In-Depth Series: Workers' Comp

Why Physician Fraud Rings Are a Major Workers’ Comp Issue And What You Can Do About Them

Analytics and good old-fashioned detective work have been singled out by investigators as key components in dismantling organized fraud rings.
By: | September 28, 2018 • 5 min read

From doctors and organized-crime rings perpetuating sophisticated, multimillion-dollar schemes to individuals feigning disabilities and employers falsifying payroll numbers, there’s never a shortage of workers’ compensation fraud.


Analytics, however, are refining the task of detecting and prosecuting the fraud, making insurance investigators and law enforcement increasingly nimble at cracking even the sophisticated schemes. What once required years of manually sifting through paper claims to detect patterns of potential fraud now occurs at computer-processor speed.

The analytics give investigators a clearer view, for instance, of Southern California fraud rings funneling unsuspecting patients to shady doctors. The scams rely on complex kickback arrangements to reward doctors for prescribing needless diagnostic imaging, medications and durable medical equipment.

Losses to the large-scale crime rings cost employers much more than individual claimant fraud. Shaddi Kamiabipour, senior deputy district attorney in the Orange County, Calif. District Attorney’s Insurance Fraud Unit, said the average loss in an individual claimant fraud case is $30,000. By contrast, an average of $10 million in paid-out losses occurs for each case involving a large medical provider fraud ring.

Each fraud ring case typically ensnares about 50 victims, including insurers and self-insured employers.

The perpetrators “test-drive” their systems before fully launching them, Kamiabipour explained. They first submit a few medical bills to gauge insurers’ thresholds for questioning or denying various claims.

But analytics systems help uncover the activity by flagging when a tiny medical clinic, for example, is generating millions of dollars in workers’ comp claims.

Leveraging the data is only the starting point, though. Cracking the schemes still requires traditional detective work. Investigators “are finding witnesses, finding informants, finding ex-employees and doing surveillance, but it’s supplemented with analytics,” said Christopher Dill, special investigations unit manager for ICW Group Insurance Companies.

Christopher Dill, special investigations unit manager, ICW Group Insurance Companies

Individual insurers rarely have enough data to confirm a mass billing operation is underway, Kamiabipour explained. But with a single insurer’s tip-off of suspicious activity, the D.A.’s office can ask other carriers with data analytics capabilities to quickly search for similar bills emanating from the same players.

Armed with knowledge, “we go in and take information by force with warrants and uncover the fraud scheme,” Kamiabipour said.

Dill agreed that improved data access is leveling the playing field against the organized rings. “It’s encouraging to feel like we do have a new horizon for fraud fighting, because you can use data analytics; you can be smart about balancing your investigations and efforts,” he said.

Yet stopping workers’ comp fraud is akin to a game of whack-a-mole, with the crooks constantly improving their game, said Dale Banda, VP of the Anti-Fraud Alliance, which represents law enforcement, insurance investigators and others.

“They are going to find ways,” Banda said. “If there is money, there is fraud.”

Tie-In Arrangements Float Under the Radar

Fraud rings have evolved, staying ahead of the law. Years ago, investigators learned to trace the kickback cash and checks fraud rings paid doctors. Now rings reward doctors with reduced office rent or low-cost services needed, such as employee staffing and bill collection services.


In scams known as “tie-in arrangements,” criminals, called cappers, recruit patients and offer to direct a certain number of them to doctors paying fees for the patients.

The cappers may provide the patients at below-market rates. But the “tie-in” occurs when organized fraud rings then leverage the patient arrangements to convince the doctors to help stiff claims payers for the MRIs, medical equipment or other medical goods and services prescribed.

While the first step of recruiting the doctors generates only a low profit margin for the rings — similar to retail stores offering loss-leaders to attract customers — the second arrangement is much more lucrative, Dill said.

Observers might question why respected doctors would willingly accept the risk of prison. But fraud rings recruit doctors with license violations or criminal histories.

Last year, the Orange County D.A. announced charges against 10 attorneys and six cappers allegedly involved in a “massive multimillion-dollar workers’ compensation insurance referral scheme that exploited persons in predominantly Spanish-speaking communities.”

“If they don’t have data analytics or put funding into gathering records quickly, they usually don’t cooperate” with investigations. “They don’t go after [the criminals] and don’t get restitution from us. This all hurts their policyholders.” — Shaddi Kamiabipour, senior deputy district attorney in the Orange County, Calif. District Attorney’s Insurance Fraud Unit

The attorneys paid monthly fees for the cappers to deliver a minimum number of retained clients per month. Participating attorneys were required to use photocopy services, professional document management, scheduling and technology services provided by one of the defendants.

The cappers are accused of attracting patients by publishing Spanish-language flyers and fraudulent websites advertising free legal consultation. Calls made to the advertised telephone number routed to a call center in El Salvador and led to follow-up visits to the presumably injured worker’s home within 48 hours.

The case — which came to light three years earlier when a major insurance company tipped off the district attorney’s office — also involved medical providers suspected of paying patients and then prescribing them medical equipment, pharmaceuticals and diagnostic imaging.

Fraud Reaching Across America

California “is the capital of insurance fraud,” said Banda, with a few other states on the radar, including N.Y. and Florida. Texas is also on the radar, for health care schemes that include large-scale workers’ comp fraud. Recent federal indictments and convictions for the Texas schemes allege the use of shell companies, kickback payments, money laundering and bribes.

In one example, a federal indictment, announced last year in Texas, alleges the perpetrators controlled pharmacies used to submit $158 million in bogus claims to a federal employee workers’ comp program. The claims sought payment for compound creams used to treat scars, wounds and pain.


Participating doctors received free office rent and payments disguised as loans. In exchange, the doctors allegedly wrote unnecessary or excessive prescriptions, even when patients didn’t need or want the meds.

While data analytic systems are proving their worth for detecting, stopping and prosecuting the massive fraud schemes, not all insurers have adopted the technology. That eventually costs their policyholders, said Kamiabipour.

“If they don’t have data analytics or put funding into gathering records quickly, they usually don’t cooperate” with investigations, she said. “They don’t go after [the criminals] and don’t get restitution from us. This all hurts their policyholders.” &

This article is part of a three-part series on The Changing Landscape of Workers’ Comp Fraud.

Why Physician Fraud Rings Are a Major Workers’ Comp Issue And What You Can Do About Them explores the perils of provider fraud and the changing landscape of the obstacles investigators face.


Employer Premium Fraud Is Hurting Everyone — Including Honest Businesses addresses the various types of premium fraud, and why insurers are reluctant to investigate most offenders.


Why Are You Wasting Money on Pointless Workers’ Comp Claim Investigations? dives into the need for industry-wide investigative standards and how the trend toward worker advocacy is impacting the way employers approach worker fraud.

Roberto Ceniceros is senior editor at Risk & Insurance® and chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at [email protected] Read more of his columns and features.

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Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”


“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.


“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?


“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at