Unusual Fraud Probe Focuses on Insurers’ Side of Workers’ Comp

In a new twist on alleged workers’ compensation fraud, state and local authorities are investigating whether a medical referral firm paid illegal kickbacks to insurance administrators who agreed to use its doctors.

Authorities also are looking into whether the medical referral firm, in turn, received improper payments from the doctors it represented.

Focusing on a firm known as L.A. Management, the probe is one of the first workers’ compensation investigations by law enforcement officials in Southern California into alleged abuses on the insurance side of the industry.

Other major investigations--some far larger than the L.A. Management probe--have focused mainly on big medical chains that treat employees who are fighting insurers and employers to obtain benefits.

L.A. Management lists a Sherman Oaks mail drop as its business address. However, the firm’s telephone number has been disconnected, and the company is believed to have closed some time after investigators seized its bank records last September.

According to a search warrant and affidavit filed June 28 in Los Angeles Superior Court, the firm was run by two principals, Sari Gains and Marylou Steinfeld. Neither could be reached for comment.

Authorities say L.A. Management acted as a middleman between doctors and third-party administrators--insurance service firms that handle workers’ compensation claims for some employers and insurance companies.

When administrators want to set up medical exams for workers with injury claims, they often turn to referral or marketing firms such as L.A. Management to quickly arrange appointments with doctors. Doctors, for their part, use referral firms to bring in lucrative streams of patients.

While insurers and employers have portrayed injured worker “medical mills” as the main source of costly abuses in California’s workers’ compensation system, experts acknowledge that abuses exist throughout the industry.

“We want the public to know we’re not just on the side of the insurance companies, that anywhere there may be fraud, we’re going to investigate it,” said Marcia Daniel, the prosecutor handling the L.A. Management probe for the Los Angeles County district attorney’s office.

According to the search warrant and affidavit in the case, one key question under investigation is whether L.A. Management committed insurance fraud by illegally inflating doctors’ bills.

Under the alleged scheme, doctors and medical clinics represented by L.A. Management sent their bills to the referral firm after examining patients. Allegedly, L.A. Management in turn would improperly inflate the medical charges and pass along the higher bill to the administrator.

The higher charge ultimately would be paid by the employer.

The affidavit said L.A. Management would add from $350 to as much as $1,200 to a doctor’s bill.

Another part of the investigation deals with the possibility that doctors paid illegal kickbacks to L.A. Management. The affidavit says investigators uncovered business records showing that L.A. Management received illegal referral fees of $200 to $250 per patient from doctors. California law bars doctors from paying for referrals on a per-patient basis.

Business records of nine doctors in the Los Angeles area believed to have done business with L.A. Management were seized by investigators, court documents say.

Some doctors retained by insurers, employers and administrators--sometimes derisively called “company doctors”--long have been suspected of downplaying the seriousness of employees’ injuries. Their evaluations can be used as expert testimony to support denials of injury claims.

But the accuracy of the doctors’ medical evaluations is not being scrutinized in connection with the L.A. Management case.

Investigators also are looking into how L.A. Management secured its business from administrators. In particular, authorities said, they are trying to determine if L.A. Management paid kickbacks to the administrators, any of their employees or any of the employers and insurance companies the administrators serve.

The Los Angeles Police Department’s organized crime intelligence division has led the investigation.