Raleigh, N.C. — Gov. Pat McCrory's claim that more 40 percent of the costs associated with workers compensation claims filed by state employees were related to fraud and abuse is raising skeptical questions from lawyers, union representatives and academics familiar with the issue.
"Our examination of workers compensation estimates that 40 percent of workers' costs are related to abuse or outright fraud," McCrory said Wednesday night during the State of the State address.
He used that figure to announce a shift in how those claims are handled and declare a new program to fight workers compensation waste.
"We will launch a major effort to stop fraud and abuse dead in its tracks, so that money can be used for other state employees and other needed services in North Carolina," McCrory said, drawing applause from an audience made up of lawmakers, cabinet officials and invited guests.
According to the McCrory administration, the state spends roughly $150 million per year in workers compensation costs.
WRAL News was unable to independently confirm the 40 percent number. A spokeswoman for the state Department of Insurance said her agency does not track workers compensation statistics. A spokesman for the state Industrial Commission, which adjudicates workers compensation claims, said he was unsure if such statistics were available and that the individual who might have them was not in the office Thursday.
State Personnel Director Neal Alexander and McCrory spokesman Josh Ellis were able to provide a one-page summary sheet showing annual workers compensation costs for the past five years, but that table did not include a fraud or abuse number. However, both Alexander and Ellis emphasized that fraud and abuse were two different things that should not be conflated.
The estimate that 40 percent of the money spent on workers compensation went toward either fraudulent or abusive claims came from CorVel Corp, the state's claims administrator, Alexander said.
The figure drew immediate reaction from the State Employees Association of North Carolina, which represents many executive branch employees.
"We are disappointed in the governor’s attempt to blame high workers compensation costs on the state employees who put their lives on the line every day for North Carolina, whether in the prisons, on the highways, in psychiatric facilities or elsewhere," said Ardis Watkins, a lobbyist for SEANC. "We cannot find any credible source that shows his 40 percent of costs claim to be anything other than implausible and illogical. This is a serious matter that deserves a serious discussion, and we urge the governor to share this data so we can all work together to make North Carolina a safer place to work and save taxpayer dollars."
Industry-wide figures for fraud in workers compensation claims, much less claims specific to state workers, are hard to come by. Associations that represent insurers and insurance investigators say they either don't track those figures or don't share them with the public. Paul Leigh, a professor of health economics at the University of California - Davis, said there is no scientific study that he knows of that establishes the rate of fraud among workers compensation claims.
Leigh said that using other types of insurance as a comparison, such an unemployment claim, it would be reasonable to guess that fraud by workers might reach as high as 2 percent to 3 percent of cases, with more committed by employers or insurers themselves.
As for the governor's claim, Leigh said, "I don't believe that 40 percent number."
Fraud different from abuse
Alexander was careful to point out that fraud and abuse are two different things.
An example of abuse, he said, might be a worker who legitimately hurts his back initially but, after he is able to return, persuades his doctor to keep him off the job for a longer period of time. Abuse might also include a state supervisor who doesn't do enough to check up on workers and get them back on the job as soon as possible, Alexander said.
Fraud cases would involve employees who intentionally game the system, such as someone who claims an injured back but is then seen doing heavy yard work.
Asked to break down how much of the state's over-payments might be related to fraud versus abuse, Alexander said, "That's a hard question. We won't know that until we start drilling down into these cases."
Alexander said that CorVel arrived at the estimate for North Carolina based on their experience with handling other large business and government contracts.
He did say that the most costly cases were those of workers who had been injured and remained off the job for years with unsettled claims. Such open claims are the vast minority of cases. For example, in the year that ended June 30, 2014, there were 4,678 total open claims out of 121,633. Some number of those 4,678 were claims that had carried on for months or years.
"The longer a person is out on workers compensation, the easier it is for them to delay coming back to work," Alexander said.
In addition to settling long-running claims, Alexander said, the McCrory administration would focus on cutting down on injuries that harm workers in the first place.
"The biggest injuries are slips, trips and falls," he said. "Those are the No. 1 injuries in any area."
Alexander said that the state wants to provide good, high-quality medical care for workers hurt on the job. But the state also wants those workers back on the job as fast as possible.
Leonard Jernigan, a Raleigh lawyer who specializes in workers compensation cases, says he applauds the governor for tackling fraud.
"But in more than 20 years working on these cases, I’ve never seen a study that even remotely comes close to that number," Jernigan said, referring to the 40 percent figure. "I've looked at many reports in many states, and I've never ever, ever heard of a report that shows a figure that high. I would love to see those statistics."
Jernigan says the highest number he has seen for actual convictions in workers compensation fraud cases is 1 percent in Washington state. He said employers are more likely to commit the kind of fraud recently documented by the Office of the State Auditor.
Kevin Bunn, a Cary lawyer who works on workers compensation cases and works on those issues for the North Carolina Advocates for Justice, a group of trial attorneys, agrees with Jernigan.
"Where there is fraud and abuse, we all benefit from finding it and punishing it," Bunn said. "As to his claim in the State of the State address that 40 percent of the state's workers compensation costs are due to employee fraud and abuse, we find no support for that claim, and it is inconsistent with the experiences of those of us who represent injured workers."
Asked why the state's fraud and abuse number is so high relative to what experts expect, Alexander said that he believes prior administrations simply didn't focus on the problem.
"We're dealing with things here that have just not been managed in the past," he said. "We're peeling back and looking at things that don't look right, especially when you compare it to general industry."
Private companies, he said, work harder to keep down workers compensation costs because they negatively impact the bottom line. North Carolina, he said, needs to also pursue aggressive safety programs and "case management" of workers who do have a claim.
"Any large business could not afford a $150 million hit to their bottom line," he said. "The issue is, the taxpayers are the ones paying for this."