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Column: Workers' Comp Dispensation

The Many Aspects of Fraud

By: | April 11, 2014 • 5 min read
John D’Alusio has more than 30 years of experience in insurance and claims. He can be reached at riskletters@lrp.com.

I was recently reading an industry column on the ubiquitous subject of workers’ comp insurance fraud. The author of that piece postulated that there were essentially two types of fraud: premium fraud and claimant fraud.

Of course, claimant fraud is the usually the first thing people think about when they think at all about fraud. Most likely a far distant second thought to claimant fraud is premium fraud. That is usually the province of unscrupulous employers attempting to save on workers’ comp premiums by intentionally under reporting the amount of employees they have working, or misreporting the class code exposures of those workers.

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If only life was so simple. Regrettably, there are various other strains of fraud that have plagued our existence at various times, for example, the California situation in the early ’90s. Anyone who was around and connected with workers’ comp insurance in California could not overlook that bane of existence for insurance carriers and employers during that time.

The impetus for this massive viral strain of workers’ comp fraud in California was that the workers’ comp law required employers/carriers to pay for medical exams for workers on contested cases such as continuous trauma and occupational exposure claims. With this incentive, clinics actually began to start law firms, which the clinics surreptitiously owned, with the overriding intention of feeding the clinics “patients” to examine. Applications to the Workers’ Comp Appeals Board were then filed by the law firms alleging various and sundry disabilities that required myriad medical exams to quantify the permanent impairment rating as well as future regimen of treatment recommendations.

A battery of medical examinations often yielded charges exceeding $10,000 in total. The applicants’ attorneys were more often than not willing to settle the claims on compromise and releases for a minimal amount of money to the claimants, because that was not the point of the entire endeavor. Once the case was concluded with the claimant, the medical liens had to be addressed. This resulted in a windfall revenue stream for the clinics that viewed the law as a license to steal, and did so with a frightening degree of efficiency and regularity.

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Where did the clinic owned attorney firms obtain their workers’ comp “clients”? That was another innovation. It was basically the workers’ comp version of ambulance chasing. They would go down to the unemployment offices and “cap” them off the lines of people there to collect their unemployment check, or to make a claim. This one can be filed under doctor and attorney fraud. However, one must admit to the simple elegance of this system, which added incredible cost burdens to an already overwhelmed workers’ comp system in the state with the largest population base in the country.

There have also been cases of claims adjuster fraud in the industry. These involve “enterprising” claims professionals who typically devise methods to embezzle funds out of their employer in the form of fraudulent claim payments made to bogus medical providers. This scheme usually entails setting up a medical provider in the payment system that the adjuster has “founded.” Durable medical equipment is a favorite choice in this realm. The key is to spread the payments to the provider (whose address is invariably a post office box) over a group of files so as not to attract any undue attention of claim and/or financial auditors. Over the course of a year or two, these adjusters can accumulate tens of thousands of dollars. The ones that have been caught either were too greedy, and streamed a surfeit of payments over a short period of time to the “vendor,” or else were simply the victim of a serendipitous audit that discovered the fraud.

Another not entirely unknown adjuster-perpetrated fraud involves seeking willing accomplices to initiate false claims that the adjuster would most likely handle. The adjuster makes payments to the claimants, who then split the claim payment “proceeds” with the adjuster. Although this is more likely in a liability claim scenario than a workers’ comp case, there have been incidents of this nature in the workers’ compensation landscape.

Let us not overlook possible producer fraud. There have been a number of situations over the last several decades involving premium being collected by an agent for coverage, and then not being forwarded to the insurance carrier. This is an audacious form of fraud as the corrupt producer is gambling that there will be little or no claims turned in on the supposed in-force policy. Of course, in the workers’ comp arena, at least seven out of every 10 claims involves no compensable lost time (“Medical Only” in the vernacular), and these claims are usually minimal in cost. Moreover, in many instances, the accident reports are sent directly to the agent, who can then pay for the medical treatment out of the embezzled premium funds. One must have nerves of steel to engage in this type of fraud, but it has been done.

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The medical community is also not entirely pristine in this area. I have seen several instances in my own career where bills for medical appointments that never took place have been submitted for payment. These are often most difficult to discover, especially if the modalities are many over an extended period of time. But it has happened.

As is evident, there are many more types of fraud than simply claimant and employer generated. As the aphorism goes, where there is a will, there is a way. Vigilance is always necessary.

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Compound Drugs

Compounding Challenges Comp Payers

The growing trend of compound drug prescribing raises safety concerns and obscures costs.
By: | April 10, 2014 • 2 min read
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A fivefold increase in compound drug prescribing over the past five years raises the issue of whether claims payers have adopted processes that challenge compounding expenses and protect injured workers.

That’s according to “Compounding is Confounding Workers’ Compensation,” a 41-page review of existing research conducted by several pharmacy benefit managers.

“The primary concern about compounds is that they have not been tested for safety.” — from the CompPharma report ‘Compounding is Confounding Workers’ Compensation’

While compounds have not been proven more effective than manufactured drugs approved by the U.S. Food and Drug Administration, they come with “staggeringly high costs” and their safety is largely unknown, according to the review published by CompPharma, a PBM consortium.

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Compound drugs are substances that are not commercially available and must be tailored to meet a specific individual’s unique needs.  The most commonly prescribed compounds in workers’ comp are creams, gels or ointments called topicals, which are applied to the skin.

“The primary concern about compounds is that they have not been tested for safety,” the paper states. “The compounds frequently prescribed in workers’ compensation … present a number of potential risks to patients,” including the potential for “adverse events.”

Payers also face difficulty assessing appropriate payment for compound pharmaceuticals when assessing their efficacy is a challenge, according to the paper.

A second paper recently published by Coventry Workers’ Comp Services states that “roughly 80 percent of compound prescriptions are out-of-network and therefore ‘paper billed.’ ” Paper billing obscures determination of a compound’s contents and it eludes price control systems put in place by PBMs, according to the two papers.

Compounds represent about 4 percent to 5 percent of total workers’ comp client spend, according to the Coventry paper, which is a response to the CompPharma report.

CompPharma’s paper provides a history of compounding, details current regulatory measures, and advises on practices prescribers should take to avoid potential liability.  It also contains a list of measures that might help workers’ comp payers.

Those potential measures include:

  • Limiting approval of payments for compounds to situations where patients have unique needs such as a documented drug allergy or an inability to swallow.
  • Obtaining a letter of medical necessity from a prescriber to establish that conventional therapy has failed.
  • Requesting evidence of effectiveness and safety for topical compounds.
  • Avoiding approval of topical compounds containing multiple ingredients.
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  • Requiring informed consent by patients in the absence of FDA approval of compounds or evidence of their effectiveness.

However, not all states allow payers to withhold payment when medical providers decline to cooperate, said Joe Paduda, the consultant who established CompPharma. Still, taking such measures puts doctors on notice that they should understand the medical necessity and science behind their prescriptions, he added.

“It’s a possible solution that will not work in in all jurisdictions, but it is much better than approving (compounds) without questioning them,” Paduda said.

Roberto Ceniceros is senior editor at Risk & Insurance and co-chair of the National Workers' Compensation and Disability Conference® & Expo. He can be reached at rceniceros@lrp.com.
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Sponsored Content by Riskonnect

Passionate About Technology

Brit Waters and his team revolutionized Avery Dennison's risk management process. Now other departments are looking to follow suit.
By: | April 7, 2014 • 5 min read
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If you overheard the passion and enthusiasm that Brit Waters uses to describe his most important business technology, you would immediately assume it was the latest smartphone or tablet. But it’s not Apple or Google that generates so much enthusiasm, it’s the Riskonnect risk management platform.

“Riskonnect revolutionized how our department does business. This system changed the way we gather, analyze and communicate information. It’s made us more efficient, effective and reliable,” said Waters, Manager, Risk Management at Avery Dennison Corporation. “These are not bandages, but complete solutions.”

Avery Dennison is a multinational company offering labeling and packaging materials and solutions whose applications and technologies are an integral part of products used in every major market and industry. The company operates in more than 50 countries with over 26,000 employees and $6 billion in revenues in 2013.

SponsoredContent_Riskonnect“Riskonnect revolutionized how our department does business. This system changed the way we gather, analyze and communicate information. It’s made us more efficient, effective and reliable. These are not bandages, but complete solutions.”
– Brit Waters, Manager, Risk Management, Avery Dennison Corporation

The company partnered with Riskonnect, the provider of premier, enterprise-class technology platforms. In just 18 months, the system not only revolutionized the department but also delivered wide-ranging value for plenty of other parts of the organization. Those departments utilize the system to manage financial assets, keep track of vehicles and will soon oversee facilities requests.

‘The Simplicity is Unreal’

For global property insurance renewals, Riskonnect changed the way Avery Dennison collects data on its 300 manufacturing facilities, warehouses and other properties around the world. Gone are the days of sorting through hundreds of separate emails with information about the properties and merging hundreds of separate spreadsheets into one.

Not only was the old process cumbersome, it left lots of room for error.

With Riskonnect, the process is automated. It sends emails to the more than 100 individual contacts and the users insert the information into the Riskonnect portal themselves — something that makes Waters’ life a whole lot easier.

“I hit a button once and it runs the report for me. The simplicity is unreal,” he said. “Plus, it gives us better information that we can communicate to our insurance carriers, and gives them increased confidence about the risks they’re insuring.”

Waters said it’s a big time-saver. “Before, the process could take up to three months, and now we get it done in less than a month.”

One thing he’s particularly excited about is the configurability of the portal. If he wants to customize it, he can easily do so without going through a computer programmer or contacting an account executive.

“It gives you the power to set up the system as you need it, not as someone else envisions you need it,” said Waters.

Expediting Claims

The Riskonnect portal is also the primary source for reporting workers’ compensation claims. Again, the Riskonnect system simplified the process. Before, employees had to call a 1-800 number or fill out a long form and fax it to the Third Party Claims Administrator (TPA). Now they just log on and use the claims reporting portal, which is equipped with drop-down menus and other efficiencies that help expedite the process.

“We take the guessing game out of their hands,” said Waters. “In a matter of minutes, they get a confirmation email that the claim has been submitted to the TPA.”

Through the Riskonnect dashboard tools, Waters and his department can learn a lot about trends in workers’ comp claims. The system tracks claims year-to-date, costs, causes of injury and even the top body parts that are hurt. Then risk management communicates that information to local managers to make sure that safety-and-prevention programs are appropriate and will help reduce the amount of claims and their costs.

“The Riskonnect dashboards layout all this valuable information in easy-to-use tables and charts, making it simple for us to study the data and implement necessary safety changes,” said Waters.

ROI on a Values Collection Module

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Enterprise Integration

At the start of the process, Waters never imagined just how many other departments would use the tool. The finance department uses the system for asset management. The fleet administrator uses it to have drivers sign off on its manuals. Even the facilities department is jumping on board, using the Riskonnect system to identify when properties need repairs to big-ticket items like roofs or windows.

The company is also looking to report global property claims, transit claims and employers’ liability claims through the platform. It’s even evaluating if it can use it on the shop floor with health-and-safety team members having easy access to the system via iPads.

”The Riskonnect platform can help many different departments with a wide variety of tasks,” said Waters. “It’s really making risk management a much more strategic contributor to the company.”

“I hit a button once and it runs the report for me. The simplicity is unreal,” Waters said. “Plus, it gives us better information that we can communicate to our insurance carriers, and gives them increased confidence about the risks they’re insuring. Before, the process could take up to three months, and now we get it done in less than a month.”

Happy End-Users

Waters’ enthusiasm for the product is clear, but he’s not alone. End-users are raving about how easy, intuitive and customizable it is. For example, training end-users used to consist of holding approximately 15 different webinars to walk everyone through the process. Now, it’s accomplished in one easy-to-understand mass communication through the Riskonnect portal.

The end users even helped Waters and the Avery Dennison team add efficiencies that improve the entire process. On the property reporting side, they suggested adding an attachment tool for adding spreadsheets – so the information is easy to find the following year.

“It’s amazing when you give the end users a product and you see how they come back to you with advice that you never even thought of,” said Waters. “That speaks volumes for the system.”

In just 18 months, Riskonnect changed the way Avery Dennison does business — something Waters can’t hide his enthusiasm about.

“I don’t consider them just a vendor,” said Waters. “I consider them a long-term strategic partner.”

This article was produced by Riskonnect and not the Risk & Insurance® editorial team.

Riskonnect is the provider of a premier, enterprise-class technology platform for the risk management industry.
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