From the April 1997 issue of Entrepreneur

Workers' compensation fraud costs the insurance industry $5 billion every year, according to the National Insurance Crime Bureau in Palos Hills, Illinois, an organization that investigates insurance fraud. "The hidden cost of workers' compensation fraud is the higher premiums and the way it slows down the process for everyone," says J.C. Benton of the state-run Ohio Bureau of Workers' Compensation Fraud Division in Columbus. Benton notes that of all workers' compensation claims, 5 percent to 15 percent contain some element of fraud.

"Fraud is pervasive, whether from faking an injury or exaggerating the extent of an injury," agrees Gregory Blaies, an attorney in Ft. Worth, Texas, who defends employers and insurance carriers in workers' compensation cases. Blaies has seen cases of people living off the system who, by age 30, have racked up a dozen claims with a dozen different employers. Lower back problems and other soft tissue damage is easy to fake and difficult to disprove. Most doctors are sympathetic to patients who appear to be in pain and are more inclined to prescribe time off from work than to declare there's nothing wrong and risk a malpractice suit should an injury worsen.

Although your business could be the target of a scam artist who takes a job intending to fake an injury, a problem is more likely to come from a worker who gets hurt playing football on Sunday and files a claim alleging injury at work Monday morning. Even more common, Blaies asserts, is the worker who actually is injured at work but exaggerates the extent of the injury. After being home for several weeks drawing disability pay, many employees adjust to their new lives and find it easier than working.

"A worker who's off work longer is less likely to come back," Blaies says. "The less contact with the employer, the less likely the employee will feel wanted and needed." When an injured worker fails to return, you not only lose productivity, you face the cost of hiring and training a replacement. And the more money your workers' compensation program has to pay in claims, the higher your premiums will be next year.

Fortunately, there's a lot you can do to investigate injuries, stay on top of the process, and help injured workers get back to work. "It's one of the few tax and insurance costs employers can keep down," says Bill Werther, professor of management at the University of Miami. Careful follow-up can also keep scam artists at bay. "If the message gets out that `This employer doesn't follow up,' you're more likely to be the target of fraudulent injuries," Werther says.

One key is to recognize that despite the prevalence of fraud, there are plenty of legitimate injuries. Employees who've been injured and then treated badly by their companies are more likely to see a lawyer to get even. "The prevailing attitude in a lot of companies is that if you file a workers' compensation claim, you're dirt," says Blaies, who contends companies need to be less adversarial and more supportive. Investigate the accident promptly, but treat the worker as a valued employee.

Safety Valves

Step one in keeping workers' compensation costs down is avoiding accidents in the first place. "Employers with very good safety programs can go a year or two with no injuries," says Blaies. Be sure workers know how to use equipment correctly and how to lift without back strain. Keep machinery in good repair and work areas free of spills and debris. Establish a reward system for achieving a given number of injury-free days. When employees feel like they're part of a team, they're less likely to fake or exaggerate injuries.

When someone gets hurt, you have two tasks: first, to take care of the injured worker, and second, to investigate the accident. Have a policy that employees should report injuries immediately to the employer, even though the workers' compensation system typically gives them 30 days to file a claim. By the time 30 days have elapsed, co-workers are likely to forget what happened, making investigation difficult.

When an employee reports an injury, have his supervisor drive him to the doctor, make sure he gets proper care, and find out how the injury is likely to affect his work. How much leave does he need? Will he soon be capable of doing a different job, if not his regular one?

If the doctor prescribes medication, Blaies advises supervisors to take the employee to the pharmacy and, if needed, pay for the prescription (seek reimbursement later from the workers' compensation program). In some cases, the injured worker won't be able to use his regular medical insurance unless it also covers workers' compensation injuries. "If he can't pay for it, he'll get a lawyer," Blaies says.

Meanwhile, investigate the accident. Contact the insurance carrier immediately; if the carrier does not send an investigator right away, conduct a preliminary investigation yourself.

Bring in several co-workers to ask for their version of the accident. Could it have happened the way the injured worker says it did? Take notes. Scam artists typically engage "witnesses" to verify their tales of woe, so beware of a co-worker who seems overly eager to play witness.

It's best not to talk to the injured employee or witnesses who may be favorable to the injured employee about whether a workers' compensation claim will be filed. You could later be accused of trying to intimidate the worker into not filing a claim or witnesses into giving false testimonies.

If the injury appears legitimate, ask your insurance carrier to treat it as a valid claim. Otherwise, the carrier is likely to treat it as suspect, which could upset your valued employee. "Don't treat it as being out of your hands," Blaies says. You want your employees to understand that the company cares about them.

Following Up

"The biggest employer error is not knowing what's going on in the hospital and when the employee will be able to return," Werther says. It's easier to decide that a back problem is a permanent disability when no one from the workplace seems to care. Instead, Werther and other experts recommend calling the employee several times each week with updates on how things are going at work and questions about how the employee is doing and when she'll be able to return.

"You'll see the person's mood shift significantly," Blaies says. It's especially helpful psychologically if the person doing the follow-up is the employee's immediate supervisor, not someone in the personnel department. That makes the employee feel needed--and less likely to file for total disability.

Likewise, Werther recommends staying in touch with the doctor, who may be someone hired by the insurance company to assess the employee's progress. If the employee is better but not fully recovered, ask when she will be able to do modified work.

As soon as possible, get the employee back to work. If necessary, create a short-term, modified position the person can do while recovering, whether it's part time or less rigorous than the normal job.

These steps not only keep down your workers' compensation costs, but they also help make the most of your investment in your employees.

Steven C. Bahls, dean of Capital University Law School in Columbus, Ohio, teaches entrepreneurship law. Freelance writer Jane Easter Bahls specializes in business and legal topics.

Contact Sources

Gregory Blaies, c/o Decker, Jones, McMackin, McClane, Hall & Bates, 301 Commerce, #2400, Ft. Worth, TX 76102, (817) 336-2400;

Ohio Bureau of Workers' Compensation, (800) OHIO-BWC.