Holes in oversight leave California workers’ comp vulnerable to fraud

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.

When everyone is responsible, no one is. He who has the gold can write the rules.

Kate Zimmermann, Kern County prosecutor

Insurers can steer workers to a network of hand-picked medical providers. But a shadow system operates to the side, in which workers can get medical care from thousands of unregulated providers who seek payment later in workers’ compensation courts.

In that vacuum of oversight, James Allen Wilson saw a golden opportunity.

Wilson worked in the billing department at a hospital, where he had access to the personal information of workers’ compensation patients. Using their information, he set up a fake lab, billed for bogus services and started collecting $354,000 in checks at a post office box.

He got caught, according to news reports, when a savvy claims adjuster noted that he billed to perform tests on a dead man.

Wilson pleaded guilty to identity theft, grand theft and insurance fraud in 2009. In the years since, no checks of workers’ compensation medical providers have been instituted.

Empower workers to identify bogus bills

Albert MacKenzie, a former Los Angeles County prosecutor familiar with the Wilson case, said the oversight gaps are compounded by the fact that workers don’t have a way to flag bogus care. Unlike in Medicare or employer-paid health care, injured-worker patients aren’t mailed an explanation of benefits, or a summary of the services and charges related to their health care.

“When you have a system that doesn’t even send a patient a copy of what’s being billed for, it’s just Dodge City; open season for fraud,” MacKenzie said. “It’s just a massive cesspool.”

State labor officials say they’ve tried to clamp down on unregulated care through legislation that gives insurers the power to deny payment for unapproved health treatments. Despite the law, though, such bills for unapproved care remain commonplace in the state’s small workers’ compensation courts.

Ban providers convicted of fraud

In Medicare, medical professionals may be banned from seeking money to see patients if they’ve been convicted of defrauding a health care program or fraud-related offenses.

But those banned providers have no problem starting a second career in California’s workers’ compensation system.

They include Dr. Thomas Heric, who was banned from Medicare in 2006 after he admitted to filing a false claim. Five years later, prosecutors accused him of defrauding the workers’ compensation system by writing identical reports based on injured workers’ sleep studies. He is fighting his case in Orange County Superior Court.

An analysis of public records by Reveal from The Center for Investigative Reporting found that several other chiropractors and doctors banned by Medicare moved their career to workers’ compensation.

Among them: chiropractor David C. Nguyen. Medicare banned him in 2005 over an insurance fraud conviction. Earlier this year, San Diego prosecutors indicted him for insurance fraud again, this time for passing along bribes from a chiropractor to a therapy center – both workers’ compensation medical providers.

Free the data

Last summer, Medicare released millions of records detailing the services and charges of doctors across the nation. The federal agency billed it as a move “to promote better care, smarter spending, and healthier people.”

The Medicare data identifies doctors’ billing practices down to the specific test or treatment.

A flood of news stories based on the data followed, identifying high-billing doctors who also were in the crosshairs of law enforcement.

Among them was a Florida physician accused in a Justice Department lawsuit of performing invasive procedures to clean out seniors’ arteries – even if they didn’t need it. Another top biller is accused of reaping millions for diagnosing seniors with an eye malady that leads to blindness, whether or not they had the ailment.

In my opinion, people were getting hurt, so I wanted to stop it.

Dr. Douglas Mills, who formally complained about his experience at Frontline Medical Associates

No such transparency effort sheds light on health care spending in California’s workers’ compensation program. Public records in workers’ comp cases are limited to the names of medical providers seeking money in contested court cases.

Barbara Wynn, a Rand Corp. expert who was commissioned by the state to study health spending in its workers’ comp program, has access to the data as a researcher. She said making it available to the public could deter questionable practices: “It could start fingering potential fraud situations.”

But opening up billing data would be politically difficult, said Frank Neuhauser, a UC Berkeley researcher who’s studied the California workers’ compensation system for 25 years. Some doctors and attorneys for injured workers could see their income fall if excessive care is reined in.

But for workers who get questionable surgeries or treatments, and for employers who foot the bill, he said, it would be the right thing to do.

Read also: Profiteering masquerades as medical care for injured California workers

Christina Jewett can be reached at Follow her on Twitter: @By_CJewett.

This story was produced by Reveal from The Center for Investigative Reporting, a nonprofit newsroom based in the Bay Area. Learn more at and subscribe to the weekly podcast, produced with PRX, on iTunes.

For more

This article is part of a Reveal investigation that exposes fraud in California’s workers’ compensation system. An analysis of more than a million court cases details how workers have been swept into medical billing mills, prescribed unregulated medications and advised to undergo sometimes unneeded or high-risk surgery by doctors who were raking in bribes. To see the first report in the series:

Related stories from Sacramento Bee