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Holes in oversight leave California workers’ comp vulnerable to fraud

April 8, 2016 by  
Filed under Blog

Anyone can hang out a shingle and purport to be a medical vendor or caregiver by sending a letter to the state – no proof required. Unscrupulous providers can run up tens of thousands of dollars in bills for meaningless drug tests, salves and medical equipment, knowing that injured workers never will lay eyes on the bill.

The gaps in oversight are so tempting that one prosecutor says scammers test-drive ways to fleece the system, often pocketing millions before anyone in a vast market of insurers catches on.

“They study the weaknesses of the system and exploit it,” said Shaddi Kamiabipour, an Orange County deputy district attorney.

Kamiabipour is among the legion of state and federal prosecutors throughout California who maintain that more than $1 billion has been siphoned out of the system.

Yet their case documents reveal something else: gaping holes in the state’s strategy to prevent fraud. The architects of other major health programs shored up similar weaknesses long ago. Here is a comparison:

Consolidate the power

When Medicare makes rules, it has a strong incentive to encourage doctors, pharmacists and others to follow them: money.

The purse strings are not held nearly as tightly in California’s workers’ compensation system, in which a division of power creates the first major hurdle.

Lawmakers make rules. The state’s Department of Industrial Relations administers workers’ compensation. Medical boards and commissions oversee doctors, pharmacists and chiropractors. And a market of more than 300 insurers and self-insured employers do the day-to-day job of deciding which medical bills to pay and which claims to fight.

“When everyone is responsible, no one is,” said Kate Zimmermann, a Kern County prosecutor who has combated workers’ compensation fraud for eight years. “He who has the gold can write the rules. … If you have one checkbook, you can say, ‘If you want the check, this is how.’ 

Leveraging the power to zip the wallet, the federal Affordable Care Act handed a particularly powerful fraud-fighting tool to state Medicaid agencies. They must stop paying a health care provider if they determine there is a “credible allegation of fraud.” Medical providers then can fight the determination in administrative courts.

No such rule exists in California’s workers’ compensation program. Yet the facts outlined in one case suggest it could have spared numerous questionable surgeries.

Dr. Douglas Mills testified in court that in 2007, he formally complained about a clinic at which he saw an improbable number of MRI reports come back supporting the case for surgery.

“In my opinion, people were getting hurt, so I wanted to stop it,” Mills said of his experience at San Fernando-based Frontline Medical Associates. Court records show that a state insurance department investigation was underway even before Mills’ report.

Further testimony confirmed Mills’ suspicions, including a clinic staff member who said she was paid a bonus to falsify MRI reports, bolstering the case for surgery. The revelations came to light last year – eight years after Mills’ initial complaint – when 15 people related to the clinic were criminally indicted. The charges in the pending case include aggravated mayhem for surgeries that prosecutors deemed inappropriate.

Root out sham facilities

Medicare officials know scammers can be brazen enough to steal patient identities, fabricate a sham medical office and bill for phantom care. As a result, the federal program has set up a system to check on medical offices.

Medicare uses its own data to determine whether classes of providers with track records of graft are medium or high risk, such as wheelchair merchants and home health agencies.

Both types of providers are visited when they initially open, three or five years later – depending on the industry – and whenever officials get a complaint. A government-contracted auditor interviews operators and takes a look behind the counter, according to Jason Weinstock, a former supervisory investigator for the U.S. Health and Human Services Department’s inspector general.

In California’s workers’ compensation system, no such data reviews or facility vetting occur on a regular basis. In fact, no central authority performs inspections to make sure medical firms are doing what they claim to do.

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