HUNTINGTON BEACH, Calif. – Workers’ compensation insurance fraud costs California employers billions each year and is estimated to represent more than a quarter of the $15 billion in annual insurance fraud in California.

While the arrests of injured workers who cheat the system make headlines, such crime is a fraction of the total, said Donald C. Marshall, a vice president and director of the anti-fraud program for Zenith Insurance Co.

Employers who cheat on their insurance premiums and excessive billing by unethical medical providers is a much larger problem said Marshall, speaking during a workshop at the California Workers’ Compensation Forum, which concluded Friday.

Workers’ compensation fraud represents about $4 billion of California’s $15 billion in insurance fraud. By comparison, tax evasion in the state is estimated at $6.5 billion.

“Fraud, by its very nature, is a secret crime. We know we can identify and we can estimate what we’re missing, but that’s the best we can do,” said Marshall, a former detective specializing in white-collar crimes. “So, I can’t tell you that $4 billion is an accurate number or not.”

Employer fraud generally involves a company that pays its employees in cash or understates its payroll numbers to secure lower premiums for workers' compensation insurance. Some companies avoid coverage altogether, which leaves their workers vulnerable in the event of an accident or injury.

“People who don’t have workers’ comp insurance routinely failed to give benefits. They’ll either pay out of their own pocket (for medical treatment) or uneducated workers aren’t even aware and don’t even realize they have the rights to workers’ compensation. That’s just wrong,” he said.

Marshall believes the largest segment of comp fraud involves medical providers who exploit loopholes in billing laws, inflate prices, provide more tests or treatments than needed to return an injured worker to the job, and seek payment for the same office visit from a patient’s general health coverage and their work comp insurer.

“Provider fraud in the state of California, in my opinion, is out of control,” he said. “When we talk about provider fraud we’re talking about billing for services not rendered, we’re talking about unlicensed people providing treatment, people providing treatment outside of the scope of their license, we’re talking about unnecessary treatment and over treatment.”

Incidents of provider fraud are extremely difficult cases to prove, Marshall added. “There are so many things in medical that could be opinion versus criminal activity.”

William M. Zachry, chairman of the California Insurance Department’s Fraud Assessment Commission, joined Marshall on a panel about enforcement efforts to combat fraud. Zachry referred to a recent study that compared payments under group health plans and workers’ compensation that determined 4% of treatments to injured workers had been paid for twice.”

The commission is funded by employers who are required to carry comp coverage, and Zachry said the assessments – which totaled $43.8 million in fiscal 2007-2008 – are automatically split so 40% goes to the Department of Insurance’s fraud division and 40% is provided to district attorney offices throughout the state.
“By having specific funding for dedicated district attorneys and investigators we currently get the highest level of investigations, prosecutions and convictions of any state in the nation, by far. We’re the only state that has the dedicated resources to go after this,” Zachry said.

During fiscal year 2007-08, the Department of Insurance’s fraud division identified nearly 5,000 suspected fraud cases, made 375 arrests and 432 submissions to prosecutors. The potential losses amounted to more than $292 million.

“What we’re trying to do is create resistance, so that people will not commit opportunistic fraud. Then what we have to do is go after those who are deliberately targeting the system,” said Zachry, who works as vice president of risk management for the Safeway Inc. grocery chain, “We have to stay focused on the highest cost drivers.”

Zachry also denounced physicians, pharmacists and other medical providers who attempt to game the system, but he directed specific ire at those workers’ compensation judges in Southern California who grant concessions to assertive lien claimants.

“Anytime a WCAB (Workers’ Compensation Appeals Board) judge forces you to pay a balance billing on an official medical fee where you already paid the appropriate amount on a timely basis is perpetuating the problem,” he said. “Why are we forced to pay additional money to get rid of lien claimants when there’s a straight up fee schedule for this (procedure)? That’s stupid.”

About 720,000 liens were filed in 2007, according to Zachry, and 20% of those liens involved bills that had already been paid in a timely manner according to the fee schedule.

Zachry urged his audience to do their part to fight comp fraud.

“You all have opportunities to fight fraud. You all understand that it’s costing you money. You have to draw a line in the sand,” he said. “You have to do the right things all the time – you have to provide quality care for your injured workers. You have to provide timely benefits. You want to get them back to work as quickly as possible.

“Let’s stop these people so we can spend the money where we really ought to: within our companies so we can reduce our premiums and provide quality benefits to our legitimately injured workers.”

A third workshop panelist was Deputy District Attorney Dominic Dugo of the insurance fraud division of the San Diego District Attorney’s office who discussed his office’s public outreach campaign on comp fraud. The program involved placing more than a dozen public awareness billboards throughout the area for two months.

The billboards, which included a toll-free telephone number to report suspected violators, had various messages. One featured the District Attorney reminding readers that workers' comp fraud by employees, employers and health care providers is a felony. Other billboards had actors, one standing behind jail bars and another man wearing a jail-issued navy blue jumpsuit with his hands cuffed behind his back and the message: “Commit Workers’ Comp Fraud. Get a New Outfit.”

Source:  workcompcentral