A new report just published by RAND focuses on one particular form of workers’ compensation fraud: the intentional manipulation of rules and procedures by providers, particularly those delivering health care services and supplies.

The report conceptualizes the sources of and remedies for workers’ compensation fraud in California, discusses various data-driven fraud-detection efforts that other governmental programs use, examines specific aspects of the California approach that might need addressing, and offers some high-level recommendations in that light for the consideration of regulators and legislators.

The Report finds that advanced analytics techniques that social welfare programs use for detecting fraud have had generally favorable results. These techniques offer California workers’ compensation similar promise. Shortcomings in how data are currently collected and accessed should not prevent the Department of Industrial Relations from utilizing these tools.

Employers must furnish up to $10,000 in medical treatment after a claim is filed and can limit the employee’s discretion as to the provider; if the employer rejects the claim, the employee can then receive treatment on a lien basis. Postemployment claims have a strong likelihood of denial, and liens that follow are concentrated in certain locations and providers, routinely settling for a fraction of claimed value, which suggests that they remain a significant source of profit.

Lien volume and claimed value in denied postemployment claims would be reduced if medical care were subjected to the cost controls available in nondenied cases.

Many liens are filed by providers who are under indictment or have been convicted. Existing law offers means to stay liens or suspend providers but either require a formal prosecution or affect only a narrow set of liens.

A Medicaid policy that suspends payments when there is an investigation of a credible fraud allegation would apply to providers who are only under suspicion and would cover all of their liens.

RAND recommends that the DIR implement a centralized and permanent workers’ compensation fraud data unit to enhance opportunities for detecting and addressing fraud.

The Report recommends that the California Department of Industrial Relations take immediate steps to incorporate the use of data analytics into its routine fraud-detection work. To target certain employee-selected providers who repeatedly generate liens large in volume and claimed value, give employers the option of denying a questionable postemployment claim while continuing to offer medical care under their control. And use the payment suspension policy adopted by Medicaid as a tool in addition to those already available under Labor Code §§ 4615 and 139.21 to take active fraudsters out of the workers’ compensation system.