CCW

By Paula Noonan

The Pinnacol Committee hearings have veered sharply away from the company’s $698 million surplus to whether it treats its policyholders and claimants fairly.  One point of debate is whether the company is too zealous in pursuit of worker fraud.

Insurance company advocates state fraud is “substantial.”  State Senator Morgan Carroll (D-Aurora) states that fraud represents less than1 percent of all workers’ comp claims in Colorado.

A Pinnacol interim committee report shows the company takes worker fraud seriously. Pinnacol typically deals with 55,000 cases annually.  In 2008 the company spent $4,763,885 on fraud surveillance involving 3609 referral cases and 2589 claims, or roughly 4 percent of claims.  The surveillance cost averaged $1840 per claim.  In 2007, the company spent $4,169,322 on 3650 referrals and 2626 claims, averaging $1587 per claim. http://www.colorado.gov/cs/Satellite?c=Page&cid=1242822336368&pagename=CGA-LegislativeCouncil%2FCLCLayout

Pinnacol refers fraud cases to the state’s Attorney General’s office.  In 2007 Pinnacol referred 19 cases for prosecution, and the AG’s office turned down two, according to Mike Saccone of the AG’s office.  In 2008, Pinnacol referred 17 cases for prosecution and the AG’s office declined five.  The state collected an estimated $255,000 in restitution in 2007 and $263,612 in restitution in 2008.

Based on the number of actual prosecutions, workers’ compensation fraud at Pinnacol represented .0003 percent of the 55,000 claims in 2007 and 2008.

Fraud can involve any number of people in the workers’ compensation cycle:  the worker, the employer, or the provider. www.infoglide.com/.../WP%20-%20Workman’s%20Compensation%20Fraud%20(US).pdf

Sharra Lee Leonard, former assistant attorney general and current leader of the fraud surveillance division at Pinnacol, says the company uses 12 identifiers of worker fraud, such as multiple claims by the same employee in a short period of time; longer absences than anticipated for minor injuries; an unwillingness to come back to work on partial duty or other jobs within the company; or missed medical appointments.

Industry analysts say that premium, or employer, fraud is the most difficult to find and the most costly to insurance companies because of undercollected premiums potentially in the millions of dollars.  This fraud involves employers reducing their coverage costs by underreporting the number of employees on a payroll, misclassifying employees (electricians as file clerks), underreporting claims, or assigning employees as contract employees rather than payroll employees.  Premium fraud increases policy costs for honest employers. http://www.californiaprogressreport.com/2006/12/work_comp_fraud.html

Provider fraud involves the medical practices that falsify the nature of an employee’s injury to prolong treatment.  This can include billing for services not rendered, prescribing unnecessary treatment, extending disability without justification, and falsifying a diagnosis.  

Premium, or employer, fraud charges were brought against eight employers in 2007 and five employers in 2008.  The Attorney General’s office has brought one charge so far in 2009, according to Saccone.

In general, worker’s compensation fraud is a tough charge because the Workers’ Compensation Act provides for only one fraud offense:  making false statements, in Section 8-43-402.  Leonard at Pinnacol says that the Attorney General will prosecute under other offenses, such as theft, perjury, or conspiracy. http://www.coworkforce.com/dwc/wc_act/Pages/Workers_Compensation_Act_By_Article.asp#8-43-402.%C2%A0%C2%A0False_statem

When individuals convicted of workers’ comp fraud have to pay restitution, they pay during the time of their sentence, including probation, so restitution numbers will vary by year.  Industry analysts report that workers’ comp fraud is up slightly in 2009, as is fraud in most insurance categories.

As for the rate of fraud, the statistics depend on cases referred internally at Pinnacol or to the Attorney General. Everyone in the industry asserts that significant fraud goes undetected, especially premium fraud that requires policyholder audits or the complicated unraveling of a claim on a forged subcontractor policy that eventually works its way to the general contractor and on to Pinnacol.

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