Workers’ compensation fraud has been on the rise.
The poor U.S. economy, the mortgage meltdown and government cutbacks are all contributing factors. Even rising student debt is placing pressure on young people. Unfortunately, some see fraud as a solution to their challenges and consider it easy money, unaware of the potential consequences. There are plenty of examples of sophisticated cases that require careful and persistent digging.
Insurers write more than $1 trillion in insurance premiums annually according to the Federal Bureau of Investigation (FBI), providing significant opportunities for fraud to be perpetrated. The FBI estimates the total cost of non-health insurance-related fraud to be more than $40 billion per year, costing the average U.S. family an estimated $400 to $700 per year in increased premiums.
The National Insurance Crime bureau says that Workers’ Compensation fraud accounts for approximately 25% of the fraud perpetrated, or approximately $7.2 billion annually and is one of the fastest growing areas of fraud. One insurance executive has said that “If Workers’ Compensation fraud were a legitimate business, it would rank among Fortune 500 companies.”
Sadly, the cost of this fraud is not limited to any one entity; policyholders, employers, insurers, consumers and shareholders all bear the expense.
Photo: Kaspars Grinvalds/Shutterstock
With cases of Workers’ Compensation fraud, there are three primary points of contact – the worker, the employer and the medical provider. Fraud may be committed for a variety of reasons including:
- Financial problems
- Lack of medical insurance
- Sense of entitlement
- Looming layoffs
- Adverse employment action
- Reduce premiums
- Underbid competitors
- Reduce costs
- Bonus tied to safety programs
- Organized crime
- Exploitation of loopholes
- The competition is doing it
In California, insurers are required to maintain a special investigations unit (SIU). As a broker, Keenan does not fall under this mandate, but it does operate its own SIU as part of its service for providers.
Many compensability issues can be resolved by an informal inquiry by an examiner. In other cases, with high cost potential or complex subrogation issues, a referral to a licensed investigator may be appropriate.
What is insurance fraud?
At its most basic, Workers’ Compensation fraud occurs when an individual purposely lies to obtain some benefit or advantage, or to cause some benefit that is due to be denied. It is a felony and can result in prison time and/or payment of restitution.
Employee fraud can involve a claim for an injury that did not occur or did not occur in relation to the job, or receipt of total temporary disability benefits as a result of lying about outside employment, re-employment or ability to work. In billing fraud, a provider submits a bill for services never provided, for a patient who was never examined, or for more services or time than was actually provided. Abuse, as opposed to outright fraud, can include sending claimants to specific attorneys, doctors or facilities; kickbacks for insurance reps of employees; and rewards or gifts for quick or favorable settlement of claims.
Here are some specific examples:
- Knowingly presenting, or causing to be presented, any false claim for the payment of a loss, including a loss under a contract of insurance.
- Knowingly presenting multiple claims for the same incident.
- Knowingly causing or participating in a vehicular collision for the purpose of presenting a false or fraudulent claim.
- Knowingly preparing, making or subscribing any writing with the intent to present or use it in support of a false or fraudulent claim.
A few caveats are in order here. Each case must be considered on its own merits. Do not designate people for special attention simply based on their origins, ethnicity, profession or area of practice or because they do a large volume of business. Avoid generalized and accusatory statements. Beware of withholding payments or making accusatory statements based on the serving of search warrants or the filing of criminal charges.
Photo: Brian A. Jackson/Shutterstock
1. Evaluating the potential case
Although the process of pursuing Workers’ Compensation cases is fairly straightforward, attention to detail and the proper resources are essential for success. Solid experience and training on the part of the examiner is essential in identifying things that simply don’t feel right in the early stages. The first step is to look for red flags. In training examiners, Keenan has identified 42 indicators. They include things like:
- Claimant is exceedingly eager for a quick or discounted settlement.
- Claimant lists P.O. box or hotel as their residence.
- Claimant threatens to see a doctor or attorney if the claim is not settled quickly.
- Claimed injuries are disproportionate to the impact of the accident.
- Claimant has financial or marital problems.
- Claimant wants a relative or friend to pick up settlement check.
- Claimant will not provide a sworn statement or documentation to confirm loss or value.
- Claimant has multiple prior claims or lawsuits.
- Claimant “over documents” losses.
- No independent witnesses or versions differ significantly.
- Claimant recently purchased private disability insurance policy(ies).
- Accident is not the type in which the claimant should be involved.
- First Report of Claim differs significantly from description of accident in medical report(s).
- Claimant reports an alleged injury immediately following disciplinary action, notice of probation, demotion or being passed over for a promotion
- Alleged injury relates to a pre-existing injury or health problem
2. Investigating suspected fraud
If there appear to be grounds for a case, an investigator is engaged. The first criterion is a valid and current license. Others include proven expertise in the investigation of Workers’ Comp claims; a track record of well-managed, efficient and cost-effective investigations; the use of state-of-the-art technology for surveillance; current knowledge on applicable legislation; availability for courtroom testimony; online case management system; and a process of internal audits.
The investigator will monitor the individual’s activities, talk to neighbors, review medical conflicts and the like. Observation, including video surveillance and recorded statements, usually takes place over a period of two to three days to identify consistent behavior patterns.
Other resources include medical records, employment records, business/asset records, and the ISO Index of criminal records and previous injuries. Confirm all information with authenticated documentary evidence, which will be admissible in court. And when documenting claim notes, do not use the term “fraud,” but instead use phrase “potential fraud” or “alleged fraud.”
Professionals who can assist in this process include defense counsel, regency investigations, accident reconstructionists, source/origin experts, agreed medical evaluator/qualified medical evaluators (AME/QME), technical experts and laboratories, and independent appraisers and analysts.
Here are some guidelines on when to utilize telephone, on-site and sub-rosa investigation methods:
- Employer disputes the injury.
- Injury was not reported to employee’s supervisor, who can be interviewed by telephone.
- There is another witness to the alleged injury.
- Circumstances suggest that an on-site inspection is not required.
- Apportionment or preexisting injury.
- Short-term employee with Monday morning injury.
- Alleged injury reported after termination.
- Preliminary subrogation investigation.
- Multiple witnesses, unable to or uncomfortable with being interviewed by telephone.
- Content of investigation is too extensive to be conducted by telephone.
- Circumstances of alleged injury suggest employee was not performing regular job duties at time of injury, not supposed to be in the area, or not making full use of available safety equipment.
- Review of personnel records required.
- Extensive history of personal problems, medical problems, drug/alcohol abuse.
- Employer disputes validity of claim.
Activity Check/ Sub Rosa
- Interview of witnesses discloses employee boasted about claiming to be injured in order to collect Workers’ Compensation benefits.
- Medical reports in the file do not appear to support the severity of alleged injury.
- Claimant is never available to take telephone calls at claimant’s residence.
- No Employment Development Department (EDD), unemployment or temporary disability is being paid.
- Information is received that the employee is working.
- Information is received that the applicant participates in sports or other activities that could have caused the alleged injury.
Adhering to some overall best practices will significantly improve the validity of a case. Make sure to obtain authorizations for the release of medical and employment records, request all records from the medical provider, do not include date of loss in records requested, closely review all documents and obtain records referred to in current records, and obtain complete written statements. If the claimant will not provide or counsel will not allow a written statement, request that the defense attorney perform a deposition if it has not already been done.
Once the investigation is complete, the next step is an evaluation, typically by a district attorney and the department of insurance to determine the viability of a case and the chances for success. A case may then take three to six months to build, part of which is to determine whether the situation involved abuse or fraud. The case is then presented to a judge, and in California the department of insurance makes the actual arrest.
3. Post-filing investigation and discovery
Once the decision is made to proceed, it is advisable to take an aggressive defense posture. If the case appears to be fraudulent, have counsel make clear at the beginning that the company will try the case. Insist upon accurate and complete discovery. Closely review all discovery responses, especially verifications. Discuss with defense counsel the strategies for taking the offensive in litigation.
Also, keep in mind that regardless of what happens in the criminal prosecution of a fraud case, the underlying Workers’ Compensation claim must still be administered. Benefits do not stop just because there is a suspicion of fraud. Administration of the compensation claim must continue according to Workers’ Compensation laws.
Some claims may appear minor at first and then subsequently escalate, resulting in very costly surgery and indemnity costs, for example. Now more than ever, the role of the special investigations unit is absolutely critical in gathering accurate information quickly and helping to make strategic decisions early on that will impact the overall outcome of a claim.
Stacey Golden, director of claims for Keenan, is responsible for leading the firm’s SIU/Fraud Unit, PRIDE program for legal defense cost containment, training and development, iVOS computer system integration, and vendor management. Golden is also an advisor to the California-based Employers’ Fraud Task Force and a guest lecturer for the Insurance Educational Association (IEA). She has been in the industry for over 20 years and is certified by the IEA, Workers’ Compensation Claims Professionals Association and California Office of Self Insurance Plans.