In the News: Disability Fraud — Alive and Well

Disability fraud costs companies billions of dollars per year and, as seen recently in U.S. headlines, can be as far reaching as the judiciary.

October 2013 

By Michael Hoffmann 

 

Disability fraud costs companies billions of dollars per year and, as seen recently in U.S. headlines, can be as far reaching as the judiciary. The typical disability fraudster usually fakes an injury after an accident or exaggerates a real injury’s seriousness to sue the party that “injured” him or to collect disability checks due to his “inability” to work. However, disability fraud has evolved into a much more complex criminal endeavor. As of August 2013, more than 14 million Americans were receiving benefits through Social Security Disability Insurance (SSD), Supplemental Security Income (SSI), or both. Cases of manufactured whiplash after a fender-bender still exist, but many other avenues of disability fraud are now prevalent. Therefore, CFEs need to take heed of the new dimensions.

 

Judge and Lawyer: Two Crooks in a Pod 

The most current newsworthy instance of disability fraud involves a Kentucky lawyer, Eric Conn, devising a scheme with a West Virginia judge, “the honorable” David Daugherty. Conn pocketed millions from Social Security disability programs in collusion with Judge Daugherty, who approved fraudulent disability claims at an assembly-line rate. A two-year investigation led by Senator Tom Coburn (R., Oklahoma), ranking member of the Senate Homeland Security and Governmental Affairs Committee, revealed a coordinated case of fraud responsible for the approval of billions of dollars in false claims.

 

From 2006 to 2010, Conn’s law firm reportedly made $4.5 million in attorney fees from the Social Security Administration (SSA), fooling the system with discredited doctors signing off on suspect medical conditions and working with Administrative Law Judge Daugherty to expedite the claims process.

 

Daugherty, assigned to review disability hearings in the Huntington, West Virginia, SSA office, prioritized Conn’s cases, approving claims at an extraordinarily high frequency and holding hearings as prompt as 15 minutes. Reportedly, Daugherty approved 3,143 of Conn’s disability cases and dismissed only 18, awarding disability benefits totaling $2.5 billion during the life of the scam.

 

According to Senator Coburn’s report, Conn provided a list of clients each month to Daugherty to be approved for disability benefits. Daugherty told Conn which clients needed medical evidence to qualify, which was later provided by various doctors, including several with suspended licenses, who rubberstamped approval of the benefits. Allegedly, Conn paid five doctors nearly $2 million to grant favorable disability opinions for his claimants. In most cases, the claims had been prepared in advance with nearly identical language incorporated by staffers in Conn’s law office.

 

The unlikely relationship between the two primary fraudsters prompted the U.S. Senate investigation after initially being reported by the Wall Street Journal in 2011. Once the original story broke, Conn used disposable cellphones to speak with Daugherty and destroyed 2.6 million pages of documents from his firm’s office. He also collaborated with Huntington Chief Administrative Law Judge Charles Andrus, who conspired with Conn in the attempted cover up and an attempt to discredit a whistleblower.

 

Coburn believes his investigation reveals how “well-headed and well-connected lawyers, doctors and judges have gamed the system for their own benefit.” Moreover, the report also faulted the SSA for “inept agency oversight” because the administration was aware of Judge Daugherty’s conduct for years, yet did not take action.

 

Widespread Occurrences 

Conn and his criminal crew are not the only notable disability fraudsters of late. Other examples of similar schemes have occurred in Puerto Rico and another U.S. locale, as well.

 

In August, federal investigators, including the FBI, raided doctors’ offices in Puerto Rico as part of a widening probe into disability fraud on the island. The two-year investigation led to 75 individuals being charged for their involvement in a massive SSD fraud conspiracy. A former SSA employee, Samuel Torres Crespo, completed disability insurance applications on behalf of various people to give the appearance that they were hindered and unable to work. As in Conn’s scheme, shady doctors were recruited to aid in the fraudulent disability claims. Three physicians evaluated, treated and diagnosed claimants with nonexistent disabilities to scam the SSA into offering benefit payments.

 

Crespo received 25 percent of the retroactive sum paid out by the SSA, while the doctors collected between $150 to $500 per false medical report submitted. This might seem like a drop in the bucket, but considering a lifetime of disability benefits, including access to Medicare, can cost the government nearly $300,000 per individual, the severity of this fraud becomes apparent. Moreover, considering that in 2006 only 36 percent of initial applicants residing in Puerto Rico were awarded disability benefits and that number jumped to 69 percent in 2010, the onset of disability fraud in that region has been rapid. Officials believe the scheme netted nearly $6 million, with Crespo pocketing more than $3 million.

 

In a separate case, two Long Island Rail Road (LIRR) workers in Manhattan, N.Y., were recently convicted of disability fraud. Michael Costanza, a former conductor and manager who worked nearly 10 years as a volunteer firefighter after claiming he was too disabled to work in 2004, and Fred Catalano, a former maintenance crew foreman who went on to pursue a jiu-jitsu black belt after declaring disabling back, neck and shoulder pain upon retiring in 2011, were both convicted of conspiracy and fraud.

 

Costanza’s and Catalano’s guilty verdicts give prosecutors of the LIRR fraud a perfect 33 convictions for 33 defendants, including retirees, doctors and consultants. The larger case allegedly includes a decade-long conspiracy by hundreds of LIRR workers claiming fraudulent disabilities that could have cost the federal Railroad Retirement Board $1 billion.

 

Conclusion 

Fraud examiners aim to stay a step ahead of fraudsters in the fight to stop the incidence of fraud worldwide. Unfortunately, disability fraud is a type of scheme difficult to combat before the crime occurs. Now that judges, lawyers and doctors are increasingly becoming party to disability fraud, CFEs are locked in an uphill battle against this fraud that affects taxpayers and legitimately disabled individuals. In view of the fact that analysts estimate the U.S. disability fund could be bankrupt by 2016, and that the practice of disability fraud does not appear to be lessening as fraudsters continue to work the system, examiners are under pressure to prevent and detect these schemes. Some common prevention techniques include:

Complete a background check of the patient. Look for criminal records or any other red flags that indicate previous dishonesty or a criminal past. Also be aware of any history of injury to gauge the patient’s general physical health at the time the alleged injury occurred.

Review the complete medical file and documentation pertaining to the injury. Look for any inconsistencies in the information or the doctor’s findings. In addition, research the physician’s background to check for prior signs of malpractice or fraud.

Send the patient to another doctor to get a second opinion regarding the injury and the status of the patient’s medical health.

Document the patient’s activities following the alleged injury to note signs of disability fraud. For example, if the patient is claiming a back injury, photos showing the patient running or lifting heavy objects might disqualify the disability.