Workers’ Compensation Fraud: The Warning Signs
In California, workers’ compensation is a “no-fault” system designed to expedite benefits to eligible injured employees while attempting to prevent costly legal disputes. However, in the 1980’s this “no-fault” system was taken advantage of with abusive employees capitalizing on the system by making fraudulent workers’ compensation claims.
By 1991 Workers’ Compensation Fraud had become so prevalent in California that the Workers’ Compensation Fraud Program was created by the passage of Senate Bill 1218 (Chapter 116). Not only did this law provide for the availability of funding and prosecution activities but it specifically made Workers’ Compensation Fraud a felony.1
The California Department of Insurance states insurance fraud occurs whenever, “someone knowingly lies to obtain some benefit or advantage to which they are not otherwise entitled or someone knowingly denies some benefit that is due and to which someone is entitled”. It is important to note that this encompasses more than simply providing false information directly, material omissions are also considered material misrepresentations.
Employee Workers’ Compensation Fraud can occur in any of the following ways:
- Employee fakes an injury;
- Employee lies about the extent of an injury;
- Employee claims that a non-industrial injury is work-related;
- Employee fails to disclose a prior injury;
- Employee denies filing previous claims;
- Employee collects benefits from more than one employer for the same injury;
- Employee illegally works while receiving workers’ compensation benefits.2
As an employer, carrier, or administrator, how can you spot the signs of a fraudulent claim? First, it’s important to note that obviously not all claims should be investigated as fraudulent. Statistics tell us that between 10% to 30% of Workers’ Compensation claims are fraudulent in any given year. This of course means that 70% to 90% of those claims are perfectly legitimate. However, with nearly $10 billion in workers’ compensation claims being filed each year in California, as much as $3 billion may be going to undeserving, felonious employees.3 With restitution an available remedy, it is plain to see that suspected fraudulent behavior should be taken seriously with the proper time and efforts of investigation being committed to each and every case.
The first step in spotting a fraudulent claim is knowing what to look for. There is a long list of “warning signs” one can look for through the process of a claim. Most of these signs come early in the process so it is often beneficial for a claims handler to be on the lookout at the inception of the claim. Again, however, the following are merely signs of possible fraudulent activity and should in no way be taken as determinative that wrongdoing is occurring. These are simply signs to alert you that further investigation may be warranted.
As California Health Insurance states it, an employee filing a fraudulent claim often:
- Is uncooperative, hostile, or slow in assisting you with filing a worker’s comp claim on their behalf;
- Moves to a new address soon after the alleged injury occurs;
- Claims a more serious injury than what is observable;
- Has previously been involved in worker’s comp claims and is familiar with the process;
- Has recently been demoted, passed for a promotion, reprimanded, or has some other type of grievance with the company;
- Has an unstable work history, frequently changing jobs with or without valid reasons for leaving;
- May have large gaps in employment history that could indicate unfavorable employment history or time off due to a previous comp claim;
- Is involved in seasonal work that is about to end
Fraudulent injuries often:
- Occur without any witnesses to corroborate how the injury occurred;
- Occur late Friday afternoon or shortly after employee reports to work on Monday;
- Are sent first notification of the claim via the allegedly injured employee’s attorney, not the employee;
- Are uncorroborated by a physician;
- Involve mostly subject complaints, such as an employee’s report of pain, fatigue, or other medically immeasurable symptoms;
- Are not reported immediately after the injury occurs;
- Contains vague, inconsistent, or conflicting reports or symptoms.
Often, the medical treatment that the allegedly injured employee receives provides clues to the fraudulent nature of the claim. These clues may include:
- Once the employee is released to go back to work by one physician, they seek a second opinion from another doctor and work restrictions are continued under the new physician;
- The employee changes doctors often or sees multiple physicians (excluding specialists);
- The employee reports a level of wellness that is inconsistent with their overall behavior and activity level;
- The employee’s injury report is inconsistent with the initial report from the examining physician.4
Though some of the above “warning signs” may seem obvious and claims handlers most likely will find at least one of the above in nearly every claim, these are merely guidelines to use to alert you to possible further investigation. The more signs demonstrated, the more likely the need for such investigation. And though surveillance is not always cost-effective, significant “warning signs” may warrant the need nonetheless.
Finally, the Fraud Division of the Department of Insurance has established a method for insurers to report suspected insurance fraud. It is important to know that notification of insurance fraud may be made anonymously. Simply contact your Fraud Division Regional Office.5