Tag Archives: fraud

Napoleon's Corporal And The Implementation Of Senate Bill 863

SB 863 was passed on the last day of August 2012. It is the largest and most comprehensive change to the California workers compensation system since April 2004 when SB 899 passed.

To make sure that the new law is implemented properly, the California Division of Workers Compensation and the Workers Compensation Appeals Board have both promulgated extensive regulations. Some of the regulations, by their nature, were considered “emergency” and were approved by OAL on December 31.

Because of the extensive impact of the various articles in the legislation, there will be ongoing regulatory efforts at least through the first six months of this year.

I strongly encourage all claims operations to review these regulations and provide their insight, thoughts, and comments on a timely basis to the Division of Workers Compensation. You can find all of the regulations on the California Department of Industrial Relations web site or the California Division of Workers Compensation web site.

Implementing SB 863
On the front lines there are many legitimate questions, such as:

  • How much of the new law applies to my existing cases?
  • If I have started Permanent Disability (PD) advances, and if the employee has returned to his/her regular work, do I still need to advance Permanent Disability?
  • What is Independent Medical Review (IMR)?
  • How will I pay for the Independent Medical Review evaluation?
  • Under what circumstances will I have to use Independent Medical Review?
  • What happens if I have an old case and the applicant attorney claims a sleep disorder?
  • What are the new ways to rate Permanent Disability?
  • What happens if the lien holders have not paid their lien filing fee?

To assist with helping claims operations and claims departments implementing the new law, I have provided an SB 863 Implementation and Survival Guide, organized by Mark Webb. It is intended to assist claims operations in the day-to-day implementation of SB863.

The original wording of the bill can be viewed here.

Napoleon's Corporal
Napoleon Bonaparte conquered most of Europe and North Africa. Many do not know the inside story of why he was a successful a military leader. One reason was his unique and extensive use of cannon. However he also had a secret weapon … His advantage was his use of a corporal.

Napoleon realized that war was a complex endeavor. When his generals outlined the battle plan, he had a random corporal assigned to shine his boots. After the plan was explained to Napoleon, he would look down at the corporal and ask if he understood the plan. If the corporal (who had been listening to the explanation of the plan) understood, Napoleon would then authorize the attack. However if the corporal was confused or did not understand the plan, then Napoleon had his generals re-do the plan to simplify it.

Napoleon understood that it was his front line that needed to execute the battle plan. If the plan was confusing, the front line would not be successful.

I recommend that this concept be considered when implementing SB863.

Here are some additional comments and observations on developing claim procedures to implement SB 863:

  • Usually the best and the brightest are used to develop procedures in claims departments. That does not always result in simple processes. This is because the focus is usually only on compliance with the new laws (which does not include simplifying the existing processes or the new process).
  • When the claims departments are developing their policies, rules and procedures, front line claims assistants and examiners should be included in the development of the processes and should also review the proposed plans to determine if they can be understood and implemented.
  • Unfortunately many times the new procedures result in processes that reflect the axiom “we have always done it this way.” Include folks who think “out of the box” and allow their voices to be heard.
  • SB 863 will result in major changes within the claims offices procedures and claims handling. Now is the time to take advantage of the change and embrace the change rather than to resist the change.
  • The focus on implementation should be: Benefit provision, Compliance, Cost Savings, Simplification, Documentation, Training.
  • For many claims adjusters, this will be the third system that they will be working with (Pre-899, 899 and 863).
  • Segregating claims by system may help but is not a panacea (because many of the provisions of SB863 apply to all existing claims).
  • Claims systems will also have to be changed. Limitations of some of the claims systems will result in problematic work-around procedures for awhile.
  • Sometimes working out a manual process first allows one to identify efficiencies. Do not be afraid to use a manual process for awhile (as the bugs are worked out).
  • Regular reviews of the implementation team specifically focused on simplification are productive.
  • The team should have a dedicated focus on the new law's cost-saving provisions.
  • The team should keep track of its costs and also develop an analysis of costs of implementing the laws.
  • The new laws may change the claims staffing model.
  • Third Party Administrators should notify their customers of the potential increased costs (Permanent Disability, for example) and also projected savings (lien reduction and resolution).
  • Third Party Administrators should review their contracts with their customers to determine if the changes in the laws impact their current pricing models and are best for their clients and for their success.
  • Bill review vendors and Utilization Review companies both have major changes to implement.
  • Special Investigations Units and Fraud Reporting have new issues to report because of the increased conflict of interest provisions in the law. Include the Special Investigations Unit as part of the implementation team.
  • I recommend an implementation team include: A senior claims executive, a senior claims supervisor, a claims examiner, a claims assistant, a bill specialist, a hearing representative, a finance person, a claims system expert, an attorney who knows the new law, and a person who is responsible for documenting the discussions, processes and procedures.
  • Training of the entire staff will take more than just one meeting and more than one month. Assume that there will be a need for re-training on a regular basis for the first nine months.

Medical Fraud By Identity Proliferation

Using Data To Define Quality Performance Based Networks
People in Workers’ Compensation are beginning to power up their data to gain insight and objective decision support to structure their provider networks. To do that, physician and other provider performance is evaluated based on actual performance evidenced in the data. That seems simple enough on the surface, but it is fraught with challenges. A few are described here, along with a case description of fraud by data proliferation.

Primary Provider
Evaluating the data to determine provider performance quality is tricky. For instance, who among those treating a claimant should be held most responsible for claim outcome? Which provider is the so-called primary provider? Is it the first provider to see the claimant, the provider who has charged the most money, or the one who saw the claimant most frequently? There is no specific indicator in the data denoting primary provider, nor do providers generally self-identify in that way unless they are involved in a formal gatekeeper arrangement. Consequently, for analytic purposes a decision must be made regarding provider influence in the claim, aka, primary provider.

Distinguishing Individual Providers
Another common problem is that individual providers are often not differentiated in the data. Many payers accept bills “as is,” meaning they do not require the billing entities to specify individuals. Typically, individual physicians and other providers are camouflaged under the organization’s Tax ID. In the past, that was adequate because the purpose of the bill was to pay and record the transaction. But that is no longer good enough because of the demand for analytics.

Bills are now a significant piece of the data required for provider performance analytics. Therefore, for individual treating providers, the National Provider Identification number (NPI) or state license number is needed to recognize single medical doctors or other professionals treating claimants. Unfortunately these identifiers are usually not included in the data. Withholding payment is the most powerful method of generating compliance and payers have that power.

Moreover, among data issues, deliberate identity proliferation is even more damaging to accurate provider performance analytics.

Identity Proliferation
Medical fraud surfaces in many forms. Duplicate billing, up-charging, and optimizing charge codes and diagnostic codes (up-coding) are among the most common, but now newly creative methods are being employed by a few. Perpetrators are obfuscating the data to conceal their poor performance by proliferating their identities in the data.

By altering names or addresses slightly, thereby adding to their number, providers are able to cause the system to recognize each variation as a separate entity. That way, multiple provider records are created in the data, even though they are really all the same individual. Proliferating provider records in a data set effectively skews the results of performance analytics.

A Case Of Data Proliferation
Provider identify proliferation was discovered recently when a monthly billing report for an organization was analyzed. Fifty (50!) different name and address iterations for the same medical provider Tax ID were discovered. This had been attempted previously, but this time, the effort was extreme.

Is this provider representing themselves carelessly? Probably not. The provider knows computer systems consider data literally, so each submission would generate a new record, the hoped-for result. Without investigation, the provider’s billing will not be questioned, yet when the provider’s performance is analyzed, the results will be distorted and inaccurate.

The provider vendor will be paid because all 50 iterations have an acceptable Tax ID. However, the problem surfaces when executing provider performance analytics. Different claims are attached to the 50 different records for the provider rather than consolidated in one record for the provider. Performance indicators are distributed across the faux entities rather than consolidated for the single provider, thereby distorting performance results, a new-age form of medical fraud.

Real Solutions
As with many forms of fraud, the solution is to discover and subvert the effort early. Evidence-based quality networks composed of quality individual providers cannot be created using such distorted data. Payers should monitor their data to discover and expose such behavior as it occurs.

Payer systems are culpable, as well. Systems should be designed or updated so that multiple record entry is thwarted, either through administrative procedures for data entry or simple technical methods. Including individual identifiers such as National Provider Identification and state license numbers will add to the solution, forcing accuracy in provider records.

For the case described here, an additional solution was implemented. The multiple provider identities were merged electronically by the analytics company, thereby integrating the occurrences for this perpetrating provider. As a result, the provider’s performance can be analyzed as a whole rather than in fragments.

Because claims actually associated with this provider are distributed across the multiple artificial provider records in the data, analysis of performance is inaccurate. Not surprisingly, when this provider’s data was merged and re-analyzed, the provider ranked in the lowest performance quartile. Gotcha.

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.