Fraudulent Activity Awareness and the Struggling Economy for Hartford National Webinar June 3, 2014

1. Fraudulent Activity Awareness and the Struggling EconomyforHartford National WebinarJune 3, 2014 Presented by Dale K. Forsythe, Esq. – dforsythe@waymanlaw.com Scott W. Stephan, Esq. – sstephan@waymanlaw.com

2. Fraud by the Numbers In 2007 alone, fraudulent and abusive auto injury claims added $4.8 billion to $6.8 billion in excess payments to auto injury claims. Insurance Research Council, November 2008

3. Fraud by the Numbers The U.S. spends more than $2 trillion on healthcare annually. At least three percent of that spending — or $68 billion — is lost to fraud each year. National Health Care Anti-Fraud Association, 2008

4. Fraud by the Numbers The number of employees misclassified by employers increased from 106,000 workers to more than 150,000 workers between 2000 and 2007. This is a conservative figure because states generally audit less then two percent of Employers a year. (U.S. Government Accountability Office, 2009)

5. Fraud by the Numbers Medicare and Medicaid made an estimated $23.7 billion in improper payments in 2007. These included $10.8 billion for Medicare and $12.9 billion for Medicaid. Medicare’s fee-for-service reduced its error rate from 4.4 percent to 3.9 percent. (U.S. Office of Management and Budget, 2008)

6. Fraud by the Numbers Arson and suspected arson account for nearly 500,000 fires a year, or one of every four fires in the U.S. Only 2 percent of arson or suspect arson fires result in convictions. Arson and suspected arson are the largest causes of property damage in the U.S. • National Fire Protection Association (1998)

7. Fraud by the Numbers Insurance fraud steals at least $80 billion every year. With $80 billion, you could pay... • salaries of 2.2 million American workers for a year. • all personal income taxes for 7.4 million Americans for a year. • tuition for nearly 15.6 million students at America's four–year public universities for a year. • healthcare costs for nearly two out of every three seniors aged 65 and over for a year. • every CEO of America's 500 largest companies for the next 16 years. Coalition Against Insurance Fraud, 2014

8. Fraud by the Numbers • Victims: financial costs. Insurance buyers pay billions of dollars in higher premiums annually by absorbing fraud costs. Fraud, for instance, can add several hundred dollars to a family’s annual auto premium in some states. Insurance schemes also cost victims their life savings. Swindled businesses also can be weakened and even bankrupted, and may have to freeze salaries or lay off employees. • Victims: personal costs. Thousands of fraud victims pay a steep personal price. People die and are injured by swindles. They also suffer humiliation, despair, depression, lost productivity and lower earning capacity. Families are broken up when convicted fraudsters go to jail. • Victims: societal costs. Fraud steadily drains America’s economic vitality. Swindles also erode our social order and sense of justice, reinforcing a crime-pays mentality that encourages insurance fraud to become an accepted way of moving up in life. This encourages more people to commit fraud, thus threatening a costly upward fraud spiral. Millions of young people and recent immigrants, who are looking for role models of behavior, are especially at risk. Coalition Against Insurance Fraud, December 2006

9. What is Fraud Elements of common law fraud: 1. A misrepresentation; 2. A fraudulent utterance thereof; 3. An intention by the maker that the recipient will thereby be induced to act 4. Damage to the recipient as the proximate result Scaife Co. v. Rockwell-Standard Corp., 285 A.2d 451 (1971), cert. den. 407 U.S. 920, quoting Newman v. Corn Exchange Nat. B&T Co., 51 A.2d at 763; See e.g., Edelson v. Bernstein, 115 A.2d 382 (1955); Gerfin v. Colonial Smeltin, 97 A.2d 71 (1953).

10. What is Fraud Fraud consists of anything calculated to deceive, whether by single act or combination, or by suppression of truth, or suggestion of what is false, whether it be by direct falsehood or by innuendo, by speech or silence, word of mouth, or look or gesture. Frowen v. Blank, 425 A. 2d 412 (Pa. 1981). To be actionable, the misrepresentation need not be in the form of a positive assertion. Shane v. Hoffman, 324 A. 2d 532 (Pa.Super. 1974). It is any artifice by which a person is deceived to his disadvantage. McLellan’s Estate, 75 A.2d 595 (Pa.1950).

11. Insurance Fraud By Statute Pennsylvania §4117. Insurance Fraud. (a) Offense defined.—A person commits an offense if the person does any of the following: (1) Knowingly and with the intent to defraud a State or local government agency files, presents or causes to be filed with or presented to the government agency a document that contains false, incomplete or misleading information concerning any fact or thing material to the agency's determination in approving or disapproving a motor vehicle insurance rate filing, a motor vehicle insurance transaction or other motor vehicle insurance action which is required or filed in response to an agency's request.

12. Insurance Fraud By Statute Pennsylvania (2) Knowingly and with the intent to defraud any insurer or self-insured, presents or causes to be presented to any insurer or self-insured any statement forming a part of, or in support of, a claim that contains any false, incomplete or misleading information concerning any fact or thing material to the claim.

13. Insurance Fraud By Statute Pennsylvania (3) Knowingly and with the intent to defraud any insurer or self-insured, assists, abets, solicits or conspires with another to prepare or make any statement that is intended to be presented to any insurer or self-insured in connection with, or in support of, a claim that contains any false, incomplete or misleading information concerning any fact or thing material to the claim, including information which documents or supports an amount claimed in excess of the actual loss sustained by the claimant. ……………

14. Insurance Fraud By Statute Pennsylvania (5)Knowingly benefits, directly or indirectly, from the proceeds derived from a violation of this section due to the assistance, conspiracy or urging of any person. (6)Is the owner, administrator or employee of any health care facility and knowingly allows the use of such facility by any person in furtherance of a scheme or conspiracy to violate any of the provisions of this section. (7)Borrows or uses another person's financial responsibility or other insurance identification card or permits his financial responsibility or other insurance identification card to be used by another, knowingly and with intent to present a fraudulent claim to an insurer.

15. Insurance Fraud By Statute Pennsylvania (8) If, for pecuniary gain for himself or another, he directly or indirectly solicits any person to engage, employ or retain either himself or any other person to manage, adjust or prosecute any claim or cause of action against any person for damages for negligence or for pecuniary gain for himself or another, directly or indirectly solicits other persons to bring causes of action to recover damages for personal injuries or death, provided, however, that this paragraph shall not apply to any conduct otherwise permitted by law or by rule of the Supreme Court.

16. Insurance Fraud By Statute Pennsylvania (W.Comp.) §1039.2. Offenses A person, including, but not limited to, the employer, the employee, the health care provider, the attorney, the insurer, the State Workmen's Insurance Fund and self-insureds, commits an offense if the person does any of the following: (I) Knowingly and with the intent to defraud a State or local government agency files, presents or causes to be filed with or presented to the government agency a document that contains false, incomplete or misleading information concerning any fact or thing material to the agency's determination in approving or disapproving a workers' compensation insurance rate filing, a workers' compensation transaction or other workers' compensation insurance action which is required or filed in response to an agency's request.

17. Insurance Fraud By Statute Pennsylvania (W.Comp) (2)Knowingly and with intent to defraud any insurer presents or causes to be presented to any insurer any statement forming a part of or in support of a workers' compensation insurance claim that contains any false, incomplete or misleading information concerning any fact or thing material to the workers' compensation insurance claim. (3)Knowingly and with the intent to defraud any insurer assists, abets, solicits or conspires with another to prepare or make any statement that is intended to be presented to any insurer in connection with or in support of a workers' compensation insurance claim that contains any false, incomplete or misleading information concerning any fact or thing material to the workers' compensation insurance claim.

18. Insurance Fraud By Statute Pennsylvania (W. Comp) (4)Engages in unlicensed agent or broker activity as defined by the act of May / 7,1921 (EL. 789, No. 285), (FN1] known as "The Insurance Department Act of 1921," knowingly and with the intent to defraud an insurer or the public. (5)Knowingly benefits, directly or indirectly, from the proceeds derived from a violation of this section due to the assistance, conspiracy or urging of any person. (6)Is the owner, administrator or employee of any health care facility and knowingly allows the use of such facility by any person in furtherance of a scheme or conspiracy to violate any of the provisions of this section.

19. Insurance Fraud By Statute Pennsylvania (W.Comp.) (7)Knowingly and with the intent to defraud assists, abets, solicits or conspires with any person who engages in an unlawful act under this section. (8)Makes or causes to be made any knowingly false or fraudulent statement with regard to entitlement to benefits with the intent to discourage an injured worker from claiming benefits or pursuing a claim. (9)Knowingly and with the intent to defraud makes any false statement for the purpose of avoiding or diminishing the amount of the payment in premiums to an insurer or self-insurance fund.

20. Insurance Fraud By Statute Pennsylvania (W.Comp.) (10)Knowingly and with intent to defraud, fails to make the report required under Section 311.1. [FN2] (11)Knowingly and with intent to defraud, receives total disability benefits under this act while employed or receiving wages. (12)Knowingly and with intent to defraud, receives partial disability benefits in excess ofthe amount permitted with respect to the wages received.

21. Insurance Fraud By Statute Oklahoma Title 15. Contracts Chapter 1 - Nature of Contracts [J Section 58 - Definition of Actual Fraud] Actual fraud, within the meaning of this chapter, consists in any of the following acts, committed by a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract: (1)The suggestion, as a fact, of that which is not true, by one who does not believe it to be true. (2)The positive assertion in a manner not warranted by the information of the person making it, of that which is not true, though he believe it to be true.

22. Insurance Fraud By Statute Oklahoma (3)The suppression of that which is true, by one having knowledge or belief of the fact. (4)A promise made without any intention of performing it; or, (5)Any other act fitted to deceive.

23. Insurance Fraud By Statute Florida Title XLVI 2013 Florida Statutes 817.234 - False and Fraudulent Insurance Claims 1)(a) A person commits insurance fraud punishable as provided in subsection (11) if that person, with the intent to injure, defraud, or deceive any insurer:1. Presents or causes to be presented any written or oral statement as part of, or in support of, a claim for payment or other benefit pursuant to an insurance policy or a health maintenance organization subscriber or provider contract, knowing that such statement contains any false, incomplete, or misleading information concerning any fact or thing material to such claim;

24. Insurance Fraud By Statute Florida 2. Prepares or makes any written or oral statement that is intended to be presented to any insurer in connection with, or in support of, any claim for payment or other benefit pursuant to an insurance policy or a health maintenance organization subscriber or provider contract, knowing that such statement contains any false, incomplete, or misleading information concerning any fact or thing material to such claim;

25. Insurance Fraud By Statute Florida 3. a. Knowingly presents, causes to be presented, or prepares or makes with knowledge or belief that it will be presented to any insurer, purported insurer, servicing corporation, insurance broker, or insurance agent, or any employee or agent thereof, any false, incomplete, or misleading information or written or oral statement as part of, or in support of, an application for the issuance of, or the rating of, any insurance policy, or a health maintenance organization subscriber or provider contract; or b. Knowingly conceals information concerning any fact material to such application; or

26. Insurance Fraud By Statute Florida 4. Knowingly presents, causes to be presented, or prepares or makes with knowledge or belief that it will be presented to any insurer a claim for payment or other benefit under a personal injury protection insurance policy if the person knows that the payee knowingly submitted a false, misleading, or fraudulent application or other document when applying for licensure as a health care clinic, seeking an exemption from licensure as a health care clinic, or demonstrating compliance with part X of chapter 400.

27. Insurance Fraud By Statute California California Insurance Code §1871.4 a) It is unlawful to do any of the following: (1) Make or cause to be made a knowingly false or fraudulent material statement or material representation for the purpose of obtaining or denying any compensation, as defined in Section 3207 of the Labor Code. (2) Present or cause to be presented a knowingly false or fraudulent written or oral material statement in support of, or in opposition to, a claim for compensation for the purpose of obtaining or denying any compensation, as defined in Section 3207 of the Labor Code.

28. Insurance Fraud By Statute California (3) Knowingly assist, abet, conspire with, or solicit a person in an unlawful act under this section. (4) Make or cause to be made a knowingly false or fraudulent statement with regard to entitlement to benefits with the intent to discourage an injured worker from claiming benefits or pursuing a claim. For the purposes of this subdivision, "statement" includes, but is not limited to, a notice, proof of injury, bill for services, payment for services, hospital or doctor records, X-ray, test results, medical-legal expense as defined in Section 4620 of the Labor Code, other evidence of loss, injury, or expense, or payment.

29. Insurance Fraud By Statute California (5) Make or cause to be made a knowingly false or fraudulent material statement or material representation for the purpose of obtaining or denying any of the benefits or reimbursement provided in the Return-to-Work Program established under Section 139.48 of the Labor Code. (6) Make or cause to be made a knowingly false or fraudulent material statement or material representation for the purpose of discouraging an employer from claiming any of the benefits or reimbursement provided in the Return-to-Work Program established under Section 139.48 of the Labor Code.

30. Insurance Fraud By Statute California b) Every person who violates subdivision (a) shall be punished by imprisonment in a county jail for one year, or pursuant to subdivision (h) of Section 1170 of the Penal Code, for two, three, or five years, or by a fine not exceeding one hundred fifty thousand dollars ($150,000) or double the value of the fraud, whichever is greater, or by both that imprisonment and fine. Restitution shall be ordered, including restitution for any medical evaluation or treatment services obtained or provided. The court shall determine the amount of restitution and the person or persons to whom the restitution shall be paid. A person convicted under this section may be charged the costs of investigation at the discretion of the court.

31. Insurance Fraud By Statute California (c) A person who violates subdivision (a) and who has a prior felony conviction of that subdivision, of former Section 556, of former Section 1871.1, or of Section 548 or 550 of the Penal Code, shall receive a two-year enhancement for each prior conviction in addition to the sentence provided in subdivision (b).

32. Insurance Fraud – Penalties • Insurance fraud accounts for billions of lost taxpayer dollars and results in increasingly high insurance rates for everyone. The penalties are significant and typically stepped to reflect the serious of the fraudulent claim and the number of claims in the particular charge. Often, each act of fraud is treated as a separate count, increasing the penalties even on a first arrest. • Possible Penalties Include • Jail Time • Significant Fines • Probation • Parole • Restitution • Community Service See http://criminaldefenselawyer.com/crime-penalties/federal/Insurance-Fraud.htm.

33. Insurance Fraud - Penalties Sampling of state-by-state penalties: Fine Avg. Jail Avg. Prob. Other PA. $10,000 – $200,000 5-7 yrs 3 yrs community service FL. $0 – $25,000 10 yrs case by case licenses taken IL. $5,000-$50,000 1-5 yrs 3-7 yrs LA. $1,000-$5,000 1 yr case by case general fine NC. Up to $2,500 up to 2 yrs case by case

34. Insurance Fraud – Penalties Sampling of state-by-state penalties: Fine Avg. Jail Avg. Prob. Other NH $2,500- $10,.000 1.5-15yrs 5 yrs community serv. NY up to $15,000 case by case case by case OK $2,500-$10,000 up to 5 yrs up to 2 yrs possible rest’n TX dep. on val. of <$20g - <5yrs case by case comm. serv. fraud >$20g – case by case

35. Types of Fraud A. Fraud in the Application An attempt by an applicant to procure insurance on false terms (i.e. an attempt to prejudice the insurer in assessing the risk). Elements - a. a false application statement; b. on a subject material to the risk to be insured against; and, c. the applicant’s knowledge that the statement was made in bad faith or was untrue

36. Types of Fraud A. Fraud in the Application Ramifications – policy void ab initio (premium must be returned) note: Evidence must be clear and convincing

37. Types of Fraud A. Fraud in the Application Indicators – a. unsolicited new, walk-in business, not referred by existing policyholder b. applicant walks into agent’s office at the end of the day c. applicant neither works nor resides near agency d. applicant gives post office box as address e. applicant pays premium in cash and pays minimal amount etc.

38. Types of Fraud A. Fraud in the Application note: Line representative is at the mercy of the agent – most likely won’t detect fraud in the application unless there are other fraud indicators present during the investigation of the claim

39. Types of Fraud B. Fraud in the Claims/Investigation Process An attempt by the insured to recover the benefits on false pretenses. Elements a. a representation by the insured which was false b. the representation was made in bad faith or with knowledge of its falsity c. material to the risk being insured

40. Types of Fraud B. Fraud in the Claims/Investigation Process note - Issue of materialism – in the investigations process materiality is met if the false statement is relevant and germane to the insurer’s investigation (i.e. would a reasonable insurer, in determining its course of action attach importance to the fact misrepresented note - Proven by a preponderance of the evidence

41. Types of Fraud B. Fraud in the Claims/Investigation Process Indicators a. insured overly pushy for a quick settlement b. financial hardship at the time of loss c. insured has had multiple insurance claims d. inconsistencies in loss scenario or basic facts

42. Types of Fraud B. Fraud in the Claims/Investigation Process Indicators e. recently purchased insured item f. recently increased the insurance limits g. criminal background

43. Types of Fraud B. Fraud in the Claims/Investigation Process note - Too many indicators present - an internal company decision should be made to transfer to SIU.

44. Personal Injury Insurance Fraud Any act intended to cause a carrier to pay on a non-existent, exaggerated or on un-related/non-covered injury Soft/Opportunistic Hard

45. Malingers – Hard to Spot • Less long-term patient-physician relationships • Mental conditions mimicking the appearance of malingering • Faking symptoms is easy • 97% of untrained people can identify symptoms of major depressive disorder • 63% can identify at least 5 brain injury symptoms • Easy online access of symptom information • Doctor’s desire to be supportive Dr. Stewart Patterson, AMA Guides Newsletter, Cited at www.amednews/article/20120910/profession/309109942/4/. .

46. Examples of Fraud Creating a Claim • Staged Auto Accidents • Waive On/Drive Down • Preexisting damage • Swoop & Squat • Sideswipe • False Reports - the Bad Samaritan • Phantom Victim / Passengers

47. Examples of Fraud Creating a Claim • Staged Slip and Falls • Foreign Object in Food • Staged Homeowner Accident • Possible Personal Injury Schemes/Fraudulent Attorney

48. Examples of Fraud Exaggerating a Claim Exaggerating the injuries Medical Mills Providers Inflating Billing or Upcoding

49. Medicaid Fraud What to look for:* UpcodingProviders bill Medicaid using a code that describes the amount of time with patient If provided bills Medicaid using a code that indicates and hour long complex visit = UPCODING Unbundling Some codes are all inclusive, e.g., for Lipid Panel, which has 3 component tests If coded separately for higher reimbursement rate = UNBUNDLING *From http://ahca.myflorida.com/Executive/Inspector_General/complaints.shtml

50. Medicaid Fraud Other common schemes Billing for patients who did not receive services Billing for service or equipment not provided Overcharging Concealing ownerships/relationships in companies Kickbacks for referrals Double billing for same service Ordering tests/procedures not needed Using false credentials