Spoiler alert: This article is not about fraud. Claims and risk managers may think that they are handling fraud claims—and employers are convinced that we (claims and risk managers) are handling fraud claims—but the truth is, we are not. Fraud is a legal concept, and the folks who deal with it are prosecutors, defense counsel, judges, and juries. The rest of us deal with “red flags.”
“So,” you may be asking, “What is the difference between fraud and red flags?” First, we’ll explore the concept of fraud.
Definition and Examples of Fraud
Fraud is a legal standard. The definition of fraud changes from state to state and even among statutes in a given state. A consumer fraud statute may have a different fraud standard than a workers’ compensation fraud statute. Fraud statutes derive from a common-law definition.
Fraud itself is the intentional misrepresentation of a material existing fact—made with the knowledge of its falsity and for the purpose of inducing another person(s) to act—upon which the other person justifiably relies on, with resulting injury.
To understand how this definition is applied, take the classic situation of an employee spilling water on the floor and then lying down and waiting to be discovered. Let’s take this example step-by-step:
Intentional misrepresentation—The employee spills water on the floor and lies down. Although he does not, at that moment, verbally declare he slipped on preexisting water, he takes actions meant to clearly create the misrepresentation that he did. Of course, he will eventually be asked, “What happened?” and he will make a second misrepresentation of what happened.
Of a material existing fact—The claim that he slipped as opposed to lying down is a material fact to getting workers’ compensation benefits, and also establishes that it arose out of and in the course of his employment. The claim that he sustained an injury is material: If he did not get hurt, he would not be entitled to any workers’ compensation benefits. The claim that he fell, that he got hurt, and that he needs medical attention are existing facts. They are different than speculation about the future, such as, “I may never be able to work again.”
With the knowledge of the falsity—Claiming “I hurt my back when I fell” would meet this element. Claiming specifically, “I think I broke my back,” would not.
For the purpose of inducing another person to act—If someone completes something as simple as an incident report, it would be sufficient to meet this element. However, the prosecutor would probably not pursue the claim. On the other hand, if the employer or the insurance carrier spent money on medical exams and treatment, or provided wage continuation because of the misrepresentation, this would clearly qualify.
The other person justifiably relies on the misrepresentation—The question is, would a reasonable person have relied on the misrepresentation? Think of it this way, if someone came running up to you at full speed, bounding down a flight of stairs to tell you that they fell and are hurt, would you believe it? If you found them lying on the floor groaning and seeing water on the floor, would you believe they fell and got hurt?
Resulting in a harm (to the person who relied on the misrepresentation)—In this case, the human resources employee or supervisor relied on the misrepresentation to authorize medical treatment and wage continuation benefits.
By the way, if the actor gets caught before he succeeds in the scam, he may still be guilty. Think of it as someone trying to commit a murder by shooting at you. Should they be able to use the fact that they missed as their defense so that they can try again? Hopefully, no.
We risk and claims managers rarely get a “smoking gun” video. Instead, we work with “red flags.”
Definition and Examples of Red Flags
A red flag is an action or event that should cause the claims or risk manager to question the claim, and there are more of them than can be listed here. Every insurance carrier and TPA has its “red flag” list—and putting together a list is a good first step, but it is just that: a first step. Think about processes instead of a checklist.
Fraud is an intentional act. The red flags are the behaviors that establish the intentionality. To appreciate that point, the question that must be asked is, “What does the employee have to gain by trying to game the system?” Generally, the answer will be one of six motivators: get time off; financial benefit; using workers’ compensation to cover non-work related medical expenses; manipulating the system to avoid financial consequences such as avoiding alimony or child support; avoiding employment consequences such as termination or disciplinary actions; revenge for being slighted, such as being denied a promotion or raise.
Answering the question of motivation is the first part—what the legal community calls the mens rea, or guilty mind. The actus reus, or guilty acts, is the concluding part, or the fraud. It is the red flag process. The guilty acts can be broken into 10 processes. While fraudulent claimants will use techniques from multiple processes, they typically develop a penchant for one or two processes, as listed below:
• Timing—The accident happens at the beginning of the shift or rotation. The accident happens at the end of the shift or rotation, but does not get reported until the next shift or rotation. The accident happens right after vacation. The employee reports a claim right after taking an excessive amount of time off, or has run out of sick time, vacation time, or paid time off.
• The bad day—The accident happens right after the employee was notified that he was being written up, or passed over for promotion, or did not get the bonus he felt he deserved. The accident happens shortly after being notified of a corporate downsizing or merger.
• The efficient claimant—Asks about settlement early in the process. Is willing to settle the claim quickly or on the cheap. Has a history of previous insurance claims and knows the system beyond what would be expected.
• The elusive employee, type one—The employee has multiple addresses, or uses a hotel or a P.O. box for his address. The claimant is never available when called—the call either goes to voicemail or the employee is “sleeping” or “cannot be disturbed.” The employee is never home.
• The elusive employee, type two—The employee is too injured to go to work but constantly misses medical appointments, medical tests, and independent medical examinations (IMEs). The employee changes doctors just as the doctor was getting ready to release the employee to full duty. The employee’s complaints keep morphing (it’s my hand, then it’s my hand and wrist, then it’s my hand and wrist but the pain runs into my elbow, then the pain seems to get worse when I move my arm at the shoulder).
• The incredible employee—The accident description or details are vague, contradictory, or irrational (but get better with each telling). The employee leaves out pertinent facts or cannot recall specific details of the incident. The story changes when inconsistencies are pointed out. The mechanics of the occurrence are inconsistent with the injury or limitations. Details change from medical report to medical report.
• Hail, hail, the gang’s all here—The employee lawyers up right away. The lawyer has a reputation for presenting questionable claims. The employee goes to doctors who are known for over-treating or prescribing opioids and benzodiazepines. The lawyer and the doctors are known to work closely together. The witnesses also have their own workers’ compensation claims (maybe even with the same lawyer and doctors).
• Hail, hail, the gang’s NOT here—The accident occurs to the employee in an area he should not have been (office worker getting hurt in the warehouse), or where there are no cameras (bathrooms), or when no one was around to witness the actual occurrence, but only the aftermath.
• Good science; bad acting—The pain is all subjective (headaches, severe pain, nausea, sleeplessness). The employee seeks opioids and muscle relaxers. The employee refuses or delays diagnostic testing. He has medical conditions that cannot be confirmed by diagnostic testing.
• Just bad acting—The employee is not able to do anything but presents himself at the doctor with dirt under his fingernails, or with suntans or sunburns. The employee wears braces or supports to be visible by others, particularly items not provided by his doctors.
The hardest part of the process is knowing that a claim is fraudulent and no one seems to be doing anything about it. Too often, it is because we did not get the right facts, particularly early on. Understanding the red flag behaviors will, undoubtedly, allow you to provide the legal system with the evidence needed to prove the case, “beyond a reasonable doubt.”