Autonomy, a British software company acquired by Hewlett Packard last year, has been accused of improper accounting procedures by a whistleblower. Whistleblowers in the United States are entitled to a financial reward, courtesy of a new program run by the U.S. Securities Exchange Commission.  The whistleblowers could receive an award of between 10 and 30 percent of the sanctions collected by the SEC and other U.S. regulators. The allegations amount to over $8 billion dollars which could mean a very large reward for this whistleblower. Attorney Matt Zandi, a former federal prosecutor who specializes in representing whistleblowers stated, “It is commendable that the SEC has started a new program to reward whistleblowers for reporting corporations committing fraud. It is important to stop fraud such as the alleged fraud committed by Hewlett Packard to set an example that any corporation that commits fraud will be caught and fined.”

Source:http://www.reuters.com/article/2012/11/21/us-hp-results-whistleblower-idUSBRE8AK1J520121121

Identity theft and credit card fraud are running rampant throughout America. Millions of dollars are stolen every year by criminals, who appropriate credit card information and make fraudulent purchases over the telephone. Many of these scam artists reside in foreign continents such as South America and Africa. How, with all of America’s technological advances, do these criminals continue to get away with this?

Large telecommunication companies, such as AT&T, allegedly have the ability to track where these scam artists operate. But AT&T does not take action because if they do, they will lose federal subsidies. How? Every time an AT&T customer pays a long distance bill, they are forced to pay a fee to the Federal Communication Commission. The fee is pooled with fees from other telephone service providers and is administered back to them as a subsidy for operating a messaging service for the hearing and speech impaired. Basically, a person with hearing or speech impairments can use this service to type messages, which an operator will then read to the recipient. For every customer using this service, AT&T is provided with a government subsidy, thus increasing profits.

Many criminals stationed in Nigeria are allegedly using AT&T’s hearing and speech impaired services to illegally purchase goods over the phone. They use this service because it is supposedly difficult to track where the calls originate from. But AT&T allegedly patented software in 2003 which would detect where the calls originated. Unfortunately, instead of using the software to track the thieves, AT&T purportedly allowed the fraud to continue in order to receive the government subsidy every time the criminal used their hearing and speech impairment service.

Attorney Matt Zandi, former Assistant United States Attorney who specializes in whistleblower cases, has stated in the past, “corporations who receive government subsidies, which American Citizen’s fund, have an obligation to protect the public and its consumers from criminal activity on its own telecommunications network.” One way to force AT&T and other service providers to oblige to that obligation is to punish them in our civil and criminal courts and administer heavy monetary penalties.

Source : AT&T disputes fraud claim

Rapiscan, a company that produces security scanners, has been suspected of falsifying software tests. The company has a contract worth 90 million dollars with the Department of Homeland Security to replace traditional magnetometers with the highly controversial body-scanning machines.

The machines were designed to screen passengers at airports and aid Transportation Security Administration (TSA) agents with detecting bombs and weapons. Rapiscan has been accused of manipulating data in privacy tests conducted after several complaints were made by privacy advocates who claimed the machines produced graphic images of passenger’s bodies. Attorney Matt Zandi, a former federal prosecutor who specializes in representing whistleblowers stated, “It is unjust that a company with a federal contract would attempt to falsify information and risk passenger safety and privacy while taking advantage of the American taxpayer.”

Source:Maker of Airport Body Scanners Suspected of Falsifying Software Tests

A physician in Michigan, Dr. Jonathan Agbebiyi, was sent to federal prison and ordered by a federal judge to repay the government $3,000,000.00 for scamming taxpayers out of millions of Medicare dollars. Dr. Agbebiyi gave rewards such as cash, prescription medication and other gifts to recruit patients for unnecessary neurological exams. Specifically, he recommended nerve conduction studies using electrical stimulation to patients who did not need them. Not only were the neurological tests needless, they were administered by untrained and unqualified medical staff.

After the patients received bogus neurological exams, they were given their rewards. Subsequently, Dr. Agbebiyi sent invoices for the phony medical exams to Medicare. Thus, your tax dollars, through Medicare, paid Dr. Agbebiyi a total of 5.4 million dollars for providing useless medical treatment. Attorney Matt Zandi, former Assistant United States Attorney who specializes in whistleblower cases, believes, “In order to preserve our dying Medicare programs, we must aggressively seek out this type of fraud and aggressively prosecute those responsible in a court of law.”

http://www.freep.com/article/20121107/NEWS04/121107029/Jonathan-Agbebiyi-Medicare-fraud-neurological-tests-LIvonia-clinics?odyssey=nav%7Chead

In 2011, a certified public accountant tipped off the Internal Revenue Service about a tax lapse his company ignored, and received the first major award granted to a whistleblower by the tax collection bureau. Out of the $20 million in taxes and interest the IRS netted from the delinquent company, the whistleblower received $4.5 million – a 22 percent cut of the taxes recovered. This groundbreaking award came four years, three months, and 18 days after Congress augmented an 1867 legislation to create the first meaningful rewards to tax whistleblowers.

The IRS has been authorized for over 150 years to pay awards to whistleblowers under what is now Internal Revenue Code Section 7623(a). This legislation was first amended in 1996 to award whistleblowers only at the discretion of the IRS. Under the former program, the maximum award was limited to 15 percent of the recovery, and a maximum payout of $10 million.

The divisive legislation, which opponents have called the “Award for Rats Program,” was modified again in 2006 to boost the IRS’ authority to pay cash awards to tax whistleblowers. The new law, Section 7623(a), established a mandatory whistleblower award program that included a new Whistleblower Office in the IRS, much like the Department of Justice’s False Claims Act Office.

Although the 2006 amendments were heavily criticized as turning tax professionals into government snitches and opening the floodgates of meritless claims, the only floodgates that have been opened so far have been the public backlash against the obstacles ostensibly posed by the IRS itself.

Last month, the IRS Whistleblower Program came under fire again amidst the release of a report by the treasury inspector general of tax administration (TIGTA). TIGTA, whose functions include monitoring the IRS, found that claims made by whistleblowers are still not being adequately attended to by the agency. Despite recommendations by TIGTA and other government organizations brought before the IRS throughout the years since the Whistleblower Program’s inception, TIGTA claims that the IRS has not resolved key issues within their method of handling whistleblower claims in their agency.

TIGTA’s report is the latest in a wave of very public concerns about the effectiveness of the Whistleblower Program. The law sponsored by the godfather of whistleblowers, Senator Charles Grassley (R., Iowa), greatly expanded an existing program and gave the IRS the ability to award people who come forward with information about tax misdeeds up to 30 percent of the total recovered amount in a given settlement. Since 2006, however, watchdog groups have voiced criticisms of the program, including a 2009 report by TIGTA in which auditors said claims were not being resolved in a timely manner and offered recommendations to repair weaknesses they found in the processing system.

In its latest report, TIGTA stated that employees weren’t specifically told to review the date a claim was received, “which is critical when reporting business results to internal and external stakeholders.” This lack of precision within the agency’s handling of such cases hinders the timeliness in which the IRS processes (and rarely,litigates) whistleblower claims. To make matters worse for the IRS program, the watchdog group added that, “timeliness standards for processing claims have not been fully established.”

Further demonstrating that the IRS still has not addressed prior issues raised by critics in the past few years, TIGTA’s report noted that the possibility of data errors occurring when the IRS moves information from multiple systems into one registry for whistleblower claims continues to exist – a concern they initially raised in August 2009.

The U.S. Government Accountability Office voiced similar sentiments late last year in a report stating that, “Incomplete data hinders the IRS’s ability to manage claim processing time and enhance external communication.”

The IRS responded to the report, saying, “no instances of errors in the received data have been identified.” The statement, released by IRS spokesperson Michelle Eldridge said, “The IRS recognizes that improvements can be made in collection and the use of data in our management information system and that more can be done to oversee the evaluation of whistleblower claims.”

While his agency has been under fire, IRS Deputy Commissioner Steven Miller has offered minimal responses to accusations of shortcomings. Miller’s letters have included statements saying that the agency “generally agrees” with recommendations, but that the agency must follow legal requirements protecting taxpayer rights to due process and privacy, both of which take “significant time.” Also hindering the IRS’ ability to properly implement the GAO’s and others’ recommendations, according to Miller, is a lack of funds.

Senator Grassley offers a solution: money that should be recovered through whistleblower claims should be more than enough to ensure effective policies. On April 30, Grassley wrote Treasury Secretary Timothy Geithner and IRS Commissioner Douglas Shulman to express his “extreme disappointment in the management of the program,” most strongly pointing out that Miller’s promises which included a periodic meeting of the Whistleblower Program Executive Board and improving internal communication efforts have gone completely unfulfilled. Grassley conveyed his frustration in four pages of sharp criticism and demands for transparency in an apparently murky treasury office. Having received “even more” correspondence from whistleblowers whose claims are not progressing at the IRS since his 2008 letter to Shulman, Grassley called Miller’s empty assurance “just lip service,” and griped that TIGTA’s report “confirms my concern that the IRS isn’t serious about processing whistleblower claims in a timely way.”

Responding again to Miller’s indication that the IRS lacked funds to implement recommendations, Grassley addressed concerns about the responsibility of the IRS’ expenditures. During the week that Grassley drafted this letter, the director of the IRS Whistleblower Program was participating in the Offshore Alert Conference at a Ritz-Carlton Hotel in Miami Beach – a conference that, according to the conference’s website, invited “offshore providers, offshore clients, and investigators.” With no whistleblowers in sight, Grassley questioned the necessity of the director’s and eighteen other IRS employees’ involvement in the costly meetings in a challenging fiscal time. “This is not the best use of IRS resources,” he said. “The IRS whistleblower director is supposed to be an advocate for whistleblowers – not those who are promoting offshore tax evasion.”

The substantiated concerns verbalized by various sources through the past four years over the effectiveness of the IRS’ functionality and effectiveness do not appear to have impacted the bureaucrats at the IRS. Inaction on the part of the Department of Treasury and top-level IRS commissioners demonstrate a lack of support for the program from both offices, leaving the future of the program in question. Grassley called on President Barack Obama to get involved by “lighting a fire” under the IRS. “The lack of progress is demoralizing whistleblowers so that I am now concerned that whistleblowers will stop coming forward.”

Today, we face a $345 billion tax gap, which is the difference between the amount of money owed to the IRS and what is actually collected. In a reported issued by the treasury inspector general, the IRS admits that it cannot and does not have the resources to close the $345 billion tax gap by audits alone. Thus, those who wish to promote honest taxpayers’ interest – and minimize the tax burden on all of us – would be wise to give the IRS whistle-blower program all of the resources it needs to stop tax cheats. A great start would be to model the IRS program after the False Claims Act, which has recovered more than $25 billion for U.S. Taxpayers since 1986, and has paid more than $2.7 billion to whistle-blowers.

Subway project suit in its 16th year draws questions about agency oversight.

LOS ANGELES – A 16th birthday is often considered to be a coming of age. But when it’s taxpayer-funded litigation, the age is not so sweet.

Sixteen years ago this month, the Los Angeles County Metropolitan Transportation Authority joined a whistle-blower lawsuit in state court against Parsons-Dillingham, a joint contractor venture that helped build the Metro Red Line subway in Los Angeles.

The county transit agency alleges Parsons-Dillingham overbilled taxpayers for its work by approximately $100 million. Parsons Corp. representatives declined to comment, but the defense denies the allegations.

‘Most federal judges have very strict litigation schedules in the case. Here, it just looks like that just never happened. It just spiraled out of control.’ – Matthew Zandi

Legal experts said the litigation is one of the longest in the history of the statute that governs false claims – a length of time one observer called “outrageous.”

The legal saga highlights the difficulties municipalities often face when attempting to recoup taxpayer money and displays the complexities of whistle-blower cases moved from federal court to state court. But it’s also the latest example of the MTA engaging in drawn-out, bitter litigation using outside counsel who bill hourly at a time of crippling budgetary issues and a sluggish economy.

The MTA and its attorneys declined to comment on the case or how much it’s costing taxpayers.

But the agency’s inspector general reported in a 2010 audit that county transportation officials spent tens of millions of dollars in legal fees with lax oversight over outside counsel. That audit was performed after a similar lawsuit against contractor Tutor-Saliba Corp. over the same Red Line subway project took 15 years to litigate in state court. The MTA reportedly spent more than $34 million to litigate that slightly shorter case.

Thomas D. Long of Nossaman LLP, who represents the MTA, and Phyllis Kupferstein of Payne & Fears LLP, an attorney for Parsons, have worked on the case since the mid-1990s and declined to comment. Both licensed California attorneys since 1982, more than half their careers has been spent on the litigation.

Louis J. Cohen, an Agoura Hills-based sole practitioner who represents J. Martin Gerlinger, a former Parsons Corp. employee who filed the qui tam complaint, estimates it’s the longest-running lawsuit in the history of the False Claims Act, a statute enacted in 1863 to combat fraud committed by contractors during the Civil War. Los Angeles County Metropolitan Transportation Authority v. Parsons- Dillingham Metro Rail Construction Manager Joint Venture, BC150298 (L.A. Super. Ct., filed May 20, 1996).

The law imposes liability on businesses that defraud public programs and allows private citizens to file lawsuits on the government’s behalf, as well as recoup up to 25 percent of any recovered damages.

While expressing frustration at the length of time that’s gone into the lawsuit, Cohen said his client has a righteous case.

“These cases are critical to make sure taxpayers get their money’s worth in these huge infrastructure projects,” Cohen said, adding that his client is waiting for the MTA and Parsons-Dillingham to finish litigating their claims so he can bring his False Claims Act matter to trial.

Parsons hired Gerlinger in 1991 as a finance manager for its venture with Dillingham to build the Red Line subway. He later sued the company for wrongful termination, a lawsuit that settled for $300,000, according to Cohen.

Matthew Zandi of Shawn Steel & Associates, a former federal prosecutor who specializes in qui tam litigation, called the length of time of the Parsons-Dillingham case “extra-long.”

By comparison, whistle-blower litigation over Boston’s “Big Dig” project – which was finished years late and billions of dollars over its initial budget – took seven years to complete, Zandi said.

“Federal courts are a lot better equipped at handling False Claims Act cases,” he said. “Most federal judges have very strict litigation schedules in the case. Here, it just looks like that just never happened. It just spiraled out of control.”

Federal court was Gerlinger’s first option. He filed a federal whistle-blower lawsuit in 1994, but U.S. District Judge J. Spencer Letts dismissed it two years later. The U.S. government had declined to intervene in the matter, as did the state of California. Gerlinger v. Parsons-Dillingham Metro Rail Construction Manager Joint Venture, CV 94-06678-JSL (C.D. Calif., filed Oct. 4, 1994).

The MTA intervened in the state court complaint.

The lawsuit and a breach-of-contract cross-complaint filed by the defense took nearly five years to get to trial, finally getting under way in a bench trial before Superior Court Judge Warren L. Ettinger in May 2001. Ettinger, a Gov. Pat Brown appointee who left the bench in 1977, only to return as a volunteer long-cause trial court judge, dismissed some of the causes of action and other claims settled before the trial. Testimony took nearly five years to complete, with the trial being interrupted by other cases and trials that crowded Ettinger’s docket after November 2001.

The judge, who in 2004 issued a statement of decision ruling against defense contractual claims, took three years after the trial concluded in 2006 to write a second statement of decision on MTA’s accounting allegations. Ettinger asked the parties to draft their own versions of the second statement before ultimately crafting his own, which he completed in June 2009. He found breaches of the MTA’s contract but delayed issuing damages until the completion of an accounting referee’s report investigating one invoice.

That report was published last month after the defense submitted more than 40,000 pages of documents to the accounting referee, who billed more than $300,000 for his work on one invoice, according to court papers filed by MTA last month.

During the wait for the report, Ettinger’s courtroom was closed in response to the March 2010 budget cuts and layoffs that hit the Los Angeles court. The case was reassigned to Judge Emilie H. Elias and last year to Judge John Shepard Wiley Jr. after Elias was reassigned to handle asbestos lawsuit coordination.

Wiley has asked the parties to provide “a full landing pattern for what it’s going to take” to bring the long-running litigation to a conclusion, according to an MTA court filing from last month.

The question of when the lawsuit will end its trial court phase remains an open one. An additional 350 invoices exist, and the parties disagree over how many should be investigated.

Wiley has scheduled a July 16 status conference to further discuss the case.

Donald E. Childress III, a professor at Pepperdine University School of Law, called the length of time it has taken to prosecute the Parsons-Dillingham litigation “surprising” and said it may be the result of a lack of interest on the MTA’s part.

“You may be seeing that the case is not a high priority to the plaintiff and they’re not pushing it as completely as they should,” Childress said. “At the end of the day, I think the duty to push the case through the system … is ultimately the responsibility of the parties.”

Source: Daily Journal

“Show me a government contract, and I will show you fraud!” This was a statement I made frequently (and only half-jokingly) during my tenure as an assistant U.S. attorney in charge of the Affirmative Civil Enforcement taskforce at the U.S. Department of Justice, where we prosecuted the federal False Claims Act (FCA) exclusively.

Since 1863, the False Claims Act, passed by President Abraham Lincoln and reinforced in 1986 by President Ronald Reagan, has been the single most powerful tool U.S. taxpayers have to recover the billions of dollars stolen by government contractors through fraud. In fact, since 1986, the Department of Justice has recovered over $26 billion in federal funds.

The California False Claims Act (CFCA) was originally modeled after the federal version, but has unique

provisions that make it one of the most powerful anti-fraud statutes in the country. The California Taxpayers’ Association released a report, which documented that state government waste, fraud and mismanagement has cost California taxpayers $18.9 billion in the past 10 years alone.

Both the state and federal laws depend heavily on brave whistleblowers willing to put their careers on the line to report fraud and alert the authorities. As an incentive for their risk, the whistleblower, often called a relator, stands to gain between 15 percent and 50 percent of the total government recovery, which can reach millions of dollars, and includes substantial attorney fees and costs.

One of the key differences between the FCA and the CFCA is the standard each uses to classify a claim.

Unlike the federal FCA, to qualify as a false claim under the CFCA, the claim itself need not actually be false. The test is if the alleged false information or statement to the government has a tendency to influence the agency or was capable of influencing the agency’s decision and action. Thus, a claim that is considered to be “underpinned by fraud” is eligible for action under CFCA. City of Pomona v. Superior Court, 89 Cal.App.4th 793, 802 (2001).

Both the state and federal laws depend heavily on brave whistleblowers willing to put their careers on the line to report fraud and alert the authorities. Under the federal FCA, the U.S. Department of Justice conducts all prosecution and enforcement. To this end, the department has assembled a special taskforce of experienced prosecutors called “Affirmative Civil Enforcement” or “ACE” and placed them strategically in U.S. attorneys general offices in districts with a high volume of government contracts. The ACE program is funded entirely by the recoveries of the ACE teams. The department takes three to five percent of all recoveries by the ACE unit nationwide to support the program. Although there are no official statistics, during my time at the department, I was told that for every dollar the government invested in the ACE program, it obtained $1000 in return.

By contrast, Section 12650(b)(5) of the CFCA broadens prosecutorial authority in a way that should be highly appealing to states considering passage of their own version of the law: “‘Prosecuting authority’ refers to the county counsel, city attorney, or other local government official charged with investigating, filing, and conducting civil legal proceedings on behalf of, or in the name of, a particular political subdivision.”

Under Section 12652(a) and (b), the “suit may be brought by the Attorney General where state funds are involved or by the ‘prosecuting authority’ of a political subdivision where the political subdivision’s funds are involved, subject to intervention, and participation by the other official where both state and political subdivision funds are involved.” State ex rel. Harris v. PricewaterhouseCoopers LLP, 39 Cal.4th 1220, 1223 (2006).

This approach has several advantages in the state context. First, it substantially increases the available prosecutorial resources to pursue CFCA violations. Second, it immediately puts the government officials most closely tied to the fraud investigation in a position to play a leading role in the actual prosecution of the matter, even though overall coordination of CFCA litigation remains the responsibility of the attorney general.

One interesting section unique to the CFCA is the “passive beneficiary” clause. Under this section, any person who “[i]s a beneficiary of an inadvertent submission of a false claim to the state or a political subdivision, subsequently discovers the falsity of the claim, and fails to disclose the false claim to the state or the political subdivision within a reasonable time after discovery” is liable under the Act.

There is hardly any case authority interpreting this section, and there is no comparable provision under the federal FCA. The key decision interpreting this section is Armenta ex rel. City of Burbank v. Mueller Co., 142 Cal.App.4th 636 (2006). The purpose of this provision is to impose liability on any person who knowingly benefits from the submission of a false claim to the government. It is not necessary to establish that the potential defendant itself submitted the claim; only that it learned of the falsity, benefited thereby, and did not immediately inform the government of the false claim. The Armenta court pointed to the CFCA’s legislative history to substantiate this conclusion, which the dissent rejected. The court also dismissed the contention that because the section speaks of “inadvertent submission,” the Act did not also reach intentionally submitted false claims.

The two acts depart from each other in other ways as well.

Unlike the federal FCA, which mandates ranges of penalties (such as $5,500 to $11,000 in Section 3729(a) for each false claim), the CFCA imposes a penalty “up to” $10,000 for each separate violation of the Act. Section 12651(a). Similar to the federal FCA, the CFCA also imposes triple damage liability for violations. In addition, the CFCA creates joint and several liability for acts committed by two or more persons. Section 12651(c). Damages, however, can be mitigated and penalties waived under the disclosure provision of the Act. Section 12651(b).

In any action alleging violations of the federal FCA, the statute of limitations provision contained within the FCA controls. 31 U.S.C. Section 3731(b). Under Section 3731(b)(1), a six year statute of limitations

provision is mandated. For FCA purposes, the statute of limitations begins to run once the claim for payment is submitted to the government. See United States v. Entin, 750 F. Supp. 512, 517-18 (S.D. Fla. 1990). In 1986, the FCA was amended to include a second statute of limitations provision, Section 3731(b)(2). This dual structure has led to significant litigation over whether relators are entitled to place reliance upon the (b)(2) provision and thereby possibly bring actions as late as 10 years after the date of violation.

By contrast, the CFCA contains a more concise definition in Section 12654(a): “A civil action under Section 12652 may not be filed more than three years after the date of discovery by the official of the state or political subdivision charged with responsibility to act in the circumstances or, in any event, no more than 10 years after the date on which the violation of Section 12651 is committed.”

Additionally, under the federal FCA, dismissal of a qui tam action at the request of the government is virtually automatic pursuant to 31 U.S.C. Section 3730(c)(2)(A). This is seen as an exercise of prosecutorial discretion. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1143 (9 th Cir. 1998). Again, this is not the law under the CFCA, which mandates that the government must be able to demonstrate ”good cause” to justify the dismissal.

With two wars raging across the world and a huge escalation in spending mandates, our government is dependent on private sector assistance. From building bombs to researching global warming, federal, state, county and local governments are dolling out billions and billions to the private sector, without much supervision. Unfortunately big money and limited oversight is a perfect recipe for fraud. Stepping up to expose that fraud takes courage, and we in the legal community must do everything in our power to stand up for taxpayers and protect the legal rights of whistleblowers. The California False Claims Act is an important first step.

Mr. Il Sub Lee and his family were traveling down route I-10 when a black BMW suddenly sped up and cut him off. With little room to maneuver, Lee was forced to swerve onto a dirt path to avoid a collision. Lee lost control of the vehicle causing his SUV to flip over several times before tragically killing Lee’s 3 month old baby girl Geo, along with another passenger in the vehicle. The suspect fled the scene but a truck driver who witnessed the accident called the police.  Immediacy, a police helicopter was dispatched and after an 8 mile high speed pursuit the suspect was apprehended by a highway patrol officer and taken into custody. The accident instantly ended Lee’s successful career as a photographer by permanently damaging his hands, ended the life of him and his wife emotionally scared, and caused the death of their family friend who was in the passenger seat. Crippled with physical injuries, emotional and financial woes due to the accident, Lee hired attorneys Shawn Steel and Matt Zandi to help recover compensatory damages. Steel Zandi reached settlement after months of tireless litigation and continued efforts by the defense council to belittle the case into the realm of negligence. Steel stated “This case was tough from the start, and no matter what the defense threw our way we knew we would get the results we wanted for our client.” While the case was riddled with mysterious circumstances and obstacles to overcome, Matt Zandi, the lead Attorney on the case pledged to bring justice to his client, “No matter how many hoops we had to jump through, it was worth it for the sake of our clients, for his to get closure and to get the justice that is owed to someone after a significant loss.” In addition to the wrongful death settlement, Steel  Zandi were also able to recover damages for Lee’s high medical expenses and his future loss of earnings as a photographer.  The case was resolved at mediation with a universal settlement for all parties injured in the accident for $1.5. million.



With Gary Lewkovich, DC and Shawn Steel, Esq.

Dr. Lewkovich: Your reputation in the chiropractic community is almost legendary. You have been an ardent supporter of our profession for de cades, assisting in many legal battles, both directly and indirectly. Now, once again, you are offering assistance to chiropractors battling insurance companies on “excess” med pay policy issues. How relevant is this “excess” med pay issue to the chiropractic profession?

Shawn Steel, Esq.: First of all, thank you for the kind comments. It has been a pleasure to serve the chi- ropractic profession, especially when it has done so much for me, my family, and friends. As you know, I come from three generations of chiropractors.

As for your question on the relevance of “excess” med pay policies, every chiropractor treating PI cases needs to know about this latest insurance tactic. Some carriers use this ploy very effectively taking advantage the healthcare provider and their own in sured. Ignorance on this topic is costly to chiropractors and their patients in terms of hard cash benefits. If you are asleep at the wheel on this one, you will lose, I guarantee it.

Dr. Lewkovich: I think you got our attention. Could you please define what is meant by “excess” med pay in first party auto policies?

Shawn Steel_ Esq.: “Excess” med pay policies are sold to unsuspecting drivers by some insurance companies. The essence of this type of policy is that the med pay insurer will only pay the uncovered or “excess” medical bills after the primary health insurer has paid.

Dr. Lewkovich: Is this type of policy a relatively new insurance creation? Shawn Steel_ Esq.: Yes, but there are more policies showing up with this “excess” provision all the time. Dr. Lewkovich: What does this mean to the chiropractor treating PI cases?

Shawn Steel_ Esq.: It means that chiropractors need to know the facts and fight back. The prime reason for this type of policy is to limit the reimbursement to healthcare professionals. If you do nothing, guess what? They win!

Dr. Lewkovich: And how does this “excess” policy limit reimbursement?

Shawn Steel_ Esq.: The “excess” carriers limit reimbursement by how they arbitrarily choose to interpret the Explanation of Benefits (EOB) form from the primary health insurer. In a managed care setting, these limita- tions are draconian. Since these reductions are so severe in this area, let’s concentrate here. Under managed care contracts you typically have the following conditions: the reimbursement for a given service is quite low, the number of visits authorized is below established norms, and the number of modalities/procedures anddurable medical goods allowed are restricted. In this type of setting, the “excess” carriers salivate at how much they can cut your reimbursement.

Dr. Lewkovich: And they try to cut your reimbursement based upon what rationale?

Shawn Steel_ Esq.: The reasoning here is straightforward but is based on a faulty assumption. Those carriers assert, according to the doctor’s contract with the managed care company, that you are obligated to accept the reimbursement paid by that in surer plus any applicable co-pays as full payment for your services. Thus, the auto med pay insurer may attempt to pay just for the applicable co-pays; just that paltry $5.00 to $10.00 per visit! This was never the intent of your managed care contract. Their twisted reasoning and total disregard for the facts of the matter are used to cut, cut, cut. It is the ultimate “slasher” script, but this one is not from Hollywood.

Dr. Lewkovich: So a chiropractor, under this scenario, could end up with a small fraction of the normal reim- bursement on a case?

Shawn Steel, Esq.: That’s exactly right. Dr. Lewkovich: And all that supposedly is made possible by the managed care contract limitations?

Shawn Steel, Esq.: Yes, at least that’s what the auto insurers would like you to believe. In reality, the managed care contracts almost always contain provisions allowing for exceptions in personal injury cases. These exceptions allow one to override many of the normal contract limitations in PI cases. This means that you are probably entitled to the total charges billed. You need to look at your individual contracts and find the applicable sections. Read them, understand them, and apply them. They can save you loads of headaches and thousands of dollars.

Dr. Lewkovich: Sounds great. But aren’t there specific rules under which these exceptions apply?

Shawn Steel, Esq.: I see you’ve been reading your contracts. Yes, you are correct. There are specific rules you have to follow in order to apply the contract exceptions. But with so many different contracts out there, we really can’t go into that here.

Dr. Lewkovich: So let’s spell it out completely. What should chiropractors do when they receive a letter from the auto med pay stating that an “excess” policy is in effect?

Shawn Steel, Esq.: Typically, the doctor will have to bill the regular health insurance first, then obtain and submit the written EOB to the auto med pay insurer. If this insurer doesn’t pay the balance of the medical bills, then you need to do two things. First, find the relevant section of your contract that spells out the ex- ception rules on PI cases and copy it. Second, send this copy along with your variation of the letter I have constructed that appears at the end of this interview. The law and the contract are both on your side. Hold the med pay insurer’s feet to the fire and demand that they pay the balance immediately.

Dr. Lewkovich: And if they refuse?

Shawn Steel, Esq.: File a complaint with the Department of Insurance and then send the med pay insurer a copy. Notify the patient in writing that you believe their auto insurer may be guilty of bad faith and advise them to get an attorney to pursue it. Be sure to mail copies of this letter to the in surer as well. That should get their attention. Plus, there is always that great, underused friend of chiropractic, the small claims court. Armed with the facts, you and your patient can typically force the med pay carrier to pay what is fair and just.

Dr. Lewkovich: At our office, I can verify the fact that the words “bad faith” carry a lot of weight when dealing with auto med pay insurance companies. Have you had the same experience?

Shawn Steel, Esq.: The words “bad faith” can appear like the avenging angel of death to a guilty insurance company. They just spent $60,000,000 defeating the “bad faith” propositions 30 and 31, so you know it is their Achilles’ heel. Fortunately, “bad faith” is still applicable to first party cases and all auto med pay falls into this category. Believe me, they will bend over backward to avoid this type of lawsuit. But remember, the doctor’s documentation must be complete and in order.

Dr. Lewkovich: Shawn, on behalf of myself and the chiropractic profession I want to thank you for your time and assistance on this issue.

Shawn Steel, Esq.: My pleasure. As always, if any chiropractor has any PI related questions, he or she can phone my PI Hotline at (800) 626-0003. Our e-mail address is shawnsteel@shawnsteel.com.

About the authors: Shawn Steel, Esq. comes from a family of chiropractors and has a long history of being anenergetic and dedicated defender of chiropractic. He teaches jurisprudence at Cleveland Chiropractic College, Los Angeles and quarterly at Palmer West and LACC. Mr. Steel has been known for decades as an exuberant and informative lecturer throughout the nation. He has three offices in Califon and specializes in personal injury.

Gary N Lewkovich, DC is the chairperson of the CCA’s Personal Injury Committee. He is a chiropractic orthopedist, a QME, the author of numerous articles for the CCA Journal, and a frequent lecturer at Los Angeles College of Chiropractic. He is also editor of the Personal Injury Review, monthly newsletter to attorneys, and specializes in personal injury cases. For the last 17 years he has practice in San Marcos, CA.

Sample Letter to the Auto Med Pay Insurer

DEMAND FOR FULL MED PAY BENEFITS DUE AND PAYABLE IN SEVEN DAYS

Your insured: Our patient: Your claim number: Date of Accident:

Dear (name of med pay representative):

We understand that No Pay Insurance Company is declining full coverage for our patient’s med pay benefits. As No Pay Insurance Company is aware, this denial is contrary to the requirements of the Insurance Code and the rules promulgated by the Department of Insurance. Your company maintains that due to my contract limitations with Landfill Managed Care, that No Pay Insurance Company is not obligated to reimburse the full balance of my unpaid reasonable and customary bills.

This position is contrary to law and the contract requirements of Landfill Managed Care.

Please see the attached section of the relevant portions of the applicable contract which specifically states that the reduction of benefits is NOT applicable in a personal injury case. Moreover, this contract specifically exempts the participating physician for having to limit his or her reasonable and customary fees for personal injury cases.

Therefore, we demand the following:

Immediately pay the balance due to this office within seven days from the date of this letter. Failure to honor No Pay Insurance Company’s duty bound and legal obligation to your insured will compel our patient to file a grievance with the Department of Insurance. Additionally, we will file jointly with our patient a court action against No Pay Insurance Company. Moreover, should we prevail in court, then No Pay Insurance Company should certainly anticipate a Bad Faith First Party action.

Very truly yours, (signature of doctor) (signature of patient)

encl: copy of relevant portion managed care contract

(Both the patient and the doctor should sign this letter to show the unity of the parties, making the correspondence much more powerfuL)

by Shawn Steel, Esq., Assistant Professor, Cleveland Chiropractic College, Los Angeles

The Chiropractic community should be concerned about the “Pure No-Fault” initiative which will be on California’s, March 1996 ballot. There are several different features in the initiative that are obviously anti-chiropractic. Despite that, would No-Fault serve a useful social end?

Across the United States No-Fault has shown a persistent theme of failure and deception. Higher rates and fewer benefits for consumers have been the results.

Insurance companies, in order to control costs and generate greater profits, used their influence in state legislatures to create a system which would provide them with greater leverage over consumers with automobile accident claims. A consistent promise made by the insurance carriers was that No-Fault would provide more benefits for consumers at lower premiums. Neither promise has come true. Moreover, not a single new state has adopted No-Fault in the last 15 years. In fact, at least three states have repealed their No-Fault statutes.

Pennsylvania, Nevada and Georgia each experimented with No-Fault and found, through hard experience, that No-Fault did not keep its promises of lower premiums and improved benefits. All three states repealed their No-Fault laws and returned to the tort system.

Where No-Fault Hurts Worst

In 1973, No-Fault came to Michigan. In order to maintain a viable court claim, the victim has to prove, to the satisfaction of the jury, that he or she WAS hurt with a “serious” important bodily injury, such as fractures, scarring or herniated disc. Otherwise, the victim receives nothing except medical payment (if not disputed) and some loss of earnings.

Michigan’s med pay insurance companies usually order a quick “IME” in order to justify stopping care. There is no appeals process in Michigan when the insurance company stops payment for med pay benefits. The only option the Chiropractor has is to file suit. There is no bad faith sanction against the insurance company for intentional disregard of the patient’s well-being.

According to John Vos, a Chiropractic attorney in Michigan, insurance companies simply invite Chiropractors to sue them. Most Chiropractors are unable to afford the fees and the lengthy delays in order to get there bills paid. Consequently, the Chiropractic services are difficult to get or maintain for Chiropractic patients.

New York’s No-Fault is worse. No-Fault was imposed in New York in the early 1970′s and was revised again in 1974. Attorney James Hogan, a New York Chiropractic attorney, states that all Chiropractic is controlled by the worker’s comp board. For example, the x-rays that Chiropractors provide generally get paid 50% less than if the x-rays were taken by a medical radiologist. The Chiropractic fee schedule currently under No-Fault offers between $16 to $21.90 for an office visit. Again, because the patient’s are at the mercy of the insurance company, Chiropractic care is often discouraged by the No-Fault system.

No-Fault is not popular anywhere. In 1990 and again in 1994, the conservative state of Arizona voted twice in public referendums to reject No-Fault.

Big insurance tried to pass No-Fault by initiative in 1988 in California. Voters rejected No-Fault with over a 2-1 majority.

California’s No-Fault Proposal

No-Fault has not delivered its promises. It has not reduced premiums, nor has it improved benefits for consumers. It has been generally injurious to Chiropractors and their patients. Consumers have almost never benefited.

The California Pure No-Fault Initiative is the most radical proposal anywhere in the United States. In its mission statement the Pure No-Fault Act states:

“(4) limit the fees paid to health care providers…”It would immediately reduce all Chiropractic -fees to the workers’ comp fee schedule. It would also provide the power to reduce fees through a political appointee, namely the Director of the Workers’ Comp Appeal Board. Additionally, it employs a bureaucratic Peer Review which could significantly delay Chiropractic benefits for over 150 days. The act requires that any Peer Review Organization be a designated HCFA organization. Unfortunately, there is not a single Chiropractic review organization which is affiliated with HCFA. It is possible that the Peer Review would be medically dominated and biased against Chiropractic doctors and their patients.

It is vitally important that the Chiropractic community educate, communicate and mo bilize against this initiative as never before. Chiropractic personal injury patients are a vital part of any healthy practice. If insurance companies are permitted unfair leverage over personal injuries cases, significant numbers of patients will be denied care and Chiropractic participation could be greatly reduced in personal injury cases.

California Chiropractors have been burdened for years with the growth of managed care, the decline of major medical insurance and reductions of other forms of insurance. Chiropractors can organize and work with the California Chiropractic Association to defeat the Pure No-Fault initiative. California Chiropractors can reactivate their political muscle to help en sure that the public is not fooled into eliminating Chiropractic care of personal injury cases.

California Chiropractic Association Journal—December 1995