As partial fulfillment of its responsibilities to evaluate the
impact of the workers' compensation reform legislation,
the Commission on Health and Safety and Workers' Compensation
decided to examine California's workers' compensation
anti-fraud activities.
Methodology
Public fact-finding hearing
To assist in this examination, CHSWC conducted a public fact-finding
hearing on workers' compensation anti-fraud activities
on Thursday, February 20, 1997 at the Junipero Serra State Building
in Los Angeles.
The purpose of the fact-finding hearing was to bring representatives
from the California workers' compensation 1 community and other
interested persons together
To discuss California's workers' compensation
anti-fraud activities, and
To determine if legislative or administrative changes may
be needed to improve workers' compensation fraud detection
and prosecution.
Draft Report Review and Comments
From the oral and written testimony at the fact-finding hearing,
CHSWC developed draft findings and recommendations for legislative
and/or administrative changes to improve anti-fraud activities.
Since specific responsibilities for dealing with workers'
compensation fraud are assigned to the Fraud Assessment Commission
and the Department of Insurance, the draft findings and recommendations
were shared with those agencies for review and comment.
Comments from those agencies regarding the draft findings and
recommendations were incorporated into this final report.
Final CHSWC Report
The Commission has adopted those findings and recommendations
supported by the Department of Insurance and the Fraud Assessment
Commission. They are contained in the report section entitled
"Findings and Recommendations" annotated with applicable
comments from those agencies.
The report section entitled "Acknowledgments and Thanks"
lists those people and organizations that submitted oral and/or
written testimony for the fact-finding hearing. The Commission
appreciates their interest and involvement in a project dealing
with a significant aspect of the California workers' compensation
program.
Report Availability
This report may be reproduced as needed, as long as appropriate
attribution is given to the Commission on Health and Safety and
Workers' Compensation.
This report is also available on the Internet. The address www.dir.ca.gov
locates the website of the California Department of Industrial
Relations. The Commission on Health and Safety and Workers'
Compensation may be accessed under either "Workers'
Compensation" or "Occupational Safety and Health"
on DIR's home page.
Next Steps
The Commission will host an"Anti-Fraud Roundtable"
for the community and the public to discuss those draft findings
and recommendations not supported in their current form by the
DOI and the FAC.
The Commission may subsequently issue a supplemental report with
additional findings and recommendations.
Findings and Recommendations
Current status of Workers' Compensation Fraud
Fraud in the California workers' compensation system has
decreased since the implementation of the reform legislation.
Fraud claims are down and some blatant medical mills have been
put out of business. However, the workers' compensation
community recognizes that fraudulent activities continue.
CHSWC commends the anti-fraud efforts undertaken by the
members of the workers' compensation community and public
agencies. Since fraudulent activities continue, CHSWC recommends
that anti-fraud efforts continue.
Fraud is subject to being perpetrated by those in every aspect
of the workers; compensation system - employees, employers,
and benefit providers. Fraud by anyone in the workers'
compensation system impacts everyone in the workers' compensation
system.
CHSWC recommends that anti-fraud efforts be directed at
all types of fraud, including employers who willfully fail to
secure workers' compensation coverage, large medical-mill
cases and small injured worker cases.
There is widespread recognition that uninsured employers as such
are engaging in fraudulent activities, but there are differing
opinions as to whether activities against such employer fraud
are covered in the Fraud Assessment grants. Employers who fail
to secure workers' compensation insurance hurt not only
their employees, but also hurt honest employers through unfair
competition.
CHSWC recommends legislative language so that failure
to secure workers' compensation insurance is subject to
actions under Fraud Assessment grant activities.
The community recognizes that employers who fail to secure workers'
compensation coverage may well be failing to meet other requirements.
This situation is part of a larger problem of employers who operate
totally outside the law and are therefore invisible to the system.
Particular industries, such as construction and house cleaning,
are hard hit.
CHSWC recommends that particular focus be made on bringing
employers "into the system" and insuring workers'
compensation, payroll, tax, and other requirements are met.
It has been reported that recent changes in workers' compensation
laws have given the designated treating physician unprecedented
levels of authority and autonomy in controlling the type and duration
of medical treatment, and the result is an open invitation to
unscrupulous medical providers bent on committing fraud.
CHSWC recommends that a review of the effect of free choice
of physician and the presumption of correctness of the treating
physician's evaluation be carried out and changes recommended
if warranted.
CHSWC concurs with the Department of Insurance suggestion that
representatives from the California Medical Board, Board of Chiropractic
Examiners and the Industrial Medical Council be asked to participate
in this review.
The community realizes that any long term reduction in criminal
activity in area of fraud requires a long term commitment.
CHSWC recommends that the community keep up its efforts
against fraud in the workers' compensation system and warns
it to guard against complacency.
Deterring Fraud
The first step in deterring fraud is to insure that everyone in
the workers' compensation community knows the requirements
they must meet and responsibilities they have.
CHSWC recommends that measures be taken to insure that
employers know of requirements for workers' compensation
coverage. Inform and publicize employer requirements for insurance
- at points where permits, employer ID numbers etc. are issued.
CHSWC concurs with the Department of Insurance suggestion that
representatives from the Employment Development Department be
asked to participate.
CHSWC recommends that measures be continued to inform
injured workers of their rights and responsibilities, and of the
penalties for fraudulent activities. Such advisories should be
included in informational material about workers' compensation
designed for distribution to injured workers.
The Department of Insurance has advised that it has fraud-fighting
posters and other materials available on request to employers,
and to DIR and CHSWC for distribution.
CHSWC recommends increasing public awareness of
- requirements for workers' compensation coverage
- prohibitions and penalties against fraud
- how fraud hurts everyone
CHSWC recommends that various methods for disseminating
this information be considered, including public service announcements
on radio and television, press releases, through the academic
sector, job training programs and employer and employee organizations.
The Department of Insurance suggests the possibility of joint
Public Service Announcements.
There is widespread recognition that publicizing anti-fraud activities
is effective as a deterrent.
CHSWC recommends that the community get the message out
that "Fraud by Anyone is Fraud against Everyone".
CHSWC recommends increasing public awareness of enforcement
activities, arrests, convictions, and savings to all when fraud
perpetrators are caught.
CHSWC recommends that the Fraud Assessment Commission
consider issuing regular press releases, commending the efforts
and results of anti-fraud activities and, where appropriate, demonstrating
the savings.
CHSWC recommends that the Fraud Assessment Commission
consider giving"commendations" or "awards"
or other recognition for various activities, such as to those
fighting for fairness in particular industries.
Significant penalties will help in deterring fraud. However, penalties
for fraud vary - employees engaging in fraudulent activities are
subject to heavier penalties (prison and fines) than illegally
uninsured employers (misdemeanor).
CHSWC recommends that the penalty structure be examined
and modified as needed so that it is balanced, flexible with respect
to prosecution, and sufficiently severe to act as a deterrent.
CHSWC recommends implementation of authorizing language
in the law so that employers who intentionally illegally fail
to secure workers' compensation coverage be prosecuted
under "wobbler" (felony or misdemeanor) option.
The Department of Insurance advises that it supports efforts to
increase penalties against illegally uninsured employers.
Detecting Fraud
As anti-fraud efforts increase and some segments of the community
such as medical-legal providers feel the pressure, those who engage
in fraud will find other ways. For example, the community has
noted an increase in suspected medical treatment fraud.
CHSWC recommends that the insurance community consider
industry-wide training in fraud detection and techniques for investigation.
The Department of Insurance advises that by law, insurance companies
are required to maintain "Special Investigation Units"
(SIU). The Fraud Division of DOI is currently developing new outreach
and training strategies to increase fraud detection and reporting
by these SIUs.
CHSWC recommends that the community establish a feedback
loop whereby frontline persons are advised of new types of fraud,
what to look out for, and advising that efforts are being made
to detect and combat it. This could take the form of "Fraud
Bulletins" issued by the Fraud Assessment Commission, with
input from the Department of Insurance, district attorneys, employer
and employee groups, and the public.
CHSWC recommends that the Department of Insurance consider
establishing an 800 phone number Hot Line by which
suspected fraudulent activities and techniques could be reported.
The DOI Fraud Division advises that it will work with the Insurance
Commissioner's office to possibly expand the use of its
existing 800-number to include reporting fraud.
Incentives/Barriers in Fighting Fraud
There are some inherent barriers in the legislation, rules, regulations,
and administration of the workers' compensation program
that hinder anti-fraud activities. For example, recent court decisions
have reasserted that the WCAB has jurisdiction over workers'
compensation matters and have thus precluded insurers from suing
fraudulent providers in Civil Court.
CHSWC recommends that systemic barriers to fighting fraud
be reduced or eliminated.
CHSWC recommends reviewing other states' anti-fraud
laws and activities for possible application in California.
CHSWC recommends increased detection of and sanctions
imposed against fraud perpetrators.
It was noted that the Industrial Medical Council of the Department
of Industrial Relations is taking steps to combat fraud in the
medical-legal sector of the workers' compensation system.
However, the Industrial Medical Council is the only medical licensing
body with investigators who do not have peace officer status,
the lack of which impedes investigations.
CHSWC supports IMC's goal to obtain Peace Officer
status for its Senior Special Investigator. Such status would
enable the investigator to have access to criminal records and
police files and would give the investigator legal authority to
be an affiant for, issue and execute search warrants, detain suspects
for questioning, and seize and secure evidence.
Incentives would enhance and encourage workers' compensation
anti-fraud activities.
CHSWC recommends that incentives to fight workers'
compensation fraud be continued and enhanced.
CHSWC recommends that the Fraud Assessment Commission
consider establishing awards or recognition to those who have
effectively fought fraud.
Roles in Fighting Fraud
The Department of Insurance has experienced difficulties in the
past with respect to its workers' compensation anti-fraud
activities. Recent audits have led to recommendations for improvement.
The Department of Insurance is reorganizing to deal with past
problems and is requesting time to accomplish this endeavor.
CHSWC commends the Department of Insurance for requesting
audits of its operations and taking measures to implement improvements.
CHSWC supports the efforts of the Department of Insurance
to implement constructive changes pursuant to audit findings and
recommends that Department of Insurance submit periodic status
reports to the FAC (if such reports are not already a requirement
of the audit).
The Department of Insurance advises that reports are already prepared
regularly for the Fraud Assessment Commission and special reports
are made available on the request of the FAC.
CHSWC recommends that, after Department of Insurance has
had the opportunity to make changes, the Department of Insurance
make an oral presentation to the Fraud Assessment Commission and
to CHSWC.
The Department of Insurance advises that since commencing its
reorganization, Fraud Division personnel have already made personal
visits with each of the Fraud Assessment Commission members. The
DOI further advises that the FAC will be kept informed of all
significant developments in the workers' compensation fraud
program during regular meetings in the upcoming months.
The role of the Uninsured Employers Fund Unit in the DIR Division
of Workers' Compensation is perceived by some as demonstrating
conflict of interest between paying injured worker claims and
defending the assets of the state.
CHSWC recommends that an internal review be conducted
regarding the policies and purposes of the DWC Claims Unit and
the administration of the Uninsured Employers Fund.
Unclear roles in the fight against fraud have led to multiple
investigations of the same case or in cases that don't
receive attention. The use and effectiveness of current coordination
among agencies depends very much on the specific people involved
- much is informal.
CHSWC recommends that investigative roles and referrals
be formalized among the insurers' SIUs, the Department
of Insurance and the county district attorneys to eliminate unnecessary
duplications of investigative work.
The Department of Insurance advises that this process has been
ongoing since the inception of the workers' compensation
fraud program. "Joint Investigation/Prosecution Plans"
are now required as part of the district attorney applications
for funding. DOI believes that this requirement, along with increased
communication and training with the district attorneys and the
insurance industry, will eliminate many of the problems. DOI also
notes that the "dual reporting" to district attorneys
and the DOI Fraud Division remains an issue which causes some
confusion.
CHSWC recommends that actions be taken to increase coordination
among agencies to maximize the effective use of scarce resources.
The Department of Insurance advises that it is already developing
strategies as part of its reorganization to form closer working
relationships with parties, both governmental and private sector,
in order to maximize its resources.
Administration of the Fraud Assessment
The community noted that the Fraud Assessment Commission sets
the assessment rate but they seem to be constrained in what else
they can do. Under the current statutes, the Fraud Assessment
Commission has limited ability to control where the Fraud Assessment
goes, who gets it and if is being expended correctly. The Fraud
Assessment Commission does not currently seem to have the staff
or the authority to effectively demand accountability. The Department
of Insurance may be in a perceived conflict of interest role with
respect to the handling of Fraud Assessment monies.
CHSWC recommends, if such are not already in place, that
the Fraud Assessment Commission consider establishing standardized
methods, procedures, forms, and justifications to request grant
monies from fraud assessment and to evaluate the use of grant
monies.
The Department of Insurance advises that this process is under
discussion and open for review. A component in the DOI Fraud Division's
reorganization project is the creation of several new functions
that will directly track and report on all fraud program activities.
Distribution of the Fraud Assessment
The distribution of the current fraud assessment is set by law;
50% must be distributed to the Department of Insurance and the
other 50% to local district attorneys.
CHSWC recommends a legislative change so that the distribution
of the fraud assessment can be flexible.
The Department of Insurance advises that it supported Assembly
Bill 1004 which has been passed by the Legislature and sent to
the Governor for signature. AB 1004 would give flexibility to
the FAC to fund the DOI Fraud Division and district attorneys.
CHSWC recommends that the feasibility be explored to enable
smaller counties to join together in submitting grant applications
to the Fraud Assessment Commission.
Measuring Effectiveness of Anti-Fraud Efforts
Currently, the Department of Insurance and the county District
Attorneys are required to report the numbers of fraud cases, referrals,
arrests, prosecutions, and convictions. The economic impact of
such cases is not included in those reporting requirements, yet
one case may save literally millions of dollars.
CHSWC recommends that the Fraud Assessment Commission
work with the community to determine what measures of effectiveness
would be best to use. CHSWC urges them to work toward achieving
consensus and/or understanding of what is needed and what is possible
in what timeframes.
CHSWC recommends that the Fraud Assessment Commission
review the current statistical measures and consider adding economic
measures of value of the case and the savings to all affected,
including the public. The Department of Insurance suggests that
the DOI Fraud Division and the district attorneys be closely consulted
to determine what "meaningful" measures are needed
and/or realistic to assess.
CHSWC recommends that Fraud Assessment Commission consider
specific reporting requirements for all entities involved in workers'
compensation anti-fraud activities, such as:
District Attorneys
Department of Insurance Fraud Division
Department of Insurance Accounting Section- Tracking Payments and Restitutions
Fraud Assessment Commission
Division of Workers' Compensation
Future CHSWC Anti-Fraud Activities
The Commission on Health and Safety and Workers' Compensation
is taking additional steps in the fight against fraudulent activities
in the California workers' compensation system.
CHSWC project on Illegally Uninsured Employers was recently
completed. The Issue Paper contains recommendations for legislative
changes and possible future pilot projects.
CHSWC will actively seek sponsors for legislative changes.
CHSWC Commissioners will present oral and written testimony
before legislative committees in hearings for proposed legislation
and will recruit other members of the community to do the same.
The Department of Insurance requests that CHSWC staff meet with
the FAC, the DOI Fraud Division and the district attorneys in
advance of any proposals for new legislation so that current fraud
programs and strategies are not adversely impacted.
CHSWC encourages the formation of and will consider participating
(if requested) in industry self-help/self-improvement efforts
to deal with uninsured employers and benefit honest employers.
The industry may wish to make a larger scope effort to deal with
employers who do not comply with many and various requirements.
Acknowledgments and Thanks
The Commission on Health and Safety and Workers' Compensation
gratefully acknowledges and thanks the following participants
in the CHSWC Fact-Finding Hearing on Workers' Compensation
Anti-Fraud Activities.
California Applicants' Attorneys Association
California Chamber of Commerce
Julianne Broyles, Director of Insurance and Employee Relations
California Department of Insurance
California District Attorneys Association
California Fraud Assessment Commission
California Manufacturers Association
Julianne Broyles, on behalf of CMA Policy Director Willie Washington
California Workers' Compensation Institute
Edward C. Woodward, President
John Benson, Vice President of Claims, Zenith Insurance
Department of Industrial Relations
Employers
David R. Beck, Director of Risk Management, Poway Unified School
District
John DeLaurentis, President, Merry Maids, El Cajon, CA
Ed Ehlers, Executive Director, Associated California Loggers
George Lively, Independent Building Contractor
Esther Santiago, Consultant, representing "one of the major
school districts in Southern California, self insured for workers' compensation"
Los Angeles County - District Attorneys Office
David H. Guthman, Head Deputy, Workers' Compensation Fraud
Division
Members of the Public
Uros Jelicic, Injured Worker
State Compensation Insurance Fund
Geri Madden, Government Relations Officer
Donna Gallagher, Manager, Fraud Investigation Program
Commission on Health and Safety and Workers' Compensation (CHSWC)
