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Risk Insider: Susan LaBar

The High Cost of Fraud

By: | August 21, 2014 • 2 min read
Susan LaBar is the risk manager at Coach USA/Megabus. She has more than 20 years experience in handling nationwide liability and workers’ compensation claims. She can be reached at susan.labar@coachusa.com.

Workers’ compensation fraud is prevalent and is costing employers and insurance carriers significant dollars each year.

There are many degrees of fraud. There are blatantly false claims, such as someone faking a fall or accident, to more subtle examples, such as complaining of false or lingering pain to get more time off of work.

All forms of fraud cost money.  Recognizing fraudulent claims and controlling them can be difficult.  Below are two of the many ways that workers’ compensation fraud can be controlled.

Get the Facts

The initial investigation is the first step, and one of the most important in preventing and controlling fraud.  When an employee reports an injury, ensure that an accurate report is received.

Investigate every claim in detail.  No matter how minor the injury, it is important to complete a thorough investigation.

How many times has that “minor” claim turned into a large exposure?  An effective way to investigate is by interviewing the employee.  Question the employee about how exactly the incident happened, who witnessed it and what could be done to avoid it in the future.

Specifically ask them to name all body parts that were injured. One form of fraud is an attempt to add non-related injuries to the claim by expanding reported injuries to different body parts as time goes on.

Ask them questions about their life.  What are their hobbies, do they have other employment, and do they have a spouse and children?

These questions help document the accident and provide great information if there is a need to investigate the validity of the claim.  Having their version of the accident in writing makes it less likely that the facts will change.

Nurse Case Management

Nurse case management is useful in many ways to help ensure proper treatment, mitigate costs and return the worker to full duty. It is also a way to help manage situations where there is suspected claims fraud.

The nurse can observe and establish a relationship with the claimant.  The nurse should attend medical appointments with the injured worker and ensure the worker is being forthright with the doctor about their injury and job duties.

He/she should have a detailed job description so there is no question what restrictions the doctor should or shouldn’t place on the injured worker.  The nurse can present information to the doctor about the worker’s hobbies and lifestyle.

If investigation reveals that an employee is performing activities that he/she states they cannot do, the nurse can present this to the doctor in the hope of getting a full duty release.

There are numerous ways to reduce or prevent claims fraud.  Initial investigation and nurse case management are valuable tools.

While some fraudulent claims are prosecuted, most are not.  The evidence of fraud can be used to limit exposure of the claim.

Use the information to bring the worker back to full duty as soon as possible.  These tools can help shorten the length of a claim and save the company money.

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Risk Insider: Allen Melton

Are You Properly Evaluating Cyber Exposure and Recovery?

By: | August 19, 2014 • 2 min read
Allen Melton is a partner and the leader of EY's Insurance & Federal Claims Services Practice. He has 20+ years of experience working for both policyholders and insurers in the claims process. He can be reached at allen.melton@ey.com.

In a lunch discussion with the director of finance at a large health care corporation, we discussed the recent data breaches where Russian gangs had stolen in excess of a billion logins/passwords.

Her concerns, or lack thereof, focused on the fact that her organization did not maintain credit card information since they were a patient research facility, and payments came from the large drug companies, not individuals.

In reality, their chief research facility maintained records on thousands of patients every week. This information included name, birth date, Social Security, health information, etc.

“Cyber” is Misleading

All too often when people hear the term cyber crime, thoughts spring to mind of some clandestine techno geeks trying to hack into banking information and wire funds into overseas accounts. However, the information subject of a cyber attack does not have to be located on a network. Data can reside on an old discarded hard drive, a smart phone, iPad or a printed report unconcernedly dropped in the trash.

What Data Does Your Company Have That “They” Want?

While credit card information is probably the most sought after form of data, aggressive spammers, such as the recent headlining Russian gang, are often happy to just get a new email address and the account’s contact list in order to push their enlargement pills.

Some cyber criminals are looking for browser history or any personal information on employees, clients, etc., that can be sold to disreputable advertisers. Some data thieves are looking for your draft invoices, so they can swap out your banking information for theirs to defraud your customers. Other data thieves will try to take over your network and ransom it back to you.

What Can You Recover From Insurance?

You really need to look everywhere in your program for recovery. The inconsistencies between cyber policies make this a very inexact science.

Some CGL, first party property or crime/fidelity policies have limits but can represent the only methods of recovery. Policyholders may also have potential recovery through D&O, E&O, and professional liability coverage, depending on the nature of the perpetrator and what actually occurred.

While these policies often contain relatively insufficient coverage limits, each may contain potential recovery sources that need to be thoroughly vetted.

In recent years, newer policies have evolved to address the unique risks of cyber crime. Policyholders can potentially look to cyber risk policies for coverage of damaged equipment, stolen equipment, business interruption and extra expenses, costs of notifying impacted parties, reputational damage, remediation costs, third party claims, and cyber extortion.

Take Action Now

Cyber risk is a reality for practically every organization and the sophistication of those trying to access your sensitive data grows daily.  It is important to understand the breadth of this risk as it extends well beyond simply a remote hacker gaining access to your network.

Evaluate the insurance policies you have in place to understand what coverage may be responsive to a cyber attack or breach and where necessary, take the appropriate steps now to fill those gaps in coverage.

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Sponsored: Rising Medical Solutions

Beware of Medical Hyper-Inflation!

Workers’ comp medical costs are spiking in hidden pockets across the country.
By: | August 4, 2014 • 5 min read
SponsoredContent_Rising

Historically, medical inflation rates nationwide have been fairly consistent. However, data is now showing that medical inflation is not a “one size fits all” phenomenon, with hyperinflation spikes occurring in some locations…but not others.

This geographical conundrum means hyperinflation can occur as narrowly as two hospitals having dramatically different charges on the same street in Anytown, USA. So, uncovering these anomalies is akin to finding the proverbial needle in a haystack.

“In recent years, workers’ compensation saw claim frequency decline, while severity rates went up. This basically means that increased job safety has offset increased medical costs,” explained Jason Beans, CEO of Rising Medical Solutions, a national medical cost management firm. “So, whenever a client’s average cost-per-claim went up, it was almost always caused by catastrophic, outlier-type claims.”

But beginning in 2013 and extending into 2014, Beans said, things changed. “I’ve never seen anything like it in my 20-plus years in this industry.”

SponsoredContent_Rising“Our analytics made it very clear that small pockets around the country are experiencing what could only be described as medical cost hyperinflation. The big spikes in some clients’ claim costs were driven by a broader rise in medical costs, rather than catastrophic claims or severity issues.”
– Jason Beans, CEO, Rising Medical Solutions

Data dive uncovers surprising findings

On a national level, most experts describe medical costs increasing at a moderate annual rate. But, as often is the case, sometimes a macro perspective glosses over a very different situation at a more micro level.

“Our analytics made it very clear that small pockets around the country are experiencing what could only be described as medical cost hyperinflation,” explained Beans. “The big spikes in some clients’ claim costs were driven by a broader rise in medical costs, rather than catastrophic claims or severity issues.”

This conclusion is supported by several key data patterns:

  • Geographic dependency: While many payers operate at the national level, only relatively small, geographically clustered claims showed steep cost increases.
  • Median cost per claim: The median cost per claim, not just the average, increased greatly within these geographic clusters.
  • Hospital associated care: Some clusters saw a large increase in the rates and/or the number of services provided by hospital systems, including their broad array of affiliate locations.
  • Provider rates: Other clusters saw the same hospital/non-hospital based treatment ratios as prior years, but there was a material rate increase for all provider types across the board.
  • Utilization increases: Some clusters also experienced a larger number of services being performed per claim.

One of the most severe examples of hyperinflation came from a large Florida metropolitan area which experienced a combined 47 percent workers’ compensation healthcare inflation rate. Not only was there a dramatic increase in the charge per hospital bill, but utilization was also way up and there was a shift to more services being performed in a costlier hospital system setting.

“The growth of costs in this Florida market stood in stark contrast to neighboring areas where most of our clients’ claim costs were coming down or at least had flat-lined,” Beans said.

An Arizona metropolitan area, on the other hand, experienced a different root cause for their hyperinflation. Regardless of provider type, rates have significantly increased over the past year. For example, one hospital system showed dramatic increases in both charge master rates and utilization. “Even with aggressive discounting, the projected customer impact in 2014 will be an increase of $773,850 from this provider alone,” said Beans.

ACA: Unintended consequences?

So what is going on? According to Beans, a potential driver of these cost spikes could be unintended consequences of the Affordable Care Act (ACA).

First, the ACA may be a contributing factor in recent provider consolidation. While healthcare industry consolidation is not new, the ACA can prompt increased merger and acquisition efforts as hospitals seek to improve financials and healthcare delivery by forming Accountable Care Organizations (ACO). ACOs, the theory goes, can take better advantage of value-based fee arrangements in existing and new markets.

“As hospital systems grow by acquisition, more patients are being brought under hospital pricing structures – which are significantly more expensive than similar services at smaller facilities such as independent ambulatory surgery centers and doctors’ offices,” Beans said.

Unfortunately, there is little evidence that post-consolidation healthcare systems have become more efficient, only more expensive. For example, a recent PwC study reported that hospital IT infrastructure consolidation alone is projected to add 2 percent to hospital costs in 2015.

Another potential ACA consequence is group health insurers may have less incentive to keep medical costs down. An ACA provision requires that 85% of premium in the large group market must be spent on medical care and provider incentive programs, leaving 15% of premium to be allocated towards administration, sales and subsequent profits. “Fifteen percent of $5000 in medical charges is a lot less than 15% of $10,000,” said Beans. “This really limits a group health carrier’s incentive to lower medical costs.”

How do increased group health rates relate to workers’ comp? In some markets, a group health carrier may use its group health rates for their work comp network so any rate increase impacts both business types.

In the end, medical inflation is inconsistent at best, with varying levels driven by differing factors in different locations – a true “needle in the haystack” challenge.

What to do?

Managing these emerging cost threats, whether you have the capabilities internally or utilize a partner, means having the tools to pinpoint hyperinflation and make adjustments. Beans said potential solutions for payers include:

  • Using data analytics: Data availability is at an all-time high. Utilizing analytical tools to spot problem areas is critical for executing cost saving strategies quickly.
  • Moving services out of hospital systems: Programs that direct care away from the hospital setting can substantially reduce costs. For example, Rising’s surgical care program utilizes ambulatory service centers to provide predictable, bundled case rates to payers.
  • Negotiating with providers: Working directly with providers to negotiate bill reductions and prompt payment arrangements is effective in some markets.
  • Underwriting with a micro-focus: For carriers, it is vital that underwriters identify where these pockets of hyperinflation are so they can adjust rates to keep pace with inflation.

“This trend needs to be closely watched,” Beans said. “In the meantime, we will continue to use data to help payers of medical services be smarter shoppers.”

Contact Rising Medical Solutions: info@risingms.com | www.risingms.com

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


Rising Medical Solutions provides medical cost containment, care management and financial management services to the workers’ compensation, auto, liability and group health markets.
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