Recently in Fraud Category

The Insider does not normally think of state workers comp insurance funds as hubs of criminal activity, but then again, we haven't been to Scranton lately. James McDonnell, 53, is a supervisor in the State Workers' Insurance Fund (SWIF). He makes about $51,000 a year - at least, that's his declared income. He has apparently been pulling in a whole lot more than that. He was arrested this week for running a kickback scheme involving premium discounts for Pennsylvania employers. In exchange for (undocumented) discounts in premiums owed, McDonnell secured cash kickbacks of one third to one half the discount. Between 1999 and 2011, McDonnell and his wife pulled in at least $80,000.

WorkCompCentral (subscription required) offers additional background on this case, including PDFs of the criminal indictment. McDonnell offered premium discounts to individual employers, in one case, a roofer, whose premiums, instead of going up $50K, came down $10K. He then insisted that the roofer join one of the three staffing firms with whom he did business. In exchange for steering clients their way, these firms paid McDonnell a relatively modest 1% commission, in addition to paying him substantial cash kickbacks on the premium discounts. In honor of family values, McDonnell's wife was given several jobs which apparently did not require that she perform any work.

Kickbacks and Harassment
McDonnell must have been a busy man, systematically exploiting his position with SWIF, but he allegedly found time to harass a fellow fund employee. Last September he was accused of "making sexual advances on the employee, identified only as Jane Doe, such as asking her to lick a piece of Twizzlers candy taken from her work desk before he ate it and telling her to bend over and pick up a time sheet he dropped to the ground." Would you be shocked to learn that the fund did not take these accusations seriously?

There may well be slow days at a typical state fund, but McDonnell sure knew how to make time fly. That skill will come in handy when and if he finds himself doing time in a bureaucracy of a different sort altogether.

Comp fraud takes many forms and encompasses opportunities for each and every stakeholder in the system: doctors, lawyers, insurers, state bureaucrats, business people, workers and, I suppose, even consultants. Today's little saga of greed arises from the midst of a state bureaucracy. But no matter where the crime originates, the result is the same: higher costs for the vast majority of people who play by the rules.

A couple of years ago we blogged the performance incentive program at Smurfit-Stone Container Corporation in California. The performance numbers were stellar, but not necessarily because the work was performed safely. Instead, the company conspired with local medical providers to secure limited treatment outside of the workers comp system. Two supervisors pled no contest in conspiring to deny comp benefits to injured workers.

With the recent conviction of chiropractor Robert Schreiner, we see into the black box of the conspiracy. Workers complaining of work-related problems were referred to doctors like Schreiner - giving rise, alas, to a new and ominous definition of provider network. In one instance a worker complained about a neck and shoulder injury. Schreiner denied that the problem was work related, saying that it was caused by carrying a back pack as a child. He provided a handful of treatments and then encouraged the worker to file the claim under his health plan to continue treatments. When the worker persisted and filed a comp claim, he was fired.

Schreiner is headed to jail to serve a mostly symbolic sentence of 30 days, to be followed by three years of probation. Perhaps he can provide some adjustments to his fellow inmates. Confined spaces sure can mess up the spine.

Faking Safety
Smurfit-Stone was bought out last year by RockTenn. You can still read about the company in Wikipedia. Here is the (unattributed) description of the company's safety program:

Smurfit-Stone has been an industry leader in safety performance since 2001 [NOTE: the conspiracy to under-report claims began in 1999!]. In 2007, Smurfit-Stone's U.S. operations had an OSHA recordable case rate of 1.05, the best in company and industry history. This represents an 84 percent improvement in the company's recordable case rate since the implementation of Smurfit-Stone's SAFE process in 1995.The SAFE process, which stands for Smurfit-Stone Accident-Free Environment, promotes five core beliefs: 1.All injuries are preventable 2.Safety is everyone's responsibility 3.Working safely is a condition of employment 4.Training employees to work safely is essential 5.Safety is good business

As litigation has proven, Smurfit-Stone's low OSHA case rate has less to do with safety than with a conspiracy to under-report claims. Perhaps the SAFE program stood for something else: Screw All Forsaken Employees. Aggressive safety goals are a good business practice; circumventing the workers comp system is not just a bad practice, it's illegal. Just ask Robert Schreiber.

ABC news has picked up a story out of Arkansas: Zack Clement suffered a hernia while moving a refrigerator for his employer, Johnson's Warehouse Showroom. He underwent multiple surgeries, but the pain lingered, so he filed for a continuation of benefits. Among the pieces of evidence at his trial were party photos posted on his Facebook page, which show Clement drinking (and little else). When his claim for reinstatement was denied, Clement appealed, citing the unfairness of the Facebook evidence.

ABC wrote as follows:

In an opinion, written by Judge David M. Glover, the Arkansas Court of Appeals states: "We find no abuse of discretion in the allowance of photographs. Clement contended that he was in excruciating pain, but these pictures show him drinking and partying."

"Certainly these pictures could have a bearing on a Clement's credibility, albeit a negative effect that Clement might not wish to be demonstrated to the ALJ or the Commission, " Glover continues. "We hold that there was not an abuse of discretion in allowing the photographs."

Justice in the Details
At first glance, the judge's comments might be cause for alarm. An injured worker suffering from chronic pain might well be capable of having a few drinks with friends. (One can only hope that the alcohol does not interfere with any prescribed -or unprescribed - pain medications.) If the photos were the primary evidence of Clement's condition and the basis for denying the claim, Clement would have good reason to object. However, this is not the case.

In the course of his carefully reasoned findings, Judge Glover reviews in detail the medical history of Clement's claim. Even after multiple surgeries and several changes in treating doctors, Clement complained of ongoing pain. Extensive medical testing revealed no abnormalities and no evidence for the pain itself. He has been released to full duty. It is this detailed history and the lack of medical evidence that lead Glover to conclude that any further treatment would fall outside of the workers comp system. The Facebook photos are by no means the foundation of his findings. Nonetheless, he decides that the photos are a legitimate piece of the case file and admissable as evidence.

In my limited experience, Facebook seems to be a platform for superficial news and, for the most part, images of the good times. It is difficult to imagine that Clement would have used this public forum to post pictures of himself suffering excrutiating pain. If he had chosen to do so, this might have provided evidence in his favor. However, his friends would likely have chided him for being such a downer and even then, the court might have dismissed the images as theatrical exaggeration.

Facebook may now be the preferred means of presenting our personal narratives, but it is unlikely to help us make our case in a court of law.

Kevin and Bob Pickell ran KDN Lanchester Insurance Agency in Sinking Spring PA. It's not just the spring that's sunk. The not-so-kissing cousins (bad day photos here) have been convicted of diverting workers comp premium payments from area school systems into their own pockets.

As fraud goes, agents pocketing premiums is pretty dreary stuff: it's not a matter of if, but when they get caught. In this case, the carrier notified one of the schools that premiums had not been paid. In jumps the state attorney general, with the result that the Pickells are going to prison for over a year, followed by restitution and 20 years of probation.

The cousins do not appear to be planning a return to the brokerage business. They have offered the domain site (kdnins.com) for sale. Let's see. Brokers in jail, a bit of bad press. Not exactly a once-in-a-lifetime business opportunity.

Many good folks testified to the character of the defendants. They were known for their generosity in the community, along with living the lavish life style that inevitably accompanies this type of crime: big houses, fancy cars, expensive wines...

Opportunities for Fraud
Agents are just one of a number of parties in the workers comp system who see opportunities for making money the fast and not-exactly-legal way. Along with agents we have:
Employees:
• Faking injuries
• Lying about health problems that impact their ability to perform jobs safely
• Exaggerating symptoms to prolong disability (malingering)
• Being injured away from work and claiming the injury is work related
• Working a second job (usually under the table) while still collecting indemnity
Employers:
• Under-reporting payroll
• Misclassifying employees as "independent contractors"
• Misclassifying employees into lower risk - and lower premium - job classes
• Failing to report injuries
• Threatening employees who do report injuries
Doctors:
• Billing insurance companies for treatments not provided
• Exaggerating the nature of services provided
• Performing unnecessary tests
• Selling drugs (pain killers) to injured workers
• Conspiring with attorneys by faking diagnoses of compensable injuries
Attorneys:
• Helping workers exaggerate medical symptoms to secure benefits (providing unnecessary neck braces, crutches, slings, etc.)
• Coaching injured workers on malingering
• Helping workers develop a false "injury narrative"
• Stealing settlement dollars (very rare)
Claims adjusters:
• Securing kick-backs on medical or indemnity payments
• Setting up phony claims and pocketing payments
Investment companies:
• Bribing public officials to secure dollars for investment (see the "Coingate" scandal in Ohio)
• Offering (illegal) perks to decision makers who manage public dollars

Despite the myriad opportunities for fraud in the comp system, outright fraud is still relatively rare. The vast majority of transactions within the system, involving all of the above players in every state across the nation, are carried out with integrity and good faith. Nonetheless, eternal vigilance is necessary to ensure that comp dollars are spent prudently, wisely and fairly.

When we last left bodybuilding firefighter Felix Arroyo, his application for disability retirement ($65K per year, tax free) had been rejected and he had been offered back his (relatively light duty) job with the Boston Fire Department. Arroyo declined to accept the job and was fired. Now we read in the Boston Globe that he is facing criminal charges in federal court for mail fraud, the result of a seemingly able-bodied individual claiming to be disabled.

The case against Arroyo is as powerful as his biceps. Two back specialists have testified that there is no objective evidence of a back problem and that Arroyo's description of the pain ("8 out of 10") was inconsistent with his mobility. Testimony was also given by Dr. John Mahoney, the doctor who originally disabled Arroyo (and whose original diagnosis we termed "Mahoney's Baloney"). Mahoney testified that he would have changed his evaluation if he had known Arroyo was a body builder.

"If someone is bodybuilding, they're playing baseball, they're doing activities...that's not compliant" with their recovery," Mahoney said.

Good for Dr. Mahoney. He owned up to his mistake and assumed responsibility for it.

Tough Defense
Arroyo's attorney, Timothy Watkins, has his work cut out, for sure. He says that Arroyo was "working through the pain." (Aren't we all?) He also noted that the doctors's interpretations of the exams are subjective and that the pain Arroyo suffered could have been the result of stress (the stress, for example, of fabricating a disability?).

Perhaps the most damaging evidence is the video of Arroyo flexing for an audience at a bodybuilding competition a few weeks after he filed for disabiility. The video shows him prancing around the stage, stretching his ripped arms and chiseled legs in all directions and flexing the formidable muscles in his back. Then again, maybe he was just having a good day.

Arroyo is by no means alone in his attempt to take advantage of a lax system. He could argue that he was only doing what many other firefighters have done. True enough, but Arroyo alone is on trial here. Testimony continues. And while no trial result is a foregone conclusion (did someone say "Casey Anthony"?), Arroyo is likely to be working out for a while in a relatively confined space.

Joe Paduda has posted a steamy Health Policy Heat Wave edition of Health Wonk Review over at Managed Care Matters. He notes that "Far from the summer doldrums, activity related to the debt limit, IPAB, Medicare reform and Health Exchanges is at a late-September pace." Get in on the action, Joe always hosts a lively and informed edition.

Coming & Going - Roberto Ceniceros discusses the compensability case of a NC public school principal who was shot while driving to work. This is an interesting case because the principal was conducting phone business on a school-issued phone while commuting and he was also paid for travel expenses. He was awarded benefits, but the case is headed for appeals court. Ceniceros notes that injuries that occur during a commute generally are not compensable. He also notes that this might be some of the earliest case law on this issue. And with the brave new world of ubiquitous work enabled by mobile devices, it surely won't be the last.

Radical change - Peter Rousmaniere talks about the recent Illinois workers' comp reform and the radical change that the reform signified for workers' comp, change that he notes has largely gone unnoticed. He discusses two significant issues that surfaced in the reform: the "nuclear option," which Rousmaniere noted "freaked out almost everyone" - yet despite the dramatic language, an opt-out or non-subscribe program has long existed in Texas. The second issue that he notes is "an easy-to-overlook provision" that allows for union carve outs, which he discusses in greater detail. Peter's take on all things workers' comp is always well worth reading.

FL CFO tackles check-cashing fraud - WorkCompWire reports that the Florida CFO will be reviewing check cashing services for collusion in workers' comp fraud, which is said to be diverting more than a billion dollars from Florida's economy. According to CFO Jeff Atwater, this latest workers' compensation premium scheme is highly organized and orchestrated by individuals who know the construction and subcontracting industry and are intent on evading payment of workers' compensation premiums.

MA AG recoups millions in drug overcharges - In the latest of a series of settlements, Rite-Aid will pay $2.1 Million to resolve allegations of prescription drug overcharges. The settlement is the 5th in a series of similar settlements, the result of an investigation by Attorney General Coakley's office into prescription drug overcharges by pharmacies to public entities under the workers compensation insurance system. Settlements now total $7.9 million. Walgreens recently settled for for $2.8 million. Other pharmacies with settlements include CVS, Shaws Supermarkets, and Stop & Shop. Recouped money will be returned to cities and towns.

OH BWC publishes Facebook fraud page - If you commit workers comp fraud in Ohio, you may find your photo on Facebook. Yesterday, we posted about workers' comp and social media, so we were interested to see that the Ohio Bureau of Workers Comp has launched a special investigations Facebook page. It will include news on recent investigatory action, a most-wanted section and a link to report fraud. The page can be found at www.facebook.com/ohiobwcfraud

World's scariest job? - If not the scariest, it certainly is a contender: Chinese Road Workers. For other scary jobs, see our post on the workers on the cruise from Hell and the untethered tower workers. I'll stick with blogging, thanks.

Quick takes

• Major League Baseball injuries increasing
• NCCI: 2010 was good for workers' comp residual market administration
• WCRI Study: Workers' Comp Drug Costs Higher in Texas, Louisiana
• The Preventable Annual Tradition Of High School Football Deaths
  
• Occupational Asthma in the U.S. Workplace

Are Facebook, Twitter and other social media postings fair game when conducting a workers comp fraud investigation?

We've posted on this topic previously, including a reference to a successful Facebook-related investigation conducted by New York State Insurance Department's Fraud Bureau: social networking, workers comp & the law. Now, two of the experts that we cited in that post - Professor Gregory Duhl of the William Mitchell College of Law and attorney Jaclyn Millner - have a new article that is worth your attention: Social media and insurance fraud.

In the article, they answer our opening question with a strong affirmative, making a comparison between internet searches of public social networking profiles to the more common fraud investigation tool of video surveillance of property-casualty claimants. In fact, they make the case for why insurance investigators should be spending even more company time on Facebook, suggesting that postings or photos can substantiate some other evidence found in an investigation. While privacy issues are of concern, they state:

A privacy argument is unlikely to prevail in court because a person has no reasonable expectation of privacy in whether he or she has a social networking account or in what is posted in his or her profile. Even if a claimant protects his or her social networking profile information with privacy settings, the information is available to at least some third parties, to whom the claimant gives access (the claimant's "friends").

Some courts have gone so far as to say that there is no privacy interest in information stored on the internet because even if information, such as social networking information, is protected with privacy settings, it could be accessed by certain members of the public.

The recent case of Romano v. Steelcase Inc. shows that anything posted on Facebook or any other social networking site, whether the user has privacy settings or not, is likely discoverable.

Social Media & Employment Law
The social media landscape is dynamic and the courts are grappling with many thorny issues. If it isn't one of the top issues you are tracking in employment law, it needs to be. While fraud investigation is one area of interest, there are many other significant issues: how social media is used in hiring and pre-employment screening; social media policies in and out of the workplace; monitoring employees in the workplace, and more. Here are some good resources to help you keep current with the dynamic intersection of social media and employment law:

Think Before You Click: Strategies for Managing Social Media in the Workplace is a newly released book that we can't wait to read. The book's authors and editors are among some of the legal authorities we most frequently turn to on the topic of social media - several are practicing bloggers. We would particularly cite the following two authors, who frequently blog on social media:

**Employment Law Attorney Jon Hyman: Ohio Employer's Law Blog

**Employment Law Attorney Daniel Schwartz: Connecticut Employment Law Blog

And from the plaintiff perspective, we would recognize attorneys Jon Gelman and Alan S. Pierce who paired up for a podcast on Privacy, Clients and Social Media. Gelman frequently posts about social media on his blog, Workers' Compensation (which is well worth reading on other topics, too). He also has authored articles on social media, such asFacebook Becomes a Questionable Friend of Workers' Compensation.

Cavalcade of Risk - for the biweekly smorgasbord of risk-related news from the blogosphere, check out the new edition of Cavalcade of Risk hosted at Political Calculations.

The $17 million fraud - not chump change - Most employers and insurers get very heated on the topic of work comp fraud - as well they should. But while keeping an eye on the front door for shoplifting, some thieves are loading up the company safe from the back door. This week, four members of a California doctor mill were indicted in a $17 million workers' comp fraud. This stunning scheme bilked the city of Los Angeles and 19 insurance companies. Joe Wheeler talks more about the fraud and how it exposes a weakness in the system. He rightly notes, "That this relatively small fraud provider ring offering obscure medical procedures could make off with millions of dollars before being caught should make anyone involved in workers' comp benefits take a breath." Note to employers: it's not enough to think your insurer will manage everything - you need to take an active interest in managing and questioning claims, too.

In the line of duty - Louisiana flags are flying at half mast this week for two insurance investigators who were shot to death by an agent last week while investigating fraud. According to Insurance Times, investigators Kim Sledge and Rhett Jeansonne "...had gone to the Ville Platte office of suspended insurance agent John Melvin Lavergne to collect records. Lavergne shot the investigators and then killed himself." Louisiana is now looking into whether fraud investigators should be able to carry guns.

Is the soft market finally hardening? - Joe Paduda talks about recent reports from Towers Perrin and Fitch Ratings pointing to firming work comp premiums. No, really!

Dollars for doctors - ProPublica has been featuring an ongoing series that investigates the financial ties between the medical community and the drug and device industry. You can follow the entire series from the above link. In addition to several feature stories, there were frequent updates in made in May, several of which discuss drug industry ties to medical societies. In October, ProPublica also rolled out a searchable database of physicians who have received drug money, gleaned from public disclosures of seven large pharma companies. For a sampling, here is Massachusetts.

Ferreting out the more obscure news... - Among all the informative and useful information he posts over at Comp Time, Roberto Ceniceros also manages to ferret out some of the quirkier workers comp stories. This week, he posted about Palin's emails and the workers comp connection and last week, it was porn industry hazmat suits.

Confined space videos - WorkSafeBC produces a lot of great safety resources. Recently, a three-part video series on confined space came to our attention - worth checking them out. Part 1: Safe Yesterday, Deadly Today; Part 2: Test to Live; and Part 3: Rescue: Just Calling 911 Doesn't Cut It.

Christopher Robin Briejer used to be a carpenter. He suffered a back injury in 2000 and was disabled from work. Except that he apparently kept on working. In 2003 he hurt his back again while working without comp coverage. He claimed the new injury was a recurrence of the 2000 incident. The claim was re-opened and he began collecting benefits. Between January 2004 and April 2008, Briejer received 121 state checks totaling $258,995 for time-loss compensation, $75,295 in medical services and $31,651 in vocational retraining - for a total of nearly $366,000.

The state of Washington recently indicted Breijer for comp fraud, alleging that the 2003 injury was not a recurrence, but a new injury. Someone dropped a dime on him.

Breijer states: "I have a permanent back injury with permanent damage to my spine."

For a man collecting disability payments, Breijer maintains a very active life style. He likes to "rock crawl" and last year he climbed Mount Ranier.

"It doesn't take a back to climb a mountain, it takes legs," he said. [Think about that for a moment.] "I'm an active injured person. Even though I'm injured, I take care of my body. My doctors are 100 percent in favor of me hiking." Hmm. I wonder if his doctors are 100 percent in favor of him working...

A Famous Bear of LIttle Brain
Breijer appears to have been named after Christopher Robin, the boy who appears in the Winnie the Pooh books written by A.A. Milne. (I refer to the books, not to an abomination of the same name from the Disney folks.) It seems that Breijer took to heart one of the Pooh bear's famous quotes: "A bear, however hard he tries, grows tubby without exercise." No bear belly for Breijer!

I'm guessing that Breijer might resent being named after a character in a children's book. Well, the original Christopher Robin resented it, too. Christopher Robin was based upon Milne's own son, Christopher Robin Milne, who in later life became unhappy with the use of his name. "It seemed to me almost that my father had got where he was by climbing on my infant shoulders, that he had filched from me my good name and left me nothing but empty fame". Children can be so harsh!

Well, as Pooh himself famously said: "People who don't Think probably don't have Brains; rather, they have grey fluff that's blown into their heads by mistake." And again: "If the person you are talking to doesn't appear to be listening, be patient. It may simply be that he has a small piece of fluff in his ear."

I wonder if the prodigiously active Christopher Robin Breijer might have just gotten a little confused, Pooh-bear style, between right and wrong, between being truly disabled and being able to work. Such confusion is rampant in these morally compromised times. It's a bit like distinguishing one hand from another, which Pooh himself found to be quite difficult:

Pooh looked at his two paws. He knew that one of them was the right, and he knew that when you had decided which one of them was the right, then the other was the left, but he never could remember how to begin.

When it comes to confronting moral hazards, it's really important to remember how to begin.

States offer public tools to curb premium fraud
Massachusetts has recently announced an online tool to verify that an employer has workers' compensation coverage. The tool can be accessed from the Department of Industrial Accidents site.

In addition to helping employees to verify that they will be covered should they be injured on the job, businesses may also want to verify that their competitors are not gaining unfair advantage by avoiding their workers compensation obligations. Officials say the stated goals of the program are to:

• Permit homeowners to ensure that hired contractors have workers' comp insurance
• Allow general contractors to ensure that all subcontractors are properly insured
• Assist medical providers with coverage questions when treating an injured worker
• Aid state and municipal officials with ensuring workers' comp compliance with licensing, permitting, and awarding public contracts
• Help protect employers from agent and broker fraud allowing them to verify their own coverage

While most states have some type of anonymous fraud reporting system on their websites, some states are getting more aggressive than others in promoting their services to the public. Florida has been touting the results of their workers comp whistle blower site, which allows citizens to submit referrals of alleged violations of workers compensation rules. As of August, after only two months of operation, the site had already produced hundreds of new complaints and over $500,000 in penalties. Fraud reporting systems aren't just for reporting noncompliant employers. They can also be used to report suspected employee, physician, or attorney fraud related to workers comp.

Fraud is on the rise
According to the National Insurance Crime Bureau, workers comp fraud referrals were up by 2% in the first half of 2009. Premium fraud was down by 21%, but other types of fraud such as medical provider fraud and claimant fraud have risen.

Steve Tuckey is currently writing an in-depth series on fraud for Risk and Insurance. The first installment, Transparency of Evidence, deals with fraud by doctors, hospitals and other healthcare professionals. He notes that "grayer areas of so-called abuse or overutilization continue to vex payers, insurance companies and lawmakers eager to maintain the financial stability and integrity of the system that has protected workers for nearly a century." Evidence-based medicine standards are helping to curtail both the egregious fraud as well as "softer" abuses. Part 2, Vanishing Premiums, deals with the issue of premium fraud and the myriad schemes employers use to avoid paying their fair share.

Social networks provide clues
Some employers and insurers are finding that social networking sites are a useful new tool in com batting employee fraud. In fact, in many cases, fraudulent employees are outing themselves as cheats by bragging about false claims or posting photos or videos of themselves engaging in activities that are incompatible with the injuries they are claiming.

"Some claimants supposedly too disabled to work post locations and dates for their upcoming sports competitions or rock band performances, boast of new businesses launched, and include date-stamped photographs of their physical activity, investigators say.

Others have openly bragged about fooling their employers with "Monday morning" workers comp claims for injuries that occurred the weekend prior and away from the workplace."

However, employers need to ensure that they stay within the law when using online information about employees. New Jersey attorney Jonathan Bick suggests some best practice policies for employers when mining social networks. The issue of employee privacy can be a murky one. A good rule of thumb is that an employer should avoid duplicitous methods to spy on private, nonpublic pages - a New Jersey jury recently upheld a group of employees' rights to privacy in just such a case. Information that employees post to public pages may be another matter. As Bick notes, "In order for a person's privacy to be invaded, that person must have a reasonable expectation of privacy."

Stephen Zaczynski, 49, is a lieutenant with the Connecticut Department of Correction. He claimed an on-the-job injury in September of 2008 and collected over $12,000 in benefits. While on disability, he continued to run a company he co-owned, New England Pellet. People in need of pellets pre-paid for the product, which, unfortunately for them, was never delivered. The company closed soon after Zaczynski went out on comp and filed for bankruptcy protection in January. To complete the trifecta, it appears that Zaczynski did not carry workers comp protection for his employees.

Let's see if we've got this one straight: Zaczynski collects comp for an injury that did not disable him, freeing him up to run a business that did not deliver the product that his customers paid for - a product at least theoretically handled by employees who were not covered by workers comp insurance. (Perhaps they were "independent contractors"?)

Zaczynski has a court date on October 20, where he faces charges of first-degree larceny, workers comp fraud and failure to maintain workers comp insurance.

His attorney, Jim Oliver, denies all the charges: "I do not believe that a crime has been committed by Stephen. We intend to vigorously defend all claims."

Oliver may have a case. In not delivering the pellets, Zaczynski perhaps was not performing work that exceeded the medical restrictions that kept him out of work. (We have no way of knowing whether the DOC tried to bring him back to work on light duty - as a lieutenant, this would surely have been an option.) While not delivering the product reduced the workplace hazards for his employees - less material handling, for sure - Zaczynski would still be required to provide workers comp protection, assuming these folks were, in fact, employees of the company. There's usually not a lot of wiggle room on that issue.

Finally, failure to deliver the pellets certainly appears to be a form of larceny, but theft on a much bigger scale worked out pretty well for the giant banks, mortgage companies and insurers, so perhaps it can work for Stephen, too. In the final analysis, his problem may be one of scale: he just didn't think big enough. If you're not going to deliver the goods, you want to screw people out of more than a few pellets for a stove. Next time, Stephen, think big, really big. It's the American way.

California has a California-sized fraud problem, with much of action in the medical arena. Unscrupulous providers are billing for services that are never provided, often under the names of people who have never been injured. It's identity theft targeted at businesses, not individuals. In California's $7 billion comp system (down from $21 billion just a few years ago), fraud is a significant cost driver.

Here is just one example of medical billing fraud, involving the Los Angeles Unified School District. In August of 2006 the district received a bill for lab services involving a principal injured in a fall the previous May. Unfortunately for the perpetrator, one James Wilson, the principal had died prior to the date of the lab test. (Comp is rarely interested in post-mortems.) Wilson was a financial rep at Cedars-Sinai Medical center - a highly reputable institution - and had access to patient medical records. He was convicted on five felony counts and sentenced to 4+ years in prison.

As we read in the LA Times, a task force of private and public employers, including the Walt Disney Co., came up with an intriguing solution: require insurers to send notices to injured workers to check whether they actually received all the medical services billed. To eliminate the suspense, I will tell you now that the bill died in committee, at the request of the insurance industry. As much as the Insider detests fraud, we're with the carriers on this one.

Junk Mail?
The fraud problem is very real, but this particular solution is flawed. Too many assumptions are embedded in the approach. The bill assumes that:
- the carrier has a valid address for the individual
- the individual will read and understand the mailing, which is likely to contain technical information on treatments provided. (The claimant may be non-English speaking and/or illiterate.)
- the individual will take the time to fill out the form and respond, even though there is no direct incentive to do so
- the individual is not a willing participant in the fraud (having received a few bucks for the effort)

The fundamental flaw is that injured workers have no direct financial stake in fraud: they are held harmless in the comp system, with no co-pays, no deductibles and no premiums. The stake holders are the employer, who either pays for insurance or is self-insured, and the carrier/TPA, who under this bill is confronted with the significant cost of mailings (perhaps multiple mailings to individual claimants) and the arduous task of logging responses, which would be random: most would indicate no problems, while those pointing to fraud might well come from folks who simply did not understand the questions. This solution is equivalent to using a shotgun to eliminate a bunch of (very pesky and rather deadly) mosquitoes.

There may be a quick fix to make this approach somewhat more effective: send the confirmation of services to the employer. That way a vested stake-holder would be given useful information and would have an incentive to follow up on it. The employer could sit down with the individual and verify the treatments. Any problems could be relayed to the carrier. In this approach, the scale of the effort becomes more manageable, as the burden falls on hundreds of thousands of employers, as opposed to a few hundred carrier/TPAs.

A cost-benefit analysis would probably place this fraud buster where it currently resides, in the circular file. It's always tempting to legislate solutions to intractable problems, but alas, mandated solutions often become a new set of problems. Administrators, employers and carriers need a variety of tools to tackle fraud. This aborted bill is not exactly what the prudent doctor would have ordered.

Back in May, we blogged the appalling story of Albania Deleon, a legal immigrant who founded Environmental Compliance Training (ECT), the largest asbestos removal training school in New England. Despite the fact that the training only requires 32 hours, she frequently sold certificates of completion to "students" who never attended classes. In other words, she sent these marginal workers - many of them undocumented - into asbestos-ridden jobsites with no preparation whatsoever.

Well, Albania, meet Chong-mun Chae, an illegal immigrant who ran a Queens-based asbestos removal company apparently modeled on ECT standards. Chae claimed to have only one employee, a receptionist. In other words, his company removed asbestos from job sites all over New York, but he accomplished this without any workers. By calling his workforce "independent contractors," he avoided workers comp premiums to the tune of $1.6 million. As we read in the New York Times, Chae has been sentenced to 4 years in prison, to be followed by deportation to South Korea.

Chae avoided detection for over a decade by frequently changing the name of the company. He was not without a sense of humor - let's call it diabolical - as one of his company's incarnations was "Charlie Brown Services." His premium avoidance scheme was exposed when an investigator read a report filed by Chae stating that he had no workers. You might think that a connection would easily be made between a company with hundreds of thousands in billings and no payroll, but that was not the case. In our collective haste to get rid of asbestos, we try not to think very much about the people actually performing the work.

Killer Jobs
Chae, like Albania Deleon, is getting off lightly. After all, he has only been convicted of insurance fraud. At some point in the not-too-distant future, when Chae is enjoying his retirement in South Korea, he will be guilty of murder, as his phantom workforce and their families succomb to debilitating lung disease. We don't know who they are or where they live. Collectively, perhaps we don't really care.

Entrepreneurs like Chae and Deleon exploit the margins of the working world, removing a deadly menace in a deadly manner. They offer jobs that pay relatively well, to a workforce that labors in the shadows. Chae and Deleon are nothing less than murderers. It's too bad that our system of justice is incapable of holding them accountable for their deeds.

If hell operated a dating service, surely the decrepid Chae and the fugitive Deleon would be a match: at 71, he is a lot older, where Deleon is a single mother with a now-abandoned 3 year old child. Despite the difference in ages, however, they have a lot in common. They have ruined hundreds of lives, wreaked havoc on thousands of families and reaped the profits of a corrupt business scheme. With values like those, age is surely no barrier.

In the world of workers comp, there is no lack of opportunity for fraud. We've seen doctors rip off the system by billing for services that were either never provided or not needed. We've seen employees fake injuries (relatively rare) or malinger on comp long after injuries have healed. We've seen insurance agents pocket money intended for insurance premiums. We've seen insurance adjusters embezzle claims funds. We've seen state comp bureaus (Ohio) engage in fraud. And we've seen employers rip of the system in a number of ingenious ways.

Which brings us to the saga of NBC Contractors (presumably no relation to the television network), a California general contractor. Three owners of the company - Monica Mui Ung, 49, of Alamo; Joey Ruan, 31, of San Leandro; and Tin Wai Wu, 28, of Millbrae - have been charged with 48 counts of insurance fraud, labor code violations and tax fraud. Bail was set at $535,000 for each of them. (You can check out their bare-bones website here.)

With Ung listed as the (minority, female) owner, NBC Contractors qualified for preferential treatment on public projects. Between 2003 and 2007 they successfully bid on 27 public works projects, including El Cerrito City Hall and Piedmont Elementary School.

Cheater's Delight
According the indictment, NBC used a trifecta of cost cutting measures:
1. They underpaid workers comp premiums a total of $1.45 million, by misclassifying their workers into lower risk occupations and by under-stating payrolls
2. They violated fair labor standards, by failing to pay for overtime or sick leave, impacting 19 workers a total of $3.6 million
3. They underpaid payroll taxes on workers, depriving state and federal government of tax revenues

With these (criminal) "cost savings," NBC was able to underbid their competitors. These business practices cheated a lot of people: NBC's own workers, their insurance carrier, their competitors, and all law-abiding businesses who played by the rules. We can only hope that the quality of their work was up to standards, which would at least keep their customers off of the long list of parties directly injured by their actions.

Albania Deleon is a entrepreneur. A legal immigrant and naturalized citizen from the Dominican Republic, she founded and operated Environmental Compliance Training (ECT) in Methuen, Massachusetts, the largest asbestos removal training school in New England. Between 2001 and 2007, she trained over 2,500 people in the intricacies of asbestos removal. Except that she didn't. Instead, she would fill out tests for certificate applicants and enter a passing grade. For $400, the (usually undocumented) worker was handed a certificate and then placed in a job through Deleon's other enterprise, Methuen Abatement Staffing. Her temporary workers handled hazardous abatement jobs throughout New England. (You can read the sorry details in a fine article by Beth Daley of the Boston Globe here.)

By the way, the training involves a total of 32 hours - not much of an investment in a life or death matter. (Some ECT students paid $350 and actually completed the training; for an additional 50 bucks, you could skip the training, pocket the certificate and get right to work, earning upwards of $15 per hour.)

ECT "graduates" went in to hundreds of schools, hospitals, churches, libraries, and homes throughout New England to remove asbestos. Most of them had no idea what they were supposed to do. Now there is deep concern that the workers, mostly young men from Central America, breathed the fibers, which can lodge in the lungs and lead to death decades later. Most had no idea how to properly wear a respirator.

In addition to their own exposure, these workers may have exposed their families to the cancer risk. Asbestos workers, if not properly trained, can inadvertently carry the fibers home on their clothes or hair.

More than a third of the 12,750 asbestos worker licenses and renewals issued in Massachusetts between 2002 and 2007 went to ECT "graduates." In New Hampshire, it was more than two-thirds.

Crocodile Tears
In November 2008 Deleon was convicted on 28 felony counts. Shortly before her sentencing, she wrote a rambling, hand-written letter to the sentencing judge. Among other things, she wrote:

"I pray that God will forgive my soul and allow me to atone the rest of my life repaying and repairing the harm I have done. This is my solemn promise...I commit myself to work ceacelessly [sic] to make restitution to the government and to the keeper of my soul until I draw my last breath life (sic)."

The reference to "last breath" is especially ironic, given that many of her "students" - along with innocent family members - will suffer excruciatingly painful deaths, as their breathing slowly and inexorably shuts down.

Facing more than 7 years in prison, Deleon skipped town. There is a warrant out for her arrest. Oh, she abandoned her 3 year old son in the process. Alas, it appears that "the keeper of her soul" doesn't have a whole lot to work with...

Over the past year, we blogged about a couple firefighters who abused the workers comp system. First there was the muscular Albert Arroyo, a Boston firefighter who participated in body building competitions, while collecting comp for a work-related disability. (Due to adverse publicity, he eventually lost both his job and his disability pension.) Then there was triathlete Christina Jijjawi, who parlayed a thumb injury into temporary total disability, during which she swam, cycled and ran for glory. Yes, I know, she was simply having an exceptionally good day.

Albert and Christina give firefighters a bad name. So it's a pleasure to introduce you to Scott Miller, an apparatus operator with the LA fire department. He not only restores the good name to firefighters; he is an inspiration to any and all who believe in returning injured workers to productive employment.

Answering the Call
Seventeen years ago, in the middle of the Rodney King riots, Scott was racing toward a fire when a vehicle pulled along side his hook and ladder truck and fired a handgun. A bullet entered Miller's cheek angled down through his body and severed a carotid artery in his neck. Given the quick response of his fellow firefighters, doctors were able to save his life, but a blood clot on the brain had left him paralyzed on the left side and unable to speak. (By the way, the shooter got 16 years - a bargain, considering that Miller "got" life.)

Miller was in rehab for over a year. He overcame the speech and many of the mobility problems, but never recovered fine motor skills in his left hand. He knew he could never do the physically demanding work of fighting fires, but he was determined to make it back to work. So he joined the Fire Prevention Bureau, where he eventually became a captain in charge of a crew that inspects commercial buildings.

He says of his prevention role: "It's an area of work that I've come to respect. I realized that I had to move on and refocus on the more important things of life, that I can't drag my dream with me until it becomes a nightmare ruining other positive things in my life."

One of the ironies of this story circles back to Albert Arroyo. He, too, worked in the prevention bureau, but he used the excuse of a questionable injury to go out on disability, so he could pursue his dream of winning a body-building competition. Scott Miller's dream was a little simpler and much more moving: he just wanted to be a firefighter again.

If you are a corrections officer on leave for a workers compensation injury, you should probably avoid getting dressed up in drag and competing in a public 40-yard dash, running in high heels. Nor should you work two other jobs while collecting workers comp benefits due to your inability to work. Come on people, you will have to do better than that - this is the work of fraud amateurs!

There is no shortage of resources for how to bilk your boss on the web, but many of them sound rather dubious. How to fake an injury is outright lame, but there is a little more thought put behind How to call in sick when you just need a day off - right down to short how-tos for creating illness sound effects. This would probably not faze your average HR director - they've heard everything. Every year, CareerBuilder does a survey to learn the worst sick day work excuses for the year. Forbes has an interesting slide show "Yeah, Right on the topic of work excuses.

There are probably few among us who haven't taken a day or two here or there in the course of our careers, but there are some "excuse-mills" online who are upping the ante a bit. These are vendors who provide templated excuse letters for doctor visits, jury duty, and the like. For $24.95, My Excused Absence offers a series of templates, including an emergency room visit and a medical evaluation form. Of course, these are "for entertainment purposes only." Phoney Excuses bills its products as "novelty excuses." You can get a doctor's note for $19.95 and the site offers explanations of the "legal aspects of a doctor's note" and how doctor's notes are important in workers comp, disabilities, or SSI. Fake Doctor's Excuse are a bargain in comparison, only $9.95. They suggest their notes are for entertainment or novelty only, and might be suitable for framing. You can hang one in your cubicle. These forms sound pretty bogus to us - somehow the people who rely on them sound like also they might be the type of people to dress up in drag to run a high-heeled road race while out on disability.

Fraud is no laughing matter - it costs money for all the honest folks. Plus, in most jurisdictions, it is a felony. That being said, we've always found that estimates of worker fraud in workers comp are usually overblown. While there is indeed premeditated fraud and employers and insurers would do well to be vigilant and prosecute it vigorously when found, we find more abuse that falls in the category of malingering. An injury did indeed occur, and after time, the worker may fall into disability syndrome. It has been our experience that employers who have a good workers comp program encompassing both injury prevention and point-of-injury and post-injury management aren't as susceptible to fraud as those who don't.

Here are a few practices we would recommend for employers to deter fraud:

• Don't adopt a suspicious approach. Did you ever have a teacher who made draconian rules for your entire class just to punish one or two bad apples? Those of us who did all resented it. Don't build punitive or mistrustful programs to defend against the few bad apples in your workplace and risk alienating the vast majority of good people who work for you. Be fair, open, consistent, and honest. Treat the bad apples as exceptions not the rule.
• Explain the rules. Make workers comp a part of your orientation program just as you would any other benefit. Most employees (in fact, many employers) don't understand what its purpose is or how it works. Better you explain it than the daytime or late night TV lawyers. First, explain your safety policies and your expectation that these will be followed diligently. Then explain what will happen should an injury occur. Explain how the benefits work and about your return to work program and your intent to take the best possible care of any injured workers. At the same time, note that fraud is a felony and will be aggressively prosecuted. If there are any professional fraudsters, they may move on to an easier target if you alert them to your tightly managed program.
• Stay connected. If an employee is out for more than a few days for an injury or illness, stay in good communication. Be supportive and let the employee know you value them and want them back on the team. Establish goals for return to work.
• Conduct accident analyses on every accident. It's important to know what happened so that you can prevent future similar accidents. We use the term "analysis" rather than "investigation" intentionally - this should not be about blame, but about establishing the facts of the event and learning how to keep other workers safe. Train your managers to be alert for red flags that might indicate fraud and, if found, alert your insurer.

But the single best tip for preventing fraud?
Be a great employer who earns the respect of your employees.

For more information on insurance fraud:
The Coalition Against Insurer Fraud has links to insurer fraud bureaus, as well as a variety of other resources and organizations.