Want to crack down on fraud in the California workers' compensation system? Put more controls on post-termination cumulative trauma claims, researchers for Rand Corp. conclude in a report released Tuesday.

Rand said almost half of the liens in California’s workers’ compensation system are related to cumulative trauma claims, and in the Southland many of those liens settle for pennies on the dollar. That means there is reason to believe at least some of those liens were filed for the purpose of coercing nuisance value settlements, the researchers said.

Rand said allowing employers to control medical care after denying a post-termination CT claim could eliminate some fraud or abuse without denying injured workers access to adequate medical care.

Rand's long-awaited fraud report also recommends that the Department of Industrial Relations and Division of Workers’ Compensation apply data analytics to detect fraud. Also, the policymakers should consider administrative suspensions for providers facing credible allegations of fraud but who haven’t been formally charged with a crime.

The recommendation to make more use of available data is classified as a way to detect fraud, while the administrative suspensions are characterized as a remediation tool. Bringing post-employment claims back into the system is labeled in the report as a way to eliminate the possibility and profitability of future bad behavior.

Rand Corp. researcher Nicholas M. Pace said Tuesday that allowing employers to deny a post-termination claim but still require the injured worker to be treated in the medical provider network would be a “surgical strike.” He said some system users suggested an outright prohibition on post-termination claims or limit them to cases where there was a specific injury claim that was filed while the worker was still employed.

“All those things are too draconian of a response to a problem that everyone seems to agree is coming from a certain set of doctors and a certain set of attorneys,” he said.

Pace’s report notes the proportion of claims involving a cumulative trauma has more than doubled over the last decade, to about 18%. Approximately 40% of the cumulative trauma claims filed in California are done so after the worker leaves employment.

Those applicants typically rely on treatment provided on a lien basis because employers deny most of the claims. What's more, CT claims are concentrated in Southern California and Los Angeles, in particular.

The report says the stated value on medical liens in denied cumulative trauma cases filed in Alameda, Sacramento and San Francisco counties was typically about two or three times larger than the amount ultimately paid. In Los Angeles County, liens on denied cumulative trauma cases settled for 10 cents on the dollar on average.

“These facts give rise to a suspicion that the high-dollar liens that certain providers in certain regions generate might not accurately reflect services actually rendered and were filed primarily for the purpose of forcing the insurer to settle for what appears to be mere nuisance value but instead could be a significant source of profit,” Pace writes in the report. “In other words, there is reason to believe that the frequency and severity of CT liens in Southern California are being largely driven by intentionally fraudulent acts rather than by genuine instances of appropriate medical treatment for industrially caused CT first discovered post-employment. “

Pace on Tuesday said allowing employers the option of offering medical care after denying a post-termination CT claim would ensure workers have access to medical treatment in the case of legitimate injuries. But it would also allow employers to shut down the ability of unscrupulous providers or attorneys to game the system by churning huge medical bills.

Under Rand’s proposal, employers would have the option of controlling medical care after denying a claim, but they wouldn’t be required to do so. He said he doesn’t think it’s something employers would do on every case, but would instead be another tool to try to shut down schemes involving providers who are already suspected of engaging in abusive or fraudulent behavior.

Pace said stakeholders he talked with while preparing the report consistently said they know who the bad actors are.

“If you know who they are and you roll your eyes every time you see that attorney, you need to step up,” he said. “As the employer, you need to do something about it.”

Eliminating the ability of providers to generate large volumes of tests and therapies on these claims would eliminate the financial incentives driving the bad behavior, the report says.

“The key thing about this plan is it’s something that would be targeted to a very small number of providers,” Pace said. “It gives the employer the ability to target certain repeat providers.”

Rand is also recommending that the state consider a way to investigate and suspend providers prior to the filing of criminal charges.

Lawmakers last year passed SB 1160, requiring the DWC to stay all liens filed by providers charged with fraud. The Legislature also passed AB 1244, mandating suspension of providers convicted of fraud along with a special hearing where the provider would have to rebut a presumption that any liens he or she filed are fraudulent.

But those provisions apply only when criminal charges have been filed.

“A very serious threat from fraud comes from those health care providers who have never been prosecuted, let along convicted, but are nevertheless the subject of credible allegations of wrongdoing," the report says.

Requiring prosecutors to take the first step by filing criminal charges before addressing suspicious behavior “makes little sense” in a civil justice system that is intended to be less formal and more administrative than criminal or tort litigation, according to the report.

Pace identified two different models that could be implemented in California — one from Medicaid and the other from New York’s workers’ compensation system.

States are required to investigate allegations and complaints of Medicare provider fraud and consider those allegations credible if there is an “indicia of reliability” after reviewing all the allegations, facts and evidence presented. If a state determines complaints are credible, all payments to the provider are suspended and the state must refer the case to law enforcement.

“A key aspect of the Medicaid approach is that the basis for cutting off payments is grounded in administrative law rather than criminal, and, as such, the determining entity need not require proof beyond a reasonable doubt,” Pace writes. “Even more critical is the fact that the process for making the determination need not be a formal one, with the state given essentially free rein to design procedures that respond quickly to evidence of malfeasance.”

California could also consider licensing providers who treat injured workers. In New York, providers must register with the State Workers’ Compensation Board before treating injured workers. The board can suspend or revoke that authorization as it deems necessary.

Pace writes in his report that an informal review of disciplinary notices on the New York board’s website shows providers are typically suspended for behaviors such as failure to keep proper records or not returning a set of interrogatories. A second instance of professional misconduct typically triggers a permanent revocation of authorization to treat work comp patients in New York.

Pace said the Medicaid suspension model would be easier to implement. While a New York licensing model would give the state more discretion to discipline providers, it would require more work to process licenses and monitor physician behavior.

The idea behind suspending providers before charges are filed is to “turn off the spigot” for a short time while the investigation plays out. The investigation is a key part, he said. The state has to have credible evidence of wrongdoing, albeit perhaps not enough to justify criminal charges at the time, before shutting down providers.

“You can’t just not pay people because you think something goofy is going on,” he said. “You can’t suspend all lien payments because you think the guy’s a crook. You’ve got to do more than that.”

One way to identify providers for investigations would be for the DIR to use advanced data analytics.

Pace said the department may be limited by the quality of the data it currently holds. And there are challenges in getting different data systems to “talk to each other” in a way that would allow the DIR to incorporate information that was collected by the Department of Insurance.

But the DIR shouldn’t wait “until everything is perfect” before it starts down that path. By starting now, the department could identify some possible fraud that warrants additional investigation while also learning what kind of changes it could make to improve its data-collection systems for future analyses, he said.