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Worker’s Compensation is a service that provides reimbursement for lost wages to employees who have sustained injuries from work or work-related tasks. It is also one of the services that is most often the victim of fraud. Each of the three types of fraud, claimant, employer, and provider, is defined by the same characteristics, outlined by the Ohio Board of Workers Compensation:
Receiving workers’ compensation benefits that are not entitled to the claimant;
Making false or misleading statements with the purpose of securing goods or services under the Workers’ Compensation Act;
Altering, falsifying, destroying, concealing, or removing records needed to assess claim validity or establish the nature of goods and services for which reimbursement is requested;
Entering into an agreement for conspiracy to defraud the BWC or a self-insuring employer by making false claims for disability benefits.
The public and many enforcement agencies tend to dwell on claimant fraud, as it is the most widely publicized (Beck). The fixation on claimant fraud has distracted the public and these enforcement agencies and policy-makers from growing evidence of the real problem: millions of dollars in employer and provider fraud.
Claimant fraud is very serious, but has more than its share of attention in the media, completely blowing the problem out of proportion. The Press Democrat found that, “While some insurance companies claim one out of three workers lie about their injuries, or 33%, the actual number of fraud cases sent to prosecutors is less than one out of one hundred, or less than 1%.” In New York, for example, over $6 million in insurance fraud was documented, less than 2% of which resulted from claimant fraud cases (Dao par. 2). The state of Kansas, however, reports that the most common form of fraud involves workers being untruthful about the extent of injuries that occur on the job (Lorenz). This proves little if any about the real problem, though, because only about 1,000 claims were investigated in Kansas over five years (Lorenz), while over seven times that amount were investigated in New York and California in the same time period (“Insurance Fraud”).
Throughout most sources, though, it is clear to see that employer fraud is the most prevalent and costly type of fraud. Employer fraud includes a number of schemes used by employers to reduce the number of workers’ compensation insurance premiums by underreporting payroll, misclassifying employees’ occupations and misrepresenting their claims experience. According to the National Council on Compensation, the most common frauds include:
Misclassification of workers. Employers can either classify workers as independent contractor or misrepresent the work performed, which places workers in a less hazardous occupational category. Both of these tactics are intended to avoid or reduce premiums.
Underreporting payroll. Another method of premium reduction is employers not reporting parts of the work force, paying workers off the books, or creating a “companion corporation” to hide a portion of the employees.
Misrepresentation of claims experience. Employers hide previous claims by classifying employees as independent contractors or leased employees or creating a new company on paper.
Despite laws in states across the nation, many corporations fail to purchase workers’ compensation insurance for their employees. There are also reports of employers instructing injured workers to seek treatment under group health insurance rather than workers’ compensation, employers discouraging workers from filing claims, and firing workers who file claims. (Helvacian and Shim, sec. 14-16)
The other major type of fraud is provider fraud, more specifically medical provider fraud. Defined by the United States Department of Labor and Industry, this type has the most varied and numerous different schemes involved in it.
Creative billing and “upcoding.” Each deal with billing the Workers’ Compensation Industry. The former is mainly defined as billing for services that aren’t performed, and the latter involves billing more than the scheduled amount for the services that are performed.
“Unbundling” involves performing a single service but billing it as a series of separate procedures.
Product replacement involves a pharmacy or dispensary billing the industry for a brand name drug when the drug dispensed was generic.
These are all relatively old methods of swindling the system, but are still the most widely used because of how difficult it is for investigators to track those methods. Some newer and more sophisticated techniques have become increasingly more prevalent, partially because of the even more untraceable nature of each new method. These methods are:
Under- and Over-Utilization. The term utilization refers to the level of care given to a patient for a fixed fee; under-utilization involves not providing enough care and over-utilization is providing unnecessary treatments or tests to justify higher fees.
Kickbacks occur when providers are given incentives for patient referrals.
Internal Fraud is when agreements are made between insurance companies and providers to defraud employers.
These types of fraud are beginning to hold health care professionals and other positions thought to be held by people of solid moral fiber under close scrutiny. This does not, however, mean that the problem is any closer to being resolved.
Inherent problems arise from the emphasis that is unduly placed on claimant fraud. Injured workers who have genuine claims tend to be intimidated by the threat of insulting questions under the pretense of “fraud prevention” (Alden). Companies tend to see those who have filed Workers’ Compensation claims as liabilities, and will frequently screen for prior claims as soon as an application or resume is handed to them. They may be subjected to constant video surveillance by private agencies hired to follow their every move (Beck). Although some of these tactics are used in legitimate attempts to investigate questionable claims, they have also become part of a broad employer attempt to intimidate workers from filing claims (Beck). The Santa Rosa Press Democrat found that many injured workers “slam into a wall of suspicion and distrust that will paralyze them with shame and frustration and delay their recovery (Fricker).” One of the claimants interviewed by the newspaper commented: “You get the feeling that even though you have a legitimate complaint and a six-inch scar, you’re somehow a malingerer (Fricker).” Even professionals such as Mr. Beck, hired to flush out fraud, concede that, “The real question is not why there is so much claimant fraud, but why there is so little. In most states, workers’ compensation benefits provide little more than poverty-level existence. The grossly overstated estimates of claimant fraud have seriously obscured the real benefits of Workers’ Compensation.”
A large part of the problem is that many do not know what the signs are or how to recognize them. The Ohio Board of Workers’ Compensation Resources lists many of the warning signs and signals that individuals, companies, and health-care providers are involved in making false claims. The BWC cites some of the signs of claimant fraud include cross-outs and erasures on documents, the worker’s occupation being incongruent with the employer’s stated business, or that the accident occurs in close time proximity to a strike, termination, or job completion. Some signs of employer fraud include inconsistencies between the name of the business and the work performed and significant premium deposits made to avoid audits (“What is Fraud?”). But by far the hardest type of fraud to detect is medical provider fraud. In a phone interview with Allen Beck, a private investigator specializing in Workers’ Compensation Fraud, he detailed some of the easier and harder ways of detecting provider fraud. One of the easier-to- detect signs is an unexplained sudden increase in a provider’s billing and payment levels (Beck). A harder signal to detect is only picked up by more experienced and thorough investigations, and it involves cross-referencing the dates that non-emergency service was performed with office hours, weekends, and holidays (Beck).
There are many companies, corporations, and individuals that are devoted to detecting and preventing fraud. Laurie Alden, claims adjuster for Injured Workers’ Insurance Fund, believes that there are certain steps that can be taken to control the amount of fraud. She says that her corporation generally follows eight rules or guidelines: (1) properly train staff about injury reporting procedures; (2) show concern for injured employees; (3) retain current addresses for all employees; (4) educate employees about the company’s position on fraud; (5) listen and document; (6) conduct exit interviews; (7) be aware of unhappy employees; and, (8) participate in active fraud investigation. Also, she states that, “the Special Investigations Unit was successful in saving IWIF policyholders over $3 million in fraudulent claims. In 1997, the Unit met the $3 million figure by mid-year.” Not only is this a testament to the effectiveness of detecting fraud, but it also shows that the number of fraudulent claims is steadily rising. In my opinion it should be a federal law, not just a state law, that businesses carry Workers’ Compensation Insurance for each employee. Also, I think that business owners should be required to attend seminars regarding not only effective claimant fraud management, but also the consequences of corporate fraud. This would all be part of a sweeping reform of the Workers’ Compensation industry, adding more emphasis on publicizing the problem of fraud and its consequences.
How does this affect the common man? Consider the trickle-down effect of workers’ compensation fraud. Insurance companies pass on the costs of fraud to employers in the form of higher premiums. This is also one of the major motivations that an employer has to commit fraud. These employers in turn pass on the costs to consumers for goods and services. Employers who cannot afford the costs are sometimes forced to move to a state with lower compensation premiums, taking valuable jobs away from states that need them. Employers that do not carry workers’ compensation coverage operate their businesses with a lower overhead, giving them the opportunity to underbid businesses with the proper coverage. Uninsured employers can run honest employers out of business, again resulting in loss of jobs. Workers’ compensation fraud is a valid concern that affects every working person, either directly with the
stigma that is attached to filing a claim, or with the indirect effects of job losses and higher insurance premiums (Alden).
Alden, Laurie. Personal Interview. 18 Oct. 2000.
Beck, Allen. Personal Interview. 18 Oct. 2000.
Dao, James. “Pataki Weighs Alterations for Workers Insurance.” New York Times 17 Apr.
Fricker, Mary. “Fraud Crackdown.” Santa Rosa Press Democrat 11 May 2000.
Helvacian, Mike and Kyumin Shim. “Gender in Workers Compensation Claims.” 1998 NCIC Issues Report. Boca Raton: NCIC. 1998.
“Insurance Department Fraud Investigations Net 12 Arrests.” NY State Insurance Department: Press Releases 1998. NYC: NYSID Publications. 2 Feb. 1998.
“Insurance Fraud Arrests Up 140% During Pataki Administration.” NY State Insurance Department: Press Releases 1998. NYC: NYSID Publications. 7 Jan. 1998.
Lorenz, Jonna. “Worker’s Compensation Fraud Claims Climbing.” Capitol-Journal Online Business News 26 Jan. 1999. 20 Oct. 2000. .
United States. Department of Labor and Industry. Guidelines and Definitions. 95th edition. Washington. 1999.
“What is Fraud?” BWC Online. Date accessed 17 Oct. 2000. .
“Workers Compensation Fraud.” Minnesota Department of Labor and Industry. Date accessed 17 October 2000. .
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