Sunday, May 31, 2009

Misbranded Drugs Case: Doctor Convicted By Jury Of Buying Non-FDA Approved Cancer Drugs From Foreign Countries And Using Them In His Oncology Practice

On May 8, 2009, a California physician, Vinod Chandrashekm Patwardhan, of Claremont, California was convicted by a jury in federal court in Riverside of conspiracy, two counts of introducing misbranded drugs into interstate commerce with intent to defraud or mislead, and three counts of smuggling foreign misbranded cancer drugs into the United States .

Dr. Patwardhan is an oncologist who maintained offices in Upland and Chino. The evidence presented during a seven-day trial showed that Patwardhan regularly purchased unapproved cancer drugs from foreign countries including India, Honduras, Panama and the Philippines.

From 2004 until his arrest last August, Patwardhan smuggled or caused to be smuggled more than $1.3 million worth of unapproved drugs from foreign countries. The investigation revealed that Patwardhan and his employees made at least 34 trips to foreign countries to obtain drugs that were smuggled into the United States. Most of Patwardhan’s patients were receiving the unapproved and misbranded foreign drugs, a fact Patwardhan concealed from his patients.

Dr. Patwardhan charged the patients, their insurance companies and Medicare for the unapproved drugs at the same rate that he would charge for FDA-approved drugs, even though he had paid significantly less for the unapproved foreign drugs.

For example, one invoice signed by the doctor, showed that he approved the $888,900 purchase of 100 vials of Docetax 80 mg and 300 vials of two other drugs, also illegible. Docetax is used in for the treatment of metastatic breast cancer. Other drugs included Pemnat 500 mg, Neupeg and Grafeel 1 ml, made in India and Farmorubicina manufactured in Italy. These medications are not FDA approved when purchased from other countries even if they are the same medications.
Authorities began investigating Patwardhan in March 2008 after one of his employees said the doctor was treating patients with cheaper cancer medications purchased from India and Honduras that were not approved for use in the U.S. by the Federal Drug Administration.
Two of Patwardhan’s former employees have pleaded guilty to misdemeanor charges of introducing unapproved new drugs into interstate commerce and are scheduled to be sentenced later this year.

Dr. Patwardhan treated about 35 cancer patients a week and allegedly told investigators prior to charges being filed that he had been bringing in medication for "quite some time." Employees became suspicious of the unauthorized drugs because Dr. Patwardhan would bring them in gym bags or other concealed packages. Generally, FDA approved oncology drugs are shipped by U.S. companies in refrigerated containers through Federal Express or other courier services.

One employee told investigators that Patwardhan traveled to India three or four times a year and had been purchasing cancer medication from there for six or seven years. Employees said he also had one person purchasing drugs from Honduras and asked them to purchase drugs on trips to Canada and the Philippines.

Dr. Patwardhan is scheduled to be sentenced by United States District Court Judge Virginia A. Phillips on July 20. At sentencing, Patwardhan faces a statutory maximum penalty of 71 years in federal prison.

Attorney Comments: Although the U.S. Attorney spokesman stated that this is the first such case he had seen in 12 years, we have seen numerous cases such as this one. This type of case arises by the huge difference in prices between FDA approved medications or devices in the U.S. and the price for these same medications or devices in other countries. The U.S. prices can be anywhere to 300% to more than 1,000% more than the foreign prices.

There appears to be no evidence that any patients were harmed by these medications made in other countries. Instead, it was a case about providing and billing for non-FDA approved medications (and bringing them into the U.S.) Some drugs made in other countries do not have safety controls that are required by the FDA but these drugs did not seem to have these issues.

Our office handled a number of cases where Copper T-380 IUDs made in other countries were being sold by pharmacies and suppliers to medical offices. The price differences were very large and enabled the offices to provide these IUDs to their patients. The price of the FDA approved IUDs distributed by only one company were higher than the reimbursement for Medi-Cal. The device appeared identical and there was no indication that there was any difference between the devices made outside the U.S. Nevertheless, some physicians were charged criminally where it could be shown that they knew the device was made overseas and that it was bought at a significant discount. Some of our clients were able to avoid criminal prosecutions but each case was fact specific.
It appears that Dr. Patwardhan was offering these medications made outside the U.S. to HMO patients where the HMOs refused payment or treatment. Regardless of the doctor's intentions, cases such as these are often open and shut when it is possible to prove that the physician knew that the medication or device was from another country and was not FDA approved. Insult is added to injury where the physician bills for the non-FDA approved drug or device and the Medicare and Medi-Cal manuals are clear that only FDA approved drugs or devices are reimbursable.

Be wary of suppliers coming to your office and offering drugs or devices at a large discount. Further, do not succumb to the temptation of saving money by buying drugs or devices from other countries (including Canada) and then billing for them. In the event of any question about whether you are purchasing FDA approved drugs or devices or have failed to do so in the past, err on the side of caution and involve your health care attorney or compliance officer at the earliest time possible.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Wednesday, May 27, 2009

Moving Or Changing Jobs? Notify Your Board Or Bureau Of New Address!

If you are a licensed professional and moving your practice or changing jobs to a different company, firm or practice, make sure you notify your Board or Bureau of your new address.

Every year, licensed professionals get fined, have licenses lapse and sometimes even lose their licenses because they moved and failed to notify their Board and Bureau.

Here is one real example from our practice. An attorney moved from a shared office space where she was not allowed to file a change of address with the post office. Attorney picked up her mail for some months after she moved. Attorney forgot to notify the State Bar of her change of address. Six months after she moved -- and after she ceased picking up mail -- the State Bar sent her license renewal form to her old office. It was returned to the State Bar as non- deliverable. Attorney forgot to renew her license. While she was in the middle of handling a civil litigation matter, opposing counsel notified the court that she was no longer licensed to practice law. Further, she had been "practicing law without a license" for over 6 months which created a disciplinary problem with the State Bar.

Here is another example from our practice. A physician did his residency at UCLA. Physician moved to Atlanta to do a fellowship. Physician failed to notify the Medical Board of his move relying on the hospital to do so. Medical Board mailed physician license renewal form and other mail which was returned as non-deliverable. The Medical Board issued an administrative citation to physician for not notifying Board of change of address.

In some cases, professionals forget to pay their fees for years. In some Boards, such as the California Board of Accountancy, after being delinquent five years, licenses are terminated automatically. For the State Bar, for example, the license must be renewed annually or it will lapse.

To check your address of record at your applicable Board or Bureau, visit its website and click on "License Lookup" or similarly titled section in the consumer's section. To ensure the privacy of your home address, you may use a P.O. box as your address of record as long as the Board has a street address on file.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings.

Tuesday, May 26, 2009

Medicare Promotes E-prescribing

Medicare providers are being incentivized by Medicare to adopt electronic prescribing technology. Beginning in 2009 and during the four years that follow, Medicare will provide incentive payments to eligible professionals who are successful electronic prescribers as defined by the Medicare Improvement for Patients and Providers Act (MIPPA). Eligible professionals will receive 2 percent incentive payments in 2009 and 2010; 1 percent incentive payments in 2011 and 2012; and a 0.5 percent incentive payment in 2013.

For an overview of the program from Medicare, go to:

For more information on setting up e-prescribing including frequently asked questions, log on to

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Monday, May 25, 2009

California Hospitals Fined For Violations By Department Of Public Health

On May 20, 2009, the California Department of Public Health on Wednesday issued $25,000 penalties against 13 California hospitals -- including seven in Los Angeles and Orange counties -- for alleged serious violations. Some of these hospitals may appeal the fine. One hospital has publicly stated that it will not.

The disclosures come as a result of a state law that took effect in 2007 requiring hospitals to inform health regulators of all substantial injuries to their patients. The incidents that resulted in fines include:

■ UC Irvine Medical Center received two penalties. In one case, a UCI patient reported that she had been "inappropriately touched 'vaginally' " by a male nursing assistant in September 2008. State investigators found that it took the hospital three days to place the man on leave. "Other staff members felt he was a good employee," and he he had no history of complaints. The employee is no longer working at the hospital and the matter was turned over to the Orange County District Attorney's office for review.

In the second UCI case, a patient fell when reaching for the sink on the way to a bathroom last June. The fall caused bleeding in the brain, and the patient later died. At the time of the fall, the nurse assigned to the patient had left the area without informing colleagues. The hospital has since implemented a fall prevention program and teaching plan, provided high-risk patients with nonskid red socks and made bedside equipment available, including walkers. "

■ At St. Jude Medical Center in Fullerton, a surgeon left inside the patient a 10-by-10-inch plastic drape while performing a hysterectomy last July. The surgeon immediately realized his mistake and quickly brought the patient back in for a second surgery. The hospital performed a root-cause analysis to make sure what had happened never happens again.

■ At Whittier Hospital Medical Center, doctors began performing the wrong surgical procedure on a 63-year-old colon cancer patient last October. A nurse failed to check the woman's wristband and wheeled her into the wrong operating room. Instead of the surgery planned for her -- implantation of a device that allows frequent blood withdrawals -- doctors began a pelvic exam and scraped the vaginal cuff for biopsies. Doctors did not realize they had the wrong patient until they discovered she had no uterus and ended the procedure. The hospital has stated that they have corrected the problems that led to this unfortunate incident.

■ An inexperienced nurse at Brotman Medical Center in Culver City administered a pain medication intravenously that should have been injected. The patient suffered a brain injury because of a lack of oxygen, fell into a coma and was placed on a ventilator. State investigators found that seven weeks after the first incident last July, the hospital violated its own policy by failing to mark all syringes filled with the same painkiller, hydromorphone, with a pink high-alert sticker. The hospital has revised its protocols.

■ At Harbor-UCLA Medical Center, medical staff left a sponge in a patient's abdomen during surgery on September 15, 2007. Nearly a year later, a hospital scan revealed the sponge surrounded by a cyst. The hospital has represented that it has taken corrective action by revising its policy on counting surgical sponges.

■ At St. Francis Medical Center in Lynwood, medical staff gave a patient too much potassium to correct low electrolyte levels, triggering a fatal heart attack. After the patient was given the drug, medical staff did not measure the patient's potassium levels for about one day, when they were critically high. State officials conducting a probe of the facility two months later found that the hospital had not enacted a new policy to monitor patients receiving potassium. During that inspection, they found that a patient had received potassium but was discharged without the hospital ever checking to see if the patient's potassium level or heart rate was stable. St. Francis has stated that it will not appeal the fine.

■ At Hollywood Presbyterian Medical Center, nurses on October 28, 2008 gave a patient blood intended for another person, causing the patient to die. The hospital issued a statement expressing its deep regret.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Thursday, May 21, 2009

Untimely Filing Of Administrative Appeal Was Inexcusable: Recent Court of Appeal Decision

On May 13, 2009, the California Court of Appeal (Division 3) certified for publication an opinion holding that a lawyer's untimely administrative filing was inexcusable and that the superior court judge erred in allowing a belated Los Angeles County Civil Service Commission appeal in order to remedy her attorney's mistake.

The case is Munroe v. Los Angeles County Civil Service Commission (Los Angeles County Department of Public Works. It further held that the attorney's failure to comply with the appeal procedures set forth on the notice of discharge did not establish good cause for an extension of time.

The moral of this decision: make sure your administrative appeal is timely filed and filed with the right agency. If a mistake is made by the attorney and the person appealing administratively, there may not be relief from the court.

Case Background
Attorney Nejadpour was retained by Massie Munroe after she was discharged from her position as an associate civil engineer with the Los Angeles County Department of Public Works for allegedly making threatening statements about “guns” and “shooting” people in the workplace.

At a disciplinary hearing, Munroe was personally served with the notice of discharge informing her that she had a right to request a hearing before the Civil Service Commission to appeal her discharge, and that such a request had to be delivered to the Civil Service Commission within 15 business days. Attorney Nejadpour signed for its receipt.

The attorney then sent a letter to the commission 52 days later requesting an appeal hearing and claiming that he had sent timely notice to Nohemi J. Ferguson, the outside counsel who had represented Munroe’s employer at the disciplinary hearing.

Attorney Nejadpour sent a second letter to the commission about six weeks later, explaining that “[i]t simply appeared that since…Ferguson represented the LACDPW then she should be the one that would receive the notice of appeal regarding my client’s wrongful termination.”

The day after Nejadpour sent the second letter, the commission served a notice on Nejadpour and Munroe informing them that Munroe’s claim would be considered at an upcoming commission meeting. This notice stated that Munroe would be allowed to present her case if she appeared at the meeting, but attendance was not compulsory. Neither Munroe nor Nejadpour made an appearance, and the commission denied Munroe’s request for an appeal based on the untimely filing of her request.

Lower Trial Court Holding
Nejadpour then petitioned for writ relief with the Los Angeles County Superior Court. While he denied having received notice of the hearing, a proof of service was attached to the notice and the trial court found notice had been given.

The trial court also found that the commission’s decision not to consider the appeal “probably was not arbitrary, capricious or lacking in evidentiary support,” because Munroe’s appeal had not been timely and she had not sought an extension from the commission upon a showing of good cause.

But the judge determined that the belated request for an appeal provided good cause for an extension of time. As Munroe and her attorney “simply failed to read the filing instructions in the Notice of Discharge and make a timely petition for a hearing,” and based on the law’s preference for a hearing on the merits, the judge held that the commission’s decision was an abuse of discretion. Thus, the trial court judge allowed the appeal.

Court Of Appeal Reverses Trial Court And Finds Notice Of Appeal To Be Untimely
The Court of Appeal reversed the trial court and concluded that the trial court’s ruling was erroneous as a matter of law. The Court of Appeal's decision explained that Nejadpour’s letter to Ferguson did not constitute a proper filing of a notice of appeal with the commission. Given that the notice of discharge, which Nejadpour signed for, spelled out the proper procedure for him to follow, the decision further reasoned the attorney “was not warranted in believing that he could file Munroe’s request for appeal hearing with the DPW.”

The decision noted that the appeals procedure set forth in the notice of discharge was “neither complex nor obtuse,” and that Nejadpour did not offer any excuse as to why he had failed to comply with the 15-day rule other than his failure to read the instructions on the notice. The decision also explained that the attorney’s failure to discharge routine professional duties was not good cause for filing a late appeal, and that the trial court improperly substituted its judgment for that of the commission by ruling good cause had been shown.

As the notice subsequently delivered to the commission was “nearly two months late,” the Court of Appeal concluded that the commission’s denial of the appeal was not unlawful, lacking in evidentiary basis, arbitrary, or capricious.

Attorney Commentary: Administrative appeal deadlines can be unforgiving and often short. If you receive notice, an appeal is usually filling out a form or filing a short notice of appeal with stated issues in some cases. If you are unsure whether to appeal or not, simply file the appeal to preserve your right. It can always be dismissed or withdrawn at a later date when you have time to assess the merits, costs and likelihood of success. If you are not sure how to handle the appeal and are not sure if you want to pursue it, you can hire an attorney for the limited purpose of helping you draft the appeal in pro per.

As an aside, the trial court may have ruled in favor of the employee since the attorney made the mistake. Further, the attorney at issue is currently facing discipline charges based on alleged misconduct in several other cases. The State Bar filed a 35-count initiating document against the attorney in December charging Nejadpour with client trust account violations, failing to perform competently, making misrepresentations to the court, State Bar, clients and opposing counsel, and other transgressions between 2003 and 2006. The attorney has denied any wrongdoing.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings.

Tuesday, May 19, 2009

Property Tax Reassessment Companies And Owners Charged With Criminal And Civil Cases

On May 13, 2009, criminal charges were filed by the Los Angeles County District Attorney’s Office (Consumer Protection Division) against Sean McConville, the operator of a private company that offered to “assist” homeowners with filing property tax reassessment forms for fees. McConville's company is Property Tax Reassessment. The prosecution alleges that McConville operated about a dozen such operations which are under investigation by local and state officials. Bail is set at $70,000.

McConville was charged in Los Angeles County Superior Court Case No. BA 356365 with one felony count of attempted grand theft of personal property and 32 misdemeanor counts of violating the state’s Business and Professions code by false advertising and business solicitation with a misleading governmental term or symbol.

This is not the only case for McConville. Two weeks ago, the Ventura District Attorney's Office charged Sean McConville with 20 felony counts for criminal conduct stemming from his property tax reassessment operations. The California Attorney General's Office also filed a civil lawsuit in San Diego County Superior Court against Sean McConville and his brother Michael McConville and their businesses, "Property Tax Reassessment" and "Property Tax Adjustment Services." The lawsuit seeks and injunction and and at least $2.5 million in civil penalties, and contends that these companies:

■ Made and continue to make untrue and misleading statements with the intent to induce consumers to purchase products and services in violation of Business and Professions Code Section 17500 and 17537.9;

■ Distributed solicitations implying a government connection, approval or endorsement in violation of Business and Professions Code Section 17533.6;

■ Distributed solicitations that appear to be billing statements in violation of California Civil Code Section 1716; and

■ Engaged in unfair competition in violation of Business and Professions Code Section 17200.

The lawsuit alleges that these companies targeted tens of thousands of Californians looking to lower their property taxes with mailers that read like government billing statements, featured official-looking logos and demanded hundreds of dollars in payments for reassessment and reassessment appeal services. The statements warned homeowners that if payments were not received by the "due date" they faced late fees or would have their file marked "non-responsive" or "ineligible for future tax reassessments."

The lawsuit contends that neither company adequately informed consumers that they were not a governmental entity, the solicitations were not a bill, purchase of the services was not required and services were available free of charge from county assessors. It is also alleged that few, if any, of the property tax assessment services homeowners were billed for in 2008 were completed.

Attorney Comment: While we are in the midst of an economic and real estate housing crisis, the government is being aggressive against any businesses that appear to take advantage of any homeowners. Any business in this area must be vigilant about being in compliance with the law. The government contends that the services offered by these companies are offered for free by the Los Angeles County Assessor's Office. In this case, two counties and the state attorney general's office have all charged the companies in criminal and civil cases. It is unusual for three different jurisdictions to pursue charges and cases simultaneously.

Like most fraud cases, the government tends to act where there is deception to the consumer. Where there is misleading content, mailers that appear to be from governmental agencies, there is a greater likelihood that criminal charges will be filed.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings.

Sunday, May 17, 2009

Doctor Sentenced To 16 Years In California State Health Care Fraud Case Involving Surgery Center

On May 8, 2009, a former doctor, William Wilson Hampton Jr., plead guilty to 47 felony counts, including insurance fraud, capping and conspiracy, and admitted that he performed hundreds of unnecessary surgeries on patients for money. The California Medical Board revoked his license to practice medicine last month. Hampton was sentenced by Superior Court Judge Frank F. Fasel to 16 years in prison. He also admitted to a sentencing enhancement that well in excess of $2.5 million was taken from the victims.

This sentence appeared to be a practical decision since Hampton, who performed surgeries out of the now closed Unity Outpatient Surgery Center ("Unity") in Buena Park, is currently serving a 10-year term in federal prison in a companion case and the state sentence will run concurrently with the federal one. In the federal case, Hampton took the case to trial, lost in a jury trial for a violation of 18 U.S.C. Section 1347, health care fraud arising out of billing private insurers from a private outpatient surgery center that was paying kickbacks to patients. 

Hampton's case is part of a larger case with 19 defendants pending in Orange County Superior Court. The alleged victims in the health care fraud were more than a dozen insurance companies such as Aetna, Blue Cross and Blue Shield, Healthnet and Cigna. In 2007, state and federal authorities charged Hampton and two other doctors with performing unnecessary surgeries for such things as sweaty palms, hemorrhoids or cysts on more than 1,000 healthy, insured patients. The patients were paid between $300 and $1,000 in cash to undergo surgical procedures that were billed to their insurance companies, according to prosecutors.

According to his guilty plea, Hampton performed 180 surgeries during a three-month span on patients recruited by Unity marketers from across the country. The guilty plea form says Hampton met most of his patients on the day of the procedures or a few days before, and most of the surgeries were for thoracic sympathectomies (sweaty palms surgery), which involves cutting the nerves that stimulate the sweat glands and requires collapsing the lung.

Hampton and the other doctors Michael Chan and Mario Rosenberg are accused of performing 1,037 procedures, resulting in insurance billings exceeding $30 million for the facilities fees alone. Unity received over $5.1 million in payment as a result of the surgeries performed by these doctors. Doctors were accused of ignoring basic medical protocols such as: 1) Patients receiving surgeries on consecutive days instead of while under one anesthesia; 2) Doctors not meeting the patients prior to operating; 3) Doctors not following up with patients after the procedure was completed; and 4) Doctors not obtaining necessary medical information.

Co-defendant marketer Sue Nanda plead guilty on February 20, 2009, to 22 felony counts and is expected to be sentenced on June 1, 2009. Nanda allegedly recruited over 170 patients from 16 different states for unnecessary surgical procedures. Nanda, who had no medical training, recruited patients with PPO insurance, scheduled surgical procedures, and coached patients to correctly describe symptoms for the unnecessary surgical procedures. In exchange for undergoing surgery, the patients received a cash payment, usually between $300 and $1,000 per surgery, or credit toward a free or discounted cosmetic surgery.

Nanda assisted patients in filling out surgery center paperwork, including having them sign a false affidavit stating that they had not been offered compensation and had not received any compensation in exchange for using Unity’s services. For the marketing for Unity, Nanda was paid directly and through corporations she had set up. She will be ordered to pay restitution and over $400,000 in back taxes for personal and corporate taxes to CFTB.

The other six defendants in the Unity case pled guilty prior to the indictment and have been sentenced. The remaining 11 defendants are scheduled for pre-trial on June 5, 2009, at the Central Justice Center in Santa Ana.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Friday, May 15, 2009

Recent Internet Pharmacy Fraud Cases

Presently, in the U.S. District Court in San Diego a trial is underway for some of the individuals who worked with the AffPower online pharmaceutical business. In the Affpower indictment issued on July 27, 2007, the defendants included: three physicians, two pharmacists, a pharmacy owner, an administrator and manager, two recruiters of physicians and pharmacies, a credit card processor, and eight affiliate website operators. From August 2004 through June 2006, the Affpower enterprise allegedly received over one million Internet orders for controlled and non-controlled prescription pharmaceuticals from customers in all 50 states, and generated in excess of $126 million in gross revenue. We will report on the outcome of the trial at a later date.

Here are three recent Internet pharmacy fraud cases that have been prosecuted by the U.S. Attorney's Office over the past year. These cases serve as examples of the types of case being criminally prosecuted:

Owner Of Internet Pharmacy Sentenced To 33 Months In Dallas, Texas After Plea Agreement

On March 27, 2009, Steven Rosner, was sentenced by U.S. District Judge Jorge A. Solis to 33 months in federal prison. Judge Solis also ordered that Rosner pay $400,000 in restitution and forfeit $385,721.18. Rosner pled guilty in October 2006 to one count of conspiracy to distribute controlled substances. Judge Solis ordered that he surrender to the Bureau of Prisons on July 8, 2009.

Under the plea agreement, it was stipulated that from his residence Boca Raton, Rosner set up and operated Internet Facilitation Centers (IFCs), and, to facilitate the distribution of controlled substances. Internet customers would log onto either of the sites and order controlled substances, paying by credit card, paypal, cashier’s checks, or money orders. Many of the Internet customers paid cash on delivery. Rosner, and co-defendant Rakesh Jyoti Saran, of Arlington, Texas, (formerly of Boca Raton) conspired together and with others to distribute, and possess with the intent to distribute, controlled substances to Rosner’s Internet customers without legitimate prescriptions.

Rosner admitted that he knew that the substances would be distributed to Internet customers without legitimate prescriptions and without the existence of a doctor-patient relationship. He admitted he knew that the distributions were outside the scope of professional practice and not for a legitimate medical purpose. To facilitate the conspiracy, Rosner paid several doctors, Drs. Arceli Rodriguez-Soto, Carlos Ortiz, and Maileen Lugo-Torres, all licensed and located in Puerto Rico, to approve the Internet customers’ orders.

Rosner paid Rakesh Saran to fill the drug orders through one or more of Saran’s 23 pharmacies that were located in North Texas. Once the drug orders were filled, Rosner and Saran coordinated the shipments to the drug users. Saran started filling these drug orders, which consisted of controlled and non-controlled substances, in May 2005 and continued until September 21, 2005, when he too was arrested on charges outlined in the 201-count federal indictment.

Saran pled guilty in November 2006 to one count of conspiracy to commit health care fraud and other federal offenses, two counts of mail fraud, and one count of conspiracy to distribute controlled substances. He is waiting to be sentenced by Judge Solis. He faces a maximum statutory sentence of 20 years in prison, a $1 million fine and will be required to forfeit assets earned from his illegal activities, including more than $1 million in cash seized at his residence; more than $375,000 found in bank accounts; several vehicles; and a custom home under construction in Arlington, Texas.

In addition to his own guilty plea, Saran entered guilty pleas on behalf of twenty corporations he controlled and used in the criminal conspiracy. All of the 19 individuals charged in the 201-count indictment have pled guilty and most have been sentenced. Rosner admits that the amount of controlled substances he illegally distributed through his websites, beginning in June 2004 and continuing through September 21, 2005, when he was arrested, exceeded 40,000 pills of hydrocodone (an addictive painkiller); 40,000 pills of phendimetrazine (an appetite suppressant); 40,000 pills of alprazolam (used to treat anxiety, depression, panic disorder and premenstrual syndrome); and 40,000 pills of phentermine (an appetite suppressant).

Maryland Internet Pharmacy Owners Sentenced After Trial to Five Years in Prison and Ordered to Pay Over $11 Million for Illegal Internet Sales of 10 Million Hydrocodone Pills

On January 12, 2009, in Baltimore, Maryland, Chief U.S. District Judge Benson E. Legg sentenced both Steven Abiodun Sodipo and Callixtus Onigbo Nwaehiri to five years in prison followed by two years of supervised release for illegally selling 9,936,075 pills or dosage units of hydrocodone over the Internet, conspiracy to launder money, engaging in monetary transactions using the proceeds of the illegal drug sales and filing false tax returns. The sentence was after a 6-week trial.

Sodipo and Nwaehiri were pharmacists and owners of NewCare Pharmacy located in Baltimore City, Maryland. Judge Legg also ordered Sodipo and Nwaehiri to each pay $11,870,119.39, the amount of gross proceeds derived from the illegal sale of hydrocodone by NewCare Pharmacy from January 2005 to October 2006, and, in order to satisfy such money judgment, the defendants were ordered to forfeit their homes, seven cars, monies held in 33 bank accounts and a business property owned by Sodipo. Newcare was Maryland's number one distributor of the highly addictive opiate hydrocodone, via the Internet.

According to testimony presented during the six week trial, Sodipo and Nwaehiri owned and operated NewCare Home Health Services, Inc., which did business under the name of NewCare Pharmacy. Beginning no later than sometime in 2004 through October 10, 2006, Sopido and Nwaehiri joined a nationwide conspiracy to illegally sell hydrocodone through the Internet to any customer with a valid credit card. Specifically, they engaged in agreements with web-site operators to fill hydrocodone prescriptions e-mailed to them that were signed by a small group of doctors and were for individuals all across the country. The doctors, who never saw or spoke to customers, routinely authorized the prescriptions, which were then wired to NewCare for filling and shipment. In return, NewCare was paid $20 for each prescription it filled and shipped.

Witnesses testified that Sodipo and Nwaehiri knew that 88% of all “prescriptions” filled by NewCare were for hydrocodone, that most prescriptions were issued by doctors located in Florida, that the patients were in all 50 states and D.C., and that there was no doctor patient relationship. From January 1, 2005 through October 10, 2006, NewCare purchased 9.9 million dosage units of hydrocodone, when the national average was under 160,000 units per pharmacy. Hydrocodone is a dangerous and highly addictive narcotic painkiller. Moreover, the evidence showed that Sodipo and Nwaehiri continued to sell vast quantities of hydrocodone knowing that some of their customers were addicts.

Chief Judge Legg determined at the sentencing hearings that the nationwide conspiracy to illegally sell hydrocodone over the Internet involved over 50 pharmacies, doctors and physician assistants, and totaled sales in excess of $108 million.

Guilty Plea from Kentucky Doctor who Prescribed Controlled Substances Over the Internet

On April 9, 2009, Tufan Senler a physician in Louisville, Kentucky, pled guilty before U.S. District Judge John G. Heyburn II, to dispensing and distributing controlled substances, exporting controlled substances to foreign countries without a permit, money laundering, and misbranding of drugs. Senler pled guilty to all five counts charged in an Information filed on March 10, 2009. The information alleges that between 2002 and 2005, Senler, a physician, sold diet prescription drugs over the Internet through his website

According to information contained in Senler’s plea agreement, Senler operated two businesses, Kentucky Body Works, and Science of Better Living. Senler admitted that he dispensed, distributed and exported diet prescription drugs through his website to customers who did not have valid prescriptions. He further admitted he did not engage in a legitimate doctor-patient relationship since he had no face-to-face contact with the customers who ultimately purchased the drugs. The prescriptions issued through the website were not consistent with the professional practice of medicine and were being provided outside the standards of legitimate practice of medicine. Finally, the drugs issued were not issued in compliance with Food and Drug Administration requirements, and thus they were adulterated and/or misbranded.

Senler also admitted that at no time during the relevant time period did he have a valid exportation permit issued by the Attorney General of the United States to dispense or distribute controlled non-narcotic drugs to other countries. Additionally, Senler admitted that he engaged in monetary transactions with the proceeds of this illegal activity. Customers’ deposits were placed into a Kentucky Body Works’ bank account and then subsequently transferred to Senler’s personal bank account. Some of these proceeds were used to make several purchases of property. Senler admitted that he received approximately $15 million from his role in the above offenses. Senler faces a maximum penalty of 21 years in prison and a fine of over $6.7 million when he is sentenced by Judge John G. Heyburn, II, on July 8, 2009.

Attorney Comments. These cases are a high priority for the DEA and federal and state government agencies. Notwithstanding the prosecutions, Internet pharmacies abound. Even companies that do not distribute controlled substances need to comply with all federal and state laws when prescribed drugs are being shipped to patients or customers who have not been evaluated by a physician and who do not have a physician-patient relationship with the prescribing physician.

Remember, the fact that an online business is large will not prevent it from being prosecuted. Each individual who becomes involved in an online pharmacy needs to assess the legality of the operations and whether they face criminal or civil exposure. We expect to see more prosecutions in the next couple of years.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Tuesday, May 12, 2009

United States Reaches $1 Million Civil Settlement With Tucson Hospital After DEA Investigation Of Missing Controlled Substances

The DEA is pursuing hospitals and how they store and keep records regarding controlled substances. We expect to see more cases against hospitals since they are able to pay large fines to the government.

On March 27, 2009, the United States reached a settlement with Kino Hospital in Tucson stemming from an audit and an investigation conducted after several doses of controlled substances were discovered missing from the hospital in early 2004.

As part of the settlement, commencing in fiscal year 2009/2010, Kino Hospital committed to fund $1,000,000 over the course of the next five years to establish a three-prong drug abuse prevention initiative that will benefit the Tucson area community.

The investigation leading to the settlement was conducted by the Drug Enforcement Administration and the U.S. Attorney's Office, District of Arizona, Tucson.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Sunday, May 10, 2009

Transportation Services: Attorney Comments On OIG Opinion Approving Free Transportation For Family And Friends

If your clinic or facility offers free transportation to Medi-Cal, Medicare or other beneficiaries, a recent Advisory Opinion analyzing a free local transportation program for friends and family of the residents of a skilled nursing facility ("SNF") will be helpful to your facility, compliance officer and health care attorney in structuring a free transportation plan that will be compliant with federal and state rules and regulations.

On March 13, 2009, the HHS Office of Inspector General (OIG) issued Advisory Opinion No. 09-01 analyzing the propriety of a free local transportation program, which the OIG had previously addressed in Advisory Opinion 00-07 (November 17, 2000) and in a December 10, 2002 letter, in which the OIG offered protection from administrative sanctions to those free transportation programs that were in existence prior to August 30, 2002 and met certain requirements.
For this Opinion, see:
This Opinion is the first guidance the OIG has provided regarding free transportation exceeding "nominal value" ($10 per item or $50 annual aggregate amount), and the first applicable to family and friends of a patient (rather than the patient). It provides useful guidance regarding how to structure a compliant transportation program, and is helpful for health care providers looking for ways to remedy transportation difficulties for patients and patients' families and friends. It can also assist providers in how to structure their transportation programs for patients.

Governing Law
Section 1128A(a)(5) of the Act (the "CMP") provides for the imposition of civil monetary penalties against any person who gives something of value to a Medicare or state health care program (including Medicaid) beneficiary that the benefactor knows or should know is likely to influence the beneficiary's selection of a particular provider, practitioner, or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or a state health care program, including Medicaid.

The OIG may also initiate administrative proceedings to exclude such party from the Federal health care programs. Section 1128A(i)(6) of the Act defines "remuneration" for purposes of section 1128A(a)(5) as including "transfers of items or services for free or for other than fair market value." The OIG has previously taken the position that "incentives that are only nominal in value are not prohibited by the statute," and has interpreted "nominal value to be no more than $10 per item, or $50 in the aggregate on an annual basis."

In addition, in the Conference Committee report accompanying the enactment of section 1128A(a)(5), Congress expressed its intent that, with respect to allowable remuneration, the statute should not preclude the provision of items and services of nominal value, including free local transportation services.

Case Specific Facts
The facts underlying the Opinion are specific. The SNF proposed offering free local transportation for family and friends of its residents to the facility. The facility, which was not readily accessible by public transportation, also was separated from part of its primary service area by a $9.00 toll bridge. The proposed free transportation service generally would pick up and drop off friends and family at designated public locations within the facility's service area and only provide transport to and from the facility.
OIG's Analysis
The OIG acknowledged that free transportation programs can have a beneficial effect on patient care if they are narrowly tailored to address issues of (a) financial need, (b) limited transportation resources, (c) treatment compliance or safety, and (d) do not exhibit any of the characteristics of fraudulent schemes.
However, the OIG explained that free transportation services are also sometimes an integral part of fraudulent or abusive schemes that lead to inappropriate steering of patients, overutilization, and the provision of medically unnecessary services, and therefore such arrangements should be evaluated on a case-by-case basis.
Factors To Be EvaluatedThe OIG indicated that factors to be evaluated in analyzing arrangements where providers or suppliers offer free transportation to potential sources of Federal health care program business, including beneficiaries should include, but not be limited to, the following:

Transportation offered in a manner related to referrals. How is the transportation being offerred?

Selective criteria related to the volume or value of Federal health care program business are suspect. Examples of suspect criteria include: the selection of passengers based upon a diagnosis, condition, or treatment that might result in lucrative revenues to the offeror or selection based on a patient's insurance coverage.

Luxury or specialized transportation. Luxury or specialized transportation, such as limousines, airline tickets, or ambulance transports, raise greater concerns because such transports are more valuable to the recipient and therefore more likely to be an improper inducement

Geographic area for transportation. Local transportation services are typically less valuable to the recipient than longer-distance transports.

Free transportation services offered to beneficiaries residing outside an offeror's primary service area are subject to abuse, particularly if the free transportation is used to expand the provider's historical service area. For example, "leap-frog" arrangements that provide free or subsidized transportation to beneficiaries traveling from outside the provider's local area, potentially bypassing other providers that could provide services for the beneficiary, are problematic.
Availability of other means of transportation. When examining free transportation services, we consider whether services are offered in areas lacking public transportation or areas without affordable alternatives. Free local transportation arrangements in areas lacking affordable alternative transportation are less likely to be vehicles for generating referrals.

Marketing or advertising. When a free transportation arrangement is marketed or advertised, there is greater risk that the arrangement is being offered as an inducement for referrals.

Transportation destination. Free transportation provided to or from the offeror's premises may be appropriate based on the totality of the facts and circumstances. However, free transportation of beneficiaries to a different provider raises concerns. The transportation could be an inducement for referrals from the provider to the offeror of the transportation.

Treatment of the costs of the free transportation. Costs of free transportation should be borne by the provider of the transportation. Arrangements that shift costs to Federal health care programs are suspect. There are some programs, such as Adult Day Health Care programs, where transportation is to be borne by the programs.

Other characteristics that raise concerns. Where the offeror of the free transportation is also a provider that will provide Federally payable items and services to passengers, there is increased risk that the provider could be using free transportation services to gain access to beneficiaries, potentially to provide services that are unnecessary or inappropriate. For example, the OIG has indicated that it has a long-standing concern about Medicare and Medicaid mills that provide free transportation to attract patients.
OIG's Conclusion
After analyzing the proposed SNF arrangement, the OIG concluded that, although the arrangement potentially implicates the anti-kickback statute, it would will not impose civil monetary penalties or administrative sanctions because sufficient safeguards had been built into the transportation program, and the program did not include any of the following potentially abusive arrangements:

■ Providers offering out-of-state patients free transportation to receive services at their facilities

■ Van drivers soliciting, and offering free transportation services to, Medicaid patients for health care providers who compensate the drivers on a per patient or per service basis

■ Providers offering residents of nursing facilities and other congregate care facilities free transportation services to and from their offices for services of questionable necessity

■ Providers offering patients free limousine services

■ Hospitals or other providers offering patients free ambulance services without making individual determinations of financial need

■ Hospitals or other providers inducing referrals from physicians by offering the physicians' patients free transportation to the physicians' offices or to a facility where the physician furnishes services

■ The SNF arrangement was open to the friends and families of all SNF residents and was not limited to targeted populations of federal health care program beneficiaries.

■ The transportation provided under the arrangement was reasonable and did not include luxury services.

■ The arrangement was offered and advertised only locally.

■ Moreover, the proposed arrangement was narrowly tailored to meet the needs of a community where the availability of public transportation was limited and the SNF was separated from its primary service area by a costly toll bridge.

■ The cost of the transportation would not be claimed by any federal health care program cost report or otherwise shifted to the federal government. The OIG noted that the proposed arrangement would align with the SNF's mission to provide residents with quality care in a residential setting through increased companionship resulting from access to friends and family.

Conclusion. The factors are extensive and need to be analyzed on a case-by-case basis. This Opinion is limited to its facts but it is clear where the OIG has concerns. Free transportation can be a valuable and important service but if not done properly can subject a provider to sanctions, suspension, qui tam claims and potential criminal charges. This Opinion is merely a starting point in the analysis.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Friday, May 8, 2009

Recent Federal Criminal Cases For Prescribing Controlled Substances

Yesterday, I wrote about the conviction of a Los Angeles physician by a federal jury here in Los Angeles. I also mentioned that prescription drug abuse is a high priority by the DEA. Here are 3 other recent cases from across the country that reflect how these cases are being treated by the government, the nature of the charges and the sentences being imposed. The forfeiting of medical licenses as part of the plea agreement and sentence -- and not letting the state Medical Boards make that decision while considering all mitigating and aggravating factors -- is becoming a more common trend in these cases.

1. Spokane Washington Doctor Sentenced To 9 Months Prison For Prescribing Schedule II Substances For Other Than A Legitimate Purpose And Agreed To Surrender Medical License

On April 27, 2009, Keith L. Hindman, a Doctor of Osteopathy in Spokane, Washington, was sentenced to nine months in prison followed by three years of court supervision after release. Hindman was also ordered to conduct 240 hours of community service and pay restitution totaling over $6,800 to several health care insurance programs, including Medicaid, Premera Blue Cross, Asuris Northwest Health, Molina, and Corporate Benefit Services of America.

Hindman had operated Foundation Medical Clinic in Deer Park, Washington, specializing in family practice medicine and pain management. Hindman also operated a counseling program known as Celebrate Recovery for patients who were abusing their prescription narcotics and/or were using illegal controlled substances.

Hindman was charged with prescribing Schedule II Controlled Substances for other than a legitimate medical purpose and outside the usual course of professional practice and health care fraud. The charges stemmed from the issuance of prescriptions for Oxycontin, Oxycodone, and Methadone to patients who purportedly sought controlled substances for pain management but who instead were using the drugs to feed their drug addictions and for other reasons. The health care insurance programs ultimately paid for the unlawfully prescribed drugs when prescriptions were filled and dispensed by pharmacies.

The sentence followed Hindman pleading guilty to the criminal charges on August 29, 2008. As part of the plea agreement he agreed to forfeit his medical license as well as his DEA registration number, which allowed him to issue prescriptions for controlled substances. Hindman agreed not to seek reinstatement of his license or registration number. In addition, he has closed the Foundation Medical Clinic and no longer operates the Celebrate Recovery program.

2. New Jersey Doctor Pleaded Guilty To Federal Charges For Illegally Selling Prescriptions For Oxycodone Without A Legitimate Medical Purpose

On March 31, 2009, Dr. Pankaj Agrawal, who had maintained a practice at Pennsauken Medical Center, pleaded guilty to federal charges for illegally selling prescriptions for oxycodone (in the form of Percocet prescriptions) without a legitimate medical purpose and outside the usual course of professional practice before U.S. District Judge Robert B. Kugler in Camden, New Jersey. Judge Kugler continued Agrawal’s release on a $500,000 secured bond pending sentencing, which is scheduled for July 10, 2009.

At his plea hearing, Agrawal admitted that between February 2005 and June 2008, he illegally sold bottles of promethazine cough syrup with codeine and numerous prescriptions for Percocet. Specifically, Agrawal admitted that on four occasions between January 2008 and June 2008, he sold prescriptions for Percocet to an individual, who he later learned was a confidential informant (“CI”), in the names of individuals other than that of the CI. For instance, on June 6, 2008, Agrawal sold prescriptions for Percocet in twelve different names that were provided to him by the CI. During each visit, Agrawal did not treat or examine the CI, he admitted.

Furthermore, Agrawal accepted responsibility, as relevant conduct, for the sale of 60 additional prescriptions to the confidential informant or his associates. Additionally, Agrawal admitted that on June 3, 2008, he deposit into a bank account $15,000 in cash that represented proceeds from illegally distributing controlled substances. The unlawful dispensing of controlled dangerous substances charge carries a maximum statutory sentence of 20 years in prison and a fine of the greater of $1 million or twice the pecuniary gain to the defendant. The money laundering charge carries a maximum statutory sentence of 10 years in prison and a fine of $250,000.

In determining the actual sentence, Judge Kugler will consult the advisory U.S. Sentencing Guidelines, which provide appropriate sentencing ranges that take into account the severity and characteristics of the offense, the defendant's criminal history, if any, and other factors. The judge, however, is not bound by those guidelines in determining a sentence. Parole has been abolished in the federal system. Defendants who are given custodial terms must serve nearly all that time.

3. New Jersey Doctor Sentenced To 41 Months Prison For Prescribing Oxycodone Without A Legitimate Medical Purpose

On March 27, 2009, pursuant to a plea agreement, Dr. Philip B. Eatough was sentenced today to the substantial sentence of 41 months in prison for unlawfully prescribing the controlled painkiller oxycodone without a legitimate medical purpose and outside the usual course of professional practice. U.S. District Judge Anne E. Thompson also imposed a $9,000 fine and ordered him to surrender to the federal Bureau of Prisons by June 1 to begin serving his sentence. Eatough also forfeited $120,000 to the government, representing the amount of money he laundered as part of his crimes. Eatough also paid the IRS back taxes of $302,000, including interest and penalties. As part of the plea agreement, Eatough has to surrender his medical license and DEA registration. Judge Thompson stated that the 41-month sentence was based in part for its potential deterrent effect on others.

Eatough, who practiced a pain management clinic in Keansburg, New Jersey, was arrested on an Indictment in October 2007 by Special Agents of the Drug Enforcement Administration. He pleaded guilty in July 2008. Eatough's office manager was also arrested in October 2007.
The government characterized Eatough's clinic as a 'pill mill." The investigation included review of over 1,000 medical files, interviews with hundreds of former patients, dozens of former employees and sending undercover officers to the clinic.

Conclusion: I cannot imagine a pain management clinic -- regardless of how well run and reputable -- that would dare not have a compliance plan, periodic reviews and internal audits. The risks of prescribing controlled substances for pain management are great if there is a showing of no medical necessity. With the DEA sending in undercover officers and the government relying on the drug addict patients who will lie to obtain prescriptions -- the risks are great and it is difficult to control every patient and every patient contact. The protocols must be rigorous and strictly imposed.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Thursday, May 7, 2009

Los Angeles Doctor Convicted Of Illegally Distributing And Prescribing Oxycodone

On May 6, 2009, after a two-week federal jury trial in the Central District of California , Masoud Bamdad, a Los Angeles physician, was convicted by a federal jury of 13 counts of illegal drug distribution by improperly prescribing oxycodone -- the federally controlled synthetic opiate in OxyContin -- without a medical purpose to drug addicted patients (some under the age of 21) and DEA agents.

The jury deadlocked on an allegation that the doctor was responsible for the overdose death of a 23-year-old patient Alex Clyburn, who overdosed on Roxicodone and died at a Pasadena drug treatment facility after taking pills allegedly prescribed to him by Bamdad four days earlier. Jurors told Judge Wu they were deadlocked on the question of whether the Roxicodone in Clyburn's system when he died came from a prescription written by Bamdad. The jury did not adopt the defense that Dr. Bamdad was acting as a compassionate caregiver when he prescribed the drugs to patients who convinced him they were in pain.

Bamdad was sentenced to 300 months (25 years) in prison on the convicted counts. The sentencing was by U.S. District Judge George H. Wu. Dr. Bambad appealed from the conviction and his sentence but he was not successful and the conviction and sentence was overturned.  This was a high sentence and one that was upheld by the 9th Circuit.

Attorney Commentary: Here are some highlights from this case which show the difficulties in trying this type of case before a jury:

First, the DEA went undercover and had tapes. The DEA is sending in undercover agents because prescription drug fraud is a high priority with the agency. It is estimated that over 7 million persons in the USA abuse prescription drugs. This is more than the number of persons who abuse cocaine, heroin, hallucinogens, and inhalants, combined. Anyone who prescribes pain medications should assume they are being taped or recorded at all times.

Videotaped evidence even if not perfect is usually difficult to defend when out of context comments are made. For example, in this case, on tape Bamdad can be heard calling his "patients" drug addicts before prescribing them the medications they seek. Prosecutors played audio and videotapes made by undercover DEA agents posing as patients in which Bamdad chided them for being hooked on drugs, did not appear to do any meaningful physical exam and then gave them a prescription. At one point he told an undercover agent "you're the healthiest one I've seen today." In addition, the undercover agents testified. One DEA agent testified that Dr. Bamdad sold him prescriptions for painkillers in exchange for cash.

Second, Bamdad testified in his own defense. This is a high risk move in a federal trial. If Judge Wu find that Bamdad was untruthful that can be used as a ground for increasing his sentence. Since the jury reached a finding that was inconsistent with Bamdad's testimony, this is likely.

In addition, it appears that during testimony, Dr. Bamdad apparently went on the attack and was defensive. Dr. Bamdad testified that when it came to writing prescriptions for painkillers, his philosophy was simple: "If they have pain, I give them." Though he testified at one point that he could tell what was wrong with a patient "95% of the time" just by looking at them, he admitted he could not discern whether someone was pretending to be in pain to score drugs for recreational use. He said that his patients are "very good looking. Beautiful girls, beautiful boys. I don't know who is drug addict unless they tell me." "I trust the patient," Bamdad said. "If they tell me they have pain and they know what medication can help them, I prescribe. I was doing everything I can for my patients. I didn't run a 7-Eleven. I go by my patient's word."

As the questioning by the prosecutor went on, Dr. Bamdad's testimony became testy and combative. Though witnesses are supposed to respond to questions asked by lawyers when testifying, Bamdad often spoke at length on matters he was not asked about. At one point, he assailed the DEA for entrapping him, raiding his house in search of "treasure" and coaching witnesses to lie against him. He also blamed the parents of Alex Clyburn, the 23-year former patient who died of an overdose last year, of being "negligent."

Third, Dr. Bamdad's ex-patients testified. About a half-dozen of Bamdad's ex-patients, all of whom described themselves as addicts in varying stage of recovery, testified during the week long trial that they bought prescriptions from the doctor by telling him they had back or shoulder pain and needed the pills. This was part of the good faith defense that the doctor believed the patient which is a standard practice in California for physicians. This defense was not enough to overcome the other evidence.

Fourth, failure to follow pain management guidelines and have the files properly documented is usually a significant issue in these cases. Pain management clinics can have an excellent defense if they have followed the guidelines set forth by the California Medical Board and their own medical associations. If any physician is doing pain management, compliance and constant monitoring of the practice is critical to avoid problems. Further, assume that some "patients" are in fact DEA undercover agents.

Conclusion. These cases are difficult to try. Several years ago, we represented an older doctor who was known as the "Dr. Feelgood" in a particular community. He was particularly susceptible to addicted manipulative patients who portrayed him as a "god" to their chronic pain issues. Moreover, two patients had overdosed and died. Once criminal charges were filed, the Medical Board had come in to file a motion to close down the practice. At the earliest stage, we assessed all the medical files, met with the DEA, and were able to persuade the physician to surrender his license in order to obtain the dismissal of all criminal charges. It was difficult, however, since many physicians have their professional identity and do not want to recognize the problems in these cases and cannot see how these trials could possible result in them spending years in prison. It took the physician's entire family to persuade him that it was not a case to risk his remaining years of freedom. Every case is different but an early realistic assessment of these cases is very important in evaluating the risks and the defense.

Any questions or comments should be directed to: Tracy Green is a principal at Green Associates in Los Angeles, California. They focus their practice on the representation of individuals, licensed professionals and businesses in civil, business, administrative and criminal proceedings, with a specialty in health care providers.

Wednesday, May 6, 2009

Bureau Automotive Repair Investigation Results In Insurance Fraud Charges Against Auto Repair Shop

On April 28, 2009, Harold Galvez the owner of G and H Auto Repair was charged with insurance fraud by the San Bernardino County District Attorney’s Office. The Bureau of Automotive Repair (B.A.R.) began an investigation in December 2008 when Galvez' auto body business was performing auto insurance repair work without a State Auto Dealer Repair license.

The B.A.R. was tipped off when a consumer contacted that agency and requested that their vehicle be inspected after being repaired at Galvez' business. The consumer felt the repairs to their vehicle were suspicious and possibly fraudulent in nature. Investigators from the B.A.R. determined Galvez had charged the insurance company for new factory parts, but instead used cheaper aftermarket parts for the repairs. Galvez pocketed the excess funds of over $3,400, which he had received from AAA for the new parts. B.A.R submitted the investigation to the DA’s Auto Insurance Fraud Unit. Mr. Galvez was arrested at his business and bail was set at $50,000.

Attorney Comments: Remember, in California any fraud over $400 is a felony. Insurance fraud is prosecuted more aggressively than other fraud since insurance companies have their own investigators and turn over complete prosecution packages to the D.A.'s Offices. If there is any type of insurance investigation, it needs to be handled carefully. Moreover, businesses that bill insurance should have compliance plans in place to have a safe harbor against fraud charges. Billing mistakes and errors can happen -- but it will be necessary to prove there was no fraudulent intent. An effective compliance plan can help prove lack of intent to defraud.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings.

Tuesday, May 5, 2009

Workers’ Compensation Premium Fraud In Los Angeles County

Last week, I wrote an article about a workers' compensation premium fraud case out of Orange County, California. I discussed the fact that we can expect more of these cases -- large and small. I then realized that I neglected to reference a recent case out of Los Angeles that was filed last month.

On April 15, 2009, Ousama ("Sam") Karawia, the owner and president of International Protective Services Inc. (IPS), a security company that employs 1,500 workers statewide was charged by the Los Angeles County District Attorney’s Office with workers’ compensation fraud. Two vice-presidents of the company, Allen Bailey and Larry Finley, were also charged. See Los Angeles County Superior Court Case No. BA355163. This case is being handled by the Healthcare Fraud Division (formerly known as the Workers’ Compensation Fraud Division) of the L.A. District Attorney’s Office.

The allegations are that the three individuals in this security company conspired to hide the true number of IPS employees by creating a shell company, International Armored Solutions Inc., in order to avoid paying higher workers compensation insurance premiums to the State Compensation Insurance Fund. It is alleged that there was $9.5 million in lost workers' compensation premiums. The three men are charged with one count each of conspiracy and grand theft and six counts each of making false statements. Karawia and Finley also are charged with additional counts of insurance fraud.

Attorney Commentary: One factor that may have contributed to the filing of this case is ISP's prior legal issues in New York. In 2003, Bunce Pierce, senior vice president of ISP, pleaded guilty in Manhattan Supreme Court to a single count of hiring an unregistered security guard.

The allegations in that case were that ISP defrauded New York by supplying unqualified guards -- some convicted of serious crimes -- to public places such as Camp Smith in Westchester County, where the state's Division of Military and Naval Affairs conducts weapons training and stores munitions. The criminal plea paved the way for civil settlement in New York v. International Protective Services, 02-402799. Under the settlement negotiated with defense lawyers, the company forfeited the right to do business in New York state for five years, and paid $1.1 million in reimbursed fees and penalties.

One reason to do business with a compliance plan in regulated industries is that a fraud charge -- although unproven -- can cost business. After this case was filed, the city of Oakland, Calif., dropped its plan to hire security firm ISP to patrol high-crime districts after the company's founder and two other executives were charged with fraud.

Post-Script/Follow-Up Workers' Compensation Fraud Attorney Commentary: 

  • It took over 3 years for this case to go to trial. Only Mr. Bailey and Mr. Karawia went to trial. On December 13, 2012, Mr. Karawia was convicted of seven felony counts, including grand theft of labor, one count of insurance fraud, and four counts of illegal  possession of assault weapons. Mr. Bailey was convicted of four counts of failure to file tax returns and one count of illegal possession of an assault weapon. 

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates, Attorneys at Law, Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings including for workers' compensation audits, workers' compensation fraud investigations and workers' compensation premium fraud investigations.

Sunday, May 3, 2009

California Accountancy Board: Proposed Legislation And Regulations Affecting Accountants

2009 Proposed Legislation.
This is a busy time of the year for proposed legislation, regulations and rules relating to certified public accountants and the California Board of Accountancy (CBA). Here are recent developments:

Continuing Education. The CBA recently held a regulatory hearing on proposed amendments to the Continuing Education Regulations. Under the proposal, California CPAs are still required to complete 80 hours of continuing education every two years, but the regulations will require completion of a minimum number of hours annually. CPAs renewing an active license after December 31, 2011, must complete a minimum of 20 hours annually with at least 12 of the 20 hours in technical subject areas. The CBA will require that licensees complete two hours of ethics focused on regulatory and statutory review every six years. Additionally, four hours of ethics will be required every renewal period.

Proposed Legislation Re: Educational Requirements
Senate Bill 691 (Yee, Niello, Ma) would require all candidates entering the profession after January 1, 2014, meet to the Uniform Accountancy Act’s 150-hour educational requirement (i.e., a bachelor’s degree plus 30 units, including 24 semester hours or units in business and 24 hours in accounting). This legislation would allow current and future California CPAs to represent the needs of taxpayers and clients with interests in other states.

Inactive License Status Disclosure
Assembly Bill 117 (Niello, Ma) would require CPAs with inactive licenses to disclose that fact when using the CPA designation. The CBA currently allows CPAs employed by private business or government to use the title CPA on their business cards, résumés and in other business communications even if their license is “inactive.” CPAs in industry and government are often employed in the finance and accounting department of the business or government agency and involved in the preparation of financial statements for audit or in obtaining financing from banks or investors. AB 117 would require that CPAs with inactive licensees disclose that fact when using the CPA title by placing the word “(inactive)” immediately after CPA on business cards, stationery, résumés or other business communications. AB 117 has already passed the Assembly Business and Professions Committee.

Peer Review
Assembly Bill 138 (Hayashi) would enact a mandatory peer review requirement for California firms providing any audit, review or compilation services. The mandate would be phased in beginning in 2010. Peer review is already mandatory in most states, most recently in New York.

Taxpayer Privilege Sunset Extension
Assembly Bill 129 (Ma) introduces urgency legislation to re-enact the taxpayer confidentiality provisions for enrolled agents and CPAs that expired December 31, 2008. This privilege was enacted in 2000 and can be asserted in non-criminal tax issues that do not involve abusive tax shelters and conforms to Internal Revenue Code provisions.

Fiduciaries Bureau Exemption
Assembly Bill 276 (Hayashi) would clarify the exemption from licensing by the Professional Fiduciaries Bureau for enrolled agents and CPAs who provide ancillary fiduciary services to clients. The Fiduciaries Bureau was created recently to require registration from individuals who assume control of the financial and medical affairs of unrelated individuals. CPAs and enrolled agents are exempted from registration as long as they are acting within the scope of their practice. However, the Fiduciaries Bureau recently adopted the position that enrolled agents are required to register with it because fiduciary services are not within their scope of practice. This is presently disputed since the intent of the legislation was to provide an exemption for CPAs and enrolled agents as long as they were not holding themselves out as professional fiduciaries.

The text of the bills, as well as additional legislative information, can be found on the Internet at

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals and businesses (including accountants) in civil, business, administrative and criminal proceedings.

Saturday, May 2, 2009

Workers' Compensation Fraud: Attorney Comments On Premium Fraud Case In Orange County

On May 1, 2009, a husband and wife Michael Vincent Petronella (also known as Michael Constantine) and his wife Devon Lynn Kile were arraigned in Orange County Superior Court on a total of 106 felony counts relating to the alleged commission of $38 million in workers' compensation premium fraud relating to their 3 construction companies. The DA's Office was touting this case as "the largest known Workers’ Compensation Insurance fraud case in California’s history" and issued press releases relating to the couple's lavish lifestyle. Remember that felony complaints contain only allegations against these two individuals and all defendants must be presumed innocent unless and until proven guilty.

Alleged Facts In This Premium Insurance Fraud Case
Mr. Petronella is a roofing and general building contractor. Mr. Petronella and Ms. Kile own three businesses including Petronella Corporation, Western Cleanoff, Inc., and The Reroofing Specialists, Inc. (also known as Petronella Roofing). The businesses are located in Costa Mesa and Cathedral City, Riverside County, and have clients primarily in Southern California which include the Ocean Institute in Dana Point, Pacific Amphitheater in Costa Mesa, and other commercial properties.

Beginning in 2000, Petronella and Kile are accused of obtaining Workers’ Compensation Insurance for their three companies through State Compensation Insurance Fund (SCIF), a quasi-governmental non-profit insurance company established by the California State Legislature. Between 2000 and 2008, Petronella is accused of fraudulently submitting 42 claims for uninsured injured workers and underreporting $29 million in payroll to SCIF in order to avoid paying his Workers’ Compensation Insurance premiums. They are accused of engaging in a scheme that resulted in SCIF incurring more than $253,000 in uncovered injured worker claims and insurance premium losses exceeding $38 million. Petronella and Kile are accused of reporting $2.9 million in payroll to SCIF, while having an actual payroll of $29 million, ten times more than reported. The $38 million premium due includes the $29 million in loss history plus penalties and assessments for inaccurate reporting.

Beginning in 2000, SCIF performed annual audits of Petronella and Kile’s companies, during which they are accused of providing false employee and payroll records. It is alleged that they kept 2 sets of books and that between 2000 and 2008, Petronella and Kile are accused of fraudulently reporting a $2.9 million payroll to SCIF for The Reroofing Specialists, Inc., while reporting $16.6 million in payroll to EDD for the same company during the same time period.

Beginning in 2003, Petronella and Kile are accused of fraudulently reporting no payroll to SCIF for Western Cleanoff, Inc., while reporting in excess of $13.9 million in payroll to EDD for the same company between 2000 and 2008. Between 2007 and 2008, they are accused of paying unreported payroll in excess of $1.6 million in cash to day laborers.

In order to avoid paying Workers’ Compensation Insurance for all of his employees, Petronella and Kile are accused of underreporting the number of workers employed at each business, including claiming none for Western Cleanoff, Inc. Petronella is accused of fraudulently filing 42 claims for employees injured while working for The Reroofing Specialists, Inc. to obtain insurance coverage for the injured employee without paying for the insurance. The injured employees have since been identified as Western Cleanoff, Inc. and Petronella, Inc. employees.

How This Investigation Began
This investigation arose after March 2006 when an employee of Petronella fell from a roof and sustained injuries. A payroll stub was submitted to SCIF listing his employer as Western Cleanoff, Inc., which SCIF did not insure. SCIF reported the suspected fraudulent claim to the Department of Insurance and the Orange County D.A.'s Office. The investigation took 2 years and this is when the 2 sets of records were discovered. This case also turned into a tax fraud case since Petronella and Kline are accused of underreporting their income on their individual state income tax returns. Petronella is accused of underreporting his income between 2005 and 2007 on his tax returns by more than $2.3 million. He is accused of owing the state more than $632,600 in taxes, fines, penalties, and the cost of the investigation. Kile is accused of underreporting her income by more than $1.7 million during the same time and owning the state more than $530,000. Between 2005 and 2007, Petronella and Kile are accused of claiming less than $290,000 of income on their tax returns, but spending more than $2.1 million on their American Express credit card for personal items.

The Charges
Petronella and Kile are charged with 106 felony counts including conspiracy to commit a crime, grand theft, insurance fraud, filing a false tax return, willfully failing to file or filing fraudulent tax returns, misrepresenting facts to State Compensation Insurance Fund, making fraudulent statements, making false statements to discourage an injured worker from claiming benefits, misrepresenting facts to workers’ compensation insurance company, and failing to file a return with the intent to evade tax. They both face sentencing enhancements and allegations for aggravated white collar crime over $2.5 million, $500,000, and $100,000. If convicted on all counts, the defendants each face a sentence ranging from five years and four months up to 102 years in state prison. Petronella and Kile are being held on $3 million bail each and must prove the money is from a legal and legitimate source before posting bond. They are expected to be arraigned on May 15, 2009.

Attorney Comments: We note several things about this case. First, since the State Compensation Insurance Fund is a quasi-state agency, this alleged premium fraud was given high priority. Second, there is funding in the DA's Office for these cases by the workers' compensation companies. Third, the DA focused extensively on the defendants' lifestyles and used it in press releases and conferences. Fourth, note that the individuals were charged and not the corporations. The DA's Office has little interest in prosecuting corporations.

Fifth, the investigation began in 2006. However, there were audits back since 2000 which were the basis for these charges. Audits by workers' compensation carriers should be taken seriously. We represented one construction company that had 2 sets of books -- one for EDD and one for the insurance company and both the husband and wife were charged. In our case, there was full restitution made and the husband was able to receive a misdemeanor and neither the husband or wife served any time in custody. We expect to see an increase in these cases and further coordination between EDD and workers' compensation insurers.

Sixth, all businesses should understand what constitutes premium insurance fraud so they understand the risk if they or their employees under or non-report. This can include as classifying employees as 1099s rather than W-2 employees. It can include paying employees cash under the table or misrepresenting their job classifications to get lower rates.

California law requires that all employers maintain Workers’ Compensation Insurance for their employees. Payroll records showing the number of employees and their income must be submitted to both the insurance company and EDD, who oversee the audit and collection of payroll taxes and employment records for workers in California. Workers’ Compensation Insurance rates are determined by a formula, which takes into consideration the factors above and the company’s loss history on claims.

Premium insurance fraud is committed when an employer intentionally misrepresents to the State or his/her insurance company the number of employees, the nature of work performed by certain employees, the amount of payroll, and the loss history. These misrepresentations allow employers to purchase Workers’ Compensation Insurance at a significantly lower rate, or to avoid purchasing the insurance at all. This practice also places their competitors at a disadvantage because it forces them to compete against a company with lower operating costs.

From a policy standpoint, the government contends that deception in under or non-reporting drives up the cost of insurance premiums for legitimate businesses, which pay higher rates for their employee’s Workers’ Compensation Insurance. These legitimate businesses are less competitive against under or non-reporting companies who are able to under-bid their competitors due to lower business costs resulting from insurance fraud. This also endangers injured employees who may be denied the workers’ compensation benefits intended to meet their physical, psychological, and financial needs for a work-related injury.

Any questions or comments should be directed to: Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings and have handled numerous premium fraud cases involving workers' compensation.


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