Fighting Workers' Compensation Fraud; "Red Flags"
By James Bond, J.E. Bond Investigations of California



The following represents material compiled from various sources, including the California
Department of Insurance, Alameda County District Attorneys Office, as well as from the our own
files.

Attorney Fraud

Such fraud arises when attorneys knowingly participate in the misrepresentation
of the truth in order to either secure or deny compensation for their clients and/or
themselves.

Examples:

Knowingly assisting a client in pursuing a false claim;
Soliciting a person to file a false claim;
Knowingly pursuing collection of a lien the attorney knows to be fraudulent;
Related criminal acts that feed fraud, such as accepting consideration from or paying
consideration to doctors, vendors, cappers, or others for referral of clients or settlement of
cases.


"Red Flags":

The majority of claims in which a law firm is involved are of a highly questionable nature;
A letter of representation is received, but the applicant denies representation or meeting
with the attorney;
In what is referred to as solicitation fraud, several employees from the same employer have
reported similar injuries and are represented by the same law firm.


Adjuster Fraud

This occurs when a claims person purposely misrepresents the truth in order to
either deny or support a claim; or offers or accepts any form of consideration for
the referral or settlement of a claim.
Examples:

Accepting a gift, such as a television or trip to Hawaii, from a doctor's office in exchange
for an implied promise or patient referrals;
Knowingly referring cases for rehabilitation services that are not needed, in exchange for a
rebate or other form of consideration;
Altering the evidence in a claim in order to support a denial.


"Red Flags":
  • Inconsistent application of cost-containment measures or agreement to pay above the fee
  • schedule;
  • Sloppy observance of procedure for referrals to outside vendors, or increase in the use of a
  • particular vendor, to the exclusion of others;
  • Use of vendors outside the preapproved vendor panel;
  • Assignments made to vendors where the need for the assignment is questionable;
  • Adjuster has social relationship with an applicant's attorney or doctor;
  • Adjuster is overheard soliciting, or is observed receiving, tickets or other gifts from
  • vendors.
  • Adjuster's lifestyle grossly exceeds apparent income.



Employer Fraud

There are two types of employer fraud in workers' compensation: that which is
claims-related and that which involves policy premiums. This is an area where
others outside the claims function-premium auditors, for example-also need to be
vigilant for suspicious activity.

Employer-claims fraud occurs when an employer knowingly misrepresents the truth in
order to avoid, deny, or obtain compensation on behalf of employees; or knowingly lies
about entitlement to benefits to discourage an injured employee from pursuing a claim.
Employer-premium fraud occurs when an employer knowingly lies in order to obtain a
workers' compensation insurance policy at less than the proper rate.

Examples:

Misrepresenting the risk or exposure for a given insured by: underreporting payroll;
misclassifying payroll; reporting an injury under insured company "A" when in fact the
injured employee was an employee of uninsured company "B"; lying about the company
ownership to avoid a high experience modification.
Employer tells the employee that the workers' compensation benefits are available only if
employee is off six months or more following an injury.



Workers' Compensation Claim "Red Flags"

Examples:These "red flags" serve only to alert as to the possibility of fraud. The
presence of any one by itself is not necessarily indicative of fraud, but it is a clue
or lead to be further investigated for potential fraud.
Examples:

  • The injured worker is a new hire.

  • The applicant took unexplained or excessive time off prior to claimed injury.

  • The alleged injury occurs prior to or just after a strike, layoff, plant closure, job
  • termination, completion of seasonal or temporary work, or notice of employer relocation,
  • and so on.

  • Applicant reports an alleged injury immediately following disciplinary action, notice of
  • probation, demotion, or being passed over for promotion.

  • Applicant has a history of personal injury, workers' compensation claims, and/or of
  • reporting "subjective" injuries.

  • Applicant's job history shows many jobs held for fairly short periods of time.

  • The alleged injury relates to a preexisting injury or health problem.

  • Applicant uses addresses of friends, family, or post office boxes; has no known
  • permanent address and moves frequently.

  • Applicant's family members know nothing about the claim.

  • Applicant was experiencing financial difficulties and/or domestic problems prior to
  • submission of claim.

  • Applicant has a high-risk activity, such as skydiving, or bungie-jumping as a hobby.

  • The applicant's version of the accident has inconsistencies, is not credible.

  • There are no witnesses to the accident, or witnesses to the accident conflict with the
  • applicant's version or with one another.

  • Applicant fails to report the injury in a timely manner.

  • Accident or type of injury is unusual for the applicant's line of work.

  • Facts regarding accident are related differently in various medical reports, statements, and
  • employer's first report of injury.

  • The Social Security Number provided does not belong to the applicant.

  • Applicant refuses to or cannot produce solid or correct identification.

  • Applicant avoids the use of U.S. Mail; hand-delivers documents.

  • Applicant cannot be reached at home during working hours although claims to be disabled
  • from working; or message taker is vague and non-committal. Applicant is otherwise
  • unavailable and elusive.

  • Applicant lifestyle does not coincide with reported known income.

  • Several of applicant family members are receiving workers' compensation,
  • unemployment, Social Security, welfare, etc.

  • Income from workers' compensation and collateral sources (unemployment, Social
  • Security, long-term disability, etc.) meet or exceed wages after taxes.

  • Applicant refuses diagnostic procedures to confirm injury, or refuses to attend a scheduled
  • defense medical exam.

  • Applicant's co-workers express opinion that injury is not legitimate.

  • Alleged injuries are all subjective; i.e., soft-tissue, pain, and emotional injuries.

  • Applicant changes version of accident after learning of inconsistencies: misrepresentation
  • or fabrication by any party.

  • Applicant frequently changes physician, or does so after being released to return to work.

  • Physical description of applicant indicates muscular, well-tanned individual, with
  • calloused hands, grease under fingernails, or other signs of active work.

  • Medical treatment is inconsistent with injuries originally alleged by employee.

  • Applicant undergoes excessive treatment for soft tissue injuries.

  • Treatment as reported by applicant is different from doctor's statement in medical report.

  • Applicant is examined by several doctors when one doctor could have taken all the
  • information and reached a diagnosis.

  • Applicant reports seeing doctor for a very brief period of time; however, reports and
  • billing indicate a lengthy visit.

  • Applicant's description of treatment indicates nonmedical personnel rendering medical
  • treatment.

  • Applicant sends in medicals or reports that appear to be altered.

  • Applicant lives far from medical facility, yet receives frequent treatment.

  • Surveillance shows applicant's activities are inconsistent with physical limitations related
  • in medical reports and deposition.

  • Surveillance or "tip" reveals totally disabled worker is employed elsewhere (especially
  • suspicious if employment conflicts with work restrictions given by treating doctor).

  • Applicant cannot describe either diagnostic tests or treatment for which employer was
  • billed.

  • The doctor ordered diagnostic testing that is not necessary to determine extent of
  • applicant's injury; or, diagnostic testing is performed, yet there is no request by doctor in
  • medical files.

  • Diagnostic tests are performed by a vendor not in close proximity to doctor's office or
  • applicant's home, vendor uses post office boxes on all documents, or cannot supply
  • diagnostic records.

  • Doctor or medical clinic has ownership share in diagnostic group.

  • Various reports by a doctor on different applicant's cases read identically or similarly.

  • Post office box used for a clinic/doctor address, instead of street address.

  • Medical reports appear to be second- or third-generation photocopies.

  • Physician cannot be located at address shown on documentation.

  • Doctor's report never identifies claimant by gender of gets gender wrong.

  • New or additional medical problems are alleged and attributed to the original injury.

  • Specific "soft tissue" injury develops psychiatric overtones.

  • Medical reports contain inaccurate terminology, spelling errors, variations in physician's
  • signature or are rubber-stamped with the doctor's name.

  • Medical facility uses multiple names or changes name often.

  • RVS/CPT (Relative Value Scale/Current Procedural Terminology) codes show evidence of
  • upgrading level of services.

  • Billings are received for unnecessary or not rendered services.

  • Medical facility has consistently billed both WC carrier and auto, health, etc., insurance
  • carrier and has received payments from both.

  • Applicant is unable to define medical ailments as listed on claim form.

  • Lawyer's letter of representation or letter from medical clinic is first notice of claim.

  • The lawyer's letter is dated the same day as the reported incident or shortly thereafter.

  • There is a repeated pattern of doctor/attorney referrals; the same doctor and attorney work
  • together on a large volume of claims.

  • Applicant states that a "friend," whose name is no longer remembered, provided reference
  • to attorney/clinic.

  • Applicant alleges doctor or clinic found through a "hot line."
  • Applicant filed for unemployment or disability benefits before visiting attorney or clinic.

  • Applicant is overly pushy, demanding a quick settlement, commitment, or decision.
  • Applicant is unusually familiar with claims-handling procedures, workers' compensation
  • rules, and proceedings.



Pursuing "Red Flags":

"Red flags" do not automatically translate into guilt, but are indicators of
potential fraud. They need to be followed up and, when appropriate, the SIU
personnel in your organization should be consulted. Remember what it takes to
prove criminal fraud, and always ask yourself these questions when you suspect
fraud:

What was the lie?
Was it knowingly or intentionally made?
Was it made for the purpose of either obtaining or denying benefits, or (in the case of
suspected premium fraud) for obtaining a policy of insurance at less than the proper rate?
How is it material to the outcome?


James E. Bond is a licensed California private investigator whose firm, J.E. Bond Investigations, specializes in complex insurance defense investigations.

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