Deal Reached in Workers’ Comp Suit : Legal: Without admitting wrongdoing, a clinic agrees to pay insurer an undisclosed sum.

An insurance company waging an unorthodox legal attack on alleged workers’ compensation fraud claimed its first victory Monday, reaching a settlement with a clinic that it accused of running up big medical bills by providing unnecessary treatment.

The settlement requires the clinic, Wellington Medical Corp. of Los Angeles, and any other firms owned by psychiatrist Byron Crawford to abide by a list of “protocols” designed to prevent health care providers from bilking California’s workers’ compensation system.

Wellington also agreed to pay an undisclosed sum to the insurer, Zenith Insurance of Woodland Hills, and to waive claims for more than $1 million in medical bills submitted to Zenith. Neither Wellington nor Crawford made any admission of wrongdoing.

The settlement comes amid growing protests, particularly from employers and insurers who blame workers’ compensation fraud and abuse for driving up expenses and chilling the business climate in California. Insurance company investigators have estimated that fraud and--more often--such abuses as bill-padding and unnecessary treatment by doctors and clinic owners account for more than 25% of the money paid on claims here.

California lawmakers remain sharply divided on what to do. But observers say there’s about a 50-50 chance that in coming weeks they will approve some type of reform package. Any package that emerges is expected to take aim at fraud and high medical and vocational rehabilitation expenses.

In a news release, Zenith Chairman Stanley Zax said the protocols in the settlement “should serve as a basis for legislative reform that will eliminate the potential for abuse and will assist genuinely injured workers in obtaining the legitimate benefits to which they are entitled.”

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A lawyer representing Wellington and Crawford, James Gross, said the settlement would require the clinic to make “a number of adjustments” in its business practices but that he was “very pleased” with it. “We wanted to resolve the dispute because we want to have a businesslike relationship” with Zenith and other insurers, Gross said.

Zenith launched its legal attack against workers’ comp abuse in November by filing the fraud and racketeering suit in federal court in Los Angeles. Named as defendants, among many others, were Wellington and five workers who filed workers’ compensation claims for psychological stress that they said they suffered before quitting their jobs at a Sherman Oaks restaurant.

The suit accused the defendants of trying to bilk Zenith by filing workers’ compensation claims even though they knew that the kitchen helpers, in fact, did not suffer any psychological injuries.

Zenith charged that Wellington declared the kitchen helpers disabled even though at least four of them already were working at another restaurant when they filed their claims.

Zenith said it intends to proceed to trial against the remaining defendants, including the clinic that referred the workers to Wellington, American Psychometric Consultants of Signal Hill.

The suit was unusual in its broad approach to fighting alleged workers’ compensation fraud. As a racketeering case, it alleged that doctors, psychologists, clinics, a lawyer, the five restaurant workers and others conspired to defraud Zenith with a series of claims.

Normally, insurers fight suspected fraud or overcharging more narrowly, by contesting individual claims before the Workers’ Compensation Appeals Board. But that approach, critics say, can result in prohibitive legal expenses, preventing insurers from fighting fraud vigorously.

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Crawford, Wellington’s owner, has been entangled in controversy before. In 1988, he was accused of more than 30 counts of contempt by the Workers’ Compensation Appeals Board. Among other things, the board charged that Crawford sought payment for providing psychotherapy to a man who in fact was dead.

That count and all but one of the others were dismissed in 1990 when Crawford agreed to pay $20,000 and pleaded no contest to a charge of using a ghost writer on a medical report.

Wellington initially responded to Zenith by firing back with a suit of its own, an antitrust case that accused Zenith and three other companies of trying to drive the clinic out of business. As part of the settlement, however, Zenith was dropped from the suit.

The protocols, among other things, require Wellington and any other clinics owned by Crawford to include in their advertising a statement in boldface type spelling out penalties for filing fraudulent workers’ compensation claims.

The protocols also state that Zenith, unless it makes an exception, will not pay for more than one comprehensive medical-legal evaluation per patient or for any medical-legal exam performed within 90 days after a workers’ compensation claim is received. Medical-legal evaluations are used as expert testimony in workers’ compensation disputes between workers and insurance companies, and are considered unusually expensive in California.

In a deposition taken in the racketeering case, Crawford indicated that Wellington and his other Wilshire Boulevard medical enterprises took in at least $12 million in revenue annually from evaluating and treating workers’ compensation patients.