Workers comp fraud is estimated to cost insurers/employers over $7.2 billion annually, large enough to rank among the Fortune 500 if it were a legitimate business. Whatever the numbers, workers’ compensation fraud is not just a cost borne by insurers. Insurance fraud costs everyone: insurers, employers, workers, consumers, and shareholders. It’s a huge concern for Willis and our clients.
Recently, a large client of Willis’ asked us for ideas for improving their internal special investigative unit (SIU) team. Accordingly, we thought it would be beneficial to bring in a large insurance carrier’s top SIU leaders to meet with our client. We wanted to compare best practices of our client with the latest best practices in the industry.
This is really what benchmarking is. Typically, people think benchmarking is comparing numbers with dollar signs in front of them. This is erroneous. If your costs are higher or lower than competitors or the industry costs, it doesn’t really give you an idea of how you can improve. Benchmarking is really looking at best practices and processes and comparing them to your own. That’s where our clients will really improve their outcomes. Improving the cost of Workers Comp is just an output of benchmarking best practices and processes.
What our client learned in this session was valuable. So valuable, I wanted to share this with our clients/blog followers nationwide.
Here is what we learned.
Fraud really should be the “F-word” in your claim language. Companies can get themselves into trouble by placing injured workers on a “fraud list” or have their third party administrator (TPA) use the word “fraud” in their file notes.
A much better term is “intentional misrepresentation” or “possible misrepresentation.” It achieves the same goal of identifying suspicious activities of the claim, but protects companies and insurance carriers/TPAs from falsely accusing an injured worker of fraud.
Take a Two-pronged Approach to Investigations
Too often insurance carriers and TPAs send losses to their private investigators or SIU departments without giving them the “full picture” of the claim. They say, “I want 2 days of surveillance on a weekend and here’s the address.” If the surveillance firm or SIU team is lucky, they might get a picture too! This is not a best practice. The best practice should involve a two-pronged approach.
First Prong: Detailed Files
First, a full file review should be done on the “possible misrepresentation” referral. It should include:
- A summary of what the injured worker said in their recorded interview upon initial contact.
- A history of missed appointments, missed independent/agreed/defense medical exams
- Information on the number of dependents, marital status
- History of any performance concerns prior to the injury
- History of any current/past medications taken, including currently prescribed opioids.
- Information on their current treating physician.
- Are they represented by legal counsel.
- Copy of Index report
- List of any prior claims referred to the National Insurance Crime Bureau (NICB) as a “questionable claim (QC)”
- Any change in the initial body parts allegedly injured, which were added as the claim progressed, current diagnosis.
- Any other information that will assist the investigator in having a comprehensive 360-degree view of any traits that would make this claim suspicious of having any “potential or intentional misrepresentations.”
Second Prong: Sliding Scale
The second prong would be to develop a rating sliding scale to score a claim before escalating it to surveillance or SIU. You could apply a 100 pt. sliding scale to see if referral is warranted.
For instance, if a person is just taking opioids, that should not warrant an SIU or investigative referral. That might only be 10 points on your scale. But accompany that with 10 prior claims, knowing the injured worker is treating with a pro-plaintiff physician, has 2 “QC” claims reported to NICB, and was having a performance issue prior to their injury, then you have perhaps a high enough score on your sliding scale to justify a referral to SIU or private investigation.
“Red flags” is another term that should be retired. It gives a negative impression of the intake process for potentially misrepresented claims. A better term would be “referral guideline” or “potential misrepresentation indicators.”
If you ask your carrier or TPA for potential claim-referral criteria, they will literally give you a list of over a 100 possible “red flags.” Once again, one “red flag” isn’t an indicator of fraud. Your program should have no more than 12 indicators. Make your indicators encompassing, not so specific.
When measuring claim reps on identification of potential misrepresentations, ask for a listing of the claim representatives by name and the number of cases they have referred to their SIU and/or the number of assignments they have made to a private investigator. You could have two claim reps sitting next to each other working on the same type of claims for the same client, yet two entirely different referral rates.
Audit the TPA
Audit files of the carrier/TPA to make sure they are adhering to your “potential misrepresentation indicators.” Take 50 random files and see how quickly they identified the presence of indicators and how quickly a referral was made.
Pick Your Battles
Realize where you can prosecute a case and where you can’t. In some jurisdictions you have virtually a 0% change of obtaining a potential prosecution. Your time and resources are precious, don’t waste them. Also, why try to prosecute a case when you know you will not win, this could open your company to liabilities for malicious prosecution, libel and slander.
Many carriers and self-insured clients with SIU teams like to calculate the “savings” from using surveillance and SIU referral. A more appropriate term is “economic benefit.”
“Savings” implies that you are trying to pay an injured worker less than what he or she is entitled to. Your goal with SIU is to only pay what the injured worker is entitled to. Mentally, this is a paradigm shift from how we usually articulate the value that SIU activities provide.
I constantly remind our clients of the Vince Lombardi quote, “If you aren’t keeping score, you are practicing.” You should develop metrics that measure the results of your SIU team, your carrier/TPA, and your company’s identification of potentially misrepresented claims. Here are some metrics you could use:
- Detection rate (Identification of the case as having misrepresentations)
- Accepting rate (Cases open and sent to the SIU and/or NICB)
- Conversion rate (Cases in which you won and there was an economic benefit)
Ask the Right Questions
Make sure your claim representatives are asking the correct questions during a recorded interview—questions that probe for current or future potential misrepresentations. Some possible questions are:
- What prior injuries have you had?
- Were you under any type of performance issue at the time of your injury?
- What were you doing last weekend?
- When is the last time you were injured and sought medical treatment outside of work?
- Do you have any side businesses outside of your employment?
Hopefully, with these ideas, you’ll be able to improve your detection and handling of claims in which there were “potential misrepresentations.”
Keep in mind that only a small portion of wrongful Workers Comp claims actually lead to prosecution—under 1%.
I encourage our clients to meet with their carriers and TPAs and do some “real benchmarking”; they are a valuable resource. I hope you’ll be able to protect your company and agree with this new approach to fraud, the real “F-word” for our industry.