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How to fight workers comp fraud in your business

An employee feigns work-related blindness, collecting permanent disability benefits through workers compensation — and is caught driving a delivery van for his home-based courier business.

Workers comp fraud

Premium fraud:
Committed by employers who underreport payroll, misclassify workers, or mislead the insurer about prior claims.

Medical provider fraud: Includes "upcoding," where employers are billed for a workers comp treatment and all of its component parts; creative billing is also common, and in extreme cases results in bills for workers who don't exist.

Employee fraud: >Malingering, making a claim for a non-work related injury, or working elsewhere while receiving workers comp benefits.

A medical provider and his massage-therapist wife are convicted of treating "phantom" workers comp claimants, billing insurers for thousands of dollars in claims for nonexistent patients.

A cost-cutting employer misreports the payroll, labeling half of his machinists as clerical workers, which drastically lowers his workers comp premium.

These are all real-life examples, pointing to the need for fraud awareness and fraud fighting in the workplace.

Workers comp fraud comes in several varieties, the most notorious of which is the phony workplace injury — say, a back strain — that's only uncovered when the employee is caught doing yard work or holding down a different job while collecting workers comp benefits. Fraud can also take the form of malingering, where an employee complains of unseen ailments or prolongs a legitimate claim to avoid returning to work.

Fraud isn't perpetrated only by employees. Employer-perpetrated fraud is a big issue, too, with unscrupulous employers misreporting the payroll, or classifying workers in less-risky categories in order to cut corners on premium dollars.

But the bottom line on workers comp fraud is that it costs everyone — employer and employee alike. Once insurance companies discover fraud, they investigate; but uncovering fraud in the first place isn't easy.

Claims departments view certain situations as "red flags" where past experience shows a greater likelihood of fraud. For instance:

  • Accidents that occur early Monday morning, shortly after the worker shows up, may be viewed with suspicion, because the injury might have come from a weekend softball game or yard work.
  • An injured worker who shuns treatment from a doctor or physical therapist may find himself under scrutiny, because his reluctance to seek treatment could be viewed as an attempt to cover up a phony injury.
  • An employee who is known to be disgruntled, or who knows he or she is about to be laid off, and makes a workers comp claim may be committing fraud because he or she is unhappy with the employer.

Often a fake injury is discovered through workplace rumors that filter up to management, or by a visiting insurance agent who alerts the company. But employer fraud is harder to detect, and unless a group of employees is blatantly misclassified — for instance, a carpentry firm which, upon inspection, only has one receptionist when it reports 10 desk workers who are actually carpenters — employer fraud can go undetected for years.

State-level clampdown

According to New York City-based The Insurance Information Institute (III), the growth in workers compensation medical costs has been much steeper than in the health care industry as a whole.

Tips for combating workers
comp fraud

  • Verify references and background information carefully.
  • Publicize your workers compensation policy to all new and current employees, and provide them with updates at least once each year.
  • Spread the word that money paid for fraudulent claims comes out of the employer's pocket.
  • Educate supervisors on workers comp issues: How injuries decrease productivity and how costs affect the bottom line.
  • Display fraud awareness posters and the National Insurance Crime Bureau's fraud hotline number.
  • Work with your insurer to implement a safety-management program that can eliminate as many safety problems as possible.
  • Be aware of workers comp fraud indicators when a claim is made.
  • If you suspect a fraudulent claim — and you have evidence or witnesses to back up your suspicion — contact your insurer's special investigations unit immediately.
  • Finally, pay attention to employee complaints and concerns about their working conditions. The strongest predictor of fraud is a chronically disgruntled work force.

Source: Coalition Against Insurance Fraud

The annual average rate of increase in workers compensation medical care costs was 3.9 percent from 1991 to 1995. Since then the rate of increase has more than doubled, and is also more than twice the rate of increase in the medical Consumer Price Index (CPI).

In addition, Boca Raton, Fla.-based The National Council on Compensation Insurers (NCCI) suggests that much of the difference between the cost of a health care claim and a workers compensation claim is due to the volume, duration and mix of services used by injured workers and group health claimants. From 2003 to 2004 in the states in which NCCI provides rate-making services, workers compensation medical costs rose 10.5 percent. The medical care CPI rose 4.4 percent nationally over the same period.

Certainly, there’s much at stake for insurers to reign in workers compensation costs. As a result, a growing number of states are moving to implement a higher degree of accountability into the workers compensation system.

In Missouri, a new workers compensation reform measure went into effect in August  2005. Among the changes aimed largely at reducing abuse are a new definition of accidental injury, which requires injured workers to verify, with time and place, how they were injured and a narrowing of the definition of a compensable injury to one where the accident was the "prevailing factor" in causing the injury rather than just "a factor."

In addition, the Missouri law states that accidents that take place during travel to and from work will not be covered except in the case of police officers who often must respond to emergencies. According to III, the Missouri law also limits the amount of money attorneys can collect for workers compensation cases, reduces compensation for workers injured when they were not following their employer’s safety rules or using safety devices; makes repetitive motion injuries, such as carpal tunnel syndrome, compensable under the law; and requires workers to undergo vocational testing and an vocational rehabilitation assessment when requested by the insurer or employer.

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