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By Dan King
Differing needs in claims investigations may cause a dilemma for fraud units. While the insurer generally prefers that all claims be resolved as quickly as possible, the insured may prefer that the carrier create a deterrent to future claims, even if the insured will have to pay more up front.
New accounts will often claim that their past carrier simply didn’t understand the scope of their fraud problem. As a result, many employers who can afford to do so are turning to self-insurance or SIR (retention). In fact, as much as 35 percent of the total insurance market is currently self insured, and that number is likely to grow.
Some insureds note that after years sometimes even decades of purchasing coverage from insurance carriers, the company has been forced to price shop for services that will reduce the escalating fraud problem or even better stop it altogether. These accounts feel that the carrier is responsible for controlling bad claims since the carrier makes the contacts and controls the funds. Many states have reaffirmed this consensus by mandating the establishment of fraud units.
The problem is more complex, however, for the carrier or TPA that handles the claims. Fraud units are costly to maintain, and justification for continuing to offer the service is generally based on arbitrary or meaningless figures. Experienced, fraud trained personnel are hard to find. Legal problems that may develop can increase the costs or discredit the insured. Adjusters require additional training to handle suspected fraud cases and extra time to set up and monitor the files. If and when criminal charges are brought, costs mount and responsibilities increase. In the final assessment, even the marketing aspects of a fraud unit may wear thin if tangible results aren’t achieved.
Fraud units and PI vendors can produce results for their clients. One of the best ways to accomplish this is to make sure the claims unit refers all first report of injury forms to the fraud unit. The fraud unit supervisor or a designated person can then review all files and identify those that require further scrutiny. The carrier should not rely on claims personnel to recognize fraud and refer suspect claims to the fraud unit.
As the claims are reviewed, there are at least five areas of concern that can help predict trends for suspect claims: the claimant’s age, the amount of time the claimant has been on the job, the nature of the injury, the presence or absence of any witnesses and the time the injury was reported. Consider the case of a 25-year-old worker who has been on the job for less than six months. The worker suffers a sprain/strain injury to the back while working alone and doesn’t report it for several days. Such a claim carries a high risk for fraud. A phone call to the injured worker’s immediate supervisor may confirm such suspicions.
Experienced claims personnel may recognize several other red flags on an injury report. One study found a wealth of information by performing a case-by-case review of 90 files derived from the “First Report of Injury” forms submitted to a particular office on one day. (Of course, the follow up on these files took many weeks.)
Of the 90 injury report forms studied, only three were for employees over 45 years of age who had been employed for more than 5 years. Each of these three accidents was witnessed by a reliable coworker, and each of the three injured employees had visible contusions and abrasions caused by the accidents. Each of the three returned to work within three days. Such findings certainly make one wonder how a 20yearold worker who lifts a case of Coke (something that the same person might do at a party every weekend) can sprain aback muscle and be off work for 12 or more weeks. It is even more incredible that anyone believes it could happen. While the above described file review was not a scientific study, the long term outcome was significant. This particular office’s referral rate jumped from half of one percent to five percent of the total claims. Unfortunately it still takes time to process these injury reports properly.
The next step is to get the insured involved. Train the insured to share the responsibility for digging out fraudulent claims. Increased involvement by the insured will make the investigator more effective. In 1970 Congress created the ADA W/C guidelines with passage of legislation to stimulate employment of handicapped persons. Realizing that handicapped or disabled persons may have more injuries, the ADA asked employers to investigate all accidents in a timely manner. The ADA recognizes that the employer has a responsibility to address such investigations.
Ideally, an investigation in the workplace should begin within one week of the first report. Some states require that the carrier or self-insured employer begin payments or that a basis for denial be provided within that first week. Two important elements will help move the process along: an investigator dedicated to a particular account and a person trained to anticipate and fill the needs of that investigator.
The company’s middle management and line supervisors should attend a four to eight hour formal training session. Topics covered in the session may include creating comprehensive safety programs, removing potential hazardous conditions (water pools, machine oil drips, etc.) documenting accidents, providing safety incentive programs and posting of rules and regulations. Loss control units can be a real ally in presenting these programs. Instructions and simple forms can be provided to employers on the fine points of doing cursory investigations and documenting the incident with photos and diagrams; the importance of logging the time of occurrence; any witnesses to the injury and the medical treatment provided, and the mechanics of obtaining a hand written statement from the claimant.
If time permits and a suitable resource is available, training on the fallacies of medical issues, such as sprain/strain and RSI complaints, can be covered. For example, a person with a sprained lower back achieves full flexion after about ten minutes of sitting; if light duty is available, the injured person may be better off if he keeps moving. Or for example, research on carpal tunnel syndrome has shown that most cases are caused by inherent factors rather than by repetitive stress; an overwhelming number of cases are simply misdiagnosed or operated on without justification. In fact, the Virginia Supreme Court recently ruled that carpal tunnel syndrome is not an industrial disease.
Once the referral process is established and claims begin coming in, the proper course of investigation must be determined. AOE/COE investigation has long been the standard, but improving technology and continuing revision of AOE/COE applications have helped make this investigation the broadest in spectrum and the most productive. AOE/COE investigations yield the most information: they are the best workplace deterrent if used in a timely manner and they tend to prevent collusion in litigation. (See “Leave No Stone Unturned” page 9 of the May/June 1995 issue of the John Cooke Fraud Report.)
Linguistic analysis appears to show promise for future impact on AOE/COE. Although such courses are initially expensive and practice is required to be able to effectively use this method, the results can be dramatic. Units that perfect this technology will be as in demand in the future as a good cause and origin investigator or re-constructionist is on property claims today. A good AOE/COE investigation can also set the stage for effective surveillance.
Surveillance/subrosa can be costly and results are often less than spectacular. Nearly half of all claimants investigated are malingerers who appear quite happy to do nothing all day long. If surveillance is needed, it is important not to wait too long to begin. Once the claimant’s medical condition is permanent and stationary or the patient has reached maximum medical improvement with a low disability rating, normal activity will not exceed the claimant’s restrictions. If the AOE/COE investigation determines that the claimant is a good candidate for subrosa, other factors then come into play. Many attorneys caution their clients to beware of subrosa investigations, and media exposure has given these investigations a lot of attention. Concealable equipment used by a talented investigator seems to be the prerequisite for success these days. Surveillance can be an effective tool but preliminary investigation is needed to give the insured the most for its money.
The medical provider is another key aspect in the investigation. There are many areas that can be challenged on the provider side. Consider the possibility of illegal ownership, over-utilization, unlicensed therapists, lack of equipment to perform billed modalities, improper or unsupported referrals, fragmented RVS or CPT codes and on and on.
Finally it is important to get involved in legislative reform. A group that includes insurance companies, brokers, state agencies, the state chamber and most importantly small and large businesses can target particular legislative sessions. SSN card fraud is commonplace. Investigator Tim Wages is working with Texas Senator Dick Armey and members of the House of Representatives on legislation that would stop temporary benefits to a claimant with discrepancies in his SSN until the issue is investigated; if misrepresentation is confirmed, all benefits would stop.
One interesting proactive program was developed by Gary Higginbotham while he was working as a risk manager for an oil exploration company. In response to an epidemic of claims, Gary designed a plan that maintained a high level of communication with the “injured” employee and gave the employee a $500 advance. The employee could keep the advance if he didn’t go to an attorney during the life of the claim. If an attorney was retained, the $500 would either become part of the settlement payment or it would be returned. A form was developed with all the proper waivers and explanation of employees’ rights. The program was reviewed by the senior presiding comp judge and another judge of long tenure on the bench. Both agreed it was legal and approved of the program. Since approval about two years ago, the program is estimated to have saved that company many millions compared to its prior expenditures for claims. There was an immediate turnaround in savings. To date, no one has retained an attorney and the return to work has been much sooner. Gary can be contacted at (405) 4773895 if you are interested in details. Isn’t it interesting that without attorneys, employees apparently had less severe injuries. Maybe the system needs more than fine tuning.
Dan King is a Regional Manager for Risk Enterprise Management in Dallas, Texas. He can be reached at (800) 877-1801 ext. 8079.
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