New Weapons Used To Combat Comp Fraud

The potential for committing workers' comp fraud is great because the number of people covered is vast. Workers' comp insurance is compulsory for nearly all employees in nearly all states, with nine out of 10 people in the nation's workforce protected.

What's more, tolerance for cheating the system appears to be high. The Insurance Research Council found more than one-third of workers said it was acceptable to stay out of work and collect benefits because they still had pain, although their doctors approved their return to work.

However, armed with tougher laws, aggressive prosecution and new, sophisticated software that detects potential fraud from among millions of stored claims, workers' comp insurers are fighting back.

Claims fraud comes in many guises. Some workers fake injuries at the workplace to get paid for staying home. Some exaggerate the extent of injury to prolong time away from work, while others claim their injuries occurred at work, when in fact they happened off premises and are unrelated to work.

Some employers commit premium fraud, by misrepresenting the nature of the work their employees perform to pay lower premiums. Others underreport the number of employees on their payroll to lower comp premiums.

Staff-leasing companies beat the system by dissolving and reopening as a new business after workers' comp claims losses become high.

Then there is fraud by medical providers, including exaggerated billing, kickbacks, charging for more expensive procedures than were provided (sometimes called up-coding), and charging for procedures and treatment that were not rendered.

Unauthorized insurance companies commit fraud by illegally collecting premiums and disappearing before paying claims. These organizations are notorious for selling workers' comp insurance to small businesses that have difficulty obtaining coverage through traditional channels.

Efforts by prosecutors, lawmakers and investigators to detect and prevent fraud are more coordinated than ever before. Forty states have set up dedicated insurance fraud bureaus to fight insurance scams.

Insurers, industry information and technology services vendors, and regulators are looking closely at tougher legislation, fraud bureau programs and new detection technologies to fight back. Fraud convictions are increasing as a result.

Technology is making an enormous difference in the fight on fraud. Tools that were not available only a few years ago now make it possible for carriers to flag suspicious workers' comp claims for further investigation early in the claims process.

Insurers can almost instantly determine if a claim is legitimate and pay it or probe further. Service providers have analytical resources and technology tools that can help insurers investigate claims and also work closely with state fraud bureaus by providing access to industry claims data.

To determine whether a claimant's loss history suggests fraud, an insurer needs access to the complete claims history, not just the information in its own archives.

Large databases are available with information on millions of insurance claims from insurers and other third parties, and advanced data analytics tools, such as link analysis and data-visualization software, enable insurers to analyze their entire claims portfolio.

Visual link analysis software enables insurers to detect fraud more effectively by identifying patterns and relationships across seemingly unrelated data.

Using this software, insurers discover relationships and anomalies within hundreds of thousands of insurance claims. Link analysis software can show connections between claimants and service providers such as doctors, lawyers and chiropractors across lines of business. In a recent case, link analysis detected a doctor who reported treating 900 patients in a single day based on claims filed with numerous insurers.

Video surveillance (monitoring a "disabled" worker participating in strenuous physical activities) remains a tried-and-true fraud-busting tactic, and carriers also are achieving results with whistle-blower hotlines.

Although these are all effective tools, no single investigative technique, operational improvement or software application can provide a fool-proof solution for detecting every fraudulent claim. But the combination of technology and the intuition of experienced fraud investigators offer the best offense against workers' comp cheats.

The war on fraud is a fight that must be waged relentlessly because fraudsters continuously strive to stay a step ahead of their pursuers. However, one thing is certain–workers' comp insurers are moving in the right direction and the future looks promising.

Frank J. Coyne is chairman, president and chief executive officer of ISO in Jersey City, N.J.

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While employees faking injuries so they can enjoy time away from the job is a common fraud, it's far from the only scam impacting workers' comp sellers and buyers.

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"Visual link analysis software enables insurers to detect fraud more effectively by identifying patterns and relationships across seemingly unrelated data."

Frank J. Coyne