Dealing with Workers' Compensation Fraud

Saturday, December 17, 2005 | 0

by Dennis Knotts

BACKGROUND:

The California Workers' Compensation Industry has gone through two fraud crisis. The first was approximately from 1985 through 1992. The second ran from 1997 and is currently [2005] coming under control.

The first Fraud Crisis dealt with the issue of medical-legal expenses. Physicians were writing bogus medical evaluations without seeing employees. The fee schedule allowed $1,200 per visit plus the costs of diagnostic tests, medical records, and translators. With the passing of the 1991 Fraud Law, and revision of Labor Code 4620 by Judge Pamela Foust, this area of fraud and abuse was closed. In 1995, the industry claimed that workers' compensation fraud was dead. They were wrong.

As early as 1997, the signs of fraud and abuse began to appear once more. This time it had to do with treatment. The presumption of correctness of the treating physician made it a prime candidate for physicians to order unnecessary treatment, durable medical equipment, surgeries and testing. With the passing of SB 899 and creating a standard of care via the American College of Occupational and Environmental Medicine [ACOEM] and the measuring of disability through reproducible, evidence-based scientific methods [AMA Guides 5th Edition] these areas of abuse were damaged.

This is not to say that fraud is dead. Nor is it likely that fraud will ever go away. It has been a $12 billion underground economy. It has been linked to organized crime. It will always look for ways to reappear and take advantage of whichever system is in place. Already there are hints that applicant attorneys will add in psyche injuries and internal medicine injuries on all claims as these areas are the most prone to abuse and exaggeration. So while fraud has been wounded, it is not dead. Like the Hydra from Greek mythology, we have cut off one head&maybe two, but others will grow to replace it. It is just human nature that those who are greedy and seek to get something they are not entitled to will always look for opportunities.

OTHER KINDS OF FRAUD:

This is not to suggest that fraud is limited only to the claims side of the industry. The agents and brokers are currently facing a scandal that began in New York where the Attorney General filed suit against one of the largest insurance brokers for directing their clients to companies that paid the brokers higher commissions and cost more than other companies for the same level of coverage. Employer fraud in California has hit a new high with employers being arrested for millions of dollars in under reporting of their exposure to insurance carriers to get lower premiums. Other employers have been operating without workers' compensation insurance to reduce their costs of doing business.

Unfortunately, there have also been claims adjusters and defense doctors who have misrepresented coverage, injuries and need for treatment to either get kick-backs or reduce workers' compensation costs. In short, no area of the industry is immune to workers' compensation fraud.

DISCOVERING FRAUD:

There is a training program for bankers and clerks that offers some excellent tips to the workers' compensation industry. When bank tellers and store clerks are given training in recognizing counterfeit money, they are placed in an intensive training program. However, this program does not focus on what a counterfeit bill looks like. The focus on what real money looks like, feels like; even smells like. Those going into this training program are given the opportunity to handle real money and nothing but real money for hours on end, day after day. The idea is that when the bank teller or store clerk feels or sees something that doesn't "feel/look right," he/she will stop and give the bill a closer examination.

If the trainers had taught the bank clerks and store merchants to look for red and blue threads in the paper, then counterfeiters would have simply put red and blue threads into the paper and gotten away with it.

The same can be true with workers' compensation fraud. If we focus too much on a list of "red flags," then those committing fraud will commit fraud in a different way and get away with it. The most effective method of identifying fraud and abuse is to start with a model of what a normal workers' compensation injury should look like.

THE MODEL CLAIM:

The model claim for a workers' compensation injury would begin with the employee being injured. In most cases, the injury would be witnessed. So the first thing to look for is if the injury had witnesses and was it actually seen or did someone tell others he/she was injured.

The next phase of the injury is that the employee would report the injury right away and seek treatment. This way the employer is aware of the injury when it happens and can verify the facts of the claim.

The employer would provide the proper paperwork, and the employee would return it right away. The employer would send the employee to the clinic and the employee would obtain treatment.

The concept is that when you have the proper diagnosis; then you can design the proper treatment plan. As a result, the employee would get well. As the employee gets well, he/she returns to work in a modified capacity, treatment decreases, the employee gets better and eventually the employee is released to full duty.

You may have a serious injury that results in having to change the diagnosis and that means changing the treatment plan. This might mean using surgery rather than conservative care. That means that on this case recovery may take longer and disability might be present when full recovery is achieved. However, you should be seeing improvement as treatment progresses.

The employee might get an attorney and there might be some disputes about the level of disability and the method of settlement, but for the most part everything follows a logical and reasonable course to conclusion. The employee either returns to work and the claim closes down, the employee has disability and the case is submitted to the WCAB and resolved, or the employee does not return to work and other benefits might be due. However, the focus is that the case keeps moving along in a logical pattern until it is resolved.

THE RED FLAGS:

Having said all that, there are those who still want the "red flags" approach to fraud recognition. So using the previous model we will develop a list of "red flags." These are points where the injury does not follow this model. Now an important key point to make is that just because there is a "red flag" does not mean that there is fraud or abuse. It simply means that the case invites closer inspection and additional questions. If those questions can be answered with credibility, then there is no fraud or abuse. However, as more "red flags" appear and questions are not answered or the answers do not make sense, the adjuster will need to move the claim into a different mode of handling.

Part Two of this series will look at the role of the claims adjuster and using the red flag approach to managing these issues.

Article by claims adjuster Dennis Knotts.

-------------------------------

The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.