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Year End Wrap Up
1996 proved to be a successful year in the legislative arena for action on a number of state and federal anti-fraud bills.
After several years of false hopes, the US Congress enacted strong health care fraud provisions in the Kennedy-Kassebaum law. The new federal law adds health care fraud to the list of federal offenses. Previously, the fraud would have had to be committed against a federal health care program like Medicare, or prosecutors would have needed to use the difficult mail fraud statutes. Now, the feds can assist in the fight against fraud even if the fraud is committed against private third-party payers.
In the states, successes include:
In Colorado, the legislature enacted a new law strongly supported by the Coalition Against Insurance Fraud that expands the definition of insurance fraud, requires anti-fraud plans by insurers doing business in the state, requires fraud warnings on claims and applications forms and would allow for the victim of insurance fraud, whether it be an individual or a company, to notify the licensing authority when a licensee is adjudicated to have committed insurance fraud.
Minnesota enacted a crime bill that included the Coalition’s definition of a fraudulent insurance act.
Tennessee enacted workers’ compensation reform that included the Coalition’s model insurance fraud act as a workers’ compensation fraud act. This new law makes Tennessee the first state to enact the Coalition’s entire model fraud act.
In New York, after several attempts to enact regulatory requirements on insurers, the state added language to a workers’ compensation reform law that would require insurers in the state to develop and implement anti-fraud plans. This provision also requires hiring of, or contracting with, fraud investigators. The new law also establishes a workers’ compensation fraud unit as part of the existing insurance fraud bureau. In other action in the Empire State, the legislature enacted a law targeting airbag fraud.
Michigan enacted legislation expanding its immunity law to include health insurance.
Florida passed a new law making it a crime to offer kickbacks to health care providers as an incentive to accept patients or referrals, and making it a crime to accept kickbacks as well.
Maryland added insurance fraud as a crime for which a medical or chiropractic board could suspend or revoke a license.
Iowa expanded its immunity law to allow for insurer-to-insurer communication, and both Indiana and Wisconsin enacted an immunity law similar to the Coalition’s language.
Delaware expanded the authority of the insurance department to investigate insurance fraud by granting subpoena power to the department. Similarly, Rhode Island gave the automobile fraud unit authority to obtain a search warrant without seeking approval from the state police. New Hampshire also expanded the authority of the insurance department to conduct insurance fraud investigations by granting them subpoena power and requiring insurers to notify the department of a suspicious fraudulent claim.
Pennsylvania added insurance fraud to the list of offenses prosecutors must commence against within five years after an act is committed.
Virginia created a legislative task force to investigate whether the state needs stricter insurance fraud laws and an insurance fraud bureau.
While 1996 was successful in several states, other states failed to move forward on an anti-fraud agenda. These include Alabama, Kansas and Oklahoma, which failed to enact a fraud law creating a fraud bureau.
1997 and Beyond
The Coalition is planning more activity in 1997.
States that have expressed an interest in working with the Coalition include the following: Oregon on an insurance fraud law; Nevada on a fraud law and creation of an insurance fraud bureau; and Kansas on a fraud law and fraud bureau. The Coalition also is working with the Virginia task force to move an anti-fraud agenda in that state in 1997.
The Coalition expects action in other states, including South Dakota, which is looking at an anti-fraud agenda; Oklahoma, to revisit the department’s interest in creating an insurance fraud bureau; Ohio, where an insurance fraud task force created by the legislature has recently come out with its recommendations; and Arkansas, where the department is contemplating legislation expanding its authority to investigate insurance fraud cases.
Louisiana has created a task force to look at the issue of automobile insurance rates. The Coalition has raised the issue of fraud as one aspect for the task force to consider. The Coalition also is working with its members to consider developing an anti-fraud agenda for Illinois.
The Coalition also expects several states to look at the practitioner penalties provisions of the model insurance fraud act as a stand-alone bill. Only a handful of states currently require licensing boards to be notified when a practitioner is found to have committed insurance fraud, and an even smaller number of states have a requirement for a disciplinary hearing.
© Copyright 1996 The John Cooke Fraud Report
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This issue’s column has been provided by the Coalition Against Insurance Fraud.
Around the States
The New York legislature has enacted new, anti-fraud laws as part of the state’s workers compensation reform package. The provisions require insurers to develop anti-fraud plans and submit them for approval. Insurers also are required to maintain, or contract for, fraud investigators. Even though the language is within a workers’ compensation reform bill, the fraud plan provisions cover insurers writing automobile, workers compensation, accident and health insurance. The new law also creates a workers’ compensation fraud unit within the state’s insurance fraud bureau and creates a new crime of “aggravated insurance fraud” for individuals who have a prior conviction for insurance fraud. Finally, the new law requires the fraud bureau to conduct a study (to be completed in mid-1997) of the incidence of fraud and the methods of fraud detection.
New Hampshire has enacted a law requiring insurers to report suspected fraud within 60 days. The new law also gives the insurance department subpoena power to conduct fraud investigations and would allow the state to go outside of the state to inspect material relating to a fraud case.
The Maryland insurance administration proposed new regulations requiring insurer anti-fraud plans to be written and filed for approval with the insurance administration. The regulations would require all insurers doing business in the state to maintain anti-fraud plans. The plans must include education and training of the insurer’s employees in the detection of insurance fraud, provide for methods of investigating suspicious claims, and apply to all types of suspected fraud including internal fraud. The proposal further would require the insurer to designate individuals responsible for the coordination of the anti-fraud activity. This could include a specific investigative unit, either in-house or contracted. The regulation also requires reporting of suspected fraud to the insurance fraud division or appropriate law enforcement authority and demands an annual report on the effectiveness of the insurer’s anti-fraud efforts.
The California Senate Judiciary Committee failed to approve a bill that would have granted civil immunity for any person in the insurance industry for furnishing information of suspected fraud, if done without actual malice.
Rhode Island has a new law permitting the Office of Automobile Theft and Insurance Fraud to obtain a search warrant without the consent of the Adjutant General’s Office.
The Delaware governor has signed a bill to enhance the insurance commissioner’s authority to subpoena information relating to a fraud investigation.
Across the Border
The Canadian province of Ontario has enacted a series of anti-fraud measures including: pre-insurance inspection of vehicles; allowing insurers to request statements under oath; suspension of accident benefit payments if there is willful and material misrepresentation; permission to stop paying benefits to claimants who don’t comply with reasonable requests for information required to determine if the benefits are warranted; and making it an offense for a claimant or service provider to knowingly provide false information to insurers to gain a payment.
1997 and Beyond
Several states are looking to draft anti-fraud legislation for the 1997 legislative sessions. Task forces already are working to craft proposals in Oregon, Nevada and Virginia. The Ohio insurance fraud task force has completed its work with recommendations for anti-fraud action. Also, the state of Louisiana has created a task force to look at automobile insurance issues; we’re hopeful anti-fraud efforts will be included as part of their review.
The Coalition Against Insurance Fraud includes public interest and consumer organizations, government and law enforcement groups, and members of the insurance industry. It is dedicated to combating the growing incidence and costs of all forms of insurance fraud through public advocacy and information.
© Copyright 1996 The John Cooke Fraud Report
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Information Compiled by: Coalition Against Insurance Fraud
TENNESSEE has enacted major reform of its workers’ compensation system that includes strong anti-fraud language taken from the Coalition Against Insurance Fraud’s model insurance fraud act. The new law creates a Workers’ Comp Fraudulent Insurance Act and an Unlawful Insurance Act. Anyone convicted under this new law could face fines and imprisonment as well as automatic restitution. The new law also has strict penalties – including license revocation for practitioners who are convicted of fraud. Finally, the new law also requires insurers to develop workers’ compensation anti-fraud plans, including fraud investigators, or face a fine.
The NEW YORK legislature is considering a bill proposed by Governor George Pataki that would create a civil cause of action for the state to act on behalf of defrauded insurers. The bill also would give whistleblowers a portion of the proceeds collected in damage suits and would allow the insurance department to enforce fines and civil penalties of up to $5,000. The bill further creates a new crime of aggravated insurance fraud for repeat offenders and would require insurers to develop anti-fraud plans with special investigative units. Failure to develop these plans would subject insurers to stiff fines.
The governor’s bill differs from a bill sponsored by the Chair of the Assembly Insurance Committee, Alexander Grannis, which would mandate fraud investigators to a ratio on policies in force – similar to what exists in New Jersey. It is hoped that a compromise can be reached prior to the end of the legislature to enact strong anti-fraud language in New York.
New York’s governor has been sent a bill that would require auto body shops to show proof that replacement airbags are factory-provided. The bill also would require accident reports to state whether the airbag was deployed in the accident. This should help lessen airbag fraud which has been becoming more prevalent.
IDAHO is yet another state that has enacted a law to prohibit service providers from engaging in the practice of waiving, rebating, giving or paying all or part of a claimant’s deductible for an insurance claim. This new law would effect health care providers and motor vehicle body shops.
CONNECTICUT failed to pass a bill that would have required owners of motor vehicles damaged by fire to file a statement with the local fire marshal and to require the insurer to review the statement to determine no fraud was involved in the statement or in the circumstances concerning the damage to the vehicle.
KENTUCKY failed to pass a bill that would have prohibited recovery from more than one policy in the same accident for uninsured or underinsured motorist benefits.
NORTH CAROLINA’S legislature is considering a bill that would conform the penalty for workers’ compensation fraud to the penalty for insurance fraud.
Other new laws in 1996 include the following:
VIRGINIA enacted a new law that allows a motor vehicle insurer to cancel a policy if the insured resides in another state or if the vehicle’s principal garage is in a state other than Virginia. This will assure that insureds would not evade the Virginia insurance rates.
NEW HAMPSHIRE has enacted a new law that would require an insurer to report a suspected fraud within 60 days. The new law also grants subpoena authority to the insurance department to conduct fraud investigations.
FLORIDA has a new law that authorizes the attorney general to designate investigators with the Medicaid Fraud Control Unit as state law enforcement officers. This will give the investigators the ability to obtain and execute search warrants, make arrests and perform all other essential law enforcement functions. This will help fight fraud since those defrauding Medicaid probably are defrauding other third party payers.
The Congress is working on a compromise of a health care reform bill that includes anti-fraud provisions. The legislation creates a FEDERAL crime of health care fraud, establishes a database for reporting adverse actions against health care providers, suppliers or practitioners, initiates coordination between the U.S. Departments of Justice and Health and Human Services in fraud investigations and creates an account in which fines, penalties or forfeitures due to a conviction would be deposited to be used to assist in investigations.
It’s uncertain if the Congress and the president will reach an agreement on a final bill. Of course, the anti-fraud provisions are not the basis for the disagreement on final passage.
(NOTE: The press is reporting that the Republicans have reached an agreement on this bill; but it is still uncertain if the Democrats and President Clinton would go along with it.)
From the Editor: Our thanks to Michael Diegel at the Coalition Against Insurance Fraud for their willingness to assist in this column.
© Copyright 1996 The John Cooke Fraud Report
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COLORADO HB #1149, sponsored by Representative Dave Owen and Senator Jim Rizzuto was signed into law by Governor Ray Romer. The bill expands immunity to those who report insurance fraud. If an insurer suspects that an arson has been committed, information can be released to any agency authorized to prevent insurance fraud. The report will be confidential and not discover-able.
The passage of this bill was good news, but it is disappointing given that there is no immunity provision pertaining to the exchange of information between insurance companies, such as the one contained in HF 2310, recently signed by Governor Terry Branstad in IOWA. Incidentally, the Alliance of American Insurers helped draft the IOWA bill.
CALIFORNIA currently allows insurers to share information that is “reasonably necessary” to detect or prevent criminal activity, fraud, material misrepresentation or material nondisclosure in connection with insurance transactions. CALIFORNIA Assembly Member Cunneen has introduced AB 3250, which gives an insurer who provides information to another insurance company immunity from litigation unless there is a specific allegation that there was malice and the provider knew or had reason to believe that the information was false. If the provider were sued, the insurer could be entitled to recover attorneys fees and costs.
The COLORADO bill also requires insurance companies to notify the appropriate state licensing board of a judgment or settle-ment in a lawsuit involving a fraudulent insurance act. It will be interesting to see if this means that notice to the licensing board is in order if the medical bills are cut or dropped because of serious irregularities.
In CALIFORNIA, repeatedly prescribing clearly excessive therapy is deemed to be unprofessional conduct and can be considered to be a crime. The Coalition Against Insurance Fraud is working on the related issue of who has the responsibility, or the ability, to notify the proper licensing board if a professional is convicted of a crime. In CALIFORNIA, it’s the duty of the clerk of the court or the district attorney. The question is, which of the many professional boards do you call? As a practical matter, many arrests or convictions either go unreported or the reports get misdirected. The result is that professionals with criminal records can still victimize others.
Steve Hartzell, of the California Physical Therapy Examining Committee has suggested that there be one contact number in each state. The agency that fields the calls would then be charged with the responsibility of directing the reports to the appropriate board. This would also facilitate the exchange of information across state lines.
MARYLAND has been having a tough time with its anti-fraud efforts. Portions of HB 264 were removed after opposition from special interest groups; however, provisions against cappers remain. The bill also would allow for the notification of a licensing board if a practitioner is found guilty of insurance fraud, and it adds insurance fraud to those crimes that could lead to the revocation of a doctor’s or chiropractor’s license.
MINNESOTA’S legislature passed an anti- fraud act that was similar to the Coalition Against Insurance Fraud Model. The bill provides that restitution is mandatory and is to be in addition to, but not in lieu of, a fine or imprisonment. The statute of limitations does not run until the discovery of the fraud, but the prosecution can’t commence later than seven years after the crime.
US Senate bill 173, the “Victim Restitution Act of 1995” does not appear to be going anywhere, but it is interesting. It provides that the amount of restitution ordered must not consider the offender’s economic status and must not consider the victim’s right to compensation from other sources, such as insurance proceeds. CALIFORNIA has a statute that requires consideration of the offender’s ability to pay.
As always, if you have questions or comments, you can contact me at:
Bush, Koppel and Schweizer
D. Michael Bush
100 Oceangate 1000
Long Beach, California 90802
(310) 437-2767
Compuserve: 70413,2125
© Copyright 1996 The John Cooke Fraud Report
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Congratulations are in order to those in Wisconsin and Michigan for passing anti-fraud legislation. Wisconsin passed SB 631, which as reported in the previous column, provides for immunity to those who report insurance fraud and provides those who re-port, without malice, the opportunity to file a civil action if they are sued. Howard Goldblatt, Director of Governmental Affairs for the Coalition Against Insurance Fraud, advised us that the language in the Wisconsin Statute was based on the coalition’s model act.
Colorado is also working on legislation that addresses the immunity issue and white collar crime issues (HB 1149). This bill just passed in the House unanimously, but there was a critical compromise to the bill. A person reporting a suspect claim to the National Insurance Crime Bureau will have immunity, but there will be no immunity for an employee of one carrier talking with an employee of another carrier. A big part of our work involves identifying patterns. Those on the other side freely communicate concerning all aspects of the different insurance carriers. This compromise will make the fight against insurance fraud much more inefficient and difficult. Those active in supporting this bill should reconsider the ramifications.
The Alliance of American Insurers provided the impetus in passing H.B. 4642 in Michigan. The bill makes insurance fraud a crime and contains provisions relating to immunity and restitution.
Wisconsin passed SB 362 which allows insurers to rescind a policy if there was fraud or misrepresentation in obtaining the policy. Illinois passed a similar bill, but rescission would be prohibited if the policy had been in force for a year, or a policy term, whichever is shorter. This would appear to put the burden on the carrier to do a background check on every new policy holder. Query: can a person make misrepresentations on a policy, wait a year, and then make a significant claim?
New Jersey passed a law that requires accident victims to notify their insurer within 21 days of starting treatment. Last year I wrote how important it was to identify errant health care providers at an early stage. This makes it possible for the carrier to do a pre-litigation medical exam and allows the carrier’s doctor to essentially look over the shoulder of the provider’s doctor. This type of “peer review” is very effective in cutting down on over-treatment.
The law firm of Smith & Brink, in Quincy, Massachusetts, re-ported in their newsletter that they successfully represented AEtna in a RICO suit. (AEtna Casualty and Surety Company v. Rodco Autobody, et al. (43 F.3d 1546, First Circuit Court of Appeals, 1994) The court ruled that the AEtna could recover the full amount of billings where there had been exaggerated claims and not merely the portion of the claim that was excessive. Could you imagine the effect this would have on fraud if this ruling were codified for everything from medical treatments to homeowners claims? If you would like further information concerning this case, contact Glenda Ganem, Esq., at Smith and Brink (617)770-2214.
In my last column, mention was made about obtaining restitution at a criminal sentencing hearing as a way to recoup money paid by an insurer on a fraudulent claim. Recently, just such a case was referred for binding arbitration by the sentencing judge. The cost for the retired judge will be split between the in-surance company and the criminal defendant. The deputy district attorney assigned previously will present the case. This is an attractive option for all, including busy judges who do not want to take a day to preside over what they may perceive to be a civil matter.
For those interested in new ideas, try filing a civil action against an attorney and the provider of health care for moneys paid to them if you later find the claim is fraudulent, even if they didn’t have actual knowledge of the crime. They may claim that they are entitled to the value of services they actually performed, but that amount may not prove to include a significant portion of money collected pursuant to a contingency contract.
Some attorneys, on both sides of the fence, don’t like the upcoming initiative on no-fault auto insurance in California. For those who are interested, it reportedly costs $50,000 for a 15-second spot on Seinfield. We understand that when a pure no-fault bill is passed, the actual number of fraudulent claims decrease, but the size of those claims presented increases.
SB 1558 in California relates to the forfeiture of equipment used during the unauthorized access of computer systems.
We understand the states of Minnesota, New Mexico and Oklahoma are evaluating anti fraud proposals.
From my vantage point in California, I try to follow legisla-tive developments all over the nation. At this time, I don’t follow the courts’ interpretation of those bills. I would be happy to provide an update in this column concerning developments in your state if you will pass them on to me.
As always, if you have questions or comments, or would like a copy of a bill, you can contact me at:
Bush, Koppel and Schweizer
D. Michael Bush
100 Oceangate 1000
Long Beach, California 90802
(310) 437-2767
Compuserve: 70413,2125
© Copyright 1996 The John Cooke Fraud Report