New Anti-Fraud Efforts Include Employer Fraud

By Loretta Macktal, Executive Assistant to the Vice President, Government Relations

Capitol Update, Feb. 4, 2005 Share this on FacebookTweet thisEmail this to a friend

A previous Legislative Weekly article on Clarification of First Aid Treatment Reporting generated a number of questions from several members. Why, for example, is CMTA concerned about an announcement made over a year ago by the Department of Insurance (DOI)?

The Fraud Assessment Commission (FAC) was established by SB 1218 (Chapter 116, Statutes of 1991). It added Section 1872.83 of the California Insurance Code to fund investigation and prosecution of workers’ compensation insurance fraud. Employers are assessed annually by the commission to fund the program. It has grown from $3 million in 1991 to over $34 million in the current budget. Employers are demanding to know how the money is being spent and its impact on reducing fraud.

Following the highly critical 2002 audit report by the State Auditor of FAC, DOI's Fraud Division and participating district attorneys, major efforts are now being made to fix the problems identified in the report.

On October 29, 2004, Insurance Commissioner John Garamendi sent his "Six Month Response" to State Auditor Elaine Howle with a progress report. The report indicated several meetings were held with district attorneys, FAC, various stakeholders and experts to discuss the audit recommendations and develop ideas that would enhance the Fraud Division's anti-fraud efforts. Moreover, the Fraud Division made several administrative changes that provide greater accountability and targeted use of funds to emphasize employer fraud.

On November 10, 2004, the commissioner adopted emergency regulations for insurers and some self insured employers in order to put renewed emphasis on fraud detection and reporting by insurers. Revised emergency regulations to implement the new requirements were adopted by DOI on December 14, 2004 and sent to the Office of Administrative Law for review.

FAC, under Chairman William (Bill) Zachry of Safeway Stores and several new appointees, has also become proactive and more aggressive in addressing problems identified in the audit. Most notable is the increased number of meetings with the Insurance Commissioner and regularly scheduled substantive commission meetings. Moreover, Zachry has asked the Legislature, the Division of Workers’ Compensation, and the Commission on Safety and Health and Workers’ Compensation for help in eliminating workers’ compensation fraud that includes employer fraud.

Zachry has made the Fraud Roundtable, an advisory group to the commission, a priority. He has challenged them to become proactive by providing regular input to the commission. Fraud roundtable meetings are held throughout the state and notices of the meetings are provided to the public. District Attorneys and Fraud Division representatives are always present and employers, insurers, third party administrators, applicant attorneys, and providers are invited to attend.

According to Zachry, the purpose of the roundtable meetings is to allow stakeholders in the workers’ compensation industry to present their views on the causes of fraud and to present opinions on how to solve the problem.

In our January 21st article, we highlighted the meeting notice because recent legislation has focused more on employer fraud by requiring more oversight by insurers and the Labor Commissioner and by providing additional funding for enforcement. These funds will allow more emphasis to be placed on private sector employers. Illegally uninsured employers and employers underreporting payroll, misclassifying injuries and improper reporting or payment of medical costs with or without collusion with physicians are high among the areas targeted. As indicated in the announcement:

First aid treatment is included as medical care that all employers must provide for their injured employees. Section 6409(a) requires a physician who treats an injured employee to file a DFR (Doctor’s First Report of Injury) with the claims administrator for every work illness or injury, even first aid cases where there is no lost time from work. Although the Labor Code contains "first aid" exceptions for the Employers’ Report (Form 5020) and the Employee Claim Form (DWC-1), there is no such exception for the DFR. The insurance carrier (or the employer if the employer is self-insured) must forward these DFR’s to the Department of Industrial Relations. There is no "first aid" exception to this statute.

Penalties for an insured employer’s workers’ compensation insurance fraud may include a fine up to $150,000 and up to four years in prison. Self-insured employers run the risk of both civil penalties and losing their self-insurance certificate and /or approval to self-administer if claims are not being reported or recorded properly.

CMTA strongly recommends that employers take heed of the announcement and review all of their current workers’ compensation and safety and health practices in regard to fraud to insure that they are in compliance with the law.
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