Insight, analysis & opinion from Joe Paduda


The real fraud in workers’ comp

Is not the occasional worker cashing checks s/he shouldn’t, or bowling while fully disabled, or double dipping.  No, it’s:

  • employers going without insurance coverage so workers and taxpayers foot the bill,
  • providers scamming the system to make millions, and
  • a relative few applicant attorneys and their schemes to defraud employers and taxpayers.

Today’s WorkCompCentral has a terrific piece by Greg Jones highlighting this last scam. Jones has dug deep into “capping”, a California scheme to recruit allegedly injured workers for attorneys and their physician “partners”.  These fraudsters may have single-handedly generated hundreds of repetitive trauma cases in the LA County area…CWCI’s done masterful reporting on this issue, finding “a strong association between attorney involvement and regional variation in the Los Angeles Basin and the high cost of CT claims.”

Then there’s the incredibly creative providers that make millions from:

  • dispensing drugs to patients;
  • doing drug “tests” using their inhouse machines;
  • unholy alliances with compounding “pharmacies” or
  • compounding drugs in their own offices.

A new scam was also reported in this am’s WCC; a Florida doc (why is it always Florida and LA County?!) allegedly used telemedicine “visits” to prescribe compounds to work comp claimants.

These bad actors suck money out of taxpayers and employers and do NOTHING to help work comp patients.

Blood boiling yet? Well, it’s about to vaporize.

Bad as that is, the real fraud is employer misclassification and related schemes.

A seminal study indicates ten to twenty percent of employers misclassify workers as independent contractors.

As the gig economy expands, this is going to get worse – much worse. From the Economic Policy Institute:

  • Atlanta stagehands for concerts produced by Live Nation, a company listed on the New York Stock Exchange that has held shows for such artists as Maroon 5 and Billy Joel, have been misclassified as ICs by a staffing provider (Vail 2015; DePillis 2015).
  • An estimated one-third of construction workers in Southern states such as North Carolina and Texas have been misclassified (Ordonez and Locke 2014a). [emphasis added]
  • And roughly 20,000 employees of CrowdFlower Inc., a San Francisco–based startup that breaks down digital jobs such as data entry, are misclassified, alleges a case now moving through the courts (Weber and Silverman 2015)

This is particularly problematic in construction, but it isn’t limited to southern states. Payroll fraud cases have been reported in Massachusetts, Washington, and many other states.

Yet you wouldn’t know from the press – and press releases from insurers – that payroll fraud and other schemes are the real problem dwarfing the individual worker fraud problem.

That’s just too bad disappointing awful.

I’d encourage real journalists to concentrate a lot more on the real problem – employer fraud – and avoid the clickbait nickel-and-dime “fraud” allegedly perpetrated by individuals.

What does this mean for you?

Work comp insurers, the ones that are really screwing you are employers. Get with it.


5 thoughts on “The real fraud in workers’ comp”

  1. Absolutely, has been the case since the 1980’s with no significant investigation or inquiry by governmental agencies or the press. Premium shortfalls are passed on to the remainder of policyholders, raising the premium base for all.

  2. Interesting and enlightening article. I do want to make the point that not all medical providers are “bad actors” and in fact many are doing their very best to provide the best care possible. Having said, many of those honest providers treating WC are being paid well below fee scheduled rates or market rates by the schemes listed in the article when there is no premium available to pay for what was categorized as a WC injury. Further, there has been a surge of non-contracted repricing companies slashing charges on behalf of insurance companies, leaving providers with very little recourse to recoup what was supposed to be paid.

  3. Joe,

    One of the things I learned from others after moving to this overdeveloped swamp called Florida, was that it is ground zero for every scam artist in the country. That is why many industries, including Insurance is heavily regulated. The elderly are the biggest victims of scammers, and also a prized demographic for every business here due to the disposable income they have.
    If you are over 65, everything is available for you because that is who they cater to.

  4. I would argue that claimant fraud continues to be an issue and can be relatively severe in certain circumstances. In terms of order of magnitude, however, I agree with this post and that more attention should be directed at employee misclassification and provider fraud.

    PS – Appreciate the source links provided in your post. Thanks.

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Joe Paduda is the principal of Health Strategy Associates




A national consulting firm specializing in managed care for workers’ compensation, group health and auto, and health care cost containment. We serve insurers, employers and health care providers.



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