Fraud or Legitimate Claim? A Guide for Employers on Knowing When to Act

Most workers’ compensation claims are legitimate, and as an employer, you’re committed to ensuring injured employees get the care and benefits they deserve. But what happens when a claim doesn’t quite add up? Fraud and abuse—though less common—can dramatically increase costs, extend lost time, and erode trust in your workers’ comp program.

That’s where employer involvement in fraud investigations becomes critical. While insurance adjusters and third-party administrators (TPAs) may lead the charge, employers play a pivotal role in spotting red flags, initiating investigations, and supplying information that helps uncover the truth. Done correctly, this involvement not only protects your company’s bottom line but also ensures fairness for employees with legitimate injuries.

Why Employers Must Stay Alert

Workers’ comp fraud isn’t always blatant. It can be subtle—an employee exaggerating symptoms, failing to attend medical appointments, or avoiding transitional duty assignments. It can also involve outside actors, such as medical providers inflating treatment or attorneys benefiting from prolonged cases.

Fraud and abuse typically lead to:

• Extended time out of work (higher indemnity costs).

• Unnecessary medical treatment (inflated bills).

• Larger settlements (longer claim durations).

Because employers have the closest day-to-day connection with the injured worker and workplace environment, they are often in the best position to notice inconsistencies early.

When to Step In

Employers should not treat every claim with suspicion, but they should know when to raise concerns and request further investigation. Situations that often justify an investigation include:

• Delayed or suspicious reporting: Injuries reported late, or reported to a lawyer before the employer.

• Inconsistent job duties vs. injury: An injury that doesn’t match the tasks performed.

• Transitional duty refusal: Employees who resist modified work despite medical clearance.

• Lifestyle red flags: Tips or observations that an employee is working elsewhere, traveling, or engaging in physical hobbies inconsistent with their claimed disability.

• Medical inconsistencies: Doctors noting symptom exaggeration, invalid test results, or disproportionate complaints compared to objective findings.

In short: if the story doesn’t line up, or recovery is far slower than expected, it’s time to involve your adjuster.

How Employers Can Support an Investigation

Once you suspect a problem, the key is to act quickly and strategically. Investigations can range from simple record checks to formal surveillance, but their success often hinges on the employer’s input. Here’s how you can make a difference:

1. Report Concerns Promptly
   Communicate suspicions to your adjuster as soon as possible. Don’t wait until the claim has spiraled out of control. Early involvement saves money and prevents unnecessary extensions of benefits.

2. Provide Detailed Information
   Share workplace details that may seem minor but can prove vital to investigators: work schedules, job descriptions, past injury history, performance reviews, and even photos of the work area.

3. Support Surveillance Efforts
   Supply the investigator with a recent photo or description of the employee to prevent mistaken identity. Monitor progress and request updates to ensure the investigation stays on track.

4. Stay Professional and Non-Discriminatory
   Fraud investigations must never cross the line into harassment, entrapment, or discrimination. Stick to objective facts, and let licensed professionals conduct surveillance or interviews.

5. Work With Your TPA and Legal Team
   Fraud cases can become sensitive legal matters. Always involve your TPA and legal counsel before taking employment actions based on investigation results.

What Not to Do

Employers should avoid launching ad-hoc investigations or relying solely on rumors. Key pitfalls include:

• Harassment or intimidation: Making the employee aware of surveillance or constantly questioning their honesty.

• Invasion of privacy: Observing the worker in places where privacy is expected, such as inside their home.

• Entrapment: Encouraging or pressuring an employee into activities they wouldn’t normally engage in.

These missteps not only undermine the case but can also expose your company to liability.

Turning Findings Into Action

If an investigation uncovers evidence of fraud or abuse, next steps may include:

• Presenting findings to doctors: Clarify inconsistencies between reported limitations and observed activity.

• Using evidence in hearings: Contradicting the employee’s testimony if litigation occurs.

• Adjusting settlement strategy: Avoiding inflated payouts when claims are exaggerated.

• Strengthening prevention: Using lessons learned to deter future abuse.

Remember: the goal isn’t to “catch” employees but to protect the integrity of your workers’ compensation program and ensure resources go to those who truly need them.

Final Thoughts

Employers are on the front lines of workers’ comp fraud prevention. By knowing when to step in, how to support investigations, and where to draw the line, you safeguard both your company and your employees. Fraudulent claims may be the exception, but when they occur, proactive employer involvement ensures they are handled swiftly, fairly, and effectively.

Michael Stack, CEO of Amaxx LLC, is an expert in workers’ compensation cost containment systems and provides education, training, and consulting to help employers reduce their workers’ compensation costs by 20% to 50%. He is co-author of the #1 selling comprehensive training guide “Your Ultimate Guide to Mastering Workers’ Comp Costs: Reduce Costs 20% to 50%.” Stack is the creator of Injury Management Results (IMR) software and founder of Amaxx Workers’ Comp Training Center. WC Mastery Training teaching injury management best practices such as return to work, communication, claims best practices, medical management, and working with vendors. IMR software simplifies the implementation of these best practices for employers and ties results to a Critical Metrics Dashboard.

Contact: mstack@reduceyourworkerscomp.com.

Workers’ Comp Roundup Blog: http://blog.reduceyourworkerscomp.com/

Injury Management Results (IMR) Software: https://imrsoftware.com/

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Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.