Insurers come on strong in probing worker comp cases.

Many suspects scared off, cases referred to officials

Workers' compensation insurers have referred more than 4,000 suspected fraud cases to law enforcement agencies and have saved millions of dollars in dismissed claims since a fraud law that went into effect about eight months ago.

In addition, big busts of organized workers' comp fraud mills are coming, insurers and law enforcement agencies said.

Senate Bill 1218, the workers' comp fraud-fighting measure, which provided funding for more workers' comp fraud investigators at the Department of Insurance and District Attorney's Office, also required insurance companies which issue workers' comp policies to establish by July 1, 1992, their own special investigation units to combat fraud, said Jerry Treadway, Los Angeles regional supervisor of the Insurance Department's fraud bureau.

Although insurers can comply with the law by hiring just one investigator, some companies have developed sophisticated computer systems, hired former police officers and run undercover investigations with video cameras, insurers said. Treadway said many of the big workers' comp insurers had set up their special investigation units six months early -- in January.

The law also requires insurance companies to document and report suspected fraudulent claims to the Department of Insurance, Treadway said. He said he did not have specific figures for the number of claims submitted, but they have been running at over 1,000 a month and growing.

In the first six months of 1992, 35 insurer groups representing 77 percent of the statewide workers' comp premiums submitted 3,911 claims involving suspected fraud to various government agencies, according to the California Workers' Compensation Institute (CWCI) an industry-supported education institution.

The forms have "been coming in by the truckload" in the past three months, Treadway said, and are very helpful in helping the department investigate and prosecute cases. The forms are particularly helpful because they provide accurate information in a uniform manner, which wasn't done in the past, Treadway said. In addition, the department is hiring skilled individuals, such as former police officers and veteran claims personnel, to investigate suspected fraud, he said.

Bob Young, spokesman for the CWCI, said no accurate estimates are available yet on the amount of money fraudulent claims have cost insurance companies or businesses, which end up paying higher premiums as a result of fraud. But insurers asserted fraudulent claims have cost them millions.

The main source of the problem are workers' comp mills -- organized operations which involve "cappers" (people who solicit workers to file claims, often recently unemployed workers) and networks of doctors and lawyers, insurance companies said.

At Woodland Hills-based Transamerica Insurance Group, for example, 10 medical clinics using 120 different names accounted for 40 percent of the company's total gross workers' comp billings last year, said Sherri Miller, assistant vice president of special investigations for the company.

There have been some highly publicized busts, but "I think everybody's disappointed that there have been very few arrests," Miller said. "But there are major investigations underway and I think we'll have some big arrests by the end of the year."

Ralph Plummer, Los Angeles County deputy district attorney in the fraud unit, said five lawyers there focus solely on workers' comp fraud, and they are working on five or six "major" cases which should involve charges against numerous doctors and lawyers.

"As time goes by, you will see a lot more arrests," he promised. Private insurers' in-house investigators are "very aggressive," he said, and noted Glendale-based Fremont Compensation Insurance Co. has been "leading the way" in the industry's investigation of suspected fraud claims.

Fremont, the third-largest private insurer in the state, has hired three former police officers to investigate claims, said Hank Krizl, senior vice president of claims. Not only has Fremont provided the Department of Insurance with more than 785 suspected fraud claims, but Fremont investigators have handed over 45 to 50 "completed investigations," some of which contain videotapes, Krizl said.

"When I say 'investigated,' I mean these case are ready to go (to prosecution)," Krizl said, adding that 99 percent of the investigation work needed to prosecute the case is done.

Last year Transamerica saved approximately $3 million because of activities by its fraud unit, and it is saving about $1 million a month so far this year, Miller said.

One major way of achieving savings is by refusing to pay suspect claims, thus forcing operations into the public light of court or the state workers' comp appeals board. Rather than comply with subpoenas, many suspected fraudulent claimants have chosen to back off, Miller said.

Chicago-based Kemper Group of Insurance Cos., which through its subsidiaries is the ninth largest workers' comp insurance writer in the state, has also saved money by refusing to pay claims they investigated and believed to be fraudulent, said Gene Adams, head of Kemper's workers' comp fraud investigations for California.

Adams had no estimate of what the company has saved but said in one recent case $56,000 in medical liens were dismissed when Kemper subpoenaed a medical clinic's records.

In addition to hiring investigators, Kemper has devised a special computer system to detect possible fraud by matching claimants' addresses and Social Security numbers, as well as the names of their lawyers and doctors, Adams said. "We're seeing a lot of combinations" of doctors and lawyers, Adams said.

Kemper has provided authorities throughout the state with information on what they suspect are fraudulent mills, he said. Eventually, the company will use its computer to fight fraud nationwide. "We started in California because that's where we saw the predominance of fraud and abuse," Adams said.