California Cracks Down on Workers’ Compensation Provider Fraud

California’s Department of Industrial Relations (DIR) has made multiple attempts to reduce workers’ compensation costs to employers and to improve compensation paid to workers. One persistent obstacle to cost containment is fraud, and the DIR has poured considerable resources into combating fraudulent worker claims, premium fraud, and most recently, provider fraud. In January, the DIR released a report on its anti-fraud efforts that emphasizes its recent success against provider fraud and lien abuse.

Here’s a look at how unscrupulous providers have been gaming the system and what the DIR is doing to stop them.

Provider fraud prevention

Although employers are generally most concerned with fraudulent claims filed by workers, provider fraud and lien abuse are much more widespread and costly, and combating them has proved to be a multifaceted problem. In provider fraud and lien abuse schemes, referral, treatment, and kickback arrangements are used by unscrupulous medical providers to generate billings for unnecessary or sometimes nonexistent evaluations and treatment. Dubious claims are filed, and then they are referred for evaluation and treatment outside the insurer’s Medical Provider Network and without the insurer’s knowledge. The providers then file lien claims with the Worker’s Compensation Appeals Board (WCAB) for medical services, drugs, and ancillary services such as interpreters.

In 2012, California implemented a workers’ compensation reform bill, SB 863, which established the evidence-based Independent Medical Review (IMR) system to take medical treatment decisions and disputes for accepted claims out of the litigation system, and it created new lien-filing fees and restrictions intended to reduce the volume of lien claims and lien claim litigation. But lien claims bypass both the Workers’ Compensation Utilization Review and IMR processes, and the frequent practices of bundling and assignment of claims make it more difficult to identify fraudulent providers and combat fraudulent claims. Because of this, the claims are often settled. “A lien filer’s ability to get one foot inside the courthouse door creates tremendous pressure on the insurer to pay something in settlement, rather than taking on the expense of fighting or disproving a clearly invalid claim,” the report notes.

The cost of these claims is substantial—but the number of providers involved in them is relatively small. According to the DIR, 10 percent of the state’s lien filers were responsible for 75 percent of the lien claims filed between 2013 and 2015. The top 1 percent filed more than 273,000 liens worth $2.5 billion; five of the filers were individuals who were either being prosecuted for or had already pled guilty to fraud. But identifying these individuals didn’t stem the flow of cash in their direction; providers could still file and settle liens even while they were involved in fraud prosecutions and subject to other lien-filing restrictions.

Additional reforms were needed. On January 1, 2017, two new laws went into effect, addressing some of the recognized problems with the system. SB 1160 requires the DIR to automatically stay liens owned by providers who have been indicted or charged with crimes. AB 1244 requires the Division of Workers’ Compensation (DWC) administrative director to suspend any medical provider, physician, or practitioner from participating in the workers’ compensation system when convicted of fraud.

As a result of those efforts, the Department has stayed more than 200,000 liens associated with 75 medical providers that are facing criminal fraud charges; the liens are worth a combined total of more than $1 billion. In addition, data monitoring systems developed under SB 863 have improved DIR’s ability to detect fraud. For employers, the hope is that this will ultimately reduce the number of fraudulent claims that are simply settled by insurers and employers as a way of quickly disposing of them.