Thursday, May 3, 2012

Follow The Money and Call the IRS

When we see signs on the side of the road soliciting workers' compensation claimants, or on buses likewise advertising free medical and disability income, we tend to think that it is some dirty lawyer engaging in ethically comprised activity.

We think that the individuals should be reported to the Bar Association, or in the least that the advertisement should be subject to tests against false advertising. At most we would think that the cases brought by the advertiser are probably suspect and worth nuisance value at best.

But the criminal mind doesn't work that way. The creative criminal mind knows that cases brought in the door through such advertisement schemes typically have very little value and likely would settle for very little money.

And they don't care.

Because once a case is brought into the litigation system all sorts of ancillary services can be billed for and there in lies (no pun intended) the profit.

For any of you who are my age you will remember the early 1990s of California workers' compensation and all of the rampant psychiatric claims. Every case that came in the door at our law firm at that time involved an interesting link between psychiatric, orthopedic, internal medicine and as many other specialties as could be involved in a claim.

These case proved to be of very little value on the front end. The reporting was terrible, rampant with error and illogical diagnosis - this despite the plethora of testing involved to support the diagnosis in each case: MRIs, blood tests, MMPIs, other psyche tests, etc.

But these cases churned up huge medical-legal bills and it was not unusual to see a "nuisance value" case with $20,000 - $30,000 in medical legal expenses (inclusive of hugely inflated diagnostics bills)... all going to the same group of providers. The medical reports all looked suspiciously the same but for some minor details, and sometimes even those weren't caught in the word processing system.

At first the bills were just paid because of the medical-legal fee schedule. Carriers would object to some of the diagnostic bills, and eventually would settle the bills for maybe ten cents on the dollar.

The medical-legal providers didn't care because nearly every penny they were reimbursed was pure profit since there was very little expense involved in the generation of these bogus diagnostics and they were getting legally mandated payment on the reports.

If you asked the claimant about the medical-legal appointments and the testing, testimony was vague and non-committal. Some who did not adhere to their coaching were surprised at some of the statements in the reports and/or testing allegedly done.

When the bills/liens settled, some of that wealth was spread down the line to the "doctors" whose names appeared on the reports.

In 1992 television reporter Harvey Levin did an expose series on these medical-legal mills and caught these enterprises red handed, and this evidence was presented to the California legislature which brought about Labor Code section 3208.3 - the infamous psychiatric threshold statute - and some other laws intended to curb illicit medical-legal activity.

The medical-legal mills disappeared almost overnight and I'm sure the operators went on to other nefarious enterprises, perhaps still within our workers' compensation system.

That's how these low-end legal services churn cases through the system driving back end profit centers bordering on legality until someone exposes the fraud.

The mole retreats then looks for another hole.

What we, as law abiding citizens lacking criminal creativity, fail to see or understand is where the holes are. By the time we get to closing up the hole it is too late - another lesson learned, but the education is expensive.

The worst part of these schemes is that ultimately the laws and the regulations that are put into place to control these abuses end up hurting the entire system, increasing complexity, friction and costs.

I think 1992 is happening right now, right in front of our faces, and we're just not astute enough to recognize it. It's not deja vu, it's history repeating itself and because our society emphasizes the short term we fail to learn from history. But trust me, we are being taken for a ride. We think we are in control, but we're driving down the wrong road.

Here's what I believe goes on - enterprising criminal opens up an advertising company and has one client: a legal referral service (owned by the same people that own the advertising company). The legal referral service has a circle of lawyers to handle the cases that are brought in by the advertising, and they know that most of the cases aren't worth much if anything at all, but volume can resolve the unit cost equation. The attorneys aren't doing anything wrong because they are not advertising - they're just representing people who have complaints of a workers' compensation nature that were enticed by the advertising company.

The referral service owners also own, let's say, an interpreting business or three. The referral service doesn't get paid directly - these low value cases don't produce sufficient attorney fees for there to be any split.

No - the deal is that the attorneys, in exchange for referrals, commit to using the interpreting service that is also owned by the referral service owners. In other words, the referral service gets paid in interpreting orders.

But what if no interpreting services are actually performed? What if invoices are generated without any work being done? What if a lien is filed with the Workers' Compensation Appeals Board and the carrier objects and doesn't pay? And what if the interpreting service accepts pennies on the dollar which the claims adjuster is happy to pay to close the file, seemingly a win-win?

The service provider doesn't care because the cost of "providing" the service (i.e. interpretation) is near zero so any money that comes in the door is nearly pure profit. The adjuster doesn't understand the enabling done - they're just happy to close the file so they can work the next one.

So you tell me - who is responsible for enabling this situation? And you tell me, will a fee schedule on interpreting services rectify this?

We are the enablers because we are all to quite willing to settle cases for pennies on the dollar in order to close the file. We are the enablers because we misdirect our resources and focus on the providers who are not the problem, focusing on the low hanging fruit, because we are not criminals so we don't think like criminals.

A fee schedule (or any other remedy that attempts to treat the symptoms) won't work and in fact exacerbates the problem because such regulation introduces another layer of complexity behind which the criminal can hide.

I've said it before - follow the money ... if you can.

And don't mess around with weak workers' compensation laws to correct problems like this. It has been shown time and again that trying to bust criminals for the most offensive acts via the most obvious offenses nearly never works.

What works is the same tactic that brought Al Capone down - tax evasion. That's easy to prove: income is to be reported and unreported income is tax evasion. Simple, direct, easy to prove with VERY effective penalties.

I'm willing to bet that each of these enterprises and the individuals behind them are engaged in tax fraud because criminals don't pay taxes - it's against their moral fiber. There's records to prove it because one other thing about criminals - they're greedy and consequently they will keep track of the money in some fashion to make sure everyone gets their slice of the ill-gotten pie, and no more than that slice.

Get the Internal Revenue Service involved - they have the resources, and the incentive, to investigate these cases.

In the meantime, when there is a nuisance type of case, follow the money. Don't settle. Review databases to determine commonalities and come to an understanding of the enterprises involved. Put the case together, then call the IRS...

The same type of scheme that produced bogus med-legal mills in the early 90's is at large right now, before our very eyes and right under our noses - and we're letting them run our system into the ground and taking legitimate businesses with them.

If something looks wrong, it probably is.

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