Workers' Compensation

Standing Up to Workers’ Comp Medical Fraud in California

Karen C. Yotis, Esq., a Feature Resident Columnist for the LexisNexis Workers’ Compensation eNewsletter, provides insights into workplace issues and the nuts and bolts of the workers’ comp world.

At the recent Division of Workers’ Compensation 22nd Annual Educational Conference held in Los Angeles, the people wielding the California Department of Insurance Fraud Division’s investigative big guns came out in force to broadcast two very clear messages. First, the division is comprised of a state-wide team dedicated to the mission of catching the bad guys. Second (but no less important) is that these folks don’t expect to get very far without the industry’s active support. When it comes to California’s wide-reaching plan to ferret out medico/legal fraud and prosecute its perpetrators, the Fraud Division needs YOU.

The session was “WC Medical Fraud: Where we are, where are we going & what can you do to combat it,” and Santa Barbara Fraud Division Office Captain Yvette Cordero, Department of Industrial Relations staff counsel James Fisher, Senior District Attorney Investigator Kevin McInerney and Orange County District Attorney Shaddi Kamiabipour delivered exactly what the presentation title promised. In an information-packed hour, the panelists offered data on what the Fraud Office accomplishes, provided insight into the hurdles that make fighting the good fight a constant uphill battle, and made a heartfelt plea for both increased fraud reporting and more educational assistance from the claims managers and TPAs in the front line trenches where provider bills are submitted and paid.

The New Sheriff in Town

Headquartered in Sacramento, the Fraud Division operates out of a number of regional offices and assigned counties throughout California. The Fraud Division’s 221 Detectives conduct a variety of specialized criminal investigations that focus on Workers’ Compensation Fraud, Auto Insurance Fraud, Property, Life & Casualty Fraud, and Disability/Healthcare Fraud. The Division investigates and prosecutes fraud through a strong collaborative effort with the offices of the California District Attorney under Cal. Penal Code § 550 (, Cal. Penal Code § 550 (Lexis Advance) and other related conspiracy and theft statutes. Captain Cordero reported that most of the workers’ comp fraud claims come out of Los Angeles County.

The Fraud Division goes after fraud in all of the countless variations that are perpetrated by or on the part of claimants, attorneys, providers, employers, and the insurance company insiders who embezzle and improperly handle claim files. Schemes and nefarious means abound, from the pharmacies that dispense generic and bill for name brand, to the physician who inflates the complexity of a report by addressing apportionment or causation when those issues are not at play in a case. Basically, investigators seeking to prove that someone knowingly lied to obtain or deny compensation try to pour themselves a tall class of cold MILK, which stands for Material, Intent, Lie and Knowledge.

Just as fraud occurs in many areas, the reporting of fraud emanates from numerous sources. Referrals can come from the insurance companies and their special investigation units, from TPAs, from the WCAB, Medical Board or the Contractor’s State Licensing Board, and of course from citizens. And while Captain Cordero politely requested everyone’s help in reporting fraud, she flashed a power point slide to remind insurers of their obligation to report known or reasonably suspected fraud to the CDI and the DA under Cal. Ins. Code § 1877.3(b)(1) and (d) (, Cal. Ins. Code § 1877.3 (Lexis Advance).

In addition to provide completed samples of a Suspected Fraudulent Claim (SFC) and Referral (FD-1) Forms, Captain Cordero encouraged the crowd to include:

> a detailed narrative section;

> an explanation of why a claim is fraudulent;

> details about what the misrepresentations are and why they are material;

> any corroborative evidence such as videos, recordings, depositions, witness statements, and medical reports

According to District Attorney Kamiabipour, a “tsunami of evidence” is needed so there is enough proof to ensure prosecution after judges make their exclusionary rulings.

Organized Crime at its Finest

Make no bones about it—the perpetrators of workers’ compensation fraud are a supremely focused lot that organize themselves around the law and are careful to craft their behavior to seem as normal as possible. This ‘normalcy’ provides a mantle of protection until someone takes the time to dismantle it. This is just one of the reasons why several of the panelists described their former roles investigating and prosecuting drugs and gangs and murder as being a LOT easier than uncovering the fraud that runs rampant in workers’ compensation.  

There are a number of other bad aspects that make this flavor of fraud crime so unique, including:

> An industry focus on premium and claimant fraud, with less of an emphasis on medical provider fraud

> A high level of complexity—especially with medical provider billing fraud—which makes it less likely for claims adjusters and investigators to recognize

> The unusually lengthy amount of time (usually months, often longer) that it takes to investigate and prosecute

> Insurance providers’ failure to often recognize fraudulent billing when it occurs

> A lack of communication between the claims adjusters, investigators and law enforcement agencies which are responsible for investigating fraud

There is also a well known reluctance in the industry to pursue medical providers for fraud because insurers and claims adjusters will have to engage with these providers again on future matters. But as the District Attorney and Criminal Investigator on the panel were quick to point out, the MDs reported for fraud that are prosecuted for crimes and brought before medical boards to be stripped of their licenses should not be certified to treat people. In short, eliminate the fat cats, and you won’t have to work with or see them again.

The panelists also talked about some insurers’ propensity to pay bills that they suspect (or even know) are fraudulent. According to the panelists, fraudulent practitioners capitalize on the sad truth that it’s cheaper to pay for the fraud than it is to modify it.

Finally, Kamiabipour wondered aloud why the WCAB Judges continue to force hearings over $70 Million in fraudulent billings. “How are they getting away with this?” was her plaintive query before she posed the follow up question “and why are YOU allowing it?” Kamiabipour called upon the WCAB to stop “pandering to fraud” and challenged the industry—attorneys and insurers alike—to stand up and demand that the WCAB Judges dismiss bills known or suspected to be fraudulent.  “Otherwise, what am I doing?” she asked. “Should I even bother?”

Get Up, Stand Up, Don’t Give Up the Fight

The panelists outlined a number of steps that we can take to prevent and dissuade fraudulent conduct, drive more successful investigations and prosecutions, and contribute to the reduction of the fraud-related loss that is helping to destroy the industry’s bottom line. These include:

> Taking a concerted effort to look for and recognize patterns of fraudulent billing and overbilling, especially by claims adjusters who are in the best position to notice and recognize those patterns

> Insurance providers taking the time to educate their adjusters to recognize fraudulent billing

> Comparing a physician’s fee disclosures to the content of his or her med-legal report (which require thorough review before payment) in order to confirm consistency

> Improved and regular communication and information sharing among claims adjusters, investigators, law enforcement and the DWC

> The development of a plan with legal counsel and management for dealing with fraudulent bills, that includes a form letter to advise a provider of suspected fraud, that a bill will not be paid, and that law enforcement has been notified

> Instituting a process that refrains from paying and underscores the REPORTING of fraudulent bills

> Notifying the DOI and your local District Attorney’s Office about suspected fraud

Calling all SMEs

The panelists were smart enough to know how much more they all have to learn about identifying and dismantling workers’ compensation fraud. And they called upon the industry’s subject matter experts—the adjusters and claims managers and other people on the line—to share their expertise and educate law enforcement and prosecutors a little more about the ins and outs of workers’ compensation fraud. There are a number of new prosecutors and investigators coming on board and the seasoned veterans on the dais respectfully requested that we take the time to bring them up to speed.

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