FAQ - Workers' Compensation

Provider Fraud


Over the years, investigators and auditors for workers' compensation programs in various states have discovered that some medical providers employ methods through which they defraud the system.

Medical provider schemes include

  • Creative billing - billing for services not performed

  • Self-referrals - medical providers who refer a patient for treatment, often overtreatment, or unnecessary treatment, to a clinic or laboratory in which the provider has an interest

  • Up-coding - billing for a more expensive treatment than actually performed

  • Unbundling - performing only one service, but billing it as it were a number of discrete procedures

  • Product switching - a pharmacy or other provider bills for one type of product but dispenses a cheaper version, such as a generic drug

Managed Care Issues

So-called managed care systems integrate the financing of health care with their delivery to covered individuals, generally through preselected health care providers. Usually these programs offer a package of benefits and have detailed and explicit standards for health care provider choice. Managed care typically involves a prepaid payment method, meaning a certain dollar amount is set to cover the cost of the health care provided to an individual. This amount is paid in installments, often on a monthly basis, to the health care provider. The provider is then responsible for providing to those individual members of the plan all health care services agreed to under the plan.

Specialized managed care fraud

Unfortunately, managed care systems can provide dishonest providers with specialized means of defrauding the workers' compensation system. The following is a brief list of such means:

  • Underutilization - the provider has already received a prepaid fixed fee and simply fails to provide a sufficient level of treatment

  • Overutilization - providers perform unnecessary treatments or tests in order to support charging higher fees in subsequent years

  • Kickbacks - providers promise payment for referrals provided

  • Internal fraud - some health care providers conspire with insurance companies in ways designed to cheat employers

  • Up-coding - setting forth a code for a service that is paid at a higher rate than the actual service provided

Alliances between professionals - fraud mills

In the field of workers' compensation, schemes developed, usually between attorneys and health care providers, to defraud insurance companies and employers are often called mills. Mills are generally organized around a ring of professionals who recruit workers to file false workplace injury claims. The recruited workers are sent to complicit medical clinics for provision of health services and are provided an attorney who pursues the workers' compensation claim for this allegedly injured worker.

Claims' auditors have detected mill fraud in the following ways:

  • The bills or explanation of benefits for services from a health care provider appeared unnecessary or fictitious

  • Medical reports were nonspecific to the individual supposedly treated

  • New reports turned out to be copies of previously submitted reports

  • Dates of reported treatment of nonemergency conditions turn out to be holidays; unlikely that a medical provider would provide such a nonemergency service on a holiday

  • Statements from the provider or the attorney represented far more than a regular work day for a professional

  • Workers complained that, even though attorneys filed affidavits for payment of fees for services, the workers have never even seen their attorneys

  • A partnership-like relationship appears to exist between a health care provider and an attorney


In workers' compensation, legal and medical professionals have sometimes conspired to defraud the system, often enlisting workers themselves to participate in the schemes. In some cases, workers' compensation mills have cheated the system of millions of dollars in unearned fees - money meant to alleviate the financial burden of legitimately injured workers.

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