Workers’ compensation fraud: A costly and fast-growing risk

Data Vortex Stream

Workers’ compensation is the fastest growing type of insurance fraud in the nation and costs employers $7.2 billion annually. Policies, procedures, and controls need to be regularly reviewed and enhanced to stay ahead of the fraudsters.

What questions can CRA help answer?

  • Do payments comply with statutes, rules, and policies?
  • Do costs line up with comparable data points; and if costs are higher, why?
  • Are there indicia of waste, fraud, or abuse by employee claimants, medical providers, and/or professional
    services firms?
  • Is there a sufficiently robust process in place to ensure each employee’s timely return to work?

Phase 1: Assess risks and test controls
Understand the operations, controls, and risks of the workers compensation program, and test the presence and efficacy of controls.

This typically involves a review of:

  • Applicable statutes, rules, and policies governing the compensation
  • Prior reviews, internal audits, and investigation reports
  • Forms and reports that claimants are required to complete
  • Employee and vendor contacts
  • Workers’ compensation claims and related awards
  • Payments to third parties who provided workers’ compensation services

Phase 2: Analyze claims data for patterns of interest
Analyze diverse data sets to identify patterns, trends, anomalies, and outliers; identify “red flags” and develop a risk-based sampling approach.

Analytical procedures may include reviews of:

  • Length of time the claimant was an employee before filing a claim
  • Department associated with the claimant
  • Higher frequency of claims filed by employees (“outliers”)
  • Claims filed against previous employers
  • Employees granted awards without filing a claim
  • Presence or absence of witnesses to the underlying incident
  • Timeliness of reported incident
  • Higher rate of claims compared to other occupations

Phase 3: Test claims, using a risk-based approach
Develop a risk-based approach to select a sample of claims. Test claims to assess the validity and extent of the awards.

Sample lines of inquiry:

  • Were appropriate diagnostic exams performed to confirm the injuries?
  • Do the underlying medical records support the diagnosis?
  • Is there evidence that the employee sought appropriate treatment from qualified clinicians for the underlying injury?
  • Are the details of the claimed injury consistent with the reported underlying incident?
  • Do the medical bills and procedures performed appear reasonable based on the claimed injury?
  • Is there evidence the employee is performing tasks or activities that would not be possible or appropriate, given the claimed injury?

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Workers compensation fraud

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