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Firms stake their claim in fraud fight
From policies to private eyes, workers’ comp tightens up
By Jan Norman
After two suspicious workers’ compensation claims doubled Daniel Di Giacomo’s insurance rates, he decided to act.
“I don’t want to delay benefits; I just don’t want to be abused,” said the owner of Reso’s Pets, a four-store Orange County retailer.
In one case, an employee bumped her head. The pet store manager made sure she saw a doctor immediately, and everything seemed fine. Weeks later the employee sued, claiming debilitating headaches. But she continued to work at the store, plus two other jobs, and attend college classes.
“I told the insurance adjuster, ‘Don’t you think something’s wrong here?’ But he said we couldn’t do anything about it,” Di Giacomo said.
In the other case, an employee twisted his wrist after two weeks on the job and claimed he couldn’t work. He drew benefits even though the insurance adjuster knew the employee was working at a similar job for another company.
California’s workers’ compensation system cost employers $12 billion a year, 150 percent more than years ago. Insurance companies estimate that fraud is involved in at least 20 percent of the claims.
Weeding out the fraud without being insensitive to truly injured workers is It’s Your Business’ Problem 220 for small-business owners.
First you must be able to spot a phony claim.
“We usually get an influx of fraud claims after a massive layoff,” said State Department of Insurance spokeswoman Elena Stearn.” Another red flag is when the claims (from several employees at one company) are signed by the same attorney or doctor. And fraudulent claims most frequently are for stress, psychological, orthopedic or neurological exams.”
Di Giacomo said fraudulent claims follow a pattern. “The employee is here just two or three weeks, seems friendly and dependable. Then he mysteriously hurts himself lifting something or falling when no one is around. He delays reporting it for several weeks, then says his back hurts.”
When managers at Russo’s Pets know an employee is hurt on the job, they send him or her to a doctor immediately, Di Giacomo said. Delayed reporting allows memories to fade so that a worker’s claim is harder to refute.
“I started keeping my own records on every claim,” Di Giacomo said. “Insurance companies are so overloaded, then bypass a lot of the work. You have to follow up repeatedly and point out all the evidence to them.”
Di Giacomo even hired private eye Thomas Martin to watch suspected cheats.
Martin, owner of Martin Investigative Services in Orange, has seen his workers’ comp caseload increase from one or two inquiries a month in 1981to 10 a week.
“Workers’ compensation claims are becoming too expensive not to fight,” Martin said.
He and his investigators follow suspected cheats for a few hours and often catch them working other jobs. One employee who filed a bad-back claim was photographed playing golf in Hawaii.
“The fee of $50 an hour, plus 45 cents a mile, is a lot cheaper than tens of thousands of dollars a fraudulent case can cost,” Di Giacomo said.
“Aggressive pursuit of a suspicious claim does more than catch one cheat,” Martin said. “The message sent to all employees is awesome. I guarantee your workers’ comp problems will come to a screeching halt.”
That’s what Thomas Myers, President of Myers building Service in Tustin found out. Five of the company’s six workers’ comp claims were fraudulent but its insurer would do nothing except raise the premiums.
So in April, Myers sent a memo to all employees, stating, in part, “Due to the high number of false claims over the last three years, I have decided that all injuries will be investigated by a private investigator. Any fraudulent claims will be turned over to the police and the fraud department of California Department of Insurance. I will personally hire an attorney to press charges for fraud.”
“The fraudulent claims have stopped,” he said.
Di Giacomo brought Martin to an employees meeting to explain how workers’ compensation abuse harms everyone because the company can’t afford to pay raises or may even be forced out of business.
“You’d be surprised how many employees believe they paid for workers’ compensation so they’re entitled to it,” Di Giacomo said. “Same thing with unemployment. They don’t realize the employer pays.”
Some insurance companies don’t eagerly pursue suspicious workers’ compensation claims, so Tim Saunders, President of Mission Pest Control in Laguna Hills, offers to pay the first $1,000 of a suspicious claim.
Workers’ compensation cases some of which Saunders thinks are phony, have spiked up his premium from $50,000 to $94,000 a year. There go the profits.
Another way Mission combats fraud is to have a supervisor accompany an injured employee for medical treatment. The supervisor can comfort the employee and see the treatment and hear the explanations firsthand.
Mission also has a program in which an injured worker may be assigned to other company tasks while recuperating.
“This program serves to keep an experienced staff member meaningfully employed and helps abate, ahead of time, the notion that an injury automatically means time off.” Saunders said.
Many small-business owners aren’t taking even minimal steps to discourage fraudulent workers’ compensation claims, says the Kessler Exchange, a small business research organization in Northridge.
A recent Kessler survey found that just half the businesses studied required the injuries be reported immediately. Only a third accompanied injured workers to treatment. Twenty-seven percent kept in contact with injured workers while they were off the job, and less than a fourth offered injured workers alternative jobs to minimize the time they are on disability.
The State has tightened some workers’ compensation laws to discourage fraud, says Stearn of the Department of Insurance. It is now a felony to commit workers’ comp fraud. And insurance companies must report such fraud.
That mandate has had a big effect, Stearn says. In the 13-year history of the department’s fraud unit, just 520 worker’s comp fraud cases had been reported. Now the unit is getting 800 referrals a month.
The department now has a separate fraud unit just for workers’ compensation. Its 16-member staff will increase to 55 in the next few months.
However, small-business owners must apply some heat in Sacramento if they want reforms in the worker’s compensation system, says Judee Slack, an enrolled tax agent in Westminster.
“Contrary to popular belief, aggressive reform is not high on the priority list of most legislators,” she said. “This information shocked me, but when I looked at it from the legislators’ view, I realized we have more workers than business owners. And workers are, for the most part, unaware of the problems of the current system.”
“Small business is the driving force of our economy; however, it is the least politically organized,” Slack said. “If every business owner wrote a letter to his or her legislator describing problems and concerns, maybe we would see the substantial reform that is necessary.”