Obtaining the facts in a workman’s compensation case takes a lot of time and effort. Claims examiners are inundated, dealing with up to 200 active claims at a time. While vice presidents of claims are too disconnected from the process to really know the details, both sides need a way to manage claims effectively with less hazard and less expense—while still staying on top of industry-related developments.
In this episode, JR Robles, author of Red-Handed and workman’s comp insurance expert is going to reveal how to conduct effective investigations by using things like background checks, social media, and surveillance without running afoul of the legal system.
This episode is for a very particular audience, so if you’re an insurance professional or human resources manager, this episode will help you lower the costs and risks associated with workman’s comp claims.
Get JR’s new book Red-Handed on Amazon.
JR Robles: I started off as an investigator for the California Attorney General, and my specialty was white collar crime in that area. It was mostly fraud, usually things to do with money. I was very proficient at that, and when I crossed over five or six years later to go into the insurance investigation industry, I didn’t have a lot of experience when it came to insurance in general. Whether it was liability or worker’s comp, fire, general liability et cetera. I wasn’t that familiar with any of that.
I recognized there was a big gap between knowing how to investigate a crime and then really understanding all the nuances as it relates to all the law surrounding the labor code, etc., and insurance claims.
I had to go back to school, in a sense. So I grabbed onto anything that could help me learn. That included industry associations, books, lectures, conferences. I went and did anything and everything to catch up to speed. There were a lot of other people who didn’t really have investigation experience but really understood the claims industry. I felt like they had advantage over me.
Over the years, I really leaned into gaining more experience.
That ultimately led to me being the president of an insurance association in California. One of my roles there was to put on these massive educational conferences and monthly meetings about all these topics.
I really leaned into learning everything I could about this, and then I thought, I need to impart all that wisdom on my staff. That’s when I started writing white papers, somewhere in the neighborhood of maybe five or so years into the business. Now it’s been over 21 years.
So if I look back at year one, the level of sophistication investigation and a final report is drastically different from a final report and investigation today. It has been this evolution of always trying to improve, and the only way to do that is to stay current on all the laws, both case law and legislation. Along that way, I kept having to write new papers and do a lot more training.
That ultimately led me to writing this book, to put it all in one place so that others in my organization could benefit from the 21 years of experience I have in this industry.
The Takeaway in Red-Handed
Charlie Hoehn: What would you say is the biggest takeaway from this book?
JR Robles: There is a difference between sending an investigator out to investigate a particular claim and thinking that one size fits all versus being very targeted using a scalpel as supposed to a hammer to find ways to defend against the claim, whether it’s completely fraudulent or exaggerated and there’s all sorts of different variations between fraud and exaggeration.
There are multiple types of investigations that could be used in order to ultimately reduce the cost of a claim. If you use one particular type of investigation, let’s say a surveillance, but you skip the background and the prior history or the claims investigation, you might miss really big clues and evidence that could mitigate your losses in the claim.
The idea is that, by laying out all the different types of investigations and explaining when they’re used to maximize the results, hopefully we’ll ultimately help the decision maker in the claims process. That’s ultimately the goal.
Many cases never rise to the level of conviction.
When you consider the sheer volume of claims that get filed every year. And then those that get investigated and then those that actually get sent to the state for the District Attorney for potential prosecution and then those that ultimately get prosecuted and convicted—it’s a very small percentage.
The goal I think for me was identifying that a conviction isn’t the holy grail in the special key that unlocks all the savings, there’s a lot of other ways to save on the 99% of the other claims by using an effective investigation.
The Mindset of Fraud
Charlie Hoehn: Talk to me about The unholy trinity of fraud. Talk to me about this.
JR Robles: Well, this theory was promoted by Cressey, I think in 1953. He was a criminologist. His work was advanced by Wolfe and Hermanson but I’ll start with the basic, Cressy theory. And that is that when you look at any kind of crime. It could be employee malfeasance who can be a cashier stealing from the cash register, as simple as that. Or, it could be an insurance claim, whether it’s auto or worker’s comp or fire for that matter.
Usually, according to Cressey, I think a common person could understand this that there’s some sort of financial pressure that they might be having that could cause them to want to take something that doesn’t belong to them, in a sense. Maybe they can’t make their rent payment. Maybe they wanted that pair of Nikes that they can’t afford.
Something is causing that.
I had a case once where a woman was in the back office at a salon. She was in charge of the accounting, reconciling cash, ATM charges or credit card charges, plus gift card redemptions.
She figured out a way to debit cash as though someone redeemed a gift card. Let’s say there was an outstanding balance of $200,000 worth of grift cards. Someone would come in for $300 service, they used a gift card, now there’s $300 less in the gift card balance. Then she would literally take cash if that person paid by cash. Take the cash, and essentially stick it in her pocket.
She did that for a couple of years, to the tune of a quarter million dollars. She had a lot of access and opportunity to take that, and she somehow rationalized it, thinking it was okay.
Maybe she wasn’t respected, maybe she didn’t get to feel like she was getting paid enough, maybe she didn’t feel appreciated—any number of reasons.
Or, “Hey, this company makes so much money, they’re not even going to notice it. It’s only $500 a week, what difference does it make? The owner’s rich, he drives a fancy car, no big deal. I’m entitled to this.”
In her case, she had a lot of pressure. She had this nefarious, older Russian boyfriend who was essentially adding pressure to her to do this. We know that because they had a long criminal history and eventually fled the state.
Those three elements seem to always exist when committing one of these types of crimes.
But then Wolfe and Hermanson added a little element to this, and capability is one of them.
He still uses opportunity, he still has basically apathy, and like I said in the case of the salon, she felt like the owner was rich and the company was charging a lot of money so it wasn’t that big of a deal.
A lot of people, when it comes to insurance, feel like they’re constantly paying premiums for homeowner’s insurance, auto insurance, earthquake insurance, flood insurance. Some people buy insurance on the TV they bought at BestBuy. I mean, there’s just insurance on top of insurance.
All the studies bear this out—people feel, I won’t say ripped off, but that’s sort of the feeling. They’re overpaying for this protection.
When they do file a claim, they feel justified because they know that their total claims are never going to be remotely close to the amount of premiums they’ve paid. That gives them sort of rationalization for abusing this process.
Poor Choices and Bankrupt Outcomes
Charlie Hoehn: You say in the book that fraud is 18 billion dollars a year. It’s a huge number—it’s pervasive, it seems.
JR Robles: Yeah, part of the driver of that, it isn’t just individuals that are driving that cost up. They definitely contribute to the 18 billion dollars. But when you are a large employer or you’re a significant medical provider, those types of fraud are much more expensive.
You could have a clinic with 50 doctors, and they have this way of doing business where they’re over billing, could be Medicare, Medicaid. We see this all the time in the news, where these clinics could shut down and the federal government fines them, a hundred million dollars because they’ve been milking the system for hundreds of millions of dollars for year over year.
If a clinic does that and commits a fraud, it’s in the millions. Whereas an average worker who files a claim and exaggerates a claim, maybe it drove the price up 40%. The average cost of a claim is anywhere from $50 to $80,000. Pennies by comparison.
An employer at a construction company should be paying somewhere around 25% of the labor costs in a worker’s comp premium, so for every $10, he has to pay $2.50 for a worker’s comp policy. If he lies and says that most of the people are not construction workers, most of them are admins. And admins might only pay 5% so for every $10—20% less. Then all of a sudden, every year, out of 400 employees, he saves $700,000 in worker’s comp premium.
But, at the same time, in year three, all of a sudden he starts to have construction-related worker’s comp injuries. Then, his work comp carrier has to pay the bill, but they were never able to charge appropriately to pad themselves against the claims they start to commit. If for some reason, the employer goes bankrupt, maybe the insurance company eventually goes bankrupt.
That’s happened plenty of times—they go bankrupt.
Then the state, whichever state that is, has to pick up the bill. Then the state then takes it out of the oftentimes the general fund.
When Arnold Schwarzenegger became the Governor of California, he ran on reforming worker’s comp. That was his signature issue, if you could believe that. As a result, the cost to ensure employees in the state is so out of control, it’s driving the economy into the ground.
Plumbers can’t perform the work, construction companies can’t perform work. Either they can’t get coverage or the coverage is so expensive that they can’t do business.
About 30 major insurance carriers went bankrupt, left the state, and left a 36 billion dollar bill for the state in the taxpayers. He literally became Governor to fix that problem.
It got created years before, when the insurance industry lobbied for deregulation. Part of the regulation occurred in because insurers wanted to come in and compete in California.
They said, “Hey, throw off the shackles, if we want to sell construction workers insurance policies at 10 cents, let us sell at a 10 cents. Let us figure out how to deal with the claims as they come in.”
Normally, the state regulators say, “Wait. We want to make sure, as an insurance company, you’re solvent. Make sure your actuaries have penciled this stuff out. We’re going to verify this because we don’t want to get caught holding the bag and we don’t want policy holders getting stuck.” Every department of insurance in every state is regulating to make sure that they’re solvent.
Well, they threw off the shackles, and then there was a race to gain market share. All these insurance carriers came in and wrote premium really low.
All of a sudden, the chickens came home to roost.
The claims started to come in, and they couldn’t pay the claims. They skyrocketed.
To make matters worse, as you know and everyone knows, healthcare costs have been rising 20%, 30% annually. There’s that problem, then litigation drives up the cost by 40%.
It’s like a perfect storm.
Many of them filed bankruptcy, left the state. They were insolvent, and California taxpayers had to pay the bill.
So Schwarzenegger ran on I need to fix this, someone needs to address this, if you elect me, I’m going to push for new legislation, new regulations so this doesn’t happen again. And that’s exactly what he did.
What Research Can Uncover
Charlie Hoehn: Let’s talk about the claims department, in this chapter, you have a case study, a story about a nurse who had been working in a hospital when she claim to develop an allergic reaction to latex. Tell us about that case study?
JR Robles: Well, you’re probably old enough to remember when latex all of a sudden sort of became really popular in the news. That was I don’t know, not quite 20 years, but it’s been a while.
I don’t know how long latex was being widely used in hospitals before that, but all of a sudden, latex became ubiquitous.
It was common where people were starting to get latex allergies. Especially people who have lots of allergies already, they’re more prone to getting new allergies, whereas most people who don’t experience a lot of allergies to begin with are usually not going to develop a new allergy out of just from usage.
It was fairly new, but this particular nurse claimed that she had a history of having lots of different allergies. You know, peanuts, any number of things. So she was more likely to become allergic. And sure enough, as a result, she was using these latex gloves for a number of years. As a result, she had this really bad reaction to it.
On the spectrum, she was way in the black. She could not handle it on her hands, she couldn’t be around it in the operating room. It got so bad, where she claims she couldn’t even be in a hospital.
The challenge there is, you have a young nurse who is educated, has a long career ahead of her, makes good money, and she cannot perform in her career at all. Latex is basically just pervasive in a hospital. The cost of that claim in exposure was very high. Essentially, she would have to sort of retrain her to do something completely different, which would be very expensive.
Then of course, if she had a lifelong injury as a result, how could she live a functional life?
There would be places she couldn’t even technically go. Car parts, tennis shoes, like everything has latex in it. It’s everywhere.
Fast forward. Now there is non-latex everywhere, right? If you go into a hospital today, non-latex gloves, non-latex mats. I mean they’ve gone to extreme measures to remove latex now. But at the time, it was fairly new, and these kinds of claims were fairly new.
By performing lots of different types of investigations on this particular claim, we learned that her claim of not being able to be around even airborne latex was misrepresented.
We discovered that the glue that was holding down her carpets, the actual carpet in that particular vehicle, and the plastics in that car were all latex. The straw that she’d drink out of in her water bottle was latex. It was latex basically everywhere in her life at her home, and that was really contrary to what she was really claiming when she was at work.
But it took a lot of research because one, it was fairly new. There weren’t a lot of claims around this.
Just thinking outside the box—sending matching carpet to a lab to test for latex, sending the exact pair of tennis shoes. She had a pair of Sketchers, buying the exact pair of Sketchers and sending that to a lab to get the latex content out of that was an innovative way to compare and contrast for her alleged claim.
The Changing Landscape of Investigations
Charlie Hoehn: We have a chapter in your book about social media investigations. What do those look like now?
JR Robles: Well that sure has changed. I feel like there’s been ebbs and flows in that. You know, in the earlier days, social media wasn’t that prevalent and it was fairly open. I would say the majority of people had their social media accounts completely open, but as a result of all of this privacy stuff—not just recently but even over the last five or so years, more and more people have decided to make their accounts not private or close them.
Overall, the volume of adults that are using social media has grown. The way I describe social media isn’t just Facebook, Instagram, that sort of thing, but it is also Yelp, review websites, blogs, Photobucket. There’s a lot of other ways.
Another example that gives a lot of detail and where people leave their information open is Venmo. Venmo is a pay app that you can exchange cash to one another. It is owned by PayPal I believe. And they literally have an open register of all the transactions from any user in Venmo. You can narrow it down to just your friends or you can make it private, but it seems like right now Venmo is really wide open. Most people are leaving it completely available.
Charlie Hoehn: I don’t get it, it stuns me that people leave that stuff.
JR Robles: Yeah, they’ll say $600 for rent, 20 bucks for pizza, house-sitting, dog grooming, hair, a lot of salon owners accept Venmo. So a woman gets her hair done and she pays her stylist 150 bucks.
You can learn a lot other than just Instagram and Facebook and (I am joking) Myspace because it is on its way back. There’s roughly 3,000 different what we call “social.” They are not always what we think of when we think of the big brands.
There are so many different places that people go and post their opinions. It could be Reddit, it could be Yelp and OpenTable, and on and on. It just doesn’t stop. There is a new one every day.
Breadcrumbs and Clear Signals in Social Media
Charlie Hoehn: Yeah, everything you’re liable for pretty much anything that you put out there. In fact, a friend of ours is an attorney and won a case by presenting social media evidence that was stronger than everything else that they dug up.
JR Robles: If I look at the trend from when we began using social media investigations as a tool to discover evidence, since we started that probably like eight years ago or so, maybe nine, the volume of cases is at least 10 fold. It’s only becoming more prevalent.
What I found is there was still a lot of education that’s needed to explain what the value of it in the insurance investigations world. They have gotten it now, they get why it is valuable because they have experienced enough cases. I can give you a couple of quick examples.
One claimant that we were investigating we learned through social media that he had an ATV tour business. So he was advertising, charging through an online pay portal. You rent an ATV and drive around the desert all day, eight hours a day. It would take somewhere in the neighborhood of eight to ten people out each day.
So we wouldn’t have discovered that had we not found his social media.
That then eventually led to a link which then led to his website or his mobile site that he was advertising his business. It is a definite fraud.
If you are collecting benefits, temporary disability payments or any payments like that and you have an active job or a business that you’re receiving money from, it is very clear in the law that is illegal. You cannot do that.
Now it is possible that, let’s say you are a construction worker and your job is heavy lifting all day, but during tax season you help people with taxes and charge them $100 to do their taxes. And you have worker’s comp claiming you’re off work, you can’t lift, you can’t drive a forklift and a bulldozer right now because you are off work, but it becomes tax season and someone comes to your house and you are in your garage and you do their taxes.
And you announce that, and you don’t keep that a secret and you are honest about it, okay that’s probably not going to be an issue.
But it is an issue when you are signing your checks saying, “I certify I am not working. I am not receiving additional pay. I am not getting benefits anywhere else.” That is an act of fraud.
Another one we found on social media. I think it was one of the websites that then sent a link to YouTube. He was in a band. He was performing, and he had a bunch of gigs listed out, and he literally announced which venue he was at which night, what time, the whole nine yards.
Sure enough, we had him investigated then used that social media information just like with the ATV claimant. We went out performed surveillance and witnessed both of them doing exactly what they had announced what they would be doing previously.
So we’re finding that just happens more and more often now.
Insurance professionals are recognizing the value there.
Where I find a big gap right now is defense attorneys that are non-insurance related. They are slow to the party. It’s just been in my experience that a lot of the law firms that are in the space do things a little old fashioned.
I saw this congressional hearing on Bitcoin and the congressman said, he flipped out his cellphone and he goes, “I still use one of these,” and it was a flip phone. And he was on a committee specifically to discuss Bitcoin, completely clueless about technology.
That reminds me of all of these other attorneys in and around the country who hadn’t put those two things together. How valuable it would be to get access to someone’s complete social media footprint prior to holding a deposition.
For me, it just makes total sense to get a clear picture of who the person is that is sitting across from you before you start the questioning. I think they are late to the party.
My job now is to teach and convince that whole other industry—the defense industry for litigation defense—about how valuable this is prior to deposition.
Clear Cases of Fraud
Charlie Hoehn: This might be a totally naïve question, but what percentage would you say of fraud is knowingly, consciously committed versus somebody who just thought, “Oh I didn’t realize I was doing that.”
JR Robles: Well when it comes to claimant fraud I would say when it’s clear. Let’s define clear—when you are knowingly accepting benefits and you know you lied about it in order to get those benefits, that’s the part you have to have.
The lie has to be material. So if you lied about something irrelevant, that won’t elevate to a fraud conviction. It has to be material to the case, you have to lie about something that really impacts the decision to get the benefits or to continue to receive benefits.
You definitely have to have intent.
I mean that is necessary in most crimes. Not involuntary manslaughter, for example, but just in general, you have to have intent and there has to be a clear lie. Whether you sign a check that says you are not working or you’ve filed your claim form and you certify that everything you’ve said under penalty of perjury is accurate and you know you left out something or added something where you specifically lied in order to bolster your claim. So that’s always how that happens.
An employer clearly knows, “Hey, I am going to manipulate my payroll records in order for me not to pay workers comp by misclassifying employees and that is going to save me a million dollars a year.”
They know exactly what they are doing.
They are signing a document saying, “I am not doing that.” So again, they know it. That’s usually not a mistake.
Then when it comes to healthcare providers, there is a big case in Los Angeles where this clinic owner, I think he had seven clinics. They were a surgery center, and they were doing orthopedic knee and hip replacements.
So the owner discovered that a plastic knee replacement part was $12, $15 grand and that’s what he was getting paid from the insurance carriers or healthcare companies.
So he’s like, “I could be a whole lot more profitable if I could get that price down.” So he was looking for alternatives. He found a Chinese company that could make these parts. It was half the price, maybe it was only $6,000 for him. I am just giving you estimates. It was about five years ago, so I can’t remember the specifics.
He ended up finding a cheaper part, and then he thought, “Man, if I could just get this even cheaper than this, I would be even more profitable.” So then he found a machine shop somewhere in the greater LA area to make these replacement parts.
Now, none of this was done in a laboratory with clean rooms or sterile. It wasn’t medical grade materials they were using. It was literally a machine shop where say a diesel owner could go in there and say, “Hey I need a new carburetor, they don’t make these anymore. Can you fabricate a new carburetor for me?” They were literally doing it in a machine shop in Los Angeles.
Those parts they were then put into people—lots of them.
Sure enough, everyone was getting infected. The parts were breaking, and that is what caused this massive investigation.
The guy got convicted. He is in prison now, and the insurance carriers that paid the bill of the full bill to have this done, had to pay again to have all of those body parts removed and replaced properly by proper physicians. The fraud was in the hundreds of millions of dollars.
Back to what I was saying, when you look at that $80 billion—those big employers and big clinics and healthcare providers, when they commit fraud it’s a whopper compared to an average employee committing a fraud.
The Gray Area in Fraud Claims
JR Robles: I wanted to come back to the employees. We talked about what fraud is, but there is a big grey area that is really the purpose of this book: the grey area is exaggerating a claim.
It’s leaving and omitting certain things out of the claim that ultimately end up costing a lot of money. The goal is, if you investigate those claims in such a way where you identify that stuff, you may not get a fraud conviction.
In fact, the odds are that you won’t get a fraud conviction because actual fraud conviction is fairly tiny in comparison—less than one percent.
But what about all the other ones that are malingering?
They should go back to work but aren’t going back to work.
Maybe this is an injury that you may be off work for a week, then maybe a week of light duty and another couple of weeks of physical therapy in the afternoon. By week four, you are back to normal, you’re good to go.
That’s how the course of treatment should work, but if that person, for whatever reason, doesn’t want to go back to work, they drag it out, they make these subjective claims. They shop for a particular doctor that is more favorable, they hire a lawyer who has a reputation for figuring out a way to drag it out—the next thing you know their claim lasts six months and they don’t even want to go back to work and decide this job is not for me.
I am going to switch careers and do something else because I can’t do the first job. I have this long term disability that I need to be compensated for.
So the next thing you know what would have been a pretty basic medical claim might have only cost $10,000, now all of a sudden it’s $100,000.
The idea is to try to get those, because those are the majority of the cases. We need to try to attack and defend those by using effective investigations. There’s way more of those than pure fraud cases. There is a lot more of the exaggeration and malingering than there are direct fraud.
Connect with JR Robles
Charlie Hoehn: Fascinating. Well your book has so much on this. It has chapters on claims investigations, case law, legal requirements, types of claims, when is surveillance needed, background checks and even your best practices and while we don’t have enough time to cover them all in this interview. Listeners can check out the book, Red Handed.
What is the best way for our listeners to connect with you and follow you on your journey that sort of thing?
JR Robles: For me, I think LinkedIn is probably the one that I use the most. I don’t personally use Facebook. My company does. As an investigator especially, even before when I was a fraud investigator for the state, I had a certain level of anonymity intentionally. I think I have always sort of done that. My social media footprint is very, very small.
Get JR’s new book Red-Handed on Amazon.
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Fire Them Now: Phillip Stutts
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