? Once again, those who played by the rules will have to pay for those who didn’t. (For a more egregious example of punishing the innocent, see our blogs on the New York Trusts.) Policy holders in Florida will be charged somewhere between 2% and 3.5% of premiums to cover the $100 million plus of losses.
In the WorkComp Central article by Jim Sams (subscription required), Paul Hughes, CEO of Risk Transfer Company, which markets insurance to PEOs, complains that singling out the PEO industry is unfair. The state should never have allowed Park Avenue and its winged successors to write insurance, as they were clearly incapable of assuming the risk. True enough, but even Hughes would have to admit that the PEO industry offered a ripe venue for the scam: individually, PEO clients would never have qualified for high deductible coverage, but somehow, under the collective umbrella of a PEO, they did.
Meanwhile, PEOs are being sued for failing to reimburse the claims payments of Park Avenue and its successors. After the PEOs lose these cases, they will seek payment from their clients, who are unlikely to have the ability to pay anywhere near what is owed. The litigation will go on for a long time, but the bottom line is simple: risk transfer cannot exist where none of the parties can cover the exposure. That isn’t risk transfer: it’s a shell game, where those who did not play are left holding the bag.
Follow Up – June 7, 2012
After posting this blog, I received a call from Paul Hughes, CEO of Risk Transfer in Florida, who is quoted above. While not contesting the premise that large deductibles are poorly managed in Florida (and elsewhere), he believes that I unfairly singled out PEOs in the blog. The fundamental issue is the failure of the state to adequately regulate and oversee large deductible programs. I agree.
Please take a few moments to read Paul’s response, which employs the useful metaphor of a casino for the risk transfer industry:

The core issue to me is the role of the regulator versus the business owner in the management of the “casino” (insurance marketplace). That is one of the parts of Jon’s article in Workers Comp Insider that blurs the line a bit on what the PEO’s role is within the casino and whose job it is to set the rules. The casino is the State as they certify the dealers to play workers’ compensation (Carriers, MGU’s, MGA’s, Agents and Brokers) and the State also certifies that the players are credible (not convicted of insurance fraud) and can pay/play by the rules of the house. The rules are set by the house and the games all require public filings – ability to write workers’ compensation (certificate of authority), ability to offer a large deductible plan (large deductible filings), agent license, agency license, adjusters license and any other deviation from usual business practices (like the allegations that one now defunct insurance carrier illegally charged surplus notes to desperate PEO’s in the hardest market the industry has ever seen). The “three-card monte” that Jon alludes to in this article is managed not by the dealers (carriers), but by the house (state). Would a real life casino consider it prudent to allow one of their dealers to expose 20% of their $5m in surplus through high deductibles sold to PEO’s with minimal financial underwriting and inadequate collateralization? Would any casino write harder to place (severity-driven) clients to include USL&H, roofers etc with the minimum amount of surplus needed to even operate a carrier…? Of course not. These “big boy” bets would never be allowed in Vegas without the pockets being deep enough to cover the losses.