Annual Report
For Calendar Year 1999
Allegations of Worker’s Compensation Fraud

State of Wisconsin
Department of Workforce Development
Worker's Compensation Division
November 1, 2000

Background

Since 1994, section 102.125 of the Wisconsin Statutes has required insurers to report suspected fraud to the Department of Workforce Development on their own initiative and, at the request of the Department, to investigate and report on cases of alleged fraud reported to the Department by the general public.1 After reviewing the results of an insurer’s investigation, the Department refers cases to local district attorneys for prosecution if there is a reasonable basis to believe that the case involves insurance fraud as defined by s. 943.395 of the Statutes.2 The Department is also required to report to the Legislature and the Governor each year regarding the number of allegations received in the prior year, the number of referrals the Department made for prosecution, and the results of those referrals.

Conclusions

This report provides a 6-year perspective from 1994 to 1999. The Department's major conclusions are unchanged from our last report issued November 1, 1999. Specifically:

Discussion of Conclusions

The fraud clearinghouse program has been cost effective. By design, the Department received no additional staff or funding to implement the program in 1994. From the start, the program’s success depended on a few Department staff developing a close working partnership with insurance carriers, employers and prosecutors. The Department conducts no independent investigations and has no role in prosecution. By design, the Department received no additional staff or funding to implement the program in 1994. From the start, the program’s success depended on a few Department staff developing a close working partnership with insurance carriers, employers and prosecutors. The Department conducts no independent investigations and has no role in prosecution.

Instead, the Department serves as a clearinghouse, providing relevant information to employers, insurers, prosecutors and policy makers. The most visible role for the Department is administering the worker's compensation fraud "hotline." Yet, equally significant is the informal role that Department staff play in advising insurers about how to develop an adequate case for prosecution and educating prosecutors to the nuances of the Wisconsin’s worker's compensation system.

The Department has also developed a speaker’s program to explain directly to employers what they can do to combat fraud and abusive claims. In the last 3 years, the Department estimates this program has been presented to about 2,000 private-sector risk managers. Typically, the Department speaks to an audience of about 100 personnel staff employed by firms in a particular region of the state. The Department has also used the State’s Educational Telecommunications Network (ETN) at least once a year to reach audiences statewide.

The public perception of worker's compensation fraud is exaggerated. There have been three significant areas of confusion since the Department set up the fraud clearinghouse in 1994.

First, it is clear that most anonymous callers to the Department’s fraud hotline confuse worker's compensation with other private insurance benefits or other public assistance programs such as welfare, unemployment insurance, social security disability or vocational rehabilitation training. In these cases, the person who is allegedly engaged in worker's compensation fraud has never filed a claim for worker's compensation benefits. This is, by far, the biggest problem with anonymous calls to the hotline.

Second, anonymous callers often assume, incorrectly, that an injured worker who has returned to work at his or her former salary is not eligible to receive any further worker's compensation benefits. They do not understand that a full-time employee who has returned to work part-time is typically eligible for temporary partial disability benefits. Likewise, at the end of the healing period, even when the employee has returned to work full-time, he or she may be eligible to receive permanent partial disability benefits. These payments are intended to compensate the employee for the estimated loss of future earning capacity due to a permanent medical condition that is, in theory, at least partially disabling. The employee does not have to experience an actual wage loss to receive permanent partial disability benefits.

Third, particularly in the early years of the fraud clearinghouse, insurers significantly underestimated the difficulty of investigating and documenting fraud. Today, insurers have a better understanding of what Wisconsin's district attorneys require to initiate prosecution.

Table 1 Alleged Fraud Reported to the Worker’s Compensation Division
1994-1998

Year

1994

1995

1996

1997

1998

1999

Total

Average

Fraud Allegations

95

143

152

146

109

104

749

125

                 

Anonymous Source

84

88

89

107

90

80

538

90

Insurers (or Other Identified Sources)

11

55

63

39

19

24

211

35

                 

Percent Anonymous

88%

62%

59%

73%

83%

77%

-

72%

Percent Identified

12%

38%

41%

27%

17%

23%

-

28%

Table 1 shows that each year from 1994 to 1999, the Department received an average of 125 fraud allegations. Almost all of the identifiable sources were insurers. Insurers were more active in alleging fraud in the early years of the program from 1995 to 1996. Table 1 shows a decline in insurer reporting in 1997, followed by an even more significant decline in allegations by insurers in 1998 and 1999, as insurers have become more familiar with the evidence needed to initiate prosecution.

All of the "anonymous sources" in Table 1 were calls to the Department’s hotline. The Department averaged 90 anonymous calls per year, with little year-to-year fluctuation. Since 1995, only three of these anonymous tips has resulted in a recommendation by an insurance carrier to prosecute. 1998 was a typical year for anonymous calls. For 65 of the 90 anonymous calls to the hotline, the Department and the insurers had no record of anyone filing a claim for worker's compensation benefits. The Department directed insurers to investigate the other 25 anonymous tips. Insurers have completed the 25 investigations referred to them and recommended only one case for prosecution.

The documented level of worker's compensation fraud in Wisconsin is minimal. Table 2 shows the outcome for the 85 cases that the Department referred to district attorneys for possible fraud prosecution from 1994 to 1999. While Department staff perceive that insurers are doing a better job documenting their cases than in past years, table 2 shows that the number of referrals by insurers and the number of prosecutions by district attorneys remains small by any standard.

From 1994 to 1999, district attorneys initiated prosecution in 17 cases, with 14 convictions, 1 dismissal and 2 ongoing prosecutions. District attorneys refused to prosecute in 59 cases and have 9 cases under evaluation. District attorneys have acted on 76 of the 85 cases that the Department has referred to them. To date, 70% (59 of 85) they declined to prosecute; 20% (17 of 85) they prosecuted; and 10% are being evaluated (9 of 85).

Table 2
Worker’s Compensation Fraud
Outcome of Alleged Fraud Cases Referred to District Attorneys
1994-19983

 

Year

1994

1995

1996

1997

1998

1999

Total

Cases Department Referred

5

16

11

28

13

12

85

               
Action by District Attorneys              

Currently under review

0

0

0

0

4

5

9

Refused to prosecute

3

14

8

24

6

4

59

Initiated prosecution

2

2

3

4

3

3

17

               
Results of Prosecution              

Obtained conviction

2

2

2

3

3

2

14

Court Dismissed

0

0

1

0

0

0

1

Prosecution ongoing

0

0

0

1

0

1

2

When insurers recommend prosecution to the Department, the statute requires that the Department determine that there is a "reasonable basis to believe" that fraud has occurred before recommending prosecution to the local district attorney. Typically, the Department makes a referral if the insurer strongly recommends it. There are several things to remember about the Department’s application of this "reasonable-basis-to-believe" standard.

First, if the Department does not refer the case to the district attorney, there is nothing to prevent an insurer that disagrees with the Department’s decision from going directly to the local district attorney to seek prosecution. The Department does not keep formal records on this, but anecdotal comments by district attorneys and insurers suggest that it happened a few times in 1994 and 1995. However, each time, the Department was informed that the district attorney declined to prosecute.

Second, if the Department does refer the case for prosecution, the local district attorney may still decline to prosecute based on his or her conclusion that fraud cannot be proved at the higher criminal standard — "beyond a reasonable doubt." The Department’s threshold for referral (a "reasonable basis to believe" that fraud occurred) is simply not as stringent as the criminal law standard that the district attorney must apply. Finally, insurers should understand that, in general, district attorneys are far more likely to prosecute a case if the insurers maintain close contact with the district attorneys after the Department refers the case for prosecution.

Whether one looks at referrals or prosecutions, an annual average of 14 referrals and 3 prosecutions is extremely small in the overall scale of Wisconsin’s worker's compensation system. Each year, there are approximately:

Attachment 1

102.125 Fraudulent claims reporting and investigation. (1) If an insurer or self-insured employer has evidence that a claim is false or fraudulent in violation of s. 943.395 and if the insurer or self-insured employer is satisfied that reporting the claim to the department will not impede its ability to defend the claim, the insurer or self-insured employer shall report the claim to the department. The department may require an insurer or self-insured employer to investigate an allegedly false or fraudulent claim and may provide the insurer or self-insured employer with any records of the department relating to that claim. An insurer or self-insured employer that investigates a claim under this subsection shall report on the results of that investigation to the department. If based on the investigation the department has a reasonable basis to believe that a violation of s. 943.395 has occurred, the department shall refer the results of the investigation to the district attorney of the county in which the alleged violation occurred for prosecution.

(2) Annually, the department shall submit a report to the appropriate standing committees under s. 13.172 (3) and the governor detailing, for the previous year, the number of reports under sub. (1) that the department received, the number of referrals for prosecution that the department made and the results of those referrals. Annually, the department shall submit a report to the appropriate standing committees under s. 13.172 (3) and the governor detailing, for the previous year, the number of reports under sub. (1) that the department received, the number of referrals for prosecution that the department made and the results of those referrals.

943.395 Fraudulent insurance and employee benefit program claims. (1) Whoever, knowing it to be false or fraudulent, does any of the following may be penalized as provided in sub. (2):

(a) Presents or causes to be presented a false or fraudulent claim, or any proof in support of such claim, to be paid under any contract or certificate of insurance; or

(b) Prepares, makes or subscribes to a false or fraudulent account, certificate, affidavit, proof of loss or other document or writing, with knowledge that the same may be presented or used in support of a claim for payment under a policy of insurance.

(c) Presents or causes to be presented a false or fraudulent claim or benefit application, or any false or fraudulent proof in support of such a claim or benefit application, or false or fraudulent information which would affect a future claim or benefit application, to be paid under any employee benefit program created by ch. 40.

(d) Makes any misrepresentation in or with reference to any application for membership or documentary or other proof for the purpose of obtaining membership in or noninsurance benefit from any fraternal subject to chs. 600 to 646, for himself or herself or any other person.

(2) Whoever violates this section:

(a) Is guilty of a Class A misdemeanor if the value of the claim or benefit does not exceed $1,000.

(b) Is guilty of a Class E felony if the value of the claim or benefit exceeds $1,000.

________________________

1Section 102.125, Stats. See Attachment 1.
2Section 943.395, Stats. See Attachment 1.
3In reviewing the data in Table 2, note that the year the Department referred the case is probably not the same year in which the alleged injury or fraud occurred.   Insurers are required to report all cases in which there is a reasonable likelihood of fraud, but they are not required to do so until, in the opinion of the insurer, reporting the fraud will not impede its ability to defend against the claim.