HOW BUSINESS OWNERS CAN DETECT AND DEFEND THEIR BUSINESS AGAINST WORKERS’ COMPENSATION FRAUD
Business pays the cost for the majority of workers’ compensation fraud. The fraudsters are varied and can include claimants, businesses, health care providers, bill collectors, bookkeepers, administrators and accountants. The game of fraud is expensive: In July, a $17 million workers’ compensation insurance overbilling scheme came to light in Orange County, California. Following a grand jury investigation, the Orange County District Attorney filed suit against two doctors, an administrator and a bill collector. It took just four people to scam $17 million. It’s no surprise that businesses and taxpayers will ultimately foot the bill.
For Texas companies the fraud issues are strikingly similar, no matter what type of business. CEOs from the manufacturing, construction, printing and home health care industries met to discuss worker’s compensation fraud at an executive roundtable in Dallas. Leading the discussion was moderator David Downey, President & COO of Corporate Rain. The participants were: Ken Rorie, Owner, Kentex; Kevin Hirschy, Owner, Midway Press; Matt Johnson, CEO, HealthBridge; Mark Nyquist, CEO/Chairman, DynaTen Corporation; Mike Boyer, President, New-Tronics; and Tim Riley, Vice-President/Special Investigations, Texas Mutual Insurance.
According to DynaTen’s Mark Nyquist, there are behaviors that raise red flags, “Like no witnesses to an accident or people who are not ambitious about getting back to work.” Nyquist has seen “professional claimants” who think they’ve worked long enough, then file a claim, and believes these are the classic characteristics to potential fraud cases.
Deterring employees often takes a combination of education, training, and alternative work options. One program that has helped slow down the “no witnesses” or “my arm hurts” incidents is a light duty program that the employees of New-Tronics all know about. CEO Mike Boyer shared, “It’s counting the nuts and bolts and putting them into bags of 100, it’s shredding paper, filing papers, and all the office work we never seem to have time to get to.” Boyer started the light duty work program when people who were allegedly hurt suddenly felt better when having to work in the office all day counting supplies. Boyer says the alternative of working in the office helped a lot with the “no witnesses” issue.
For Matt Johnson, CEO of HealthBridge, “What we have found is that rigidity tends to steer people back to work, and stops the problem before it starts.”
For businesses like home health care, there needs to be a high level of education, trust, and responsibility because the care giving staff is inherently disconnected. Johnson explained, “Our caregivers are PRN’s (pro re nata) and work on an “as needed” basis. They might work for a doctor’s office during the week and work for us on the weekends. The second challenge is the disconnected nurse issue outside of our direct supervision and working on their own with our clients.” Any injury would not be witnessed.
Johnson is proud of the fact that no workers’ compensation claims have been filed in the last four years at HealthBridge and believes education is the key. “We have caregivers who have been trained in the proper techniques so they don’t injure themselves in things like transferring patients or bathing and dressing clients,” he said.
“Make sure you have the proper insurance, train, and foster that you’re taking care of your employees. If you’re not taking care of them right, you’ll have more issues,” confirmed Kevin Hirschy of Midway Press.
Ken Rorie of Kentex believes education is a key element in deterring fraudulent behavior, “At our weekly meeting when we talk about workers’ compensation fraud, we talk about it as fraud.” Rorie explains to his employees when someone does commit fraud, it’s not being committing against him but rather against everyone in the company. Kentex employees now understand that rates can go up if there’s a claim and there will be less money for payroll and benefits.
The Victimless Crime?
“Some people have the mentality that insurance fraud is a victimless crime,” said Rorie, and believes talking with employees is the key to controlling costs associated with fraud.
Nyquist agreed that without communication, the mentality of, “It’s insured, how does that hurt us?” exists even with engineers, supervisors and project managers. “We spend time communicating how next year’s premium is directly connected to our losses this year. If we control our losses, not only will we get a lower premium next year, but we get some of our premium back this year,” he said. Nyquist added, “When they see somebody stealing from them, they are on board with trying to indentify that fraud.”
According to Texas Mutual’s Tim Riley, “With all insurance across the board – home, auto, business – individuals pay about $1,200 more per year because of fraud in the system. When you get it across to people that fraud means it is money out of their paycheck, you get the point across quickly.”
Employer Premium Fraud – The Competitive Disadvantage
“While claimant fraud affects your bottom line, it’s premium fraud that impacts the bottom line of insurers,” said Riley. Premium fraud typically comes in the form of misclassifying jobs – classifying a crane operator as a file clerk – hiding employees, or avoiding state mandated coverage. A bogus injury claim can run between $2,000 to $50,000. The stakes on premium scams are much, much higher with judgments in six and seven figures.
In the construction industry, Nyquist observed, “Pipefitters and plumbers are one category, sheet metal workers are another, and supervisors are a much lower cost category. Misclassifying workers is another type of fraud. You’d need some pretty close analysis to ferret out some of that potential employer fraud in classification.”
Riley agreed, “We may be able to use our data to mine cases. We do well on uncovering premium fraud, and it’s our biggest recovery area because our loss prevention people get on sites and do audits. A company will say there are no truck drivers then we go out to the site and there are trucks all over the place. Who’s driving the trucks?”
With employer premium fraud, the competition has an unfair advantage because the competition is paying hundreds of thousands of dollars less in premiums.
The CEOs all agreed – nobody needs more competition, especially one with an unfair advantage.
Protecting Your Company
Several tips where shared on ways to protect a company from fraud – most of them cost very little:
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