Deterring Complex Workers Comp Fraud

Christopher Dill


May 3, 2021

To better identify and ultimately defend against the ever-evolving threat of modern workers compensation insurance fraud, companies are merging time-tested investigative techniques with proactive fraud prevention strategies. Key to understanding the identity of the modern fraudster is a heightened awareness that things are not always as straightforward as they initially appear. A one-dimensional approach to stopping fraud is insufficient for this multi-dimensional problem.  

On its face, a suspect workers compensation claim may point to a single individual attempting to defraud the system. In reality, however, there can be many layers of activity involved. Multiple criminals may be using a worker as a vehicle to execute much more sophisticated—and potentially costly—frauds. Indeed, many workers are actually victims of complex criminal schemes. Simply investigating the suspect claim of an injured worker does not sufficiently address the problem. Truly fighting fraud requires a broader, more holistic approach.

Modern fraudsters fall into three main categories:

  • Individual workers: Such schemes often involve exaggerated, staged or unrelated injuries that the worker claims occurred while working.
  • Health care providers: These schemes involve medical treatments, devices, prescriptions or referrals that are either unnecessary, not provided or billed at an inflated cost. Health care provider fraud is often characterized by kickbacks in the form of direct payments or creatively masked as consulting, leasing, staffing or financing agreements. 
  • Legal providers: In these schemes, legal mill operations pay recruiters for a steady stream of new clients who are then diverted into the corrupt health care provider network. Fraudsters artificially expand injuries to include multiple body parts and exaggerated symptoms to improve the prospects of a better settlement or negotiation position. Legal provider fraud can similarly involve kickbacks in the form of staffing and financing agreements or creatively masked as marketing costs. 

It is important to note that the organizers and operators of health care and legal provider schemes are not limited to the licensed professionals in these categories, but commonly include office managers, office staff, middlemen (or “cappers”), financiers, translators, copy services and more.  

The first step is recognizing the symbiotic relationship between workers and their modern fraudster counterparts among health care and legal providers. Then, you must shift from a primarily reactive fraud-fighting posture to a more proactive approach. This starts long before the claim is filed. The goal is to disrupt the flow of complicit workers. As fraudsters are less successful at recruiting workers, the schemes are more likely to die on the vine. Managing the risk of fraudulent claims involves proactively engaging and educating the targets of organized insurance fraud schemes: the workers themselves. 

Targeted and Proactive Fraud Prevention Strategies

Insurance fraud schemes prey upon uninformed workers who may perceive themselves as disregarded or even mistreated. A well-informed worker base is less likely to consider going along with filing a fraudulent workers compensation claim. To more holistically fight fraud, risk professionals can:

Develop customized, ongoing and collaborative safety education. Some claims are wholly fabricated, as in the case of staged accidents. However, most workers compensation claims start as entirely legitimate. Injury prevention is therefore the foundation upon which fraud prevention is built. Safety education should be:

  • Customized to match the role and equipment to which the worker is assigned
  • Ongoing to cement the information in the worker’s mind
  • Collaborative to ensure that both line-level workers and management feel equally invested in the final product, and in the success of the organization’s safety measures

Targeted education should highlight not only what the safety protocols are, but why they are in place. This serves the dual purpose of equipping workers with the requisite technical information while also clearly conveying the employer’s commitment to employees’ well-being. One way to do this is through regularly scheduled safety meetings. These will reinforce awareness of safety measures and protocols and tangibly demonstrate the organization’s commitment to safety. Workers compensation carriers can help identify safety programs and resources that meet the needs of your organization.

Make fraud prevention part of the safety program. An open dialogue regarding the risks, impact and consequences of filing fraudulent insurance claims should be viewed as an extension of an organization’s overall risk management strategy. Avoid using an accusatory message that risks a rebound effect, which may just lead to more suspect claims being filed. An accusatory tone also reinforces a common message that insurance fraud scheme recruiters leverage: “Your employer does not care about you, the system does not care about you, but we do.” In alignment with the tone of safety messaging, anti-fraud messaging should similarly educate workers to help them avoid being victimized by insurance fraud schemes that explicitly seek them out as unwitting accomplices. 

Foster accountability. A workforce that is directly invested in ensuring that everyone returns home safely is an essential element of a multi-dimensional injury and fraud prevention strategy. All staff should understand a no-tolerance policy for filing fraudulent claims. The message should specifically explain how fraud impacts the workforce as a whole and the consequences if untruthful behavior occurs.

Promptly investigating accidents, including reviewing and preserving security camera footage, should be about revealing how a workplace accident actually occurred. The goal of an accident investigation is to both document the particulars of the unfortunate safety lapse, and also determine what preventative steps should be considered or further refined to prevent it from happening in the future. Ensure a workforce sufficiently understands the rationale for security cameras and that thorough accident investigations are based in the organization’s continued pursuit of safety excellence. These concepts serve to both highlight an organization’s commitment to the well-being of the workforce, and also to deter would-be fraudsters.   

Build a culture of fraud prevention. In accordance with all federal and state laws, organizations should conduct proper due diligence in their hiring process. New hire onboarding should include clear communication and explanation of all safety and anti-fraud protocols and procedures. If safety excellence is the goal, new hires need to know that. They should be encouraged to alert management if they observe any safety concerns. A fresh set of eyes may help identify gaps in safety procedures that the organization has not yet recognized. From the beginning of the worker’s tenure, you should convey that you value their input and are making a tangible commitment to their safety and well-being. Continuously reinforce that message.  

Workers also need to know they can report safety lapses or fraud concerns in a confidential manner. They may be hesitant to relay their observations to management, so setting up a confidential process such as a tip line or independent party to report to is highly recommended. Educating workers and engaging them in ongoing and open dialogue regarding awareness and accountability sets the foundation for a culture that can help withstand the lure of participating in a fraudulent claim.

Christopher Dill is the special investigations unit manager at ICW Group Insurance Companies.