Deterring Complex Workers Comp Fraud

This post first appeared on Risk Management Magazine. Read the original article.

To better identify and ultimately defend against the
ever-evolving threat of modern workers compensation insurance fraud, companies
are merging time-tested investigative techniques with proactive fraud
prevention strategies. Key to understanding the identity of the modern
fraudster is a heightened awareness that things are not always as
straightforward as they initially appear. A one-dimensional approach to
stopping fraud is insufficient for this multi-dimensional problem.  

On its face, a suspect workers compensation claim may point
to a single individual attempting to defraud the system. In reality, however, there
can be many layers of activity involved. Multiple criminals may be using a
worker as a vehicle to execute much more sophisticated—and potentially
costly—frauds. Indeed, many workers are actually victims of complex criminal
schemes. Simply investigating the suspect claim of an injured worker does not
sufficiently address the problem. Truly fighting fraud requires a broader, more
holistic approach.

Modern fraudsters fall into three main categories:

  • Individual workers: Such schemes often involve exaggerated, staged or unrelated injuries that the worker claims occurred while working.
  • Health care providers: These schemes involve medical treatments, devices, prescriptions or referrals that are either unnecessary, not provided or billed at an inflated cost. Health care provider fraud is often characterized by kickbacks in the form of direct payments or creatively masked as consulting, leasing, staffing or financing agreements. 
  • Legal providers: In these schemes, legal mill operations pay recruiters for a steady stream of new clients who are then diverted into the corrupt health care provider network. Fraudsters artificially expand injuries to include multiple body parts and exaggerated symptoms to improve the prospects of a better settlement or negotiation position. Legal provider fraud can similarly involve kickbacks in the form of staffing and financing agreements or creatively masked as marketing costs. 

It is important to note that the organizers and operators of
health care and legal provider schemes are not limited to the licensed
professionals in these categories, but commonly include office managers, office
staff, middlemen (or “cappers”), financiers, translators, copy services and

The first step is recognizing the symbiotic relationship between
workers and their modern fraudster counterparts among health care and legal
providers. Then, you must shift from a primarily reactive fraud-fighting
posture to a more proactive approach. This starts long before the claim is
filed. The goal is to disrupt the flow of complicit workers. As fraudsters are
less successful at recruiting workers, the schemes are more likely to die on
the vine. Managing the risk of fraudulent claims involves proactively engaging
and educating the targets of organized insurance fraud schemes: the workers

Targeted and Proactive Fraud Prevention Strategies

Insurance fraud schemes prey upon uninformed workers who may
perceive themselves as disregarded or even mistreated. A well-informed worker
base is less likely to consider going along with filing a fraudulent workers
compensation claim. To more holistically fight fraud, risk professionals can:

Develop customized, ongoing and collaborative safety
Some claims are wholly fabricated, as in the case of staged
accidents. However, most workers compensation claims start as entirely
legitimate. Injury prevention is therefore the foundation upon which fraud
prevention is built. Safety education should be:

  • Customized to match the role and equipment to which the worker is assigned
  • Ongoing to cement the information in the worker’s mind
  • Collaborative to ensure that both line-level workers and management feel equally invested in the final product, and in the success of the
  • organization’s safety measures

Targeted education should highlight not only what the safety
protocols are, but why they are in place. This serves the dual purpose of
equipping workers with the requisite technical information while also clearly
conveying the employer’s commitment to employees’ well-being. One way to do
this is through regularly scheduled safety meetings. These will reinforce
awareness of safety measures and protocols and tangibly demonstrate the
organization’s commitment to safety. Workers compensation carriers can help identify
safety programs and resources that meet the needs of your organization.

Make fraud prevention part of the safety program. An
open dialogue regarding the risks, impact and consequences of filing fraudulent
insurance claims should be viewed as an extension of an organization’s overall
risk management strategy. Avoid using an accusatory message that risks a
rebound effect, which may just lead to more suspect claims being filed. An
accusatory tone also reinforces a common message that insurance fraud scheme
recruiters leverage: “Your employer does not care about you, the system does
not care about you, but we do.” In alignment with the tone of safety messaging,
anti-fraud messaging should similarly educate workers to help them avoid being
victimized by insurance fraud schemes that explicitly seek them out as
unwitting accomplices. 

Foster accountability. A workforce that is directly
invested in ensuring that everyone returns home safely is an essential element
of a multi-dimensional injury and fraud prevention strategy. All staff should
understand a no-tolerance policy for filing fraudulent claims. The message
should specifically explain how fraud impacts the workforce as a whole and the
consequences if untruthful behavior occurs.

Promptly investigating accidents, including reviewing and
preserving security camera footage, should be about revealing how a workplace
accident actually occurred. The goal of an accident investigation is to both
document the particulars of the unfortunate safety lapse, and also determine
what preventative steps should be considered or further refined to prevent it
from happening in the future. Ensure a workforce sufficiently understands the
rationale for security cameras and that thorough accident investigations are
based in the organization’s continued pursuit of safety excellence. These
concepts serve to both highlight an organization’s commitment to the well-being
of the workforce, and also to deter would-be fraudsters.   

Build a culture of fraud prevention. In accordance
with all federal and state laws, organizations should conduct proper due
diligence in their hiring process. New hire onboarding should include clear
communication and explanation of all safety and anti-fraud protocols and
procedures. If safety excellence is the goal, new hires need to know that. They
should be encouraged to alert management if they observe any safety concerns. A
fresh set of eyes may help identify gaps in safety procedures that the
organization has not yet recognized. From the beginning of the worker’s tenure,
you should convey that you value their input and are making a tangible
commitment to their safety and well-being. Continuously reinforce that

Workers also need to know they can report safety lapses or
fraud concerns in a confidential manner. They may be hesitant to relay their
observations to management, so setting up a confidential process such as a tip
line or independent party to report to is highly recommended. Educating workers
and engaging them in ongoing and open dialogue regarding awareness and
accountability sets the foundation for a culture that can help withstand the
lure of participating in a fraudulent claim.

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