The Triple Threat of Workers’ Compensation Fraud

Workers’ compensation insurance is an important social tool that provides benefits to covered employees who become ill or who get hurt because of their job. The insurance benefits can help cover those employees’ medical expenses and the wages they might lose if they must miss work. Workers’ comp insurance also eases the financial burdens on insured companies by spreading these costs among all insured businesses. And, of course, health care providers treating injured workers can be compensated under the schedules provided by workers’ comp programs.

Unfortunately, however, workers’ comp insurance programs operating in New York and other states across the country, as well as in the federal system, are rife with fraud. The Coalition Against Insurance Fraud has estimated the loss to workers’ comp programs due to fraud at $32 billion per year. See https://insurancefraud.org/wp-content/uploads/Workers-Compensation-Infographic-2.pdf. The estimate of the National Association of Insurance Commissioners (NAIC) is even higher: $34 billion per year. See https://content.naic.org/cipr-topics/insurance-fraud.

Insurance company counsel, insurance professionals, fraud investigators and government officials identify three different groups that may engage in workers’ comp fraud: employees, employers, and health care providers. When criminally charged, defendants can face significant financial penalties as well as prison. The balance of this column highlights various fraud schemes that these parties frequently use.

Employee Fraud

Employees have found a number of ways to commit workers’ comp fraud. For example, they may say that they were hurt on the job when they were not. They may contend that they have been injured and cannot work but, in truth, they can and do work at another job. Or they may get involved with a scheme to defraud orchestrated by third parties. These situations all involve fraud related to their workers’ comp claims.

Consider the recent case involving Antoinette Laney and her “gig work” for online company Instacart.  Laney was previously working as a bus driver for the Niagara Frontier Transportation Authority (NFTA) when, on May 15, 2017, she claimed that she was injured. Laney submitted at least 15 reports to the NFTA that included false representations relative to her physical ability and work activity, and that made false representations to medical providers tasked with treating and assessing her work-related injury.

The Office of the New York State Workers’ Compensation Fraud Inspector General (WCFIG), which conducts and supervises investigations of possible fraud and other violations of the laws, rules, and regulations pertaining to the New York State’s workers’ compensation program, see N.Y. Workers’ Compensation Law § 136, found that between September 2018 and October 2019, Laney misrepresented the extent of her disability, as well as her ability to work. The WCFIG’s investigation revealed that during this time period Laney was working as a personal shopper and as a grocery delivery driver for Instacart, delivering grocery items, including heavy items such as packages of bottled water.

According to the WCFIG, as a result of her misrepresentations, Laney fraudulently obtained workers’ compensation benefits from the NFTA in the amount of $30,212.69.

In late September, she pled guilty in a court in upstate Erie County to grand larceny in the fourth degree, an E felony under Section 155.30 of the New York State Penal Law. As part of her plea, Laney signed a confession of judgment to pay full restitution, and she faces a maximum of four years in prison when she is sentenced on December 19, 2022. See https://ig.ny.gov/news/former-nfta-employee-pleads-guilty-grand-larceny-after-fraudulently-collecting-more-30000.

In another recent case, the Bronx district attorney’s office indicted a Bronx man on grand larceny and insurance fraud charges, asserting that he falsely claimed that he was fully disabled and unable to work at his state job so he could collect more than $35,000 in workers’ compensation benefits. According to prosecutors, James Garner was a full-time employee at the Office of Mental Health at the New York City Children’s Center, working as a mental health therapy aide. He was injured on the job in 2019. For about a year, Garner claimed that he was fully disabled and he swore under oath that he was not working. Prosecutors said that an investigation found that he was able to work and that he was working increased hours at his part-time job. See https://www.bronxda.nyc.gov/downloads/pdf/pr/2021/58-2021%20James-Garner-indicted-workers-comp-defrauding.pdf. See also “‘Yellowstone’ actress charged with workers’ compensation insurance fraud” (Q’Orianka Kilcher charged with two felony counts of workers’ compensation insurance fraud; allegedly worked on television show “Yellowstone” during time she told doctor she had been too injured to work), https://www.insurance.ca.gov/0400-news/0100-press-releases/2022/release050-2022.cfm.

Employer Fraud

There almost seems to be no limit to the schemes that employers can use to defraud a workers’ comp program. Among other things, they may fail to obtain insurance at all or they may improperly report the number of their employees or their actual jobs, thereby saving on premiums. They also may simply divert premium payments to themselves or for other purposes.

The recent guilty pleas by two New York City contractors and the companies’ presidents are notable for the allegations and the resolution of the charges.

According to the Manhattan District Attorney’s Office, Dragonetti Brothers Landscaping bid on and won contracts for excavation, sidewalk reconstruction, and pedestrian ramp replacement for residential blocks throughout New York City totaling millions of dollars. However, the D.A. asserted, by intentionally misclassifying 217 laborers, foremen, and heavy-equipment operators as florists, office workers, or sales representatives on its applications to the New York State Insurance Fund (NYSIF) for workers’ compensation insurance, the company evaded more than $1.1 million in insurance premiums between 2017 and 2019.

The D.A. also contended that, during the same time period, D.B. Demolition evaded more than $81,000 in insurance premiums by misclassifying several workers in NYSIF paperwork, claiming the individuals were office workers while simultaneously listing them as commercial drivers in paperwork filed with the New York City Business Integrity Commission (BIC), the agency overseeing the private carting industry in New York City.

The two corporate defendants both recently pled guilty to insurance fraud, and their presidents each pleaded guilty to offering a false instrument for filing in the second degree. The defendants paid $1.2 million in restitution to the NYSIF and were debarred from all New York City Department of Design and Construction (DDC) and BIC contracts for three years. See https://www.manhattanda.org/longtime-city-contractor-pleads-guilty-to-1-million-insurance-fraud/. See also “D.A. Bragg Announces Indictment in $20M Off-the-Books Compensation Scheme” (four interior construction companies, their owners, and a manager charged with conspiracy to evade more than $1.7 million in workers’ compensation insurance premiums over five years by creating a $20 million, off-the-books, cash payroll), https://www.manhattanda.org/d-a-bragg-announces-indictment-20m-off-the-books-compensation-scheme/; “Two Tioga Co. Contractors Arrested For Failing To Maintain Workers’ Compensation Insurance” (Tioga County-based contractors allegedly failed to maintain workers’ compensation insurance at three construction projects), https://ig.ny.gov/news/two-tioga-co-contractors-arrested-failing-maintain-workers-compensation-insurance.

Provider Fraud

Health care providers may seek to game the workers’ comp system by billing for services not rendered, for overbilling on services or products, or in a variety of other ways.

In September, Steven J. Valentino and Michele Miller, a Pennsylvania doctor and his office manager, were convicted by a federal jury for their roles in a prescribing scheme involving injured federal workers and Medicare beneficiaries. According to prosecutors, the defendants received kickbacks for referring, ordering, and arranging for medications – including expensive compound medications – to be filled by a Houston pharmacy. The government contended that, between May 2013 and July 2017, the pharmacy billed the U.S. Department of Labor Office of Workers’ Compensation Program (DOL-OWCP), which covers all federal employees, and Medicare approximately $2.5 million and was paid approximately $1.1 million for prescriptions referred, ordered, and arranged by the defendants in exchange for illegal health care kickbacks.

The defendants were both convicted of conspiracy to pay and receive health care kickbacks, and each defendant also was convicted of two counts of receiving health care kickbacks. They face a maximum penalty of five years in prison. See https://www.justice.gov/opa/pr/doctor-and-office-manager-convicted-health-care-kickback-conspiracy.

In a case last year, a Lake Charles, Louisiana, physician pleaded guilty to one count of conspiracy to commit mail fraud, wire fraud, health care fraud, fraud to obtain federal employees’ compensation, and illegal remunerations (i.e., taking kickbacks) in connection with a scheme to defraud the U.S. government and private insurance companies by over-billing for unnecessary medications provided to workers’ compensation patients.

According to court documents, the physician, Robert Dale Bernauer, Sr., an orthopedic surgeon and clinician who practiced in Louisiana, made more than $1,000,000 from the scheme, which ran from 2011 until 2017 and defrauded both federal and private workers’ compensation insurers.

Court documents alleged that the basic premise of the scheme was that individuals associated with an Arkansas company recruited Bernauer to dispense pain creams and patches to his workers’ compensation patients by offering him a 50 percent split of the profits collected from successfully billing insurers. According to prosecutors, the company billed insurers at markups of anywhere from 15 to 20 times what the medications actually cost. The government asserted that the company acted as the billing agent for Bernauer, handling all of the paperwork and submitting the allegedly fraudulent claims to the DOL-OWCP and to private insurers as well.

The government contended that Bernauer knew that he did not have a license to dispense medications from his clinic, which was required under Louisiana law, but that he proceeded anyway to sign two contracts under which he agreed to buy topical medications from the Arkansas company at set rates, and to dispense them exclusively to his workers’ compensation patients. In turn, the government said, the contracts provided that Bernauer and the company would each get half of all amounts successfully collected from insurers.

Such profit-splitting arrangements violate both federal and Louisiana laws, and in pleading guilty Bernauer admitted he joined the scheme knowing it was, in his words, “too good to be true.” Bernauer further admitted he deliberately blinded himself to the illegality of the business arrangement, despite all the “red flags” he knew to be present.

Court documents showed that Bernauer alone accounted for a loss of approximately $2,050,546, of which $664,176.50 was suffered by the federal agencies whose employees were Bernauer’s patients. See https://www.justice.gov/usao-wdar/pr/louisiana-doctor-pleads-guilty-workers-comp-fraud-conspiracy. See also “Elmira Home Health Aide Sentenced After Guilty Plea to Felony for Defrauding NYS Workers’ Compensation System” (home health aide paid more than $6,000 to care for elderly workers’ compensation recipient failed to show for hundreds of hours she was supposed to work), https://ig.ny.gov/news/elmira-home-health-aide-sentenced-after-guilty-plea-felony-defrauding-nys-workers-compensation.

Conclusion

Workers’ compensation fraud can and often does impinge on the care truly injured workers are entitled to receive. It also burdens employers and insurance carriers, and the system as a whole, raising premiums and the costs of doing business. Challenges to workers’ comp fraud, and the imposition of penalties on those involved, benefits us all.

Reprinted with permission from the October 2022, issue of the New York Law Journal^©, ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.