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California Reforms Target Workers' Compensation Fraud

California is cracking down on graft in the state's system of medical care for injured workers with two bills recently signed into law by Gov. Jerry Brown.

The reforms will prohibit medical providers who are felons from billing for workers' compensation care and rein in a court-governed payment system that gave rise to hundreds of millions of dollars in unsanctioned treatment.

Lawmakers who introduced the bills cited an investigation by Reveal from The Center for Investigative Reporting that examined more than $1 billion in alleged fraud in the medical system for injured workers.

Reviewing more than a dozen prosecutions and analyzing state data, the investigation found that alleged scams affected more than 100,000 injured workers. Many were monolingual Latinos who were targeted in aggressive marketing efforts in Southern California. They encountered everything from kickback-fueled spinal surgeries to fraudulent providers to $1,600 tubes of pain cream.

Alleged scammers included felons and doctors banned from billing Medicare for malfeasance. Many fraud defendants exploited a feature of California's workers' compensations system that let them file a “lien,” or a demand for payment, for services after insurers refused to pay. They included therapies like shock wave pain treatments or unwanted drugs, such as the pricey pain creams.

The new laws would ban certain medical providers with troubled pasts from treating injured workers and also aim to limit the avalanche of liens that clog the docket in two dozen workers' compensation courts throughout the state.

This story also ran in Reveal. It can be republished for free (details).

Christine Baker, director of the Department of Industrial Relations, which administers workers' compensation, said she hopes the laws improve care for people who seek help for an on-the-job injury.

“I think both abuses and fraudulent activities prey on the most vulnerable populations and we're hopeful that appropriate treatment will be provided to workers when needed,” Baker said. The laws “should reduce costs, because a lot of costs are tied to fraudulent activity, and that frees up dollars for the injured workers.”

The investigative series identified several medical providers with criminal convictions that precluded them from treating Medicare or Medicaid patients. Some, like Dr. Thomas Heric, went on to treat California's injured workers. Several years after making the move, Heric was indicted again for allegedly fraudulent reports he wrote about injured workers' sleep patterns.

One of the new laws - introduced by Assemblymen Adam Gray (D-Merced) and Tom Daly (D-Anaheim) - bans such providers from treating California's injured workers. The law requires the director of California's Department of Industrial Relations to send providers who might be suspended a notice. The providers can request a hearing, where a final decision would be made.

“It shocked me that we needed to do these things,” Gray said. “But we are happy to get some of these simple changes made and signed by the governor.”

The Reveal investigation also focused on the widespread use of liens filed in workers' compensation courts. Many providers accused of fraud rendered unapproved medical care that insurers did not deem appropriate or medically necessary. Denied payment, many medical firms went to court and filed a lien or sold the right to demand the money to a collections firm.

Kim Reeder of Sherman Oaks, Calif., requested a copy of her workers' compensation medical records and she said she discovered bills for transportation and language-interpreting services she never used. (Christina Jewett/Courtesy of Reveal)

Workers compensation insurers often haggle over providers' charges; many pay settlements and thus boost employers' insurance costs.

State officials concluded in August that providers charged or convicted of fraud had filed $600 million in liens in workers' compensation courts from 2011 to 2015.

Injured workers like Denise Rivera, of Riverside, were shocked to learn that sums nearing $100,000 were billed on their cases, even though they seldom felt they got the care they needed. Another worker, Kim Reeder, was troubled when reviewing bills for her care to discover charges for services she never used and expensive pain creams she didn't want.

And employers, like Suzie Kim, felt defeated as mounting liens led to soaring workers' compensation insurance rates. Her family's Los Angeles-based janitorial business - which once employed 350 workers - collapsed under the pressure of questionable liens, many by medical providers who faced fraud charges.

“It just surprises me it took this long,” Kim said. “But I think this is a step in the right direction and I hope they follow up with it.”

The other new law introduced by state Sen. Tony Mendoza (D-Artesia) requires medical providers, such as doctors, acupuncturists and chiropractors, to cite the legal authority they are relying on to file a lien. It is meant to quickly dispatch with liens related to unapproved care or injuries not deemed work-related.

The law also bans providers who are charged with medical fraud from collecting on liens until the case is concluded. The law will also limit the lucrative business of rendering medical care and selling the right to bill for it to collections firms. According to a Senate committee's analysis of the new law, the practice leads to workers to getting “substandard, profit-driven care.”

This story was also published by Reveal from The Center for Investigative Reporting, a nonprofit news organization based in the San Francisco Bay Area. Christina Jewett, formerly of Reveal, is now a senior correspondent at Kaiser Health News.

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Hospitals Say They're Being Slammed By Drug Price Hikes

Hospitals are getting slammed by drug price hikes that often have nothing to do with improving patient health, a new report has found.

Inpatient drug spending increased by 23.4 percent annually from 2013 to 2015, compared with 9.9 percent annual increases on retail drug spending during the same period, according to a new report by National Opinion Research Center (NORC) at the University of Chicago, which was commissioned by the American Hospital Association and the Federation of American Hospitals. Spending was driven by increases in drug unit prices rather than an increase in the volume of drugs used, they found.

“It would be one thing if price increases were associated with clear and important clinical improvements, but they're not,” Chip Kahn, CEO of the federation, said Tuesday in a press briefing.

The price hikes driving the spending increases “appear to be random and inconsistent from one year to the next,” the researchers wrote. About half of the drug price hikes in the report occurred in drugs with no generic competitors.

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“Drugs that were around for decades - almost a century, sometimes - caught us off guard,” said Scott Knoer, chief pharmacy officer of the Cleveland Clinic, referring to price hikes for drugs such as nitroprusside, which increased 672 percent per unit from 2013 to 2015, according to the report. “For a long time, old generic drug prices were so stable we didn't even think about that,” said Knoer, who participated in the press briefing.

The brand name version of nitroprusside, Nitropress, was originally approved in 1981 to treat cardiovascular patients. Today, it's made by just one company, Valeant Pharmaceuticals, which bought it in early 2015, and pushed the price to $790.46 per unit from $150 per unit, according to the report. The price hike has been the subject of Congressional attention.

Nitroprusside cost hospitals almost $95 million in 2015 up from $48.3 million the year before, according to the report.

“We understand the value of innovation,” said Rick Pollack, the American Hospital Association's president and CEO. “However an unaffordable drug is not a lifesaving drug and a price increase resulting from market manipulation is simply wrong.”

The Pharmaceutical Research and Manufacturers of America (PhRMA) said the report misses the big picture by honing in on the drugs in the report, and it leaves out the fact that hospitals mark up drug prices when they bill patients.

“Focusing on a set of unrepresentative, older and off-patent medicines at a time when new generic drug applications had a record backlog gives a distorted portrayal of medicine spending,” said PhRMA spokesperson Holly Campbell.

The Generic Pharmaceutical Association was not available for comment.

The report included a national web-based survey with responses from 712 community hospitals from April through June of 2016. Researchers then weighted these responses to come up with estimates for 4,369 community hospitals in the United States. The analysis also included aggregate data for 28 drugs from two group-purchasing organizations, or GPOs, which buy drugs in bulk to negotiate better costs. The two GPOs represent 1,400 community hospitals.

More than 90 percent of survey respondents said drug price hikes had a “moderate or severe” impact on their budgets. What's more, Medicare reimbursements often don't reflect increased inpatient drug costs because the reimbursements are based on price indexes, and drug prices are rising too fast for the indexes to keep up.

“The bottom line is if you spend several million dollars more on drugs, it's just accounting. You're going to spend several million dollars less on other things,” Knoer said, adding that although this is not a problem for Cleveland Clinic, some hospitals aren't able to hire has many nurses or can't invest in the latest screening technologies as a result of increased drug spending.

David Vandewater, president and CEO of Ardent Health, which includes 14 hospitals, pointed out that hospital closures seem to be more common than ever before. And although greedy drug companies aren't 100 percent at fault, they may share some of the blame for this trend, he said.

When companies hike drug prices, hospitals lose money on insured patients, but make money on uninsured or out-of-network patients because they can legally charge a markup for drugs, said Gerard Anderson, a health policy and management professor at Johns Hopkins Bloomberg School of Public Health. Drugs are regularly marked up at least 500 percent, so if the drug price is higher, so is the profit.

“It's not a total loss to them when prices go up because charged payers make up some of the difference,” Anderson said. He was not involved in the report or on the press call.

Ultimately, even healthy individuals wind up paying the price for out-of-control drug costs, in the form of higher premiums and copays, increased deductibles and higher taxes, Knoer said on the press call.

“If these kinds of increases took place in the sale of gasoline in the U.S., you'd be paying $30 a gallon,” Vandewater said. “And if that was the case, the federal government or somebody would decide enough is enough.”

KHN's coverageof prescription drug development, costs and pricing is supported in part by the Laura and John Arnold Foundation, and coverage related to aging & improving care of older adults is supported by The John A. Hartford Foundation.

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