Professional Documents
Culture Documents
Insurance Fraud
in America
WINTER 2014
Volume 5 Number 3
insight
analysis
ideas
WINTER 2014
3
Civil suits allow auto insurers to take down organized fraud rings
Automobile insurers increasingly are turning to civil suits to help
counter the growth of complex, organized fraud rings.
By Frank Goldstein, Esq.
14
Rational swindlers avoid crime when risk not worth the reward
Criminology theory is widely used in many criminal justice areas, yet
there is no application of these theories to insurance fraud.
By Michael Skiba, PhD
19
25
j ourn a l o f
Insurance Fraud
WINTER 2014
Volume 5 Number 3
in America
Sincerely,
2014. All rights reserved. For republishing information, contact Kendra Smith.
2
Abstract: Workers-compensation fraud is a problem in San Diego County, with a population of more
than three million. Public-awareness efforts by the District Attorneys office warned county residents
about fraud and have greatly expanded case referrals for investigation over the last three years. Suspected
fraudulent claims also have largely flattened out. This suggests that the Crime Prevention Campaign
has influenced peoples attitudes and actions. The strategy over the last three years involved flooding
the market with deterrent messages. Brochures were handed out and mailed throughout the county.
Billboards were erected along freeways. Posters were distributed to business owners to warn employees
and managers against scams.
endNOTES
1
Reducing Fraud in California, California Department
of Insurance, Advisory 1 Task Force on Insurance Fraud,
2008 http://www.insurance.ca.gov/0300-fraud/
upload/FraudReport.pdf
2
Conservative estimate extrapolated from multiple
statewide and academic studies of workerscompensation
fraud in California.
Abstract: Automobile insurers increasingly are turning to civil suits to help counter the growth of
complex, organized fraud rings. Civil actions can be expensive and require a full commitment to seeing
the action through. Insurers often barely break even after large legal expenses. Yet the suits signal to
the criminal underworld that defrauding particular insurers is a no-win proposition. They also allow
insurers leeway to take action instead of waiting for criminal charges to be handed down. Auto insurers
increasingly are filing state and federal RICO actions. RICO allows insurers to present evidence of the
defendants entire criminal operation. This gives insurers a powerful legal tool to take down the complete
enterprise.
The insurer alleges the large firm illegally referred crash victims only to
medical providers controlled by owner Gary
11
endNOTES
1
33 Arrested in Staged Accident Scheme, National Insurance
Crime Bureau, May 21, 2014.
2
Insurance Fraud Ring Busted, wptv.com, May 16, 2014.
3
Allstate Alleges $30 Million Insurance Fraud, Demands NY
Reform, Law360.com, May 11, 2012.
4
No-Fault Auto Insurance in Florida, white paper, Insurance
Information Institute, 2011.
5
Conversation with insurance company SIU representative,
August 18, 2014.
6
Source: Insurer settles lawsuit against West Palm Beach
surgery center, maker over spinal device for as much as $20
million, Palm Beach Post, February 23, 2013.
7
Two Clinic Owners Plead Guilty for Their Roles in Massive
No-Fault Insurance Fraud Scheme, fbi.gov/newyork, February
13, 2013.
8
Sonoma County windshield repair business ordered to pay
$1.4 million in fraud case, Press Democrat, August 7, 2014.
9
Insurer accuses 46 Minnesota chiropractors, MRI firm of
fraud, Star Tribune, October 15, 2013.
10
State Farm accuses 1-800-ASK GARY of massive fraud
scheme, Star Tribune, August 1, 2013.
11
Chiropractors in $2.3 Million PIP Insurance Fraud Scheme
Will Face RICO Charges, FLPIPGuide.com, April 15, 2014.
12
RICO State by State: A Guide to Litigation Under the
State Racketeering Statutes, Americanbar.org/publications GP
Solo eReport, 2nd edition, November 2012.
13
Allstate Files $6.3 Million No-Fault Fraud Lawsuit in NY,
NU Online News Service, December 21, 2011.
14
Allstate Wins Major Medical Fraud Lawsuit; Puts
Fraudsters on Notice, PRNewswire, September 13, 2012.
15
Alleged Multi-Million Dollar Fraud Ring Target of Federal
Lawsuit, PRNewswire, March 6, 2008.
16
Allstate Insurance Company et al. v. Plambeck et al, dockets.justia.com/dockets/texas, March 8, 2008.
17
Allstate Says Evidence Supports Jurys $6M RICO Award,
Law360.com, June 18, 2013.
18
Allstate Can Keep $6M Telemarketing Fraud Award,
Law360.com, April 2, 2014.
13
Abstract: Criminology theory is widely used in the many criminal justice areas, yet there is no
application of these theories to insurance fraud. Better understanding these theories and how criminals
are motivated will assist insurance companies in developing effective anti-fraud strategies. Rational-choice
theory, in particular, is the foundation of environmental criminological principles. It thus follows that
if fraudsters consciously choose to commit fraud, then anti-fraud strategies should focus on decreasing
opportunity. We want to design programs that increase the difficulty of committing fraud, and reduce the
choices that offenders may have. This will fit into the cost-benefit analysis and deter fraudsters.
14
making a choice
Insurance-fraud victims
(or suitable targets) would
be insurers and/or their
policyholders. The motivated
offender would be the potential
fraudster.
Andresen (2006) tested the merit of routine
activities and focused on auto theft, breaking and
entering, and violent crime in Vancouver.7 His
significant study showed positive support for routine
activities as a viable cause for criminal activity.
Making alterations to help reduce victimization
as outlined in routine- activities theory was key
to reducing criminal opportunities, these studies
found. This in turn reduced criminality. In applying
this to insurance fraud, if insurers as suitable targets
alter their anti-fraud strategies, then this will reduce
opportunity, disrupt the continuum and reduce
fraud occurrences.
For example, insurance companies will disrupt
the continuum and make themselves less-suitable
targets by making more-aggressive red-flag systems,
increasing the use of critical gatekeepers such as
analysts and claims staff, and supporting public
outreach.
As stated previously, having a suitable target
is one of the three elements of routine-activities
theory. The research cited thus far has shown
support for routine-activities theory as an effective
means to explain and deter criminal offending. Any
manipulation of victim (insurer) activity reduces the
opportunity to victimize.
This theory has significant implications
for anti-fraud strategy. The research supports
a fraud-reduction strategy focusing on making
the target harder for an offender to victimize.
Insight Analysis Ideas
endNOTES
1
A Phenomenological Study of the Barriers and Challenges
Facing Insurance Fraud 1 Investigators, by J.Michael Skiba,
Journal of Insurance Regulation, 2014, Volume JIR-ZA-33- 04,
Page 26.
2
Incidence of Law-Violating Behavior in a Community
Sample of Children and Adolescents withTraumatic Brain
Injury. James Luiselli, Michelle Arons, Nina Marchese, Andrea
Potoczny-Gray and Erika Rossi, International Journal of
Offender Therapy and Comparative Criminology, 2000, Vol.
44, 6: Pages 647-656.
3
Why Fraud Persists, Coalition Against Insurance Fraud.
http://www.insurancefraud.org/fraud-whyworry.
htm#Why%20fraud%20persists
4
A Phenomenological Study of the Barriers and Challenges
Facing Insurance Fraud Investigators, by J. Michael Skiba,
Journal of Insurance Regulation, 2014, Volume JIR-ZA-33- 04,
Page 14.
5
Social Change and Crime Rate Trends: A Routine Activity
18
Abstract: Corporate-owned dental chains are exploiting the underserved market for low-income child
Medicaid patients with large-scale fraudulent and abusive treatment. Most dental clinics are honest and
forthright. But aggressive business models pressure some dental chains to fraudulently optimize volume
treatment, ignoring the childs medical needs. Children undergo useless and painful root canals, cavity
fillings and extractions. The clinics impose mouthfuls of steel teeth the children dont need. Medicaid
likely is billed hundreds of millions of dollars a year in false dental treatment of children. Lawsuits and
criminal actions are breaking up schemes. Still needed are more enforcement by dental boards, and
education of parents about the warning signs of a scam.
19
two minutes per tooth. Later Moses had all but four
teeth pulled due to abscesses.
Jack (age 5) received 16 baby root canals
and 16 crowns in 25 minutes. His dentist spent
about one minute per tooth, billing $168.20 per
minute.
Joe (age 4) received 15 baby root canals and
16 crowns in 30 minutes.
Stolen insurance money enriches the winners
with princely lifestyles. Sprawling mansions, private
jets, luxury boxes at football games, expensive
vacation homes and other trappings of the rich and
famous come to the overseers. Taxpayers foot the
bills.
endNOTES
1
Fighting Medicaid Fraud, State Legislatures Magazine,
April, 2013.
2
Company That Approved Unnecessary Orthodontia
Kept Its State Contract, The Texas Tribune, May 1, 2014,
July 18, 2014. https://www.texastribune.org/2014/05/01/
company-okd-medicaid-billing-keeps-its-contract
3
In Search of Dental Care, The Pew Charitable Trusts, June
23, 2013. http://www.pewtrusts.org/en/research-and-analysis/
reports/2013/06/23/in-search-of-dental-care
4
Private Equity Firms Eye Big Profits in Dentistry,
DrBicuspid.com, May 2012. Web. 17 July 2014. http://www.
drbicuspid.com/index.aspx?sec=log&URL=http%3a%2f%2f
www.drbicuspid.com%2findex.asp%3fsec%3dser%26sub%3dd
ef%26pag%3ddis%26ItemID%3d310662
5
Texas Drills Down on Medicaid Dental Fraud,
The Wall Street Journal, August 19, 2012, July
17 2014. http://online.wsj.com/news/article
sSB10000872396390444233104577591243154716520
6
Dentist in Medicaid Suit Adding a Water Park to His
Mansion, WFAA Wfaa.com, July 12, 2012, July 18, 2014.
http://www.wfaa.com/news/investigates/Medicaid-MansionExpansion--162280556.html
7
Small Smiles Wins 1st Case Alleging Mistreatment of Kids,
DrBicuspid.com, October 9, 2013, July 18, 2014. http://www.
24
drbicuspid.com/index.aspx?sec=sup_n&sub=pmt&pag=dis&I
temID=314430
8
Joint Staff Report on the Corporate Practice of Dentistry in
the Medicaid Program, Committee on Finance, United States
Senate, June 2013.
9
ibid.
10
OIG Excludes Pediatric Dental Management Chain From
Participation in Federal Health Care Programs, Office of
Inspector General, U.S. Department of Health and Human
Services, April 3, 2014. https://oig.hhs.gov/newsroom/newsreleases/2014/cshm.asp
11
Questionable Billing for Medicaid Pediatric Dental
Services in New York, Department of Health and Human
Services, Office of Inspector General, March 2014. http://oig.
hhs.gov/oei/reports/oei-02-12-00330.pdf
12
Uncovering Waste, Fraud, and Abuse in the Medicaid
Program, Committee on Oversight and Government Reform,
U.S. House of Representatives, April 25, 2012.
13
ibid.
14
ibid.
15
Management arrangements, North Carolina State Board of
Dental Examiners, July 18, 2014. http://www.ncdentalboard.
org/management_arrangements.htm
27
The Coalition Against Insurance Fraud is a national alliance of insurers, consumer groups and government
agencies combatting all forms of insurance fraud through legislation, public education and research.