Texas physician Dennis B. Barson Jr. and his medical clinic administrator are headed to prison. The 10-year prison sentence imposed against Barson, like an $8 million-plus healthcare fraud civil settlement announced by the Justice Department on July 24, 2014, illustrate the significant legal risks that physicians and other healthcare providers face when physician charges are improperly billed to Medicare, Medicaid, Tricare or other federal or state healthcare programs for services actually provided by non-physician staff.

Physicians and others should heed the lessons from these and other similar federal and state healthcare fraud enforcement actions when deciding when it is appropriate to bill federal healthcare programs for physician services where physicians assistants, nurse practitioners or other nursing staff or other non-physicians perform part or all of the procedures billed.

Dr. Barson Prison Sentence Highlights Criminal Risks

On Monday, July 27, 2015, U.S. District Court Judge Melinda Harmon ordered Barson to serve 120 months in prison, followed by three years of supervised release, and to pay restitution of approximately $1.2 million for his Nov. 5, 2014, conviction on all 20 counts of conspiracy to defraud Medicare of $2.1 million.

With Judge Harmon presiding, a Houston jury found Barson and his medical clinic administrator, Dario Juarez, 55 years old, guilty on the Medicare fraud charges last November. Another co-defendant, Edgar Shakbazyan, entered a guilty plea to the 21-count original indictment on Oct. 27, 2014. Shakbazyan, of Glendale, CA, was sentenced to 97 months in prison, while Juarez, of Beeville, Texas, received 130 months. Both will also serve three years of supervised release.

The jury convictions of Barson and Juarez followed a trial where Department of Justice prosecutors proved the healthcare fraud charges based on evidence that Barson, Juarez and Shakbazyan fraudulently billed Medicare for rectal sensation tests and electromyogram (EMG) studies of the anal or urethral sphincter that were never performed. Shakbazyan was additionally charged and pled guilty to conspiracy to pay kickbacks for payments made to recruiters and beneficiaries.

According to the testimony at trial, Barson was the only doctor affiliated with the medical clinic located at 8470 Gulf Freeway in Houston. However, Juarez represented himself to be a doctor and was the one who actually saw patients at the clinic. Barson, Juarez and Shakbazyan caused Medicare to be billed for procedures on 429 patients in just two months. The three men also billed Medicare for seeing more than 100 patients on 13 different days, including a high of 156 patients on July 13, 2009.

Barson's defense attempted to convince the jury that he was a victim of identity theft and was not the perpetrator of the crimes. The conviction shows the jurors did not believe his story. The criminal charges are the result of a joint investigation conducted by agents of the FBI, Department of Health and Human Services-Office of Inspector General and the Medicaid Fraud Control Unit of the Texas Attorney General’s Office.

Margossian Settlement Shows Even More Common Civil Penalty Risks

Barson's sentencing is one of a growing series of criminal convictions and sentencing of physicians and other healthcare providers for healthcare fraud by participating in arrangements where Medicare, Medicaid or other federal healthcare programs are billed for services not provided or not provided as required to qualify for reimbursement. On July 24, 2015, for instance, the U.S. Attorney for the Eastern District of New York and the State of New York announced that Brooklyn, NY, OB/GYN Haroutyoun Margossian will pay $8 million as part of a civil settlement with the U.S. and the state of New York. The settlement resolves charges brought under the federal False Claims Act and the New York False Claims Act that Margossian wrongfully billed Medicare and Medicaid for physician services for treatments of women suffering from urinary incontinence that unlicensed and often unsupervised staff, rather than Margossian or another physician, actually administered. The government has also filed a criminal charge against Margossian for making false statements to Medicare and entered into a deferred prosecution agreement with him.

Healthcare Fraud Investigations Raise Other Licensing and Practice Risks

The Barson and Margossian actions are just two of the already long and ever-growing list of criminal convictions, civil sanctions and civil settlements that federal and state healthcare fraud fighters already can count as notches of success in their war against healthcare fraud by physicians and other healthcare providers. With these successes fueling more investigations, physicians and others should be prepared to "do time" for improperly billing physician fees to federal healthcare programs for services not provided by the billing physician or for engaging in other inappropriate billing practices. Targets of audits and investigations also must prepare to deal with a host of other threats to their practices that almost inevitably arise regardless of whether the government investigation leads to a conviction, civil sanctions or a settlement.

As demonstrated by the Margossian settlement, even if physicians, practice management and others swept up into these investigations escape being criminally charged, subjected to civil sanctions or penalties or suspended or excluded from Medicare or other federal healthcare programs, healthcare fraud investigations or charges still will carry a heavy cost. Healthcare fraud warriors are realizing great success in securing civil sanctions and settlements, federal program exclusions and other civil and administrative punishments against physicians and other healthcare providers that the government accuses of violating the False Claims Act or other federal healthcare fraud rules.

Of course, whether healthcare fraud investigations ultimately result in any civil or criminal prosecution, conviction or settlement, physicians and other licensed healthcare providers under suspicion of healthcare fraud inevitably must deal with a broad range of other professional fallout. These activities almost always trigger scrutiny or other actions by employers and medical practices, healthcare organizations and licensing boards.

Act to Strengthen Your Defenses

Physicians and others should take steps to minimize the risk of an investigation or audit as well as take steps to help ensure sufficient resources to defend themselves if the government comes knocking.

Of course, the first step should be to take proper, well-documented efforts to comply with the rules. Physicians and the clinics, hospitals and management working with them should carefully evaluate what can be defensibly billed as physician services to Medicare or another federal healthcare program -- keeping in mind that the billing party, not the government, generally bears the burden of proving that the amount bill qualifies for coverage. Physicians and others must carefully consider the adequacy of the physician's involvement in prescribing and delivering services intended to be billed as physician services. In areas where questions could be raised, physicians and their organizations are strongly urged to take extra care to retain documentation of their analysis and efforts to verify their compliance, including consulting legal counsel for advice within the scope of attorney-client privilege.

Physicians and others working with them also should familiarize themselves with their obligations and rights under employment agreements, shareholder or partnership agreements, medical staff bylaws, managed care contracts, medical licensing board rules and the Health Care Quality And Improvement Act. In many cases, these arrangements will compel a physician to provide notice of an investigation, audit, allegation or charge, will trigger separate investigatory or disciplinary action against the physician, or both.

Along with the stiff civil sanctions or settlements imposed, physicians and others investigated or charged with healthcare fraud often incur significant legal and other costs. Physicians and others should consider if they can expect to have sufficient funds to pay the legal and other costs of their defense. Physicians and their organizations concerned about the adequacy of these resources may wish to explore, where available, raising their malpractice policy coverage limits, purchasing other supplemental coverage and taking similar steps to better position themselves. Physicians generally will want to review the adequacy and limits of the coverages that their practices provide, as well as consider the reliability of that coverage in the event that the physician is terminated or leaves the practice.

Because of the 10-year statute of limitations applicable to False Claims Act claims, billings can come back to haunt a physician 10 years after their submission. With this tremendously long liability period, even in the absence of government investigation, a significant risk exists that a physician may experience a practice relocation or other change that would affect his coverage during this period. When an investigation happens, the possibility that the physician will relocate his practice skyrockets. Consequently, physicians should consider purchasing tail coverage, maintaining separate, portable professional liability coverage or both.

Physicians and their practices also should consider the adequacy of the coverage provided by their professional liability or other policies. If the policy provides no or limited coverage, both the physician and his associated organization or practice may want to explore purchasing additional riders on the existing policy, purchasing separate coverage or both, as well as to raise the limits on the coverages.

Practice leaders, hospitals and other organizations that would be swept up into these investigations generally share an interest in ensuring that the physician possesses adequate resources to defend herself, as their organization and its billings are likely to be hurt if the physician is unable to defend the billings.

Lots of industries face criticism because they talk the talk but don't walk the talk -- the computer industry, for instance, long talked about making machines intuitive but required users to work their way through manuals and memorize long series of steps before they could accomplish anything. But the insurance industry doesn't even talk the talk yet.

Sure, everyone is talking about improving the customer experience, but look at the words we use. Many are opaque -- the industry talks to itself, somehow unaware that customers are listening and are turned off by the gobbledygook. Some words are even offensive -- we're saying things to customers that we really don't want to be saying.

We have to at least get our talk -- our vocabulary -- straight before we tackle the much deeper issues and figure out to really engage customers and address their evolving needs.

My least-favorite word is one so widely used that few will find it offensive: "adjuster." My problem: If I'm filing a claim, I don't want it adjusted. I want it paid.

Yes, I realize that processing claims is complicated and that all sorts of adjustments need to be made. I also realize that no industry simply pays when a claim is made against a company. But if you send me an "adjuster," you're telling me right off the bat that you don't trust me, and that's a lousy way to start an interaction. It certainly isn't any way to start a relationship, which is what insurers insist they want with customers these days. Don't trust me, if you must, but send me a "claims professional" or simply a "customer service representative." Don't send me an "adjuster."

Less offensive but still unnecessarily bad are words like "excess" and "surplus." The insurance may be categorized as excess and surplus to you, but not to me, the customer. I'll thank you to treat my needs with the respect they deserve (says the customer).

Some words need to go away because they already have meanings -- and they aren't the meanings assigned to the words by the insurance industry. A binder is a plastic cover with three rings that you buy for your kids at this time of year as they head back to school; it is not temporary evidence of insurance. An endorsement is something you put on the back of a check -- or at least used to, before banks simplified deposits. An endorsement is not something that modifies an insurance policy.

Mostly, many terms need to be revisited because they are opaque, and often archaic:

• "Underwriting"? How about "assessing risk"?
• "Actuary"? That's a legitimate word, but I prefer the European form: "mathematician." ("What do you do at XYZ Insurance Co.?" "I'm the mathematician.") "Mathematician" just seems friendlier.
• "Capitation" and "subrogation"? Important functions, but there have to be layman's terms that can be substituted.
• If I'm buying life insurance, good luck getting me to grasp intuitively the difference between whole life and universal life; "whole" and "universal" are practically synonyms in this context.
• "Inland marine"? Please.

While we're at it, let's do away with the acronyms. All of them -- at least on first reference, and mostly in subsequent references, too.

Changing the language will be hard because so many in the industry subscribe to what I think of as a 19th century sort of approach to business: Let's make things seem as complicated as possible to justify the existence of lots of experts and intermediaries and to demand nearly blind faith by clients. This is sort of the "don't try this at home, folks," approach to business. Leave the complicated terms to us.

The approach has worked for insurers for a very long time. It has worked for doctors and lawyers. If a cynical T.A. in a philosophy class in college way back when is to be believed, it worked for Hegel, too -- he supposedly wrote a short, clear version of his big idea (thesis/antithesis/synthesis), and no one took him seriously; he then wrote a 1,000-page, nearly impenetrable version, called it merely the introduction to his ideas and found lasting fame.

But things have changed since Hegel wrote in the early 1800s. Now, if I want to remind myself about Hegel, I turn to Wikipedia and its clear, little summary; I don't crack open The Phenomenology of Spirit. Change has accelerated in recent years, to the point where even doctors find themselves having to communicate more with patients in plain English.

If doctors can simplify how they communicate about the mind-boggling issues involved in medicine, then the rest of us can figure out how to talk the talk in insurance. We need to begin by taking a hard look at every term we use and revising many of them, from the perspective of a total newbie customer, so we talk to customers the way they expect us to talk to them.

That's the only way to lay the groundwork for the broad improvements in the customer experience that we all want to deliver and that customers are increasingly demanding.

Lots of industries face criticism because they talk the talk but don't walk the talk -- the computer industry, for instance, long talked about making machines intuitive but required users to work their way through manuals and memorize long series of steps before they could accomplish anything. But the insurance industry doesn't even talk the talk yet. Sure, everyone is talking about improving the customer experience, but look at the words we use. Many are opaque -- the industry talks to itself, somehow unaware that customers are listening and are turned off by the gobbledygook. Some words are even offensive -- we're saying things to customers that we really don't want to be saying. We have to at least get our talk -- our vocabulary -- straight before we tackle the much deeper issues and figure out to really engage customers and address their evolving needs. My least-favorite word is one so widely used that few will find it offensive: "adjuster." My problem: If I'm filing a claim, I don't want it adjusted. I want it paid. Yes, I realize that processing claims is complicated and that all sorts of adjustments need to be made. I also realize that no industry simply pays when a claim is made against a company. But if you send me an "adjuster," you're telling me right off the bat that you don't trust me, and that's a lousy way to start an interaction. It certainly isn't any way to start a relationship, which is what insurers insist they want with customers these days. Don't trust me, if you must, but send me a "claims professional" or simply a "customer service representative." Don't send me an "adjuster." Less offensive but still unnecessarily bad are words like "excess" and "surplus." The insurance may be categorized as excess and surplus to you, but not to me, the customer. I'll thank you to treat my needs with the respect they deserve (says the customer). Some words need to go away because they already have meanings -- and they aren't the meanings assigned to the words by the insurance industry. A binder is a plastic cover with three rings that you buy for your kids at this time of year as they head back to school; it is not temporary evidence of insurance. An endorsement is something you put on the back of a check -- or at least used to, before banks simplified deposits. An endorsement is not something that modifies an insurance policy. Mostly, many terms need to be revisited because they are opaque, and often archaic:

• "Underwriting"? How about "assessing risk"?
• "Actuary"? That's a legitimate word, but I prefer the European form: "mathematician." ("What do you do at XYZ Insurance Co.?" "I'm the mathematician.") "Mathematician" just seems friendlier.
• "Capitation" and "subrogation"? Important functions, but there have to be layman's terms that can be substituted.
• If I'm buying life insurance, good luck getting me to grasp intuitively the difference between whole life and universal life; "whole" and "universal" are practically synonyms in this context.
• "Inland marine"? Please.

While we're at it, let's do away with the acronyms. All of them -- at least on first reference, and mostly in subsequent references, too. Changing the language will be hard because so many in the industry subscribe to what I think of as a 19th century sort of approach to business: Let's make things seem as complicated as possible to justify the existence of lots of experts and intermediaries and to demand nearly blind faith by clients. This is sort of the "don't try this at home, folks," approach to business. Leave the complicated terms to us. The approach has worked for insurers for a very long time. It has worked for doctors and lawyers. If a cynical T.A. in a philosophy class in college way back when is to be believed, it worked for Hegel, too -- he supposedly wrote a short, clear version of his big idea (thesis/antithesis/synthesis), and no one took him seriously; he then wrote a 1,000-page, nearly impenetrable version, called it merely the introduction to his ideas and found lasting fame. But things have changed since Hegel wrote in the early 1800s. Now, if I want to remind myself about Hegel, I turn to Wikipedia and its clear, little summary; I don't crack open The Phenomenology of Spirit. Change has accelerated in recent years, to the point where even doctors find themselves having to communicate more with patients in plain English. If doctors can simplify how they communicate about the mind-boggling issues involved in medicine, then the rest of us can figure out how to talk the talk in insurance. We need to begin by taking a hard look at every term we use and revising many of them, from the perspective of a total newbie customer, so we talk to customers the way they expect us to talk to them. That's the only way to lay the groundwork for the broad improvements in the customer experience that we all want to deliver and that customers are increasingly demanding.

The hashtag phenomenon dates back to 2007, when Twitter launched a tool that allowed users to search and share topics by using the # symbol. Since then, the symbol has gone mainstream, and you will commonly find it in other social media sites, such as Instagram and Vine. Insurance companies caught on to the trend and incorporated hashtags into their digital strategies, adding humor, wordplay and aspirational connotations. Insurance Entertainment benchmarked seven hashtags used by insurance companies to provide some insight into how hashtags can be best used: #DreamFearlessly by American Family #ThinkSafe by Travelers #SummerIsMayhem by Allstate #MakeSafeHappen by Nationwide #BeTheJake by State Farm #InFlovation by Progressive #GeckoPhilosophy by Geico The hashtags fall into two categories: 1) branded hashtags, which refer to the brand directly or indirectly (e.g. #InFlovation), and 2) interest-based hashtags, which speak to shared topics (e.g. #ThinkSafe). Some companies use Twitter to position themselves as aspirational brands by building communities around shared values. Here’s the bird’s-eye-view of who’s doing what and why: Geico and Progressive, for example, opt for "branded hashtags," while American Family and Nationwide promote "interest-based hashtags" in an attempt to target like-minded individuals. 7. Geico - #GeckoPhilosophy Twitter: @GEICO, @TheGEICOGecko, Hashtag: #GeckoPhilosophy #InspirationalQuotes are abundant, shareable and, generally speaking, positive. Geico took notice and added the Gecko flavor to its version of inspirational quotes, forming what is known as the #GeckoPhilosophy. Geico gets an A for creativity but a C for execution, as the tweets are often dull on screen. The idea has merit and is an example of a branded hashtag, tailored to the audience on social media, which in the long run may see more pickup by users. 6. Progressive - #InFlovation Twitter: @Progressive, @ItsFlo, Hashtag: #InFlovation #InFlovation is Progressive's playful take on innovation and Flo. Similar to Geico’s #GeckoPhilosophy, it’s a branded hashtag targeting those who enjoy interaction with Flo. By the way, at this time, Flo does not make public appearances. Someone asked. Progressive answered. 5. State Farm - #BeTheJake Twitter: @StateFarm, @JakeStateFarm, Hashtag: #BeTheJake Another branded hashtag around the real Jake from State Farm. 4. Nationwide - #MakeSafeHappen Twitter: @Nationwide, Hashtag: #MakeSafeHappen, Powered by MakeSafeHappen Nationwide’s marketing team drew some heat for its Super Bowl ad featuring a "dead boy" with the tagline #MakeSafeHappen. But let’s face it, the #1 cause of childhood deaths is preventable accidents, and you know that thanks to Nationwide. So, aside from completely reshuffling its marketing team, the company "stands behind the commercial and the message." Since then, #MakeSafeHappen has taken a less controversial route, but not without consequences: MakeSafeHappen.com desktop traffic tumbled to an all-time low of approximately 1,000 monthly visits compared with 85,000 when the ad premiered. Better safe than sorry? 3. Allstate - #SummerIsMayhem Twitter:@Allstate, @Mayhem, Hashtag: #SummerIsMayhem Mayhem is the third most-recognized insurance advertising character, behind the Geico gecko and Flo. With more than 79,000 Twitter followers for @Mayhem compared with about 61,000 for @Allstate, it is obvious why Mayhem’s dark humor is an integral part of Allstate’s digital strategy. 2. Travelers - #ThinkSafe Twitter: @Travelers, Hashtag: #ThinkSafe Surprise. An insurance company posting safety tips. There is actually more to this strategy than meets the eye. Aside from its relevant and practical content, albeit dry at times, Travelers is also looking out for its independent agents by producing content they can easily share. Travelers gets an A for thoughtfulness, an F for entertainment. 1. American Family - #DreamFearlessly Twitter: @amfam, Hashtag: #DreamFearlessly powered by DreamFearlessly American Family has one of the best brand extensions an insurance company can hope for. In the land of cost savings by Geico, price comparison by Progressive and 3:00am customer service by State Farm, nothing says different like American Family. A slogan turned interest-based hashtag, #DreamFearlessly is a branding initiative that allows American Family to move away from functional attributes and create an aspirational brand. There is one caveat, though – which is true of all interest-based hashtags. They are not exclusive. While they do generate more reach, sometimes the tweets have very little to do with the insurance brand seeking to be associated with that message. So while #InFlovation offers a direct association to Progressive, interest-based hashtags such as #ThinkSafe, #MakeSafeHappen and #DreamFearlessly require a bigger marketing push. The outcome, once successful, is worth it. As the graph below shows, in the last 30 days #DreamFearlessly enjoyed more than 10X the reach of #GeckoPhilosophy. Clearly, Americans love to dream. In sum, hashtags are only as great as one’s offline strategy (American Family, Travelers); there is no harm in plain fun (Progressive, Geico, State Farm); and never underestimate the size of the fight in the dog (Nationwide). After all, there are no low talkers on social media. Bottom Line: In a zero-sum game, the score is American Family (1), Geico (-1).

Securities litigation has a culture defined by multiple elements: the types of cases filed, the plaintiffs’ lawyers who file them, the defense counsel who defend them, the characteristics of the insurance that covers them, the way insurance representatives approach coverage, the government’s investigative policies – and, of course, the attitude of public companies and their directors and officers toward disclosure and governance. This culture has been largely stable over the nearly 20 years I’ve defended securities litigation matters full-time. The array of private securities litigation matters (in the way I define securities litigation) remains the same – in order of virulence: securities class actions, shareholder derivative litigation matters (derivative actions, board demands and books-and-records inspections) and shareholder challenges to mergers. The world of disclosure-related SEC enforcement and internal corporate investigations is basically unchanged, as well. And the art of managing a disclosure crisis, involving the convergence of shareholder litigation, SEC enforcement and an internal investigation, involves the same basic skills and instincts. But I’ve noted significant changes to other characteristics of securities-litigation culture recently, which portend a paradigm shift. Over the past few years, smaller plaintiffs’ firms have initiated more securities class actions on behalf of individual, retail investors, largely against smaller companies that have suffered what I call “lawsuit blueprint” problems such as auditor resignations and short-seller reports. This trend – which has now become ingrained into the securities-litigation culture – will significantly influence the way securities cases are defended and by whom, and change the way that D&O insurance coverage and claims need to be handled. Changes in the Plaintiffs’ Bar Discussion of the history of securities plaintiffs’ counsel usually focuses on the impact of the departures of giants Bill Lerach and Mel Weiss. But although the two of them did indeed cut a wide swath, the plaintiffs’ bar survived their departures just fine. Lerach’s former firm is thriving, and there are strong leaders there and at other prominent plaintiffs’ firms. The more fundamental shifts in the plaintiffs’ bar concern changes to filing trends. Securities class action filings are down significantly over the past several years, but I’m confident they will remain the mainstay of securities litigation and won’t be replaced by merger cases or derivative actions. There is a large group of plaintiffs’ lawyers who specialize in securities class actions, and there are plenty of stock drops that give them good opportunities to file cases. Securities class action filings tend to come in waves, both in the number of cases and type. Filings have been down over the last several years for multiple reasons, including the lack of plaintiff-firm resources to file new cases as they continue to litigate stubborn and labor-intensive credit-crisis cases, the rising stock market and the lack of significant financial-statement restatements. Although I don’t think the downturn in filings is, in and of itself, very meaningful, it has created the opportunity for smaller plaintiffs’ firms to file more securities class actions. The Reform Act gave plaintiffs’ firms incentives to recruit institutional investors to serve as plaintiffs. For the most part, institutional investors, whether smaller unions or large funds, have retained the more prominent plaintiffs’ firms, and smaller plaintiffs’ firms have been left with individual investor clients who usually can’t beat out institutions for the lead-plaintiff role. At the same time, securities class action economics tightened in all but the largest cases. Dismissal rates under the Reform Act are pretty high, and defeating a motion to dismiss often requires significant investigative costs and intensive legal work. And the median settlement amount of cases that survive dismissal motions is fairly low. These dynamics placed a premium on experience, efficiency and scale. Larger firms filed most of the cases, and smaller plaintiffs’ firms were unable to compete effectively for the lead plaintiff role, or make much money on their litigation investments. This started to change with the wave of cases against Chinese issuers in 2010. Smaller plaintiffs’ firms initiated most of them, as the larger firms were swamped with credit-crisis cases and likely were deterred by the relatively small damages, potentially high discovery costs and uncertain insurance and company financial resources. Moreover, these cases fit smaller firms’ capabilities well; nearly all of the cases had “lawsuit blueprints” such as auditor resignations or short-seller reports, thereby reducing the smaller firms’ investigative costs and increasing their likelihood of surviving a motion to dismiss. The dismissal rate has indeed been low, and limited insurance and company resources have prompted early settlements in amounts that, while on the low side, appear to have yielded good outcomes for the smaller plaintiffs’ firms. The smaller plaintiffs’ firms thus built up a head of steam that has kept them going, even after the wave of China cases subsided. For the last year or two, following almost every “lawsuit blueprint” announcement, a smaller firm has launched an “investigation” of the company, and these firms have initiated an increasing number of cases. Like the China cases, these cases tend to be against smaller companies. Thus, smaller plaintiffs’ firms have discovered a class of cases – cases against smaller companies that have suffered well-publicized problems that reduce the plaintiffs’ firms’ investigative costs – for which they can win the lead plaintiff role and can prosecute at a sufficient profit margin. To be sure, the larger firms still mostly will beat out the smaller firms for the cases they want. But it increasingly seems clear that the larger firms don’t want to take the lead in initiating many of the cases against smaller companies, and are content to focus on larger cases on behalf of their institutional investor clients. These dynamics are confirmed by recent securities litigation filing statistics. Cornerstone Research’s “Securities Class Action Filings: 2014 Year in Review” concludes that (1) aggregate market capitalization loss of sued companies was at its lowest level since 1997, and (2) the percentage of S&P 500 companies sued in securities class actions “was the lowest on record.” Cornerstone’s “Securities Class Action Filings: 2015 Midyear Assessment” reports that two key measures of the size of cases filed in the first half of 2015 were 43% and 65% lower than the 1997-2014 semiannual historical averages. NERA Economic Consulting’s “Recent Trends in Securities Class Action Litigation: 2014 Full-Year Review” reports that 2013 and 2014 “aggregate investor losses” were far lower than in any of the prior eight years. And PricewaterhouseCoopers’ “Coming into Focus: 2014 Securities Litigation Study” reflects that in 2013 and 2014, two-thirds of securities class actions were against small-cap companies (market capitalization less than $2 billion), and one-quarter were against micro-cap companies (market capitalization less than $300 million). These numbers confirm the trend toward filing smaller cases against smaller companies, so that now most securities class actions are relatively small cases. Consequences for Securities Litigation Defense Securities litigation defense must adjust to this change. Smaller securities class actions are still important and labor-intensive matters – a “small” securities class action is still a big deal for a small company and the individuals accused of fraud, and the number of hours of legal work to defend a small case is still significant. This is especially so for the “lawsuit blueprint” cases, which typically involve a difficult set of facts. Yet most securities defense practices are in firms with high billing rates and high associate-to-partner ratios, which make it uneconomical for them to defend smaller litigation matters. It obviously makes no sense for a firm to charge $6 million to defend a case that can settle for $6 million. It is even worse for that same firm to attempt to defend the case for $3 million instead of $6 million by cutting corners – whether by under-staffing, over-delegation to junior lawyers or avoiding important tasks. It is worse still for a firm to charge $2 million through the motion to dismiss briefing and then, if it loses, to settle for more than $6 million just because it can’t defend the case economically past that point. And it is a strategic and ethical minefield for a firm to charge $6 million and then settle for a larger amount than necessary so that the fees appear to be in line with the size of the case. . Nor is the answer to hire general commercial litigators at lower rates. Securities class actions are specialized matters that demand expertise, consisting not just of knowledge of the law but of relationships with plaintiffs’ counsel, defense counsel, economists, mediators and D&O brokers and insurers. Rather, what is necessary is genuine reform of the economics of securities litigation defense through the creation of a class of experienced securities litigators who charge lower rates and exhibit tighter economic control. Undoubtedly, that will be difficult to achieve for most securities defense lawyers, who practice at firms with supercharged economics. The lawyers who wish to remain securities litigation specialists will thus face a choice:

1. Accept that the volume of their case load will be reduced, as they forego smaller matters and focus on the largest matters (which big law firms are uniquely situated to handle well, on the whole);
2. Rein in the economics of their practices, by lowering billing rates of all lawyers on securities litigation matters and by reducing staffing and associate-to-partner ratios; or
3. Move their practices to smaller, regional defense firms that naturally have more reasonable economics.

I’ve taken the third path, and I hope that a number of other securities litigation defense lawyers will also make that shift toward regional defense firms. A regional practice can handle cases around the country, because litigation matters can be effectively and efficiently handled by a firm based outside of the forum city. And they can be handled especially efficiently by regional firms outside of larger cities, which can offer a better quality of life for their associates and a more reasonable economic model for their clients. Consequences for D&O Insurance D&O insurance needs to change, as well. For public companies, D&O insurance is indemnity insurance, and the insurer doesn’t have the duty or right to defend the litigation. Thus, the insured selects counsel, and the insurer has a right to consent to the insured’s selection, but such consent can’t be unreasonably withheld. D&O insurers are in a bad spot in a great many cases. Because most experienced securities defense lawyers are from expensive firms, most insureds select an expensive firm. But in many cases, that spells a highly uneconomical or prejudicial result, through higher than necessary defense costs or an early settlement that doesn’t reflect the merits, but that is necessary to avoid using most or all of the policy limits on defense costs. Given the economics, it certainly seems reasonable for an insurer to at least require an insured to look at less expensive (but just as experienced) defense counsel before consenting to the choice of counsel – if not outright withholding consent to a choice that does not make economic sense for a particular case. If that isn’t practical from an insurance law or commercial standpoint, insurers may well need to look at enhancing their contractual right to refuse consent, or even to offer a set of experienced but lower-cost securities defense practices in exchange for a lower premium. It is my strong belief that a great many public company CFOs would choose a lower D&O insurance premium over an unfettered right to choose their own defense lawyers. Because I’m not a D&O insurance lawyer, I obviously can’t say what is right for D&O insurers from a commercial or legal perspective. But it seems obvious to me that the economics of securities litigation must change, both in terms of defense costs and defense-counsel selection, to avoid increasingly irrational economic results.

At the 2015 Harbor Health MPN Medical Directors Meeting, a panel discussed current issues affecting workers’ compensation. The panel consisted of:

• Dr. Tedd Blatt (moderator)
• Dr. Craig Uejo
• Dr. Don Dinwoodie
• Dr. Minh Nguyen
• Dr. Kayvon Yadidi

Question: What are the things physicians can do or should do to improve workers comp?

• Physicians need to assist in training their peers. There is inadequate training of occupational medicine physicians on the nuances of the workers’ compensation system. This is something other stakeholders in the system could also assist with.
• Physicians need to be considering psycho-social issues in the treatment of patients. These can have a significant impact on claim outcomes.
• There is not enough training for physicians on how to properly write medical reports, especially in the workers’ compensation arena.
• It is imperative that physicians are responsive to questions from the payers. Failure to respond in a timely way to questions causes delays in reimbursement and creates animosity.

Question: How should physicians be approaching the issues of opioids, and are payers willing to consider alternatives?

• This is something that needs to be considered from the initial visit forward. These drugs can lead to long-term issues, and prescribing them cannot be taken lightly. Too many physicians just prescribe these to make the patient happy.
• There are inadequate detox programs to wean people off these drugs. Patients tend to bounce from one pain clinic to the next, which just continues the cycle of using these drugs.
• Payers are often hesitant to authorize detox programs or non-pharmaceutical pain management alternatives because they view these things as experimental.
• Physicians will soon be required to utilize CURES, the California prescription drug monitoring program, prior to prescribing opioids. This is intended to identify people who are doctor-shopping to abuse the opioids.
• If you don’t prescribe the opioids, the patient will find someone else who does. Until there is a consistent approach to how these drugs are prescribed, this will continue to be a problem.
• This is the greatest physician-created public health crisis in the history of the U.S. These drugs are massively overprescribed and should only be used for a very short term for post-operative care. They should never be used for long-term treatment.

Question: What do you think about utilization review? Are there things that you feel should always be subject to utilization review?

• All surgeries should be subject to mandatory utilization review. Too many physicians are conducting unnecessary surgeries, which cause harm to their patients.
• Compound medications and medications not usually prescribed in workers’ comp should be subject to utilization review.
• There needs to be a level of common sense in UR. It should not be used if the recommended treatment is part of the normal course of care for an injury. Payers also are sometimes paying more for the UR review than the actual service requested costs.
• If you have quantified that a physician is producing better outcomes for injured workers, these physicians should be subject to less utilization review.
• The UR process needs to be more selective and focus on the outliers, not routine care. The perception from providers is that UR is being grossly overused. Physicians view this as punitive.

Question: More physicians are becoming part of larger health systems. Is this a positive change?

• This is a positive change because the physicians have a better support structure to assist in writing reports and navigating the nuances of the workers’ compensation system.

Question: Is the Affordable Care Act going to affect workers’ compensation?

• We will see an increased focus on outcomes, and, if a physician does not deliver superior outcomes, then payers will not refer patients to them for treatment.
• Many of the policies under the exchanges have high deductibles and, because of this, it is likely we will continue to see pressure to push treatment into the workers’ compensation space.

Question: What changes would you recommend on the claims administrator side?

• There needs to be more focus on better internal communication within claims organizations. Physicians end up sending reports and responding to requests multiple times because the claims organization does not have good internal communication.
• The fee structure is affecting the number of physicians willing to treat workers’ compensation patients. Many specialists have stopped treating workers’ compensation patients because they do not feel adequately compensated for the amount of work required.

Identity theft in the workplace and the expensive consequences are affecting more and more companies each year. One in three businesses were affected by data breaches last year, and the number of identity theft victims continues to grow. As the threat increases, it’s important to understand how identity theft happens, how it affects a company and its employees and what an employer can do to help. How does identity theft happen? Or better yet, how do thieves get information? Common ways include the following:

• A dishonest employer/employee stealing information from coworkers (97% of cases, reported by companies that were fraud victims and uncovered the responsible party, were inside jobs.)
• Hacking company databases or installing malware
• Phishing – sending fake emails or setting up unsolicited websites/pop-up windows to get information from unsuspecting victims
• Phone scams (40% of fraud complaints noted that the fraudsters contacted them via phone.)
• Going through the mail or trash

There are plenty of ways that a thief uses newfound treasures. A few examples are…

• Filing fraudulent tax returns to get the victims’ refunds
• Bypassing security questions to access bank accounts, etc.
• Getting healthcare through a victim’s insurance
• Opening lines of credit, obtaining loans, leases, etc.
• Selling the information to other thieves

How does identity theft affect the employee? Employees who become victims of identity theft must deal with all kinds of consequences. They’ve lost their sense of safety and privacy and probably have significant financial losses. It all adds up to major stress and lots of work, which means employees are going to be heavily distracted at their jobs.

• More than one-third (36%) of victims said the identity theft incident caused them moderate to severe emotional distress.
• About one million employees miss work each day because of stress.
• 60% of employees said they have lower productivity at work because of stress.

Identity theft also brings major financial setbacks. Millions of victims are suffering from the billions of dollars lost to identity theft over the last couple years, and it doesn’t help that one in four workers already deal with major financial distress on a daily basis, whether they’re a victim or not. How does identity theft affect the employer? Identity theft hits every kind of business, robbing companies of their private information, revealing their private information and decreasing their levels of productivity.

• All different industry sectors were affected by data breaches in 2014: business (34%), education (15%), government/military (16%), medical/healthcare (26%) and financial/banking/credit (8.1%).
• The top types of fraud experienced by affected companies are theft of information (22%) and physical assets (28%).
• Fraud ends up costing companies three times more than what was initially stolen, with companies paying upwards of $3.08 for every dollar of fraud loss.

Fraud repercussions decrease employee productivity and eat away at company revenue. Unfortunately, every industry is vulnerable. How can the employer help? A good way for employers to keep their companies safe from the consequences of identity theft is to incorporate an identity theft prevention and recovery service into the employees’ benefits program. Features could include continual monitoring, assistance for addressing suspicious activity and resources that help with resolution. Identity theft protection plans with 24/7 monitoring of credit activity and personal information will help reveal fraudulent activity before it causes significant damage. Likewise, a product that provides assistance and resources for the recovery process can help alleviate some of the stress that victimized employees feel, because they have professional guidance and support for tackling all of the necessary tasks. All employers have a reason to consider what kind of protection and coverage is currently available for their employees. More and more companies are affected each year, and the health and financial costs should be enough to push employers toward getting a solution.

More and more agencies are choosing to reap the benefits of offloading repetitive yet critical back-office tasks through outsourcing. Choosing the right outsourcing partner and the structure of that relationship will mean the difference between success and failure. Having spent nearly a decade helping agencies choose and implement outsourcing solutions, I’d like to share six vital components that will set this important relationship up for long-term success. Every relationship requires commitment. It carries with it the hope the union will be long-lasting, characterized by mutual trust and fulfillment. The right relationship can be incredibly rewarding when structured appropriately. It can help to motivate your team, maximize the value of experienced and knowledgeable staff and let the entire agency focus on what the people do best – building and retaining business. But how can agency executives be sure they are picking the right partner? As Patra celebrates its 10-year anniversary, we enjoy many positive, long-term relationships with our clients. If you’re thinking about outsourcing your back office, I hope these words of wisdom will help you ensure your investment pays off in the long run.

1. Know your outsourcing goals

Before beginning your search for the right outsourcing solution, make sure the decision-makers within the organization are in agreement as to why you’re searching in the first place. Some agencies outsource because, in their labor markets, it has become increasingly difficult to find -- and keep -- good account staff. Others outsource because the growing burden on account staff to complete repetitive paperwork means less time to spend on higher-value tasks like building client relationships, upselling and cross-selling. Many agencies have simply determined that the best way to keep staff engaged, productive and, most crucially, happy is to take that important but time-consuming work off their desks. Being clear on your goals from the outset will help you start the right conversations with a partner -- and get the most out of the relationship.

2. Communicate with your staff

A good outsourcing relationship extends your team, it doesn’t replace it. Outsourcers aren’t better than your staff; they make your staff better. As such, it’s vital to communicate your goals clearly -- before you begin! Successful agencies involve their staff at the start of the decision-making process. Use checklists to identify a partner who will meet both staff and management needs. Ask your staff for feedback on the ways in which they believe they could add value to the agency if relieved from mundane tasks like issuing certificates and policy checking. This may well lead you to restructure and create new roles within your agency. The new structure of your team that the outsourcing relationship allows will enable individuals to work to the top of their job descriptions and increase the bottom line of your business.

3. Look for industry expertise

There are many outsourcing agencies out there. You would only consider hiring staff with insurance experience, so why would you consider hiring an outsource provider that doesn’t specialize in insurance? The right outsourcing agency will act as your strategic partner, helping you find shortcuts and introducing you to industry best practices that you may not be aware of. Do the due diligence and ask questions to make sure the agency has relevant industry expertise:

• Have they worked with agencies of your size before?
• How much of their onshore team is licensed?
• How many of their overseas staff members are CISR- or CIC-accredited?

And, of course, talk to the executives at the companies that you’re interviewing to make sure they share your philosophy and business values.

4. Clarify that outsourcing doesn’t have to mean offshoring

In the last decade, the meaning of the word "outsourcing" has changed from being synonymous with "offshoring" to include many services performed domestically. U.S.-based, client-facing outsourced partners are essential for a successful relationship. These onshore account-servicing teams are complemented by skilled, highly educated and experienced offshore teams. It’s important to assess your staff’s comfort with overseas work and ensure they understand that these services are not replacing the work they do; the services are enabling them to focus on work that is more engaging and vital for the agency’s success. Talk to the firms you’re interviewing to find out:

• Is English a required subject in the public education system of the overseas location?
• How much interaction will you have with overseas staff?
• Will communication be by phone or e-mail?
• How will the time difference affect communications?

5. Know the limits -- and the true costs

Outsourcing is not a silver bullet for agency transformation. Agencies must have realistic expectations of the benefits they will derive from outsourcing. Common priorities are quality (for E&O and customer care reasons) and cost (for obvious reasons). The ability to provide rush service is another common need, although that’s usually negotiated with a special rate. Sometimes, agencies may expect that an overseas or outsourced partner perform tasks faster than an agency staff member. It’s important to realize that, for a single task, it will probably take about the same amount of time for an outsourced expert to do it as a trained staff member. The efficiencies come through better workflows and performing all of these tasks immediately and together, instead of crammed between the high-priority tasks that demand attention of your highly trained staff. Like the tortoise and the hare, any good outsourcing firm can complete a volume of tasks faster than an agency account manager. That’s the real “time” advantage of outsourcing. As for fee structures, there are as many pricing options out there as there are outsourcing providers. Hourly rates, FTEs, per-transaction fee-based and hybrid pricing all make it very difficult to evaluate options, apples to apples. Each has its positives, but there are some questions that are vital to ask:

• Are there annual minimums?
• Are there rush charges?
• Will you pay more for overnight service?

It’s worth taking the time to read the fine print – some agencies have gotten burned by not noticing a clause in a contract requiring increased annual minimums, year over year.

6. Read the cost reports and measure the value for yourself

You will need to set the benchmarks that will help show you the value that outsourcing has delivered to your agency. Measuring performance and success can be defined as increased time spent with clients, greater client retention, new business placements or whatever else is important to your particular agency. Reports will show you how much work your outsourcing partner has done. Keep the lines of communication open -- a quarterly call or meeting is vital to revisiting both the activity reports of your partner and the success metrics you use internally. A valuable last piece of advice It is often extremely helpful to start small with a pilot program. This will allow you to select and test individual, important pieces of your puzzle. Starting slowly builds trust and confidence and will allow you to work out communication and workflow kinks with your provider, and enjoy a successful and long-term relationship. Your checklist in looking for a partner:

• Insurance industry expertise
• Onshore client-facing presence
• Flexible program options
• Affordability
• Ease of entry
• Quality consulting staff
• Accreditation and certifications
• Reporting and communications systems
• ROI measurement criteria
• Range of services to meet your needs
• Scalability for growth and fluctuations in quantity of work
• English-trained offshore workforce

Telematics could be one of the most relevant digital innovations in the insurance industry, directly affecting results. Worldwide diffusion of telematics-based motor insurance policies is currently at an early stage, but the best practices achieved levels of penetration higher than 20% of the motor portfolio. The diffusion is growing fast, with well-recognized benefits for the motor insurance value chain. Looking across countries at best practices, it is possible to identify five value-creation levers:

1. Risk selection
2. Pricing (risk-based)
3. Value-added services
4. Loss control
5. Loyalty and behavior modification programs

1. Risk selection Telematics can be indirectly or directly used to select risks at an underwriting stage. As a matter of fact, products subjected to steady monitoring through telematics indirectly discourage purchase by risky clients, hence limiting adverse selection and fraudulent intent. Data collection can directly improve the overall quality of the underwriting process, allowing price adjustments or covenants and options related to what the monitoring finds. For instance, Progressive's Snapshot provides:

• a device that measures client driving style;
• a predictive approach based on data collection;
• a discount based on information gathered.

2. Pricing (risk-based) Through telematics, a steadfast monitoring of "quantity" and "level" of risk has become possible. The risk can be calculated on the basis of information monitored continuously, directly determining pricing for individual customers. This may cover usage. Premiums can be adjusted within the year the policy covers, or there can be a discount the following year. There are solutions such as PAYD (pay as you drive) policies that monitor mileage (with different weights for different time and itineraries) and compute a premium adjustment. PHYD (pay how you drive) policies, instead, integrate information gathered on mileage with an analysis of the client driving style, defined through both mileage and driving behaviors (the number and the intensity of accelerations and stops, driving timetables, speed and other variables). 3. Value-added services Value-added services can be offered to the insured by the insurer or partners to exploit data detected and sent via telematics. Some examples related to the automobile business are:

• Car antitheft systems through an installed back box;
• Emergency services with automatic claim detection or buttons for direct-dialing the assistance center;
• The possibility to link the telematics device to a payment system (and confirm via smartphone app) to authorize all car-related transactions, such as parking, tolls and refueling.

4. Loss control Telematics -- based on a box installed within the car -- also allows for the use of data detected by sensors to limit the loss ratio of the motor portfolio. In this sense, telematics enables the development of claims management processes that are faster and more efficient, by anticipating:

• The actual verification of the claim (anticipation of the first notice of loss);
• The direct contact with the client for description of the claim;
• The attempt to use agreed body shops.

The use of structured information coming from telematics sensors optimizes claim evaluation, improving fraud detection and providing more information during any eventual in-court processes. 5. Loyalty and behavior modification programs Behavioral programs are basically approaches that exploit information gathered on comportment to direct clients toward less risky solutions. This can be fairly achieved through the inclusion of telematics devices and measurement of risky behaviors. Discovery’s Vitality Drive has applied this approach with a proposition based on:

• "Black box" requested by the client to have access to the loyalty system, with a monthly fee;
• Drive style monitoring and reporting through feedback;
• Incentives for other "virtuous behaviors" (car maintenance, driving courses, …);
• Cash-back fuel expense, related to the score of the driving style and of other monitored behaviors.

The telematics business evolution -- from a niche underwriting solution focused on younger and low-mileage drivers to a mainstream solution broadly applied on motor portfolios -- requires the creation of an integrated approach based all the five levers. This approach has the potential to be a real game changer in the motor insurance business.