Understanding Workers' Compensation Fraud and Noncompliance

Understanding Workers' Compensation Fraud and Noncompliance

In many cases, a workers' compensation claim proceeds through the system with every involved party cooperating and playing by the rules. However, in an increasing number of cases, someone tries to cheat the system and commits "fraud" or fails to comply with the laws in an effort to get more benefits, receive a bigger reimbursement, or save money. Contrary to popular belief, employers can commit workers' compensation fraud and employees can fail to comply with the laws. The following is an overview of the types of workers' compensation fraud and noncompliance which can be committed and the toll which they have on the system.

The Laws

• Nearly every state has some type of law that prohibits workers' compensation fraud and establishes punishment for offenders. In some states, if a person or entity is found to have committed fraud, they can be charged with a felony offense. In almost every situation, an employee who commits fraud will be denied future workers' compensation benefits and may be required to pay back the value of any benefits already received.
  
  
• The number of individuals who are charged with workers' compensation fraud at the state level each year is significant. For example, statistics from the State of Missouri indicate that in 1999, there were 380 cases of workers' compensation fraud investigated by that state's Fraud and Noncompliance Unit. That Unit handled an additional 705 cases of workers' compensation noncompliance in the same year.

Employee Fraud

• Employees can commit fraud upon the workers' compensation system when they fake injuries, fail to make valid efforts to return to work, refuse to cooperate with efforts to rehabilitate them, or accept payments from more than one source for the same injury.
  
  
• Employee fraud can take a monetary toll on the workers' compensation system and can have a negative effect upon workplace relations, as employers become more and more suspicious of employees who claim to be injured or unable to work.
  
  
• Although there should be a concern for preventing employee fraud, studies have shown that in actuality, employee fraud is less common than employer fraud and is significantly less costly. In most situations, an employee will be hard-pressed to get away with fraudulently obtaining more than a few thousand dollars worth of workers' compensation benefits. However, employer fraud (particularly for large companies) can "save" a company potentially millions of dollars per year.

Employer Fraud

• The statistics from the State of Missouri show that in 1999, 705 different businesses allegedly failed to carry the requisite workers' compensation insurance as required by law. Of those businesses, 426 were in the retail sector. The next highest sector, construction, accounted for 185 of the businesses failing to carry proper insurance.
  
  
• Employers who fail to carry workers' compensation insurance when required by law place the health and well-being of their employees at risk. In addition, these injured employees are often paid benefits through a state fund financed in part by tax dollars of all citizens. In these cases, an offending employer may expose itself to civil or criminal liability.
  
  
• Premium fraud involves the intentional non-reporting or under-reporting of information by a company to its insurance carrier in an effort to avoid higher premiums for insurance coverage. For instance, an employer may try to claim that employees in high-risk positions (which require a higher premium) are working in low-risk positions in order to save money. In 1998, the California State Fund estimated that premium fraud of this nature cost Los Angeles County upwards of $96 million annually.
  
  
• Premium fraud results in higher prices, across the board, for insurance coverage and in turn results in fewer jobs as fewer employers can afford workers' compensation insurance coverage.
  
  
• Employers may also face legal problems if they encourage injured workers to seek treatment under group health insurance rather than workers' compensation or if they otherwise discourage employees from filing workers' compensation claims.

Medical Provider Fraud

• Medical provider fraud can take a number of different forms including:
  
  
  • Over-billing: Occurs when a provider bills for services not actually performed;
    
    
  • Self-referral: Occurs when a medical provider refers a patient for additional testing or care to a facility in which the provider has an interest;
    
    
  • Unbundling: Occurs when a provider performs one service, but breaks it up into smaller services for billing purposes; and
    
    
  • Up-coding: Occurs when a provider bills for a more expensive treatment than the one that was actually performed.
    
    
• With the advent of managed care, there are new types of medical provider fraud including, among others, the use of illegal kickbacks by medical providers. A kickback occurs when a medical provider receives a "bonus" for referring injured individuals into the program.
  
  
• Medical provider fraud, as with employer fraud, costs everyone in the end because it results in higher costs for medical care and treatment.

Penalties

• In many cases, a party who commits fraud or fails to comply with workers' compensation laws is required to pay money into the state workers' compensation system. This money, particularly for noncompliance issues, can total millions of dollars per year being paid into the system.

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