Widespread fraud: Bogus claim By Mary Fricker Press Democrat staff writer Dramatic claims of runaway fraud helped spur a massive restructuring of California workers compensation in the early 1990s, prompting new efforts to clamp down on misuse of the system. There was only one problem. The numbers used in those claims were unsubstantiated, subsequent prosecutions were a fraction of the predicted fraud, and many experts say the claims were overblown. At the time, business and government leaders, worried about high workers compensation costs, said up to 300,000 of the claims filed each year, or 30 percent, were fraudulent. The estimate was widely repeated. But in actuality, in the five years since the state Legislature ordered insurers to set up investigative teams and report all suspected fraud to law enforcement, suspicious claims made up less than 1 percent of the total. Indeed, out of 1 million claims filed each year, insurers reported an annual average of only 5,362 were suspicious -- a few of which they dramatized by widely publicized examples of the worker playing golf or chopping firewood. ''I don't think anybody who claims there was 20 percent fraud out there has a leg to stand on,'' says Bob Young, communications director for the California Workers' Compensation Institute, the research arm of the state's insurance industry. ''Will these estimates stand up to the scrutiny of common statistical standards for accuracy? Absolutely not,'' the Coalition Against Insurance Fraud said in its newsletter last year. The group is a Washington, D.C., coalition of insurers, consumers, law enforcement and businesses. ''When it comes to measuring the amount of insurance fraud, the most truthful answer is that nobody really knows for sure.'' A climate of mistrust Yet the perception that workers are cashing in by faking or exaggerating injuries has created a climate of mistrust in which every person who is injured and files a claim can become the subject of suspicion by insurance adjusters, doctors and industry lawyers. That leads to second-guessing and double- and triple-checking that delays benefits and creates mental anguish for legitimately injured workers. Some insurance industry organizations, while admitting that they have done no studies on the extent of workers compensation fraud, say years of experience in the difficult arena of assessing injury have convinced them it's widespread. They say the actual level of fraud is much higher than the suspicious cases reported to authorities because insurers only report the most clear-cut cases. They say they see many injured workers who pad their claims and exaggerate their injuries, as well as many doctors and lawyers who inflate or fabricate their bills. And they point out their highly publicized fraud campaigns are an important way they control costs and save money for employers, for legitimately injured workers and for their own shareholders. "These huge numbers grab the attention of the public and policyholders,'' the Coalition Against Insurance Fraud said. No one suggests fraud doesn't happen. Santa Rosan Kelly B. Richardson, for example, was sentenced to 18 months in the County Jail in 1995 after the Sonoma County District Attorney's Office indicted him for filing as many as 16 suspicious workers compensation claims between 1990 and 1993. In the past three years, there have been 14 arrests and seven convictions in Sonoma County, according to the state Department of Insurance. But often, people suspect fraud where there is none, because they don't understand what workers compensation fraud is, experts say. What fraud is The definition of workers compensation claim fraud in California is a simple one: It's illegal to lie to get benefits. A successful prosecution requires proving the lie and the intent to defraud. Sonoma County Deputy District Attorney Bruce Enos said prosecutors have to be careful when they are handed evidence of alleged fraud. Enos heads the county's new insurance fraud task force -- a program funded by California employers who assess themselves $25 million a year to fight workers compensation fraud statewide. ''The workers compensation system is stacked for legitimate reasons in favor of the worker,'' Enos said. He said insurance company investigators often bring him videos of workers that don't prove fraud because they don't prove a lie or criminal intent. ''The insurance company definition of fraud is substantially different than mine,'' Enos said. California's fixation on fraud can be traced to a five-part series aired by KCBS-TV in Los Angeles in May 1991 that focused on medical and legal mills recruiting workers to file bogus workers comp claims. The KCBS series highlighted how doctors and lawyers were illegally billing workers compensation insurers for millions of dollars. Since then, tough new laws and prosecutions have smashed most of the mills, insurance experts agree. That very real problem contributed to an escalation in worry about runaway fraud. Some insurance companies saw fraud as a way to explain why premiums were soaring, and politicians and the media jumped on the bandwagon. In April 1992, a commission appointed by Gov. Pete Wilson and headed by businessman Peter Ueberroth reported, "Billions of dollars are wasted, and the system is training a generation of cheaters." "Some authorities estimate that 20 to 30 percent of claims filed are fraudulent," the report said. Four months later, the Los Angeles Times wrote in an editorial, ''Workers' comp has become little more than an organized scam for avaricious exploiters.'' Insurance companies ran full-page ads in the nation's leading newspapers, showing workers behind bars. "Anecdotal vilification' But Frederick Hill, California analyst for Firemark Research of New Jersey, one of the nation's leading analysts for insurance company investors, disagreed. In a November 1992 report he wrote: "Statements are made that the moral fiber of the nation, including that of the work force, has sunk so low that workers compensation fraud is commonplace and condoned. We are aware of no objective research that backs up such charges. "We believe reform efforts should concentrate on the fraud mills ... and not involve unwarranted and anecdotal vilification of the work force," Hill said. There was one benefit from all the attention, however: California agencies began tracking fraud. Their data shows that the reality does not match the perception. Even in 1993, the peak year for fraud referrals after the barrage of media attention, referrals in California reached 8,562, according to the state Department of Insurance -- less than 1 percent of new claims. The notorious fraud mills turned out to be big in impact -- one forensic doctor, for example, was found to have made $10 million in profits from fraud -- but limited in number. At the height, in fiscal year 1994-1995, there were 17 investigations of fraud rings in progress, the state Department of Insurance said. Unsubstantiated estimates Still, estimates of runaway fraud continue -- even from the Department of Insurance itself. ''Insurers estimate that up to 20 percent of all California workers compensation claims are fraudulent, costing both insurers and policyholders up to $1.5 billion a year,'' said a 1996 report from the fraud division of the California Department of Insurance. However, its own statistics showed suspected fraud that year at 0.3 percent. Last year, Conning & Co., a Hartford, Conn., research firm that sells reports to the insurance industry, published an ''unscientific'' estimate that $5.7 billion -- that is, 25 percent of the costs of claims nationwide in 1994 -- went to fraudulent claims. Conning based its estimate on a survey where 25 percent of respondents said they knew of someone who was collecting workers compensation even though they were capable of working. But Terrie Troxel, executive director of the Insurance Research Council which sponsored the survey, said the survey measured only attitudes about fraud and should not be used to gauge costs. Fremont Compensation Insurance Co. of Glendale -- which touts its ''zero tolerance'' stance against fraud -- uses Conning's 25 percent estimate in its presentations. But when asked about the level of fraud Fremont suspects in its own claims, officials said 2.6 percent, for the six years from January 1992 to the present. The American Insurance Association places its fraud estimate at 10 percent of the cost of claims paid. It has no research to support that estimate, according to assistant vice president David Corum. The Coalition Against Insurance Fraud adopted the American Insurance Association's 10 percent figure, said spokesman Michael Diegel, and estimated fraud costs at $2.5 billion in 1994 nationwide. The National Insurance Crime Bureau doubled that, to $5 billion -- even though bureau analysts admitted they had no studies to back their claim and they were involved in only 99 prosecutions in 1994 and 134 prosecutions in 1995. ©1997 The Press Democrat