April 1, 2012
An Integrated Strategy To Prevent Claimant Fraud In Workers’ Compensation
Workers' compensation has become increasingly vulnerable to claimant fraud. In today's stagnant economy, employers, insurance companies, and claim organizations face significant financial pressures, and the last thing they want is to lose additional funds to those aimed at cheating the system - either through outright fraud or opportunistic maligning.
Claimant fraud places additional strain on a benefit program that strives to provide injured employees with the medical care and compensation they need to recover from work-related injuries, so they may return to work quickly and safely.
Claims departments are on the lookout for new and more effective ways to detect and prevent fraud — and with good reason. Financial incentives typically increase during tough times for both “hard” and “soft” fraud. Hard fraud is a deliberate attempt to stage an accident or invent an injury, while soft fraud or opportunity fraud, occurs when a claimant exaggerates the severity of an injury to take additional time off from work or to continue to receive benefits.
Scope Of The Problem
The Federal Bureau of Investigation estimates that the total cost of insurance fraud (excluding healthcare) exceeds $40 billion per year.1 On average, insurance fraud costs the average U.S. family between $400 and $700 annually in the form of increased premiums.2
No doubt figures will continue to rise, since many consumers view fraud as a victimless crime. Nearly one of every four Americans says it’s all right to defraud insurers — with eight percent saying it’s “quite acceptable” and 16% saying it’s “somewhat acceptable” (Accenture Ltd. 2003).3
According to the National Insurance Crime Bureau (NICB), the number of questionable claims increased to 48,887 in the first half of 2011 from 46,766 in the first half of 2010 and 41,309 in the first half of 2009 — representing an increase of 18.3% over a two-year period.4
Specifically in regards to workers’ compensation, the National Insurance Crime Bureau estimates that up to 10 percent of claims are fraudulent, costing the industry as much as $5 billion a year.5 In the past, workers’ compensation fraud was singled out as the fastest growing area for insurance scams.
In fact, one of every three Americans say it’s all right for employees to stay off work and continue to receive benefits if they still feel pain, even if physicians say these employees are fully capable of returning to their jobs (Insurance Research Council, 1999).6
Solutions & Strategies
To snuff out fraud, claims organizations need an integrated approach that includes Human Resources policies, systematic procedures, timely reporting of injuries, advanced fraud detection technology, and expert claims professionals who document injury information from the onset of a claim and continue to tightly manage cases so there is no room for fraud and abuse to sneak into the system.
Providing A Personal Touch
Despite technological advances, human intervention remains a key component in an organization’s ability to detect and prevent fraud. To some extent, the proliferation of self-service options and the increased de-personalization of the claims process may actually have compounded the fraud problem.
For example, with electronic and online injury reporting, many claimants can report an injury without speaking to an actual person. With little to no human interaction, a suspicious injury can enter the system undetected and the case can progress to result in significant losses.
This is why organizations need the right blend of people, processes, and technology to combat fraud — with each element applied at the right time in the claims process to ensure the most success.
Timely Reporting Of Injuries
Fraud prevention must begin with the first report of injury. When injuries are reported late, lag times leave the door open for inconsistent accounts of the nature and severity of an injury to occur. Without a systematic and reliable process to ensure timely reporting, gaps in injury management create opportunities to bilk the system.
For example, a claimant may find that it’s easy to exaggerate the nature and severity of an injury to take additional time off from work, or they may attempt to visit their own physician — rather than a designated occupational clinic — believing their personal doctor will be more inclined to provide time off.
Instead, claims organizations must shore up injury reporting to ensure an almost failsafe prompt process. This process must be reinforced with written Human Resources policies that employees are required to sign. For example, many organizations use an injury hotline, train employees on the call-in injury reporting process, and mandate that employees sign agreements that they understand and will adhere to this procedure.
From there, the call center is so simple and easy to use that many organizations achieve virtually 100% compliance with same-day injury reporting.
Many injury hotlines actually employ triage nurses, who ask thorough, in-depth questions about the nature and severity of the injury and accident. These nurses carefully document and capture injury information upfront, and make notes if anything suspicious comes up during the intake process. Later in the life of the claim, this carefully documented record helps claims staff to monitor for inconsistencies with the original injury report — often an indicator of fraud or abuse.
Although an injury hotline was initially designed to improve service and response to injured employees, it has provided an added benefit of fraud prevention.
Another important aspect to prompt reporting is the fact that when dubious cases are identified early, organizations can actually take effective steps to discourage further escalation. For example, the sooner injuries are reported, the sooner organizations can begin the process of investigation, collecting information, and documenting cases. If suspicious cases are identified within one or two weeks of the claim being filed, then with diligent and rigorous inquiry, claimants will realize someone is watching, they’ll be held accountable to their stories, and further abuse of the system is immediately deterred.
Adhering To Medical Best Practices
Claimant fraud comes in many different forms. There are gray areas especially in terms of overutilization of medical services. Injured employees may seek unnecessary care to justify additional time off, but the use of triage nurses and medical treatment standards at the frontend of a claim can ensure quality care for injured employees — care that is simultaneously appropriate and cost-effective.
Based on jurisdictional rules and regulations, employers may be allowed to develop and utilize a provider network — and have their nurse injury hotline refer injured workers to facilities and clinics within this network. If a particular jurisdiction does not allow employers to utilize networks to direct care, they may still designate preferred providers.
Working in conjunction with the injury hotline and triage nurses, organizations can provide an injured employee with this recommended list of qualified occupational providers, conveniently located to the employee’s worksite or home. Even without a mandated network, most employees will follow a triage nurse’s referral to a suggested provider or recommendations for simple first aid or self care.
Spotting The Warning Signs
In the past, claims adjusters served as the first line of defense for fraud, bearing the burden of having to identify irregular activity, spot red flags, and alert special investigative units of questionable activity. Today, however, successful fraud prevention requires a commitment across the claims continuum — with all parties keeping a wary eye out for the warning signs.
There are no sure-fire indicators of fraud, but there are common markers that help staff to spot dubious cases. For example, many injuries — unrelated to work — are reported on Monday morning, directly following the weekend. Disgruntled workers — with a long history of personnel issues — may file false claims as a way to get back at their employers. Other signs include claimants with several prior injuries, individuals who avoid speaking with claims adjusters, and injuries that have no witnesses or have varying accounts of the accident.
Leveraging The Latest Technology
To quickly pay legitimate claims and avoid suspicious ones, many claims organizations leverage technology to capture, access, and analyze claims data. With billions of dollars at stake, some have invested in advanced fraud detection tools, such as predictive analytics to root out potentially fraudulent patterns in the data.
In addition, with the prevalence of social media, many investigators receive direct tips from claimants. For example, investigators often read Facebook postings from injured workers, who boast of a second source of income, while collecting disability payments for a work-related injury.
Training & Education
Probably the most important factor in combating fraud is education. Employers will have valuable insight on injured workers and the related accidents. As a result, claims organizations need to partner closely with employers in anti-fraud efforts, teaching them effective techniques to investigate worksite injuries. Many claims organizations will provide employers with a list of questions to ask injured employees, explaining how such inquiries can help alert them to potential fraud.
There are many opportunities for fraud to sneak in later in the life of a claim. A worker may begin to feel better, but continue to fake or exaggerate the nature or severity of an injury. As a result, it’s important that managers and supervisors continue to play an active role in communicating with injured employees. This personal communication lets injured workers know they’re missed at work and are expected to adhere to treatment, recovery, and return-to-work (RTW) plans.
Closing Gaps In The Return-To-Work Process
If injured employers have work restrictions, employers should be able to accommodate them with modified duty assignments and workers must understand that they are expected to return in this capacity — reinforced with training and signed Human Resources policies.
However, when visiting treating physicians, many employees exaggerate the nature of their jobs, so they may be granted time off from work. This is another form of opportunity fraud.
Claims organizations can partner with employers to build an online database of essential job descriptions and pre-defined modified duty assignments. In this way, treating physicians will have “ready” access to accurate job descriptions, so they can make more informed decisions on whether to release employees to full duty or modified duty assignments. This type of database tightens up return-to-work coordination and reduces the ability for opportunity fraud to enter at this juncture of the workers’ compensation process.
Conclusion: Shutting The Door On Fraud & Abuse
Today, human intuition, intervention, and intelligence remain critical to fraud prevention. The industry needs to rely on experienced claims, nurse, and investigative professionals to collect and assess injury information and effectively communicate with claimants — and to read between the lines in order to root out potential fraud and abuse.
Technology can help to detect fraudulent patterns, but organizations must continue to rely on human discernment at critical points of the claims process — especially at the front end of an injury to make sure a claim is set down the right path from the start. Systematic processes and procedures such as the use of injury hotlines, triage nurses, treatment protocols, and preferred providers can help to shore up opportunities for fraud and abuse to sneak into the system.
In addition, training, education, and signed Human Resources policies help to ensure employers and employees understand the expectations regarding their respective roles in the claim and return-to-work process. All of these components contribute to a comprehensive and integrated approach that helps to prevent fraud and abuse from ever entering the workers’ compensation system.
1 Madsen, Kirk, Claims Magazine, “Fraud Triage Programs: Strategic Decisions for Better Detection,” February 2010.
2 Madsen, Kirk, Claims Magazine, “Fraud Triage Programs: Strategic Decisions for Better Detection,” February 2010.
3 Hoelle, Tim, Florida Underwriter’s Magazine, “Arresting Workers’ Compensation Fraud,” May 2010.
4 Violino, Bob, Insurance Networking News, “Fighting Fraud One SIU at a Time: Special investigative units are increasing the use of analytic technologies to identify suspicious claims,” November 2, 2011.
5 Vowinkel, Patricia, Risk & Insurance, “Flagging fraud: spate of deals, partnerships shows how serious carriers are about fighting fraud,” June 1, 2010.
6 Hoelle, Tim, Florida Underwriter’s Magazine, “Arresting Workers’ Compensation Fraud,” May 2010.