Author: WorkCompAcademy

At the 2018 NCCI Annual Issues Symposium, Paul Meeusen, from Swiss Re and B3i discussed a new technology concept for workers’ compensation – how blockchain can impact the insurance industry. So what exactly is blockchain?

Blockchain is defined as a digital data structure for identifying and tracking information across a network of computers. Blockchain provides a transparent and secure way to track and distribute the information. In insurance, we are talking about the information chain between the risk (policyholder) to the insurer, to the reinsurer and then to the capital markets.

A blockchain,is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a cryptographic hash of the previous block,a timestamp, and transaction data. By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.”.

Blockchain was invented by Satoshi Nakamoto in 2008 to serve as the public transaction ledger of the cryptocurrency bitcoin. The invention of the blockchain for bitcoin made it the first digital currency to solve the double-spending problem without the need of a trusted authority or central server.

The bitcoin design has inspired other applications. While the blockchain has been subject to extreme hype, its true killer applications are likely to be in some of the most antiquated fields out there. And it has the capability to be a transformative force for industries like insurance, which requires the coordination and cooperation of many different intermediaries with different incentives.

And now technology leaders, such as IBM boast of bockchain implementations for the insurance industry. IBM claims that “technological disruption has come to insurance – and the smart risk management strategy is to embrace it. IBM Blockchain is radically transforming insurance operations with faster verifiable data exchanges, visibility for all parties, and transactions underpinned with pervasive security and trust.”

“IBM Blockchain records transactions on a provable, permanent ledger, so multiple parties can exchange data with increased transparency and security. This is particularly important for insurers dealing with sensitive financial and personal information, often with multiple parties involved.”

Insurance experts say today, we have a “man in the middle” problem. The person controlling the central ledger (often a broker) knows every detail on every transaction, but all the parties in the transaction are dependent entirely on that person for information. Under blockchain, all the information is in a shared online platform where all parties have access to it. This reduces the friction associated with risk transfer. There is no dispute over whether a premium was paid, a contract signed, an endorsement added, or a claim reported. All of that is updated real-time in the shared ledger.

And now the Insurance Journal reports that the Workers’ Compensation Insurance Rating Bureau in California is looking into using blockchain technology as a better, safer, way to get the workers’ comp carriers and agents and brokers access to the massive amount of data the WCIRB collects.

The organization isn’t stopping there. It’s funding efforts to look into using behavioral science, machine learning and other digital and technological innovations under an ongoing modernization effort.

Bill Mudge, president and CEO of the WCIRB, the provider of actuarial-based information and research and advisory rates for a state that comprises roughly one-fifth of all the nation’s workers’ comp premiums, talked about these changes with Insurance Journal.

Erwin Raul Mejia, 42, of Van Nuys, was sentenced to 10 years in state prison following his conviction on 10 felony counts of insurance fraud for his role in a staged auto collision ring that bilked insurers out of more than $700,000. Mejia was also ordered to pay $699,784 in restitution to six auto insurers, including over $420,000 to Nationwide Mutual Insurance Company.

Mejia, who was previously convicted of insurance fraud in 2005, pleaded guilty to 10 felony counts of insurance fraud in two separate cases, according to the Los Angeles County District Attorney’s Office.

Erwin Mejia played an integral role in a staged auto collision ring involving hundreds of suspects. Since October 2017, 25 additional arrests were made in connection with this organized ring, which in total has resulted in $1.7 million in losses to insurers.

Nine of those defendants have pleaded guilty to insurance fraud and gotten sentences of up to two years in county jail along with being ordered to pay a combined restitution of hundreds of thousands of dollars, according to the District Attorney’s Office.

The other defendants – who are awaiting a hearing to determine if there is enough evidence to require them to stand trial – include Melvin Galang Dungca, 47, whom prosecutors allege was the so-called “capper” who recruited businesses and individuals to take part in the alleged ring; and Edgar Omar Estrada Romero, a 39-year-old auto body shop owner charged with 35 felony counts of insurance fraud, according to the District Attorney’s Office.

The remaining defendants’ next court date is a preliminary hearing setting Aug. 10 in Department 103 of the Foltz Criminal Justice Center.

Mejia worked as a Material Damage Appraiser for Nationwide where he inspected damaged vehicles, prepared repair estimates, and issued checks to claimants for their damaged cars.

An investigation by the California Department of Insurance, which led to Mejia’s arrest in October 2017, revealed Mejia and additional suspects orchestrated an elaborate scheme to defraud insurers with paper collisions that never occurred or by intentionally damaging vehicles to submit fraudulent claims.

Mejia often inflated the damages to the cars in his estimates and even wrote estimates for cars that were not actually damaged. He and a capper recruited people to insure vehicles and make fraudulent claims resulting in 70 fraudulent claims.

After leaving Nationwide, Mejia worked as a claims adjuster at MetLife Insurance in Nevada where he continued his scheme adjusting known fraudulent claims. Mejia issued settlement checks to the claimants that were redirected to a friend in Los Angeles who was cashing the checks.

After leaving MetLife, Mejia went to Fred Loya Insurance and then on to Kemper Insurance. Additional victim insurers include State Farm, Wawanesa, and Mercury who were affected by the fraudulent claims generally as the second party involved, for example the claimant party.

The Los Angeles County District Attorney’s Office prosecuted this case. The same office convicted Mejia on a prior insurance fraud charge in January 2005.

In a case involving Lumbermens Mutual Casualty Company, the Appellate Court of Illinois issued its decision supporting the California Insurance Guarantee Association’s (CIGA) position that Lumbermens California workers’ compensation deposits may not be used to reimburse overhead and administrative expenses incurred in connection with the company’s liquidation, which began in 2013.

Lumbermens was a multi-state property and casualty insurance company organized under the laws of Illinois. Among other things, it provided workers’ compensation insurance services to California employers. California insurance law required Lumbermens to “deposit cash instruments;’ or “interest bearing securities” at a California bank , which would be held in trust for the benefit of “workers in [that] state” as a condition to Lumbermens writing workers’ compensation insurance in California.

For many years, Lumbermens was successful and earned profits from its insurance operations and, by year-end 2000, it ranked among the top 20 largest property and casualty insurance companies and the top 5 largest workers’ compensation insurers in the United States with $2. 7 billion in net premiums and more than $2 billion in surplus.

Beginning in 2003, however, Lumbermens began suffering from certain financial difficulties and, in July 2003, the company agreed to operate under a runoff plan subject to “corrective orders” issued by the Director of the Illinois Department of Insurance,. During this time, the Director issued over 500 corrective orders and Lumbermens’ liability was reduced from nearly $7 billion to just under $1 billion. By March 8, 2013, the Director filed a complaint for liquidation with a finding of insolvency. The liquidation order triggered the statutory obligations of state guaranty associations, such as CIGA, to pay the covered claims of Lumbermens’ insureds located within their respective states.

The The California Department of Insurance issued an administrative order directing that the funds held in Lumbermens’ special deposit be immediately transferred to CIGA and held in a segregated account.

The Director of the Illinois Department of Insurance claimed that the amount distributed to a guaranty association for administrative expenses would be reduced by the amount that the guaranty association has received, or can receive, from a special deposit. In other words, guaranty associations such as CIGA would be required to exhaust the funds held in their state’s special deposit before they could receive disbursements for administrative expenses from the general assets of the Lumbermens estate. The Director sought to prevent guaranty associations from receiving a preference by virtue of having access to a special deposit.

CIGA and the California Department of Insurance argued that the California Insurance Code plainly states special deposit proceeds must be used solely for the payment of compensable workers’ compensation claims. The department contended that general administrative expenses are not related to the payment of a specific workers’ compensation claims, so it is improper for Lumbermens to require CIGA to pay general administrative expenses such as rent, postage, telephone, lighting, cleaning, heating and electricity with funds held in a special deposit.

The appellate court agreed in the case of In re Liquidation of Lumbermans Mutual Casualty Company, and determined the special California workers’ compensation deposit is security for the payment of workers’ compensation claims in California and must be used exclusively to protect policyholders from insolvent insurers by providing an asset from which to pay compensable workers’ compensation claims.

Beverly Hills Radiologist Ronald Grusd and two of his corporations, California Imaging Network Medical Group and Willows Consulting Company, were sentenced in federal court on Monday, after a jury trial in December resulted in convictions on 39 felony fraud counts.

U.S. District Judge Cynthia A. Bashant imposed a sentenced of 10 years in custody and a fine of $250,000, and remanded Dr. Grusd into custody. His companies, California Imaging Network and Willows Consulting Company, were each required to pay a $500,000 fine, and an additional $15,600 in special assessments.

Grusd and the corporations were originally indicted by a federal grand jury in November 2015, when the U.S. Attorney’s Office and the San Diego District Attorney’s Office, working in conjunction with the Federal Bureau of Investigation and the California Department of Insurance, announced multiple arrests arising from a long-term, proactive health care fraud investigation targeting corruption and fraud in the California Workers’ Compensation system.

According to evidence presented at trial, Dr. Grusd and his companies paid kickbacks for patient referrals from multiple clinics in San Diego and Imperial counties in order to fraudulently bill insurance companies over $22 million for medical services.

Dr. Grusd negotiated with various individuals, including a primary treating physician, the payment of kickbacks for the referral of workers’ compensation patients for various medical services, including MRIs, ultrasounds, Shockwave treatments, toxicology testing and prescription pain medications.

After the patients were referred for the treatment or service, one of Dr. Grusd’s companies, California Imaging Network Medical Group, would fraudulently bill insurance companies for the procedures, concealing from both the patients and the insurers that substantial kickbacks had been paid in violation of California law.

Another of Dr. Grusd’s companies, Willows Consulting Company, funneled the kickback payments to those directing the referral of the patients from the various clinics. Records presented at trial showed that Dr. Grusd paid over $100,000 in bribes to secure the billings for hundreds of patients, with bribes paid on a per-patient or per-body-part formula.

Grusd’s practice, California Imaging Network Medical Group, operated clinics throughout California in San Diego, Los Angeles, Beverly Hills, Fresno, Rialto, Santa Ana, Studio City, Bakersfield, Calexico, East Los Angeles, Lancaster, Victorville and Visalia.

In imposing sentence, District Judge Bashant expressed concern that by paying incentives, Dr. Grusd applied pressure on the referring physician, and “made it highly questionable if all services were necessary,” a harm that the laws were designed to prevent.

Judge Bashant found that Dr. Grusd “clearly knew what he was doing.” Dr. Grusd, who had testified as to his extensive education, training, and expertise as a highly-decorated radiologist, claimed on the witness stand at trial that he was confused and did not know that what he was doing was illegal. Judge Bashant rejected this view, stating that Dr. Grusd was someone who decided to “find a way to defraud….then act dumb on the witness stand” when he got caught.

She imposed a sentencing penalty for Obstruction of Justice, finding that Grusd unequivocally committed perjury and lied at trial. The judge said she was concerned about the need for both general and specific deterrence: general, because health care fraud is an area where criminals are rarely caught, requiring a significant consequence in order to deter other would-be criminals.

In this case, specific deterrence was also applicable, because, in her view, there was a risk that Dr. Grusd could engage in further unlawful conduct in the future. “Dr. Grusd,” she noted, was someone who would “act smart enough to pull the wool over everyone’s eyes.”

Data on California workers’ compensation independent medical review (IMR) decisions issued in the first quarter of this year shows that the medical dispute resolution process established as part of the 2012 workers’ comp reforms continues to produce consistent outcomes.

There has been little change in the number of IMR determination letters and decisions; the percentage of modified or denied treatment requests that are upheld; the types of treatment requests reviewed; and the small number of physicians who are linked to a majority of the disputed medical service requests.

The latest IMR results come from a California Workers’ Compensation Institute (CWCI) review of IMR decision letters issued in the first three months of this year in response to applications sent to the state Division of Workers’ Compensation after a utilization review (UR) physician modified or denied a medical service requested for an injured worker.

The Institute’s review of the first quarter IMR decisions found that IMR doctors upheld the UR determination 90.6% of the time, while in 9.4% of the cases they deemed the service medically necessary and overturned the UR decision.

That uphold rate nearly matched the 91.2% rate noted for IMRs from the two prior years, and just as in each of the five years since the IMR process began in 2013, pharmaceutical requests represented almost half of the IMR decisions in the first quarter of 2018.

As in the past, requests for opioids were the most common pharmaceutical request submitted for IMR, accounting for 31.0% of all prescription drug IMRs in the first quarter, even though in 91.1% of the IMRs involving opioids, the UR modification or denial was upheld.

Those percentages could change in the future, as most of the first quarter IMRs involved UR decisions from 2017, prior to the January 1 implementation of the workers’ compensation prescription drug formulary and regulations, which set new limits and rules for prescribing opioids to injured workers in California.

The latest results also show that compound drugs represent a dwindling share of the prescription drug IMRs, accounting for just 2.1% of the pharmaceutical IMRs in the first quarter, down from 4.2% in 2017 and 8.1% in 2015, a decline that may be linked to the 98% uphold rate for compound drug denials and modifications submitted to IMR.

As in prior results, the latest IMR data also showed that a small number of physicians continued to account for a disproportionate share of the disputed medical services submitted for IMR. CWCI found that the top 1% of requesting physicians (117 providers) accounted for 44% of the disputed service requests, while the top 10 percent (1,169 providers) accounted for 85% of the disputed service requests.