Tag Archives: workers comp fraud

How AI Can Stop Workers’ Comp Fraud

Wondering how AI can help detect medical provider scams? Wonder no more.

Artificial intelligence (AI) is redefining work in nearly every industry thanks to the increase in accuracy, efficiency and cost-effectiveness that AI-based applications offer. One of the latest industries to benefit is insurance, where applications are now being deployed to help detect and reduce provider fraud through advanced predictive tools. Claims payers identify fraudulent providers early in the life of a claim and root out bad actors while saving organizations millions of dollars.

The Fraud Problem

Fraud involves deliberately presenting false information to extract a benefit. The most common examples of provider fraud include “phantom billing” (billing for services not rendered), submitting bills for more services than are possible in a provider’s day, providing services unrelated to the injury, using unlicensed or non-credentialed individuals to provide medical services, getting paid kickbacks in exchange for sending patients to third parties and referring patients to entities (such as laboratories or testing facilities) in which the provider has an ownership interest.

While most providers do not engage in fraud, those that do are extremely costly. According to the National Insurance Crime Bureau (NICB), workers’ compensation medical fraud costs approximately $30 billion per year in the U.S. alone.

Fraudulent provider behavior is hard to detect and prove, particularly in workers’ compensation data systems. Advanced data analytics based on AI, however, offers opportunities to overcome the inherent weaknesses in these systems while developing methods to identify and curb provider fraud. Let’s take a look.

Fragmentation of Payers

One of the biggest issues in provider fraud is that no one organization has more than 5% of workers’ compensation market share, so none can see the entire picture of a provider’s claims. This can cause a whole host of issues. For example, if one company has identified a fraudulent provider, other companies may not have this information and continue payments. In states where fraud information is publicly available, providers simply begin practicing in other states, avoiding the state that sanctioned them.

Using AI tools, however, organizations can tap into multipayer pools of aggregate information to spot fraudulent patterns quickly and reliably without compromising payer, employer and employee information. It also makes it easier to flag and curb behavior across a multipayer database.

See also: Untapped Potential of Artificial Intelligence

Inaccurate Provider Identification

The constantly changing complexity of provider identification is another major challenge. Data is often tied to names. Fraudulent providers know this system weakness and frequently change their organization names and addresses as well as other identifiers.

Using AI, data scientists can now reliably link multiple bills from the same provider using a National Provider Identifier (NPI) developed by the Centers for Medicare and Medicaid Services (CMS). Almost all providers have an NPI, and some have more than one. When supplemented with taxpayer identification (FEIN) numbers and license numbers, NPIs can reliably identify 95% of medical providers. As a result, machines can overcome the name game, detecting the long-term, multiyear activities of almost all providers and provider organizations.

Long Lag Times

The interval between when an instance of fraud occurs and when it is detected is often several years. For example, a provider may submit a bill on day one for services unrelated to the injury; the bill will be submitted for review 30 days later and will likely be paid in another 30 days. This practice will be repeated dozens of times by the same provider on the same patient over the course of months. If fraud is detected, the provider will have already been paid, and financial recovery is difficult.

To combat this problem, AI can detect the entire course of treatment on the same claim from the first through subsequent billings over multiple years. Software tracks the diagnoses and the number of procedure codes billed by the same provider on the same claim — per day, per month and per year. As a result, claims staff receive real- time alerts and can intervene when a fraudulent provider initiates treatment on a claim.

Complex Provider Supply Chains

The entire fraud supply chain often includes attorneys, medical providers, outpatient and inpatient facilities, interpreters, testing facilities, medical device suppliers, pharmacies, copy services and transportation services. Unless data sets capture all or most of these moving parts, the chance of detecting fraudulent patterns is very difficult.

With AI, it’s getting a lot easier. Data scientists can use aggregated data to track sequences of out-referral and in-referral, exposing links between fraudulent individuals and entities. Sophisticated techniques isolate consistent and repeatable patterns of relationships between multiple providers and third parties. Data scientists then can graphically display suspicious network clustering patterns inherent in fraud networks.

And these are just a few examples of how AI tools can greatly increase the detection of fraud.

See also: Impact of COVID-19 on Workers’ Comp

Defining the Future of Claims

AI differs from more traditional research approaches because it can generate its own rules to detect fraud and look across large data sets nearly instantly. Via machine learning, databases are continually refreshed, becoming smarter and more effective all the time. By incorporating AI-based solutions, insurance payers can defeat fraud at a systemic level and realize significant financial benefits in return.

As first published in The CLM.

Identifying Fraud in Workers’ Comp

Workers’ compensation fraud creates a financial and administrative burden for employers, while increasing hardship for injured workers with legitimate claims. The early identification of potential fraudulent cases and quick action by workers’ compensation third party administrators can help make sure workers’ compensation programs run as efficiently as possible in providing needed help for injured workers.

The following are some best practices employers can implement to reduce fraud, as well as guidance on what to do if a claim is “not quite right”:

Identify Questionable Claims

Here are some of the “red flags” that may help identify fraudulent claims:

  • The employee does not immediately report the injury to his/her supervisor.
  • Information indicates the employee was injured somewhere else (auto accident, playing sports, etc.).
  • The facts of the injury do not align with the type of injury or disability.
  • The employee misses doctor appointments related to the claim.

Follow the Process

Even if an employer suspects a claim could be fraudulent, the employer must still follow the process to ensure the claim is submitted appropriately and the worker obtains medical treatment.

  • The employee still must complete a Claim Form (DWC-1).
  • The employer still must provide medical treatment within one day of notice of injury.
  • The administrator has 14 days to issue a delay letter, during which no temporary disability will be paid.
  • The administrator then has 90 days to either accept or reject the claim, during which time the administrator may solicit additional information.

See also: Real or Fake? Finding Workers’ Comp Fraud  

Investigate Promptly

Once a potential fraudulent claim is identified, it is imperative that investigations are initiated promptly. Investigations should be thorough, impartial and preventative. Using an outside party that specializes in workers’ compensation fraud investigation will ensure that the case is handled in accordance with all regulations and will hold up in court if there is a trial. Remember, only a court of law can determine fraud – not the examiner or the employer. These investigations can include:

  • Interviews with the injured worker
  • Interviews with coworkers
  • Witness interviews
  • Manager/supervisor interviews
  • Surveillance of injured worker

Upon the conclusion of the investigation, any relevant findings and evidence should be presented to the district attorney’s office as well as the Department of Insurance.

Increase Awareness

One of the best tools for fraud prevention is to let employees know that false claims will not be tolerated and that there are stiff penalties. It also helps to provide employees with easy ways to report any potential fraud that they see.

  • Post the penalties for filing false claims on your new hire pamphlet.
  • Hang a poster in the break room letting employees know how to report fraud anonymously.
  • Share stories about fraud convictions to deter abuse.

One recent example of identifying, investigating and prosecuting a fraudulent claim was in the conviction of a school bus driver in San Mateo County in California in July. The claims examiner identified numerous inconsistencies in the medical reports versus the statements provided by the employee. There were alleged migraines and double vision, but tests did not support these symptoms, and it appeared that they were exaggerated. Investigations were initiated, and the employee was observed participating in activities that were not consistent with any claimed injury.

The investigative evidence was forwarded to the San Mateo County district attorney’s office, which obtained a conviction; the defendant was ordered to serve 60 days in the county jail and pay restitution of $60,000 to his employer.

See also: Workers’ Comp Issues to Watch in 2019  

Organizations must implement a comprehensive strategy to curb fraud. Vigilant fraud prevention programs and investigative efforts can save a company hundreds of thousands of dollars by preventing the filing of fraudulent claims and prosecuting those who take advantage of the system.

Real or Fake? Finding Workers’ Comp Fraud

Security cameras in a company cafeteria recently captured a brazen attempt to fake a workers’ compensation injury. The video shows that the man dumped a cup of ice onto the floor, disposed of the cup and then lay down on the floor as though he slipped on the ice. Prosecutors have charged the man with insurance fraud and theft by deception.

In this case, the fraud was well-documented. But most employers do not have cameras in their lunch rooms or other areas of their work places. It can be very difficult to prove someone has faked an injury in the workplace without cameras catching the person in the act. But the consequences of undetected workers’ compensation fraud are enormous. Fraud is a costly financial burden to employers and taxpayers, and it interferes with providing benefits to the vast majority of injured workers with legitimate claims.

See also: Workers’ Comp Issues to Watch in 2019  

If an employer suspects an employee has attempted to create a fake injury or fraudulent claim, there are several steps to follow up on right away:

  • Identify and interview any witnesses to the injury.
  • Check to see if there was anything unusual in the area where the injury occurred (items on the floor, wet floor, torn carpet)? If the injured worker is alleging he tripped on something, secure the evidence and take pictures of the site.
  • Determine if there was anything unusual about the injured worker prior to the injury (limping, favoring any body parts, etc.)? An abnormality could indicate an attempt to reframe an existing non-occupational injury as a workers’ compensation claim.
  • Check to see if the employee ise on social media and review for any physical activities.
  • Obtain an Insurance Services Office claims report to see if the injured worker has a history of claims.
  • Take several statements from the injured worker – look for conflicting information.
  • Assign surveillance to determine if the injured worker is participating in activities inconsistent with the reported injury or has taken alternative employment during the disability.

Faked injuries may also be an indication of fraud perpetrated by dishonest medical providers or attorneys who operate “claims mills.” These fraud schemes recruit workers to submit fraudulent claims, can generate millions of dollars of undeserved benefits and affect employer loss experience, resulting in higher workers’ compensation premiums. It’s important that claimants understand that their participation in reporting fraudulent claims exposes them to prosecution and severe penalties.

Below are several “red flags” that could be indications of a faked workers’ compensation injury:

  • There are no witnesses to the injury. Was it unusual that the employee would be alone or out of place at the time of the injury?
  • Injury occurs at the end of the day on a Friday or on a Monday morning. The worker may have sustained a non-occupational injury over the weekend.
  • The employee changes the story about what happened. The statement to a treating doctor is different from what the person reported to the emergency room or put on the initial report of injury.
  • The worker has a history of previous claims. Someone who has received significant workers’ compensation payments previously may try to go to the same well again.
  • There’s a delay reporting the injury. If a worker reports an injury months after it allegedly occurred, it could indicate the possibility the claimant was recruited by a claims mill.
  • The worker is disgruntled, on disciplinary action or involved in a labor dispute. Employees may use a workers’ compensation claim to retaliate against their employer, or delay termination.
  • The worker (or a medical provider) refuses certain diagnostic tests or imaging. Avoidance of examinations that could confirm the existence of the reported injury is a key fraud indicator.
  • The injured worker has significant financial problems. The claimant may be trying to find a way to gain additional funds through a fraudulent claim.
  • The injured worker is hard to reach during the disability. A worker who does not return phone calls or emails could be avoiding requests for additional information or could be employed elsewhere.
  • The worker refuses modified-duty work or other return-to-work protocols. It could be an attempt to prolong the disability and could be a tactic of unscrupulous medical providers to get additional money.

See also: The State of Workers’ Compensation  

Employers who suspect a faked occupational injury or other workers’ compensation fraud or abuse should seek assistance from their insurer or claims administrator. Potentially fraudulent claims are referred to the Special Investigation Unit (SIU), and cases with enough evidence are sent to the district attorney for prosecution.

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.