Incentive Programs Control Fraudulent Injuries

June 1, 2001
Well-designed safety incentive programs can significantly reduce overreporting of injuries, saving on claims and preserving system integrity.

Should all work-related injuries be reported? The answer is that all legitimate injuries should be reported. Unfortunately, some injuries are fraudulent or exaggerated. While statistics vary, a common estimate is that 10 percent of all claims, or nearly $31 billion, is paid annually as a result of fraudulent workers' compensation claims. State insurance departments and the insurance companies have dedicated units and established coalitions to deal with these claims. Investigations finding claimants, doctors and lawyers guilty of fraud have become entertainment on our documentary news programs.

To the extent that these injuries end up on our OSHA 200 logs and other claim statistics, it is fair to say that they represent an overreporting of injuries, both in frequency and severity.

National labor organizations, OSHA and articles in the press have speculated on the "potential" of results-focused safety incentive programs to cause the underreporting of injuries. Much effort has been consumed discussing and researching the "potential" for underreporting. To date, there has been no conclusive evidence to establish these allegations -- just unfounded generalizations.

This article, however, is not about "potential" underreporting of injuries caused by incentive programs. It is about how these programs prevent "actual" overreporting of injuries.

Prevention is the preferred way to deal with fraud and exaggeration. Certainly, negative consequences such as possible fines or legal action will check some potential claimants. Creative risk and safety managers, however, have access to a positive tool called reward and recognition (incentive programs) that proactively deters many fraudulent claims before they materialize.

Bill Kincaid, CSP, senior loss control consultant with Lockton Cos. in St. Louis, notes that he reviews many clients' loss runs and sees numerous questionable injuries. "The workers' compensation system unfortunately provides an incentive to overreport injuries. If an employee is injured at home, it is to his benefit to report it as an on-the-job injury. There are no deductibles, co-insurance or HMOs to deal with in the workers' compensation system. Also, lost workdays are paid for, and there is a potential for disability payments. Doctors and lawyers are also beneficiaries of the system and impact overall costs. Employers might consider developing their own incentive programs to counteract these systematic enticements."

Florsheim Seeks a Solution

In the mid-1990s, Florsheim Group's Kirksville, Mo., operation did just that. This facility employing 510 employees had serious workers' compensation problems. There were 41 lost-time injuries in 1993. Florsheim had four plants with 2,000 employees, yet Kirksville, with a quarter of that work population, accounted for almost two thirds of the $750,000 annual workers' comp costs.

The shoe industry was competing on an international basis. Domestic plants were being shut down and production shifted overseas. It was imperative to be a cost-efficient operation. Bob Brown and Marilyn Fisher, the plant managers during this period, knew that safety had to become an intrinsic part of the Kirksville operation. Management and employee attitudes and behaviors had to be turned around. The mission was clear: Injuries and their resultant costs were to be reduced.

Interco's (Florsheim's parent company at the time) risk management department, headed by Allan Goldberg, together with operations management, decided that a customized incentive program should be part of the solution. WC Solutions Group in St. Louis was selected as a consultant to assist in the design and implementation of a program that would address the Kirksville operation's unique concerns.

The initial phase included a safety culture assessment. During this segment, Daniel L. Tegel, Ph.D., an industrial psychologist, conducted a safety perception survey, to which 419 individuals responded. One of the questions asked of managers and employees: "Do you ever notice employees exaggerating injuries to get out of work?" Some 72 percent of the managers responded yes, while 41 percent of the employees responded yes.

This information, together with a more detailed analysis of the safety environment and claims history, affirmed that many injuries and claims were fraudulent or exaggerated. There were repeat offenders, and it was a common joke that come hunting season, injuries soared. It was clear to the risk management and operational personnel that employees were taking advantage of the system.

Debbie McKinney, safety director of Florsheim operations, notes: "All the injuries were not legitimate cases. We knew that even before the survey was taken. However, the survey by a credible third party was confirmation that employees and management had similar perceptions on the subject. The survey was shared with employees. We knew that this problem and other concerns identified in the survey could not be addressed without cooperation between employees and management. This call to action required that we all participate together."

A goal was set to reduce lost-time injuries during the first year by 20 percent. This goal would be achieved by attaining "active safe behavior" in the workplace. Active safe behavior was defined as:

  • An employee's choice to be safe.
  • An employee's choice to look after each other.
  • An employee's choice not to be abusive of the workers' compensation system.

How the Program Worked

A safety reward and recognition program was instituted that included a result focus (rewards linked to the reduction of the number of injuries reported) and an active participation focus (rewards linked to active involvement in safety activities or processes).

Supervisors were management's day-to-day contact with employees and, therefore, key to the success of the program. They received special training on how to deliver the safety card (with sincerity) and what was in it for them (an incentive).

On the first of each month, the supervisors delivered a safety card "one on one" to each employee. During the exchange of the safety card, everyone's responsibility for safety was addressed. Further, management's personal concern for employees' safety was conveyed. On the card was a safety topic identified as a hazard in the Florsheim workplace. The topic was discussed with the employee by the supervisor, and the employee was encouraged to make safety suggestions in a space provided. Management promised to "listen and respond" to each suggestion. Upon signing the card, the employee pledged to "go for another injury-free month."

Once signed, the card confirmed that each employee and his or her teammates were eligible to earn gift certificates through a monthly raffle. Reduction in lost-time injuries, suggestions and attendance at drawings were the basis of earning certificates ranging from $20 to $150 at JC Penney, Bass Pro Shops and Wal-Mart. Multiple certificates were provided for each team. Even if one award was not earned due to a lost-time injury, there were several other awards available. Therefore, an "all or nothing" scenario was avoided that might be construed as encouraging employees not to report injuries.

Communications boards were mounted in the lunchroom. The boards informed employees about their monthly progress in reducing injuries, implementation of suggestions, teammates and pictures of recognized employees.

One year after the safety reward and recognition program's inception, the Kirksville operation's lost-time injuries had dropped from 41 to five. After three years, they were at three, a 93 percent improvement.

A program of this nature cannot be successful without management's support and involvement. For many managers, speaking the language of production is second nature compared to promoting safety. Safety professionals can facilitate management's safety role -- to foster a positive safety environment with trust between management and employee -- by providing them with effective and comfortable tools to be safety leaders. While top managers may not fully comprehend OSHA regulations, they understand incentives. They are comfortable explaining goals, attending supervisor training meetings and recognizing employees for their safe behavior.

McKinney explained: "Communication opportunities took place at many levels. Everyone [employees and management] got together as a group for monthly drawings where injuries were discussed, not to embarrass individuals, but to alert employees so that they could avoid similar incidents.

"Furthermore, injury hiding was not an issue because of the program design and the implementation, which included close monitoring by WC Solutions Group. We focused on lost-time injuries [difficult to hide], and there were no negative consequences as long as employees returned to our light-duty program within a reasonable time.

"The program promoted safety awareness. Employees seized ownership and pressed us for more involvement. They were encouraged to provide suggestions. Every suggestion was either implemented or the reason for nonimplementation explained. Employees' positive interaction in teams encouraged fellow team members to do the right thing."

Wider Problem

Florsheim's Kirksville operation is not the only example of a location with exaggerated and fraudulent injuries. Be assured there are a myriad of companies that have similar concerns. Corporations should not be paying for these injuries. These costs, by definition, are beyond the scope of the workers' compensation system.

It is rare that OSHA or labor organizations acknowledge the existence of fraudulent injuries. They appear to assume that all injuries are legitimate. This simply is not true. Fraudulent injuries are included in OSHA recordables.

OSHA statistics are one of the bases of measurement for our success or failure in preventing injuries and complying with the law. Exaggerated and fraudulent injuries are a distortion of the OSHA 200 statistics.

Prudently designed and implemented safety reward and recognition programs are common ground for management and employees. All levels intuitively understand the value of reward and recognition. Incentives activate the process of pursuing realistic goals that hold everyone accountable for injury reduction as well as participation in safety activities. They also stimulate positive communications between individuals in the program. The resulting environment will encourage employees to make the right choices to be safe and not to be abusive of the workers' compensation system.

Safety reward and recognition programs will not eliminate every fraudulent injury or make our OSHA 200s a perfect record of only legitimate injuries. They will, however, substantially reduce overreporting and associated costs. They will support our efforts in safeguarding the integrity of our safety and workers' compensation systems.

Marc E. Flanders, ARM, is principal of WC Solutions Group, Chesterfield, Mo., a risk management consulting firm specializing in the custom design and implementation of motivational processes to improve workplace safety. He can be reached at (314) 878-0506 or at [email protected].

Allan A. Goldberg is corporate risk manager at Spiegel-Robert and former risk manager of Interco/Florsheim. Contact him at (314) 544-8425 or at [email protected].

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