September/October 1999
Workers’ comp fraud can happen in any company, including yours. Here’s how to prevent, detect, and—if necessary—combat it.
By Lynn R. Novelli
Lynn R. Novelli is a writer based in Russell, Ohio
In 1995, a New York man finished in the top 2 percent in the New York Marathon while collecting workers’ compensation for a foot injury.
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A 34-year-old California woman recently won a bodybuilding championship a week after her workers’ comp coverage for a back injury ended.
These true stories of workers’ comp fraud are so outlandish that they’re humorous—except to the insurance carriers and employers involved. To them, there’s nothing funny about paying millions of dollars in compensation to crooks.
Though the true scope and financial burden of workers’ compensation fraud is difficult to determine, the National Insurance Crime Bureau (Palos Hills, Ill.) estimates that 2 to 20 percent of all workers’ comp claims have an element of fraud or abuse at a cost of $5 billion a year.
Workers’ comp fraud happens in every type of company—from small businesses insured by third-party carriers to large self-insured firms—and is perpetrated by every type of employee—white collar, blue collar, educated, and uneducated. Also, the motivations behind workers’ comp fraud are as varied as the people who engage in it.
Certain patterns exist, though. And employers who understand some of the reasons why employees get involved in fraud can look for the red flags that might signal trouble.
Start With Safety
Before you can adequately protect your company from workers’ comp fraud, you have to first admit that such fraud is commonplace and can happen in your firm.
It’s also important to understand the difference between insurance fraud and abuse. Abuse occurs when a person uses the workers’ comp system in a way it isn’t intended. For fraud to exist, the person must knowingly lie to obtain some benefits or advantage.
Worker’s comp fraud experts note that for fraud to occur, there often exists a triangle of:
- opportunity (for instance, the employee isn’t properly supervised, there wasn’t an adequate accident investigation, or there was no background check during hiring),
- rationalization (such as employees feeling that they deserve more from their employer), and
- personal or professional pressure (including financial or domestic trouble, or fear of being laid off).
If these three elements exist in your company, there’s the potential for workers’ comp fraud.
Bob Lee, a fraud investigator with Investigative Options (Phoenix), can offer many examples of such fraud.
“Sometimes a worker doesn’t have health care coverage, so he’ll fabricate a story that an injury happened at work when it really happened at home,” Lee says. “Or he thinks his job is in jeopardy, so he tries to extend his workers’ comp payments. Or he has a grudge against the company and thinks he’s going to get back at it or get what is ‘rightfully’ his. Then there’s a percentage of workers who just want time off with pay, and workers’ comp looks like paid vacation.”
Though fraud is widespread, it isn’t insurmountable, says Sherrie Wyatt, director of the Center for Corporate Health at the Cleveland Clinic. “If there’s one thing you can do to protect your company against workers’ comp fraud and abuse, it’s to create the right work atmosphere,” she says.
How employees view their jobs and the company has a lot to do with how inclined they might be to try to take advantage of the system. “If workers see the company as trying to protect them from injury and as having a sincere interest in taking care of them when an injury occurs, they’re less likely to feel the need to defraud,” says Wyatt.
The easiest and least expensive way to start building this kind of corporate culture is to do everything possible to reduce injuries by implementing a top-notch safety program. That shows employees that they’re valued, reduces opportunities to abuse the system, and makes faking an injury more difficult.
“Work with your safety team to develop a comprehensive safety plan, communicate it to employees, and enforce it,” says Sandy Yaffi, a special investigator with the Arizona Department of Insurance Fraud Unit (Phoenix). For example, let employees know that all safety devices on equipment must remain in place and personal protective equipment must be worn. Maintain equipment in good condition and commit to ongoing safety training, including the ergonomics of lifting, loading conveyors, and material handling.
It’s important to make sure that your safety committee includes hourly employees, preferably some familiar with workers’ comp issues and injuries, Wyatt suggests. They’ll know the shortcuts coworkers take to boost production or take a longer cigarette break—the very shortcuts that put them at greater risk of injury.
Once you have a comprehensive safety program in place, Wyatt recommends going the next step and rewarding employees for accident-free time. This is one of those strategies that costs a little up front but can save a lot in the end, she says.
Typically, incentive programs that work best are those that reward an entire work group or plant for reaching no-lost-time milestones. Positive peer pressure is what makes this technique effective in reducing injuries and workers’ comp fraud, says Wyatt, noting, “No one wants to be the guy who spoils the reward for everyone else.”
Reporting and Red Flags
Your goal should be to convey the message that the company treats its employees fairly, expects fair treatment in return, and won’t tolerate anything less.
To give meaning to the message, the company should have a clear, written policy on what employees and supervisors should do when an injury occurs. The policy should specify how to report an accident and where to seek emergency treatment. It should also note the company’s expectations for return to work. Supervisors should be trained in how to carry out all elements of the policy and how to communicate it to their work groups or teams.
How promptly and thoroughly injuries are reported can set the tone for what happens later. “The number-one rule is that injuries must be reported to the supervisor immediately,” Yaffi says. “That’s the only way you’re going to get a clear picture of what happened.”
She advises making a small-scale investigation on every claim when it’s reported. Get a statement from the injured employee, then get reports from eyewitnesses. Be sure to include the name, address, and phone number of every witness. “This information takes a little more time to get, but it’s essential, especially if you have a transient work force or high turnover in certain positions,” she says. “You may need to reach these people later.”
Doing this for every injury reinforces the message that employee safety is important to the company. But it also makes it clear that every injury will be investigated.
Certain elements that come to light during the reporting process should be considered fraud alerts, says Lee. An employee’s failure to report an injury promptly should be the first warning sign. Other red flags that Lee has learned from experience include:
- No witnesses to an injury;
- Discrepancies between the injured employee’s account and the witnesses’ account of the injury; and
- Sketchy information from the employee about the date, time, place, and other key details of what happened.
Especially be aware of the timing of an injury, Lee advises. A classic example of workers’ comp fraud is the employee who is working around the house over the weekend, injures himself, manages to make it to work Monday morning, and claims a work-related injury.
To alert supervisors, injuries that happen on Monday, those that occur prior to a termination, layoff, strike, or retirement, and those that happen shortly after an employee is hired all merit careful review. Plus, injuries claimed by a disgruntled employee or one who has been counseled about his behavior or attitude always should be regarded as suspect until proven otherwise.
Lee recommends that supervisors and risk managers keep a list of these red flags with their injury reporting paperwork or posted near their desk. Most insurance carriers can provide such a list.
A Little Care Goes a Long Way
The next step after an injury is reported is making sure the injured employee receives prompt, appropriate care. Plan in advance where injured employees will receive care. And make sure they’re under the care of an experienced occupational medicine specialist, as that can increase the chance that they’ll be returned to work as early as possible. It also reduces the employee’s opportunity for fraud or abuse and lessens your exposure to provider fraud.
If possible, establish a relationship with a nearby occupational health clinic that offers 24-hour medical care, and tell employees it’s the preferred provider for occupational injuries. Offering one cautionary tale, Lee recalls the case of a man with a back injury who went to his private physician. “The doctor hated the company because of what the man told him,” he says. “The man had that doctor convinced that the company was abusing him, ordering him to work beyond what he could.” The doctor saw the company as the enemy and wanted to help this poor, injured man stay off duty as long as possible.
Understand that the first few hours following a workplace injury are frightening to the employee, who may worry about his or her job status, medical bills, salary, family, and more. “This is the time that your company should be by the worker’s side,” says Mike Mattia, ISRI’s director of risk management. “Reassure the employee that their job is protected, that the medical bills are covered, that they will receive at least a large portion of their salary during their recuperation. And make sure they know they can call with the smallest question.” If you aren’t there for the employee during this difficult time, Mattia asserts, his or her fear can turn into anger toward the company, and this anger can then become a desire not to return to work.
That phenomenon, called “malingering,” is the most common type of workers’ comp abuse. The psychology behind malingering is this: The longer an employee is off duty due to an injury—and the more alienated from the company he or she feels—the less the employee wants to return to work. “Initially the injured employee misses the social contacts of work, and the pull is very strong to return to work,” Yaffi says. “As time goes on, the pull lessens until the employee doesn’t miss work and establishes a new routine that doesn’t include going to work.”
That’s why it’s critical to stay in touch with an injured employee throughout his or her recovery time. “Make the employee feel wanted back at work and that the company cares that they were injured,” says Mattia.
That’s why it’s also critical to get employees back into the work environment for at least a few hours a day during that period when they still miss going to work, Yaffi advises. That means offering a light-duty program and informing injured employees that they’re expected to participate in it as soon as the doctor releases them.
During light duty, also called transitional or alternate duty, the employee receives partial salary and the balance is made up by workers’ comp to equal the amount he would have received from workers’ comp alone. Set a definite time limit for light duty, usually six weeks. “Even if someone has had surgery, usually by six weeks it’s clear whether the employee will be able to return to full duty, or if some permanent change is needed,” says Wyatt. “Setting a time limit will make the employee and the doctor reach a definite decision.”
Working closely with the doctor and the clinic that’s treating your employees will make your light-duty program successful. When you have good communication, the doctor knows that you want employees released as soon as they’re ready for light duty. At that time, the doctor will write specifications regarding lifting, standing, or other limits that will help your human resources department determine where to place the returning employee.
Double-Dipping the System
Collecting full workers’ comp benefits while working somewhere else is another common form of fraud. This one can be tricky to prosecute—unless you maintain good communication with injured employees, says Yaffi. “Don’t assume that employees know the rules. You must tell injured workers that they’re required to report any other source of income and you must document the conversation,” she says. “For example, human resources should be calling employees who are out on workers’ comp and asking them what they’re doing, are they working, and, if so, where.”
Without documentation that your human resources department ever had this discussion with the employee, proving in a lawsuit that the employee intended to defraud is difficult, says Yaffi. “The employee can say that nobody told him, and that defense will stand up in court.”
This scenario reinforces the importance of maintaining contact with employees who are at home receiving workers’ comp. Sending a get well card, calling occasionally, and making sure the employee receives company newsletters are all simple, inexpensive gestures that will keep your company connected and make the employee feel he’s still part of the team. Employees who get positive support like this from their company are less likely to commit fraud.
Even if you’ve informed the employee fully about the rules and are communicating regularly with him, keeping your eyes open and your ear to the employee grapevine is still a good idea, says Lee. Rumors among coworkers can clue you in about an injured employee working elsewhere. Lee’s list of warning signs also includes difficulty in reaching the person during the day and—amazingly—a new employer calling to verify the injured worker’s previous employment.
Calling in the Experts
If you have a third-party workers’ comp carrier, it can be your greatest ally in detecting and following up on workers’ comp fraud and abuse. In the past few years, insurance companies have taken a more aggressive stance on fraud. Many companies now have their own workers’ comp fraud investigators and, in some states, support a state insurance fraud investigation unit.
“Early intervention is very important, so report to your workers’ comp insurance adjuster as soon as you have any suspicion that fraud or abuse is taking place,” says Lee. “The longer you take to process a fraudulent claim, the harder it is to investigate.”
Companies that are self-insured can call a private fraud investigation company or report possible fraud to the state insurance department fraud bureau, he adds.
Your adjuster will work with an investigator to determine if fraud exists. Investigators are aggressive in pursuing possible fraud, and sometimes just the knowledge that an investigator has been called in is enough to make an employee abandon his scheme and go back to work. Lee makes “cold calls”—that is, unexpected visits—to people’s homes in cases of suspected fraud. These visits are very effective, he says, in resolving problems and uncovering information.
“I had a case of a man who was on no-work status due to back pain,” says Lee. “As I walked up his driveway, there he was, bent under the hood of his car, installing an alarm system. When I introduced myself, I could see the beads of sweat break out on his forehead. We talked about the situation, and he decided to withdraw his claim.”
Many times a conversation is enough, but it isn’t always that simple. When necessary, an investigator will conduct video surveillance and even tail people to obtain the necessary evidence.
The last word of advice from the experts is this: When you uncover fraud, be prepared to prosecute. Workers’ comp fraud is a felony, punishable by imprisonment. When employees know that a company takes such fraud seriously and prosecutes offenders, that can create a strong deterrent.
Preventing and prosecuting workers’ comp fraud essentially comes down to a bottom line issue, says Yaffi. “The thing that most affects your premium is disability,” she says. “Every dollar the insurance company doesn’t pay is a savings to the employer in premiums.” •
Workers' comp fraud can happen in any company, including yours. Here's how to prevent, detect, and--if necessary--combat it.