The Many Aspects of Fraud
I was recently reading an industry column on the ubiquitous subject of workers’ comp insurance fraud. The author of that piece postulated that there were essentially two types of fraud: premium fraud and claimant fraud.
Of course, claimant fraud is the usually the first thing people think about when they think at all about fraud. Most likely a far distant second thought to claimant fraud is premium fraud. That is usually the province of unscrupulous employers attempting to save on workers’ comp premiums by intentionally under reporting the amount of employees they have working, or misreporting the class code exposures of those workers.
If only life was so simple. Regrettably, there are various other strains of fraud that have plagued our existence at various times, for example, the California situation in the early ’90s. Anyone who was around and connected with workers’ comp insurance in California could not overlook that bane of existence for insurance carriers and employers during that time.
The impetus for this massive viral strain of workers’ comp fraud in California was that the workers’ comp law required employers/carriers to pay for medical exams for workers on contested cases such as continuous trauma and occupational exposure claims. With this incentive, clinics actually began to start law firms, which the clinics surreptitiously owned, with the overriding intention of feeding the clinics “patients” to examine. Applications to the Workers’ Comp Appeals Board were then filed by the law firms alleging various and sundry disabilities that required myriad medical exams to quantify the permanent impairment rating as well as future regimen of treatment recommendations.
A battery of medical examinations often yielded charges exceeding $10,000 in total. The applicants’ attorneys were more often than not willing to settle the claims on compromise and releases for a minimal amount of money to the claimants, because that was not the point of the entire endeavor. Once the case was concluded with the claimant, the medical liens had to be addressed. This resulted in a windfall revenue stream for the clinics that viewed the law as a license to steal, and did so with a frightening degree of efficiency and regularity.
Where did the clinic owned attorney firms obtain their workers’ comp “clients”? That was another innovation. It was basically the workers’ comp version of ambulance chasing. They would go down to the unemployment offices and “cap” them off the lines of people there to collect their unemployment check, or to make a claim. This one can be filed under doctor and attorney fraud. However, one must admit to the simple elegance of this system, which added incredible cost burdens to an already overwhelmed workers’ comp system in the state with the largest population base in the country.
There have also been cases of claims adjuster fraud in the industry. These involve “enterprising” claims professionals who typically devise methods to embezzle funds out of their employer in the form of fraudulent claim payments made to bogus medical providers. This scheme usually entails setting up a medical provider in the payment system that the adjuster has “founded.” Durable medical equipment is a favorite choice in this realm. The key is to spread the payments to the provider (whose address is invariably a post office box) over a group of files so as not to attract any undue attention of claim and/or financial auditors. Over the course of a year or two, these adjusters can accumulate tens of thousands of dollars. The ones that have been caught either were too greedy, and streamed a surfeit of payments over a short period of time to the “vendor,” or else were simply the victim of a serendipitous audit that discovered the fraud.
Another not entirely unknown adjuster-perpetrated fraud involves seeking willing accomplices to initiate false claims that the adjuster would most likely handle. The adjuster makes payments to the claimants, who then split the claim payment “proceeds” with the adjuster. Although this is more likely in a liability claim scenario than a workers’ comp case, there have been incidents of this nature in the workers’ compensation landscape.
Let us not overlook possible producer fraud. There have been a number of situations over the last several decades involving premium being collected by an agent for coverage, and then not being forwarded to the insurance carrier. This is an audacious form of fraud as the corrupt producer is gambling that there will be little or no claims turned in on the supposed in-force policy. Of course, in the workers’ comp arena, at least seven out of every 10 claims involves no compensable lost time (“Medical Only” in the vernacular), and these claims are usually minimal in cost. Moreover, in many instances, the accident reports are sent directly to the agent, who can then pay for the medical treatment out of the embezzled premium funds. One must have nerves of steel to engage in this type of fraud, but it has been done.
The medical community is also not entirely pristine in this area. I have seen several instances in my own career where bills for medical appointments that never took place have been submitted for payment. These are often most difficult to discover, especially if the modalities are many over an extended period of time. But it has happened.
As is evident, there are many more types of fraud than simply claimant and employer generated. As the aphorism goes, where there is a will, there is a way. Vigilance is always necessary.