Posts Tagged ‘fraud’

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.

Cost Containment Piracy

Monday, April 23rd, 2012

When looking for cutting edge activities in workers comp abuse, it’s a good idea to start in California, where key stakeholders occasionally function like pirates in the Gulf of Aden. We have frequently focused on the burgeoning costs of opioids in the workers comp system. As we learned at the Workers Comp Research Institute conference last November, too many doctors who prescribe opioids have no idea what they are doing, no idea how to manage opioid-based treatment and no clue about the potential for harm.
In the entrepreneurial free-for-all that is California, we see the latest trend in opioid abuse: turning the “best practice” of drug testing into an opportunity to milk the system. (The details are available in Greg Jones’s article at WorkComp Central – subscription required.)
Here’s how it works: doctors who tend to over-prescribe opioids are jumping on the drug testing bandwagon: either through their own testing, or through contracted services, they are able to parlay a simple $200 drug test into a bill for $1,700 or even $3,000. The labs are playing with billing codes, performing the less expensive qualitative tests but charging for the more expensive quantitative tests. It’s a clever scam: first over-prescribe, then drug test and over-bill.
The WorkCompCentral article quotes Howard Appel, president of Millennium Laboratories of San Diego: “I’m offended when workers’ comp is paying $3,000 for a drug test that cost $200.” Appel’s company operates under a “responsibility pledge” where explicit ethical standards are used for drug testing and billing.
Genuine Best Practices
We remind Insider readers of the best practices that should accompany virtually any prescription for opioids:
1. Above all, use opioids sparingly; most prescriptions for opioids in the comp system are unnecessary, ill-advised and poorly managed.
2. Virtually all injured workers prescribed opioids should be evaluated for dependency issues prior to beginning an opioid regimen, drug tested prior to receiving opioids and throughout the course of treatment. Without these pre-conditions, opioid use is full of uncertainty and fraught with danger.
3. Ideally, opioids should come with a written contract and a User’s Manual. Workers should be tested on their knowledge of the benefits and the risks.
Note that drug testing is a necessary component of the treatment protocol. The problem in California – and probably elsewhere – is that drug testing is of little value where opioids have been mis-prescribed in the first place. Under best practices, opioids are a last resort, rarely used and carefully managed. Under California scheming, they are over-prescribed, over-monitored and over-billed. All of which goes to show that you don’t need a fishing boat and a few automatic rifles to become a pirate. A nice white coat and a plastic cup can work just as well.

Pennsylvania: Crime Wave in a Bureaucracy

Wednesday, March 21st, 2012

The Insider does not normally think of state workers comp insurance funds as hubs of criminal activity, but then again, we haven’t been to Scranton lately. James McDonnell, 53, is a supervisor in the State Workers’ Insurance Fund (SWIF). He makes about $51,000 a year – at least, that’s his declared income. He has apparently been pulling in a whole lot more than that. He was arrested this week for running a kickback scheme involving premium discounts for Pennsylvania employers. In exchange for (undocumented) discounts in premiums owed, McDonnell secured cash kickbacks of one third to one half the discount. Between 1999 and 2011, McDonnell and his wife pulled in at least $80,000.
WorkCompCentral (subscription required) offers additional background on this case, including PDFs of the criminal indictment. McDonnell offered premium discounts to individual employers, in one case, a roofer, whose premiums, instead of going up $50K, came down $10K. He then insisted that the roofer join one of the three staffing firms with whom he did business. In exchange for steering clients their way, these firms paid McDonnell a relatively modest 1% commission, in addition to paying him substantial cash kickbacks on the premium discounts. In honor of family values, McDonnell’s wife was given several jobs which apparently did not require that she perform any work.
Kickbacks and Harassment
McDonnell must have been a busy man, systematically exploiting his position with SWIF, but he allegedly found time to harass a fellow fund employee. Last September he was accused of “making sexual advances on the employee, identified only as Jane Doe, such as asking her to lick a piece of Twizzlers candy taken from her work desk before he ate it and telling her to bend over and pick up a time sheet he dropped to the ground.” Would you be shocked to learn that the fund did not take these accusations seriously?
There may well be slow days at a typical state fund, but McDonnell sure knew how to make time fly. That skill will come in handy when and if he finds himself doing time in a bureaucracy of a different sort altogether.
Comp fraud takes many forms and encompasses opportunities for each and every stakeholder in the system: doctors, lawyers, insurers, state bureaucrats, business people, workers and, I suppose, even consultants. Today’s little saga of greed arises from the midst of a state bureaucracy. But no matter where the crime originates, the result is the same: higher costs for the vast majority of people who play by the rules.

A Window Into Fraud

Monday, February 13th, 2012

A couple of years ago we blogged the performance incentive program at Smurfit-Stone Container Corporation in California. The performance numbers were stellar, but not necessarily because the work was performed safely. Instead, the company conspired with local medical providers to secure limited treatment outside of the workers comp system. Two supervisors pled no contest in conspiring to deny comp benefits to injured workers.
With the recent conviction of chiropractor Robert Schreiner, we see into the black box of the conspiracy. Workers complaining of work-related problems were referred to doctors like Schreiner – giving rise, alas, to a new and ominous definition of provider network. In one instance a worker complained about a neck and shoulder injury. Schreiner denied that the problem was work related, saying that it was caused by carrying a back pack as a child. He provided a handful of treatments and then encouraged the worker to file the claim under his health plan to continue treatments. When the worker persisted and filed a comp claim, he was fired.
Schreiner is headed to jail to serve a mostly symbolic sentence of 30 days, to be followed by three years of probation. Perhaps he can provide some adjustments to his fellow inmates. Confined spaces sure can mess up the spine.
Faking Safety
Smurfit-Stone was bought out last year by RockTenn. You can still read about the company in Wikipedia. Here is the (unattributed) description of the company’s safety program:

Smurfit-Stone has been an industry leader in safety performance since 2001 [NOTE: the conspiracy to under-report claims began in 1999!]. In 2007, Smurfit-Stone’s U.S. operations had an OSHA recordable case rate of 1.05, the best in company and industry history. This represents an 84 percent improvement in the company’s recordable case rate since the implementation of Smurfit-Stone’s SAFE process in 1995.The SAFE process, which stands for Smurfit-Stone Accident-Free Environment, promotes five core beliefs:
1.All injuries are preventable
2.Safety is everyone’s responsibility
3.Working safely is a condition of employment
4.Training employees to work safely is essential
5.Safety is good business

As litigation has proven, Smurfit-Stone’s low OSHA case rate has less to do with safety than with a conspiracy to under-report claims. Perhaps the SAFE program stood for something else: Screw All Forsaken Employees. Aggressive safety goals are a good business practice; circumventing the workers comp system is not just a bad practice, it’s illegal. Just ask Robert Schreiber.