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Workers’ compensation fraud takes three main forms — claim fraud, premium fraud and provider fraud — and the effects on honest employers and employees can be devastating.

New analysis from the Coalition Against Insurance Fraud found the combined fraud burden for the workers’ comp line weighs in at $32 billion per year. Luckily, new investigation efforts based on the growth of our online lives can help mitigate the damage.

Between the three types of workers’ comp fraud, employer fraud far exceeds employee fraud, despite the focus on false claims in an often adversarial system, while Medicare fraud far exceeds both.

The Coalition Against Insurance Fraud numbers out employer premium fraud at $23 billion of the total. Typically, employers game the system by misclassifying employees or methods of underreporting payroll through “under the table” pay arrangements.

For executives in the business, the lopsided understanding of how fraud occurs in the comp system comes down to public imagination.

“Depending on how these are defined, the cost of provider fraud may well exceed the cost of premium fraud. For the public, perhaps claim fraud is the easiest to understand; it’s easy to picture someone pretending to be more disabled by an injury than they truly are. Perhaps they might even know of someone who has engaged in that behavior,” said Reagan Pufall, president and CEO of Omaha National.

“By contrast, it might be harder for them to envision how premium or provider fraud occurs. It’s also important to note that sometimes misclassifying employees can occur with the fraudulent intent to improperly reduce premiums, but sometimes it is an innocent mistake.”

Indeed, while difficult to parse, the National Health Care Anti-Fraud Association (NHCAA) underscores Pufall’s point. The organization published a conservative estimate of 3% of total health care expenditures as fraudulent, while noting that other sources indicate a fraud burden of nearly 10% across lines of insurance and Medicare, equal to some $300 billion.

David Stacey, director, special investigations unit, Sentry Insurance

Meanwhile, most studies find that only 1% or 2% of employee claims are fraudulent.

“When we talk about claimant fraud, we’re talking about a one-off, individual claim, a single act.  These acts are often seen to be more profound because the alleged injured worker is seen doing an egregious act in the public eye, like climbing a ladder while alleging they are bed-ridden,” said David Stacey, director of the special investigations unit at Sentry Insurance.

“When we talk about misclassification, it’s not as suggestive, and often not viewed or even heard of by the public. However, misclassifications are more lopsided because it can impact several employees from a handful, to hundreds, to entire companies — so the numbers are much larger.”

Worse than the dollars and cents effect of fraud on every employer, misclassification and illegal payment jeopardize the health and wellbeing of employees on the job, especially undocumented or otherwise marginalized workers.

A study from the University of Massachusetts focusing on construction employers in that state found that the construction industry “almost completely jettisoned regularized employees in residential construction,” thereby decreasing the cost of employees by 15 to 30%.

The researchers also warned that their state was no exception, and that regulatory resources dedicated to this type of employer fraud were woefully inadequate, a sentiment borne out by the low numbers of regulators dedicated to investigating large scale fraudulent operations in high-risk industries.

For individual insurance organizations, investment in systems within the underwriting and claims intake processes can ease the burden and reassure customers and claimants.

“We are fortunate that we design and develop our own software in house,” said Pufall. “So we can build fraud-spotting functionality right into our claims management application or our underwriting application.

“The best strategy employs a variety of methods such as exception reports, AI pattern recognition, and automated internet information gathering. Social media can be a rich source of information. However, tech can only supplement the work of talented human beings, not replace it.

“Many special investigations units now make the mistake of thinking investigations are done entirely or primarily online, but in reality, real world investigative techniques are still often the most effective approach.”

For his part, Stacey agreed that the solution can start with tech, but that experienced professionals must back it up at every step.

“Tools like artificial intelligence, machine learning, and predictive model audits can identify suspect indicators and ensure the loss matches the classification,” he said. “For example, it would be questionable if a window washer in a large city reported that they don’t work above three stories. Or that a landscaper fell from a bridge.”

As with top-of-class accident prevention and loss control programs, fraud investigation programs have a noble and lofty goal — working towards zero. However, lack of investment in fraud investigations in workers’ comp, perhaps because of the misperception that employees are the primary cause, means that goal post seems ever farther away.

“Over the years, there has been a compliance focus on many other areas of insurance, while the workers’ compensation side of the industry has been lacking,” Stacey said.

“Better regulatory controls can hold carriers and their insureds more accountable. The industry could use more regulatory controls in this space because when regulators step up their oversight, insurers also step up theirs. By aiming to do it right, we help protect the insurer, the insured, and the consumer.”

For Pufall, the issue is tied to complacency as much as lack of investment.

“Within the industry, there are some companies that view fraud investigations as a burdensome obligation that they are legally required to perform,” said Pufall.

“We do not view it as a burden but as an opportunity. We protect our clients from improperly inflated claim costs. We protect our injured workers from inappropriate and risky medical procedures. We protect the financial success of our own company. In addition, we protect society as a whole from the costs of insurance fraud.” &

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Ancillary benefit programs may be just one piece of the workers’ compensation puzzle, but they can have significant cost and duration implications if not managed well.

Lara Heal, senior director of managed care for MEMIC, a private mutual workers’ compensation insurance company, knows the value of having a solid dashboard tool.

“Having transparency into our total program so that we can understand where our physical therapy and radiology spend is going is one piece of it,” Heal said. “But the quality of care and the outcome that injured worker receives is equally, if not more, important. At MEMIC, our ultimate goal is for our injured worker to get back to work and back to a productive lifestyle. That’s all part of our mission to make workers’ comp better – for everyone.”

As MEMIC’s medical cost containment partner, CorVel prioritizes helping Heal’s team pinpoint meaningful data that can be used by everyone from the claims handler to the executive. With modular analysis capability, CorVel’s dashboard is designed to help senior leaders like Heal save valuable time and customize views so that each level of her organization can understand what story the claims data is telling.

CorVel’s ancillary benefits dashboard provides a clear picture of total program spend, utilization patterns, and jurisdictional considerations that affect the delivery of care for injured workers.

“When we review program results using the dashboard, it’s not confusing, and we can trust what the data is telling us. It’s critical that there is an efficient way to use this information that makes sense for the business need,” Heal said.

Lara Heal, Senior Director of Managed Care, MEMIC

A large part of managing ancillary benefit spend comes down to how clearly claims handlers can spot opportunities to re-channel claims in-network.

“The job of a claim handler is so complex,” Heal said. And having clear data that illustrates differences in patient outcomes helps claim handlers have confidence in the significance of guiding patients toward network providers who can deliver care swiftly and effectively.

“Giving managers the tool to really focus in on utilizing our networks benefits the injured worker, as well as our bottom line,” Heal said.

“The spend is one piece of it, but it’s the quality of care and the outcome that the injured worker is receiving that’s most important,” Heal said. “If they’re waiting too long to get a diagnostic test done and their treatment’s being delayed, recovery will also be delayed. This is why utilizing a network of high-quality physical therapy or radiology providers who can get our injured worker an appointment quickly is important.”

Sarah Scott, Vice President of Network Services, CorVel

The ancillary benefits dashboard allows MEMIC to illustrate the impact of both prospective and retrospective approaches to network utilization throughout their service territory. Sarah Scott, CorVel’s vice president of network services explained: “Prospective management is when the claims adjuster refers into their ancillary program at the time treatment is ordered. It allows for impact to both treatment utilization and spend per visit resulting in overall reduction in costs and improved outcomes.

“Retrospective management impacts medical cost after the treatment has been rendered, resulting in overall reduction in cost,” Scott added. “So, if the claims handler misses a referral or they receive the claim after treatment was initiated, we can capture a network discount for the client.”

Heal’s team has been able to use the dashboard to establish benchmarks that reflect the nuances of MEMIC’s multi-state ancillary benefit program. “We know there are jurisdictional differences, and we know what those are,” she said.

“Having the ability to drill down by state of jurisdiction, from Maine to Florida and beyond, enables us to identify opportunities, target our strategies and better manage our ancillary program.”

CorVel’s dashboard provides a mechanism to identify alternative network providers. “Some states allow for greater control of medical care,” Scott said. “Having the ability to identify claims treating out of network allows the carrier to take action. Additionally, providing an alternative in-network provider within 5 miles makes the dashboard a really powerful tool.”

Along the path to finding the most expedient means of recovery for injured workers, it’s easy to lose sight of how well programs like ancillary benefits are being utilized.

“It was important when we were selecting our ancillary benefit partners that we had transparency and visibility into those programs,” Heal said. “Without the ability to easily obtain and review our data, it is difficult to develop strategies to improve outcomes. We see it as a significant aspect of what makes MEMIC different.”

At CorVel, the goal has been to make the ancillary benefits dashboard into a tool that supports carrier clients like MEMIC in identifying opportunities and crafting strategies toward improvement. “The challenge,” Scott said, “is to make these dashboards actionable for our clients.

“Program utilization is the number one KPI we measure on the MEMIC program, drilling into the percentage of their medical spend channeled through their prospective and retrospective ancillary programs,” Scott said. “We establish targets for their team to work toward and utilize the dashboard to report their progress and program impact back to them.”

“Prior to the dashboard, we had this information, but it was difficult to interpret multiple reports from multiple sources and pull it together in order to take appropriate action,” Heal said.

Ultimately, to support injured workers on their path to recovery, using data is a powerful way to improve care and outcomes.

“When you don’t have good, actionable data and you’re relying on anecdotal information, it just doesn’t work,” Heal said.

For more information, visit www.corvel.com.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with CorVel. The editorial staff of Risk & Insurance had no role in its preparation.

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