experience, expertise, and preparation: keys to a successful workers' compensation fraud...

The Insurance Coverage Law Information Center

The following article is from National Underwriter’s latest online resource, FC&S Legal: The Insurance Coverage Law Information Center.

EXPERIENCE, EXPERTISE, AND PREPARATION: KEYS TO A SUCCESSFUL WORKERS’ COMPENSATION FRAUD INVESTIGATION

Stacey Golden October 7, 2014

Unfortunately, workers’ compensation fraud has been on the rise. The poor state of the U.S. economy is certainly a factor with the associated mortgage meltdown and government cutbacks. Even rising student debt in this environment is placing pressure on young people. Equally unfortunate for those who see fraud as a solution to their challenges, many consider it easy money and are simply clueless to the potential consequences. There are also plenty of examples of sophisticated cases that require careful and persistent digging.

Workers’ Compensation Fraud Statistics

Here are some statistics from the National Insurance Crime Bureau:

- The cost to the insurance industry is roughly $5 billion annually;

- Calls to the fraud hotline doubled from 2008 and to 2009;

- Questionable claims are up 16 percent in 2012 over 2011; and

- Referrals exceeded 100,000 in 2011 for first time.

With cases of workers’ compensation fraud, there are three primary points of contact – the worker, the employer, and the medical provider. And there are many associated reasons why such fraud may be committed, including:

Claimants

- Financial problems

- Lack of medical insurance

- Sense of entitlement

- Layoffs looming

- Adverse employment action

Employers

- Reduce premiums

- Underbid competitors

- Reduce costs

- Bonus tied to safety programs

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Providers

- Organized crime

- Exploitation of loopholes

- The competition is doing it

- Greed

Special Investigations Units

In California, insurers are required to maintain a special investigations unit (“SIU”).

SIUs can help ensure that all packaged submissions to the Department of Insurance (“DOI”) are in order and considered by the authorities for further investigation, and, if warranted, arrest are made and convictions obtained. Additionally, SIUs can act as the liaison between claims and the DOI and attend hearings as needed on suspected fraudulent claims. SIUs also can ensure compliance standards with the Department of Industrial Relations. Goals of the SIU are to have a positive impact on a successful investigation, the recovery of the injured worker, reducing the risk of litigation, and ensuring the provider’s satisfaction.

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; and

- 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, 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.

Evaluating a 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 are essential in identifying


things that simply do not feel right in the early stages. The first step is to look for red flags. Here are some possible indicators of fraud:

- 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; and/or

- Alleged injury relates to a pre-existing injury or health problem.

Investigating Suspected Fraud

If there appears to be grounds for a case, an investigator is engaged. The first criterion for a special investigator, of course, is a valid and current license. Other criteria include:

- Proven expertise in investigation of workers’ compensation claims;

- A track record of well managed, efficient and cost-effective investigations;

- Use of state-of-the-art technology for surveillance;

- Current knowledge of 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 so forth. 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 “potential fraud” or “alleged fraud.”

Professionals who can assist in this process include defense counsel, regency investigations, accident reconstructionists, source/origin experts, AME/QME, technical experts and laboratories, and independent appraisers and analysts.

The following are some guidelines on when to utilize telephone, on-site, and sub-rosa investigation methods:

Telephone

The least expensive method, telephone investigation should be used in the following situations:

- The employer disputes the injury;

- The 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;

- There is apportionment or preexisting injury;

- The claim involves a short-term employee with a Monday morning injury;

- The alleged injury was reported after termination; and

- For preliminary subrogation investigations.

On-Site

On-site investigations are moderately expensive and should be used in the following situations:

- There are multiple witnesses, unable to or uncomfortable with being interviewed by telephone;

- The content of investigation is too extensive to be conducted by telephone;

- The circumstances of alleged injury suggest the employee was not performing regular job duties at time of injury, was not supposed to be in the area where injury occurred, or was not making full use of available safety equipment;

- A review of personnel records is required;

- The employee has an extensive history of personal problems, medical problems, and/or drug/alcohol abuse; and

- The employer disputes validity of claim.

Activity Check/ Sub-Rosa

This type of investigation is the most expensive and should be used in the following situations:

- 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 EDD or unemployment or temporary disability is being paid;

- Information is received indicating that the employee is working; or


- Information is received indicating that the applicant participates in sports or other activities that could have caused the alleged injury.

Best Practices

Adhering to some overall best practices will significantly improve the validity of a case. Make sure to obtain authorizations for 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 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.

Post-Filing Investigation and Discovery

Finally, 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 you 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.

About The Author

Stacey Golden is the Director of Claims at Keenan & Associates. Ms. Golden is responsible for leading the firm’s SIU/Fraud Unit.

She may be contacted at [email protected].



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