A Doctor, a Swindler and an Accused Stock Manipulator May Be the Southland’s Biggest Players in : The Big Business of Workers’ Comp

Turn on daytime television, and it’s seemingly impossible to miss the commercials.

A helicopter newsman bursts onto the screen, “reporting” for something called “Injury Central.”

Soon a worker appears, writhing in pain after tumbling to the pavement while unloading a truck. And then comes the pitch: Call Injury Central toll-free to get “all the medical and monetary benefits available through your employer’s insurance. This means no cost to you. You owe it to yourself and those who count on you.”

But what is Injury Central? It’s the public face of Primedex Corp., one of the biggest and most controversial workers’ compensation medical enterprises in Southern California.

Culver City-based Primedex is the target of investigations by the Los Angeles County District Attorney’s office and the Federal Bureau of Investigation. The $40-million-a-year firm’s brain trust includes an accused Wall Street stock manipulator, the felon behind one of the 1970s’ most notorious swindles and a doctor-turned entrepreneur.

Primedex, moreover, is an important symbol in the debate over what has gone wrong with California’s program for helping injured workers:

Insurance industry executives and lawyers privately say that Primedex epitomizes workers’ compensation excesses, that the company is a master in the art of soaking the system by providing unnecessary treatment and charging inflated fees. Government investigators are looking into whether, among other things, Primedex bilked insurers by submitting bills for the services of doctors who didn’t actually provide care for certain patients.

But Primedex officials, denying wrongdoing, counter that the clinics they manage deserve praise for belonging to the small group of Southern California medical practices willing to care for down-on-their-luck injured workers. Company officials say they are being unjustly attacked by insurers and employers that won’t pay for proper medical care for employees hurt on the job.

These insurers and employers brand “nearly everyone who files a workers’ compensation claim as a crook, and that’s not true,” said Robert E. Brennan, the financier who acquired control of Primedex in February, 1992.

The feisty, dapper Brennan is the alleged Wall Street stock manipulator in this story, a veteran of more than 10 years of legal warfare with the Securities and Exchange Commission. In 1985, the federal agency accused Brennan and his First Jersey Securities brokerage firm with bilking droves of customers in a still-pending securities fraud case.

The doctor-turned-businessman is David G. Gardner, a gregarious neurosurgeon who amassed a fortune by launching a chain of workers’ compensation medical clinics.

Gardner pocketed $30 million in cash when he sold Primedex last year to a Brennan investment company (now itself known as Primedex Health Systems). But he continues to serve as Primedex Corp.’s president and chief executive. And he owns outright Neurologic Orthopedic Associates, the chain of eight Primedex-managed clinics that see 8,000 to 10,000 patients a year.

The convicted swindler is a muscular, one-time meat packer named Stanley Goldblum, a key Primedex consultant. He served four years in prison in the 1970s after pleading guilty to fraud and other federal charges related to the spectacular collapse of Equity Funding Corp. of America, a Century City-based financial firm that Goldblum headed.

What brought these men together was the opportunity to profit from the big business of evaluating and treating employees who claim work-related injuries.

Almost all of the patients seen by chiropractors and doctors at Primedex-affiliated facilities are battling employers or insurance companies to win workers’ compensation medical and financial benefits.

Many of the patients, disenchanted with the doctors to whom they’ve been sent by their employers, are referred to the clinics by lawyers. Others are drawn by Primedex’s barrage of “Injury Central” TV commercials--advertising that infuriates insurers and employers, who claim it inspires bogus workers’ compensation claims.

Two Case Histories

Workers’ compensation “mills” or a safety net for injured workers?

For the critics’ view of Primedex, consider the case of a patient named Hannelore Hesse.

Hesse filed a workers’ compensation claim in May, 1989, shortly after being fired by a Beverly Hills restaurant where she had worked about eight months as a bookkeeper.

She claimed that she suffered injuries to her right arm, neck, back, head and jaw in a slip-and-fall accident at work. She also claimed that the stress and strain of her job caused injuries to her nervous, digestive and vascular systems, along with her head, back and chest.

Hesse later disappeared, and her claim for benefits was dismissed--but not before more than $40,000 in medical and pharmacy bills were run up in nine months of evaluation and treatment.

In a written decision disallowing the bills, Santa Monica workers’ compensation judge Pamela W. Foust blasted Primedex’s clinics and other facilities visited by Hesse.

Hesse, she wrote, “was referred out for testing involving almost every body part and system with no explanation as to why these tests were necessary.” The judge faulted the health care providers for failing to explain why injuries that never caused Hesse to miss work or seek medical treatment before she was fired “should suddenly become so disabling” after she lost her job.

And Foust singled out Neurologic Orthopedic Associates for submitting an initial patient history that “is largely false based on the record as a whole.”

Neurologic Orthopedic submitted the biggest bill for evaluating and treating Hesse, $5,330; other medical firms owned by Gardner submitted additional bills totaling $4,335.

Primedex officials deny any wrongdoing by the staff at the company-affiliated clinics, but say they may have been duped by the patient. That occasionally happens, they say, because--for ethical and legal reasons--doctors are not supposed to turn away patients who complain of health problems unless they are clearly fakers.

“We’re doctors, not policemen, and we give patients the benefit of the doubt,” Gardner said. At the same time, he added, “You’ll never find a patient here who was treated beyond the point where he wanted to be treated.”

Indeed, Primedex officials reply that they have gone to great lengths to prevent abuses at their clinics. They avoid the most controversial area of California workers’ compensation medicine: Primedex clinics don’t evaluate or treat workers for psychological stress injuries. Patients such as Hesse who want psychiatric care must go elsewhere for it.

More typical, Primedex officials say, are cases like that of Jeffery Jack, a 33-year-old construction worker.

In November, 1991, he smashed his left knee in an on-the-job fall. Jack said the doctor to whom he was sent by his employer drained his knee, gave him medicine and tried to send him back to work, though he was in agonizing pain. Later, his employer’s insurance company refused to authorize a knee operation.

Eventually, Jack was seen by a Primedex-affiliated surgeon who agreed to perform surgery on the gamble that the employer’s insurer would consent--or be forced by a judge--to cover the costs. (Primedex still hasn’t been paid, although a workers’ compensation judge has found that Jack is entitled to workers’ compensation benefits.)

Now, Jack’s knee is getting stronger, and he’s eager to return to work. “I thank God for people like that,” Jack said of the surgeon. “I hope the insurance companies don’t try to force him out of the industry.”

Under Investigation

Among the issues under investigation by the FBI and the district attorney’s office: whether Primedex committed insurance fraud or paid for patient referrals, a practice barred by state law.

The probes came to light in early December, when investigators searched some of Primedex’s offices, along with those of a defunct firm called Injury Hotline and other firms that did business with Injury Hotline.

Donald B. Marks, a lawyer for Injury Hotline, says the Sherman Oaks-based firm was strictly an advertising agency and “never engaged in anything illegal.” Primedex officials also deny any wrongdoing, explaining that they paid Injury Hotline for legitimate advertising services only.

Primedex officials say investigators have led them to believe that they are focusing narrowly on the company’s ties to Injury Hotline. “We’re on the tail of an elephant. The elephant is Injury Hotline,” said Richard A. Moss, Primedex’s lawyer in charge of fraud prevention.

Yet sources close to the district attorney’s investigation say authorities are looking into all of Primedex’s business practices. Officials said Richard A. Rosenthal, a deputy district attorney with the major fraud division, and an investigator have been assigned to handle a probe focusing exclusively on the company.

In addition, Rosenthal’s boss, Edward G. Feldman, the assistant head deputy district attorney, flatly denied a claim by Primedex in a government filing that his office has agreed to seek no further search warrants involving the company.

Moss, a former county prosecutor, is a close friend of Feldman, and because of that relationship, Feldman said he will not directly handle a case “that I know Richard (Moss) is on.” Still, Feldman said the friendship does not have any impact on his office’s investigation of Primedex.

Investigators were drawn to Primedex partly by the flamboyant reputations of Goldblum and Brennan.

Goldblum presided over Equity Funding during the last few years before its fall in 1973, in what was described at the time as “one of the most sordid chapters in the history of the insurance business.” While Goldblum was driving a tan Rolls Royce and living lavishly in Beverly Hills, his company was selling $2 billion worth of phony insurance policies and manufacturing more than $100 million in phony corporate assets.

The failure of the company, once a Wall Street darling and the talk of the moneyed set on Los Angeles’ West Side, wiped out the holdings of more than 7,000 stockholders.

Today, though Primedex terms Goldblum a consultant, it’s clear his role is pivotal: His base pay of $250,000 is the highest listed for any company official in documents filed with the Securities and Exchange Commission. (Gardner’s earnings from his clinics are not disclosed.)

And that’s just the beginning of Goldblum’s potential earnings. He also draws 2% of the company’s pretax profits and five cents for every $10 in bills collected. (Goldblum declined to be interviewed.)

His expertise, Brennan and Gardner say, lies in financial reporting, accounting and internal controls. “He’s an absolutely brilliant businessman who I wish I could keep around for the next 10 years,” said Brennan, adding that he is negotiating a contract extension for Goldblum, 66.

Do Brennan and Gardner have any concerns about being in business with a convicted felon? Not at all. “The man hasn’t had a parking ticket in 20 years,” Gardner said. “He’s paid his debt to society. He’s led an exemplary life.”

Brennan, 49, made his fortune in the 1970s and 1980s at the helm of First Jersey Securities, a firm whose advertising beckoned investors to “come grow with us.” Authorities, however, have maintained that investors for years were bullied by First Jersey’s high-pressure salesmen and bamboozled by the gyrations of obscure stocks pumped up artificially as the firm traded the securities from one of its offices to another.

An SEC lawyer says the agency’s pending civil case against Brennan has been slowed by the financier’s legal tactics, but that officials hope to be ready for trial by this fall.

For Gardner, 50, Primedex’s emergence marked a personal comeback. In the mid-1980s, he acknowledges, he was hurting financially and being sued by such creditors as City National Bank and Bank Leumi Le-Israel.

His business at the time--Pele Medi-Corp., a chain of clinics in Latino neighborhoods named after the international soccer star--was caught in a cash-flow squeeze and wound up closing some of its 12 offices.

In need of help, Gardner hooked up with Goldblum for the first time. Goldblum helped arrange new financing and soon became president of the company, which later was absorbed by another chain.

After stepping down as Pele’s chief executive, Gardner made a fresh start with Primedex in 1985. About three years later, Goldblum joined him at the new company, and it soon became what may be the largest workers’ compensation medical enterprise in Southern California.

Brennan came into the picture nearly two years ago, when he was looking for promising investment prospects. After reading Primedex’s business plan, he was inspired by two personal insights:

First, there always will be injured workers and clinics to evaluate and treat them.

Second, if you could find a way to overcome the industry’s key problem--insurance companies that balk at paying medical bills--you could make a lot of money.

Brennan also saw the potential of turning Primedex’s network of clinics into a big health maintenance organization that could contract with unions, employers and insurers to provide medical care for injured workers.

So far, the deal hasn’t worked out for Brennan, who owns 39% of the parent company, Primedex Health Systems. After trading at nearly $9 last summer in the over-the-counter market, Primedex shares closed Friday at $4.125.

The parent company--nearly all of whose income comes from Primedex Corp. and a separate Southern California chain of medical imaging centers called RadNet Management--posted a scant profit of $59,144 on revenue of $31.1 million in its first quarter, ended Jan. 31. Profits were hurt by the beginning of a decline in workers’ compensation claims in Southern California, along with accounting charges and the ballooning of the company’s accounts receivable, the latter reflecting a slowdown in payments from insurers.

Primedex officials are pushing hard to speed payments from their adversaries in the insurance industry.

In March, Primedex announced an agreement with a small insurer, Unicare Insurance Co. of Los Angeles, to submit billing disputes to arbitration as a way to avoid the backlogged workers’ compensation court system. Gardner said Primedex is close to reaching similar agreements with four or five other insurers.

Still, even if its cash flow is improving, Primedex’s prospects are clouded by the distrust it faces from the insurance industry and the district attorney’s investigation--a fact that angers the company’s leaders.

“Just because we’ve been successful and done the right things and worked hard,” Gardner said, “it doesn’t mean we’re bad.”

‘Injury Central Reporting. . .’

A television commercial for Primedex Corp., the operator of one of the Southland’s biggest networks of workers”’ compensation medical clinics, mimics local TV newscasts. Some of the dialogue:

‘Worker injuries don’t only affect the injured. Entire families can suffer from loss of income. . .’

’. . .If you are injured on the job, use your rights to protect yourself and your loved ones. Call 8800-529-. . .’

’. . .Injury Central specializes in getting all the medical and monetary benefits available through your employer’s insurance. This means no cost to you. You owe it to yourself and those who count on you. . . Don’t delay. Call now. . .’