Report Title:

Workers' comp insurance; Fraud

Description:

Expand the authority of the insurance division's insurance fraud investigations unit to prevent, investigate, and prosecute both civilly and criminally insurance fraud within the workers' compensation insurance line within the State of Hawaii.

HOUSE OF REPRESENTATIVES

H.B. NO.

2324

TWENTY-THIRD LEGISLATURE, 2006

  

STATE OF HAWAII

  

 

A BILL FOR AN ACT

 

RELATING TO INSURANCE FRAUD.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. Insurance fraud is reported to cost every United States household an average of $500 per year. In Hawaii, the cost of motor vehicle insurance fraud alone has been estimated to be over $164 annually per household. In recognition of the impact that fraud has on the cost of motor vehicle insurance, Act 251, Session Laws of Hawaii 1997, was enacted to establish an insurance fraud investigations unit, motor vehicle insurance fraud violations, and penalties. Acts 155 and 275, Session Laws of Hawaii 1998, were enacted the following year to clarify the penalties for the offense of motor vehicle insurance fraud and enhance and clarify the powers and purpose of the insurance fraud investigations unit to combat motor vehicle insurance fraud.

Insurance fraud also has increasingly affected costs within the health insurance industry. Industry healthcare fraud losses are estimated to be as much as fourteen per cent of the $1,200,000,000,000 in annual national healthcare costs. This is equivalent to approximately $36,000,000,000 to $144,000,000,000 annually. In Hawaii, based on the conservative estimate that insurance fraud amounts to three per cent of annual Hawaii healthcare costs, health insurance fraud causes losses that exceed $60,000,000 annually. Because insurance fraud is a growing problem in the area of health insurance, the legislature enacted health insurance fraud provisions in Act 125, Session Laws of Hawaii 2003. Similar fraud provisions are in place for workers' compensation insurance. None of the healthcare insurance fraud provisions or the provision for workers' compensation clearly designates a specific law enforcement agency responsible for the investigation and prosecution of such violations.

No line of insurance is exempt from insurance fraud. Rather than limit administrative, civil, and criminal penalties for insurance fraud to a few selected lines of insurance, Hawaii's insurance fraud law should be expanded to include all lines of insurance to deter perpetrators of insurance fraud by demonstrating that no line of insurance will be a safe haven for those who commit insurance fraud.

The purposes of this Act are to:

(1) Empower the insurance fraud investigations unit to investigate and prosecute insurance fraud within the workers' compensation line of insurance; and

(2) Revise workers' compensation insurance fraud definition and penalties, by bringing them in line with other insurance fraud statutes; and

(3) Expand the power of the insurance fraud investigation unit to prosecute fraud in all lines of insurance.

SECTION 2. Chapter 386, Hawaii Revised Statutes, is amended by adding to part III four new sections to be appropriately designated and to read as follows:

"§386-A Workers' compensation insurance fraud in the first degree. (a) A person commits the offense of workers' compensation insurance fraud in the first degree if the person intentionally or knowingly commits workers' compensation insurance fraud where the value of the coverage, benefits, recovery, or compensation obtained or attempted to be obtained or denied or attempted to be denied exceeds $20,000.

(b) Workers' compensation insurance fraud in the first degree is a class B felony.

(c) For the purpose of this section, "intentionally" and "knowingly" have the meanings given in section 702-206.

§386-B Workers' compensation insurance fraud in the second degree. (a) A person commits the offense of workers' compensation insurance fraud in the second degree if the person intentionally or knowingly commits workers' compensation insurance fraud where the value of the coverage, benefits, recovery, or compensation obtained or attempted to be obtained or denied or attempted to be denied exceeds $300.

(b) Workers' compensation insurance fraud in the second degree is a class C felony.

(c) For the purpose of this section, "intentionally" and "knowingly" have the meanings given in section 702-206.

§386-C Workers' compensation insurance fraud in the third degree. (a) A person commits the offense of workers' compensation insurance fraud in the third degree if the person intentionally or knowingly commits workers' compensation insurance fraud where the value of the coverage, benefits, recovery, or compensation obtained or attempted to be obtained or denied or attempted to be denied is $300 or less.

(b) Workers' compensation insurance fraud in the third degree is a misdemeanor.

(c) For the purpose of this section, "intentionally" and "knowingly" have the meanings given in section 702-206.

§386-D Workers' compensation insurance fraud; administrative penalties. (a) In lieu of or in addition to the criminal penalties set forth in section 386-A, 386-B, or 386-C, a person who commits workers' compensation insurance fraud as defined under section 386-98 also may be subject to one or more of the following administrative penalties:

(1) Restitution of benefits or payments fraudulently received under this chapter, whether received from an employer, insurer, or the special compensation fund, to be made to the source from which the compensation was received;

(2) A fine of not more than $10,000 for each violation;

(3) Suspension or termination of benefits in whole or in part;

(4) Suspension or disqualification from providing medical care or services, vocational rehabilitation services, and all other services rendered for payment under this chapter;

(5) Suspension or termination of payments for medical, vocational rehabilitation, and all other services rendered under this chapter;

(6) Recoupment by the insurer of all payments made for medical care, medical services, vocational rehabilitation services, and all other services rendered for payment under this chapter; or

(7) Reimbursement of attorney's fees and costs of the party or parties defrauded.

(b) With respect to the administrative penalties set forth in subsection (a), no penalty shall be imposed except upon consideration of a written complaint that specifically alleges a violation of this section occurring within two years of the date of said complaint. A copy of the complaint specifying the alleged violation shall be served promptly upon the person charged. The director or board shall issue, where a penalty is ordered, a written decision stating all findings following a hearing held not fewer than twenty days after written notice to the person charged. Any person aggrieved by the decision may appeal the decision under sections 386-87 and 386-88.

(c) For the purpose of this part, "person" means any individual, company, association, organization, group, partnership, business, trust, or corporation, but shall exclude insurers as defined in section 431:1-202, mutual benefit societies as defined in section 432:1-104, and health maintenance organizations as defined in section 432D-1.

SECTION 3. Chapter 431, Hawaii Revised Statutes, is amended by adding to article 2 a new part to be appropriately designated and to read as follows:

"PART . INSURANCE FRAUD

§431:2-A Definitions. As used in this part:

"Unit" means the insurance fraud investigations unit of the insurance division.

"Insurer" shall have the meaning as defined in section 431:1-202.

"Person" means any individual, company, association, organization, group, partnership, business, trust, or corporation, but shall exclude insurers as defined in section 431:1-202, mutual benefit societies as defined in section 432:1-104, and health maintenance organizations as defined in section 432D-1.

§431:2-B Insurance fraud investigations unit. (a) There is established in the insurance division the insurance fraud investigations unit.

(b) The unit shall:

(1) Conduct a statewide program for the prevention of insurance fraud relating, but not limited to, title 24 and chapter 386;

(2) Notwithstanding any other law to the contrary, investigate and prosecute via criminal and civil courts of competent jurisdiction all persons or insurers involved in insurance fraud violations arising out of but not limited to chapters 386, 431, 432, and 432D;

(3) Handle administrative hearings involving insurance fraud; and

(4) Promote public and industry-wide education about insurance fraud.

(c) The unit may review and take appropriate action on complaints relating to insurance fraud.

(d) The commissioner shall employ or retain, by contract or otherwise, attorneys, investigators, investigator-auditors, investigator assistants, auditors, accountants, physicians, health care professionals, paralegals, consultants, experts, and other professional, technical, and support staff as necessary to promote the effective and efficient conduct of the unit's activities. The commissioner may hire these employees without regard to chapter 76.

(e) Notwithstanding any other law to the contrary, an attorney employed or retained by the unit may represent the State in any criminal, civil, or administrative proceeding to enforce all applicable state laws relating to insurance fraud, including, but not limited to, criminal prosecutions, disciplinary actions, and actions for declaratory and injunctive relief. Each attorney representing the State in such a proceeding shall be designated by the attorney general as a special deputy attorney general. The decision to designate an attorney as a special deputy attorney general shall be solely within the discretion of the attorney general.

(f) Investigators, investigator-auditors, investigator assistants, and auditors appointed and commissioned under this part shall have and may exercise all of the powers and authority of a police officer or of a deputy sheriff.

(g) Funding for the insurance fraud investigations unit shall come from the compliance resolution fund established pursuant to section 26-9(o)."

SECTION 4. Section 386-98, Hawaii Revised Statutes, is amended to read as follows:

"§386-98 [Fraud violations and penalties.] Workers' compensation insurance fraud. (a) [A fraudulent insurance act, under this chapter, shall include acts or omissions committed by any person who intentionally or] A person commits the offense of workers' compensation insurance fraud if the person knowingly [acts or omits to act so as] or intentionally misrepresents or conceals material facts, opinions, intention, or law in order to obtain [benefits, deny benefits, obtain benefits compensation for services provided, or provides legal assistance or counsel to obtain benefits or recovery through fraud or deceit by doing] or attempt to obtain or to deny or attempt to deny coverage, benefits, recovery, compensation for services, legal assistance, or counsel if the person does any of the following:

(1) Presenting, or causing to be presented, any false information on an application;

(2) Presenting, or causing to be presented, any false or fraudulent claim for the payment of a loss;

(3) Presenting multiple claims for the same loss or injury, including presenting multiple claims to more than one insurer except when these multiple claims are appropriate and each insurer is notified immediately in writing of all other claims and insurers;

(4) Making, or causing to be made, any false or fraudulent claim for payment or denial of a health care benefit;

(5) Submitting a claim for a health care benefit that was not used by, or on behalf of, the claimant;

(6) Presenting multiple claims for payment of the same health care benefit;

(7) Misrepresenting or concealing a material fact;

(8) Fabricating, altering, concealing, making a false entry in, or destroying a document for the purpose of falsely obtaining benefits;

(9) Making, or causing to be made, any false or fraudulent statements with regard to entitlements or benefits, with the intent to discourage an injured employee from claiming benefits or pursuing a workers' compensation claim; or

(10) Making, or causing to be made, any false or fraudulent statements or claims by, or on behalf of, a client with regard to obtaining legal recovery or benefits.

(b) [No] A person who is an employer [shall wilfully make] commits the offense of workers' compensation insurance fraud if the person knowingly makes a false statement or representation to avoid the impact of past adverse claims experience through change of ownership, control, management, or operation to directly obtain any workers' compensation insurance policy.

(c) It shall be inappropriate for any discussion on benefits, recovery, or settlement to include the threat or implication of criminal prosecution. Any threat or implication shall be immediately referred in writing to:

(1) The state bar if attorneys are in violation;

(2) The insurance commissioner if insurance company personnel are in violation; or

(3) The regulated industries complaints office if health care providers are in violation,

for investigation and, if appropriate, disciplinary action.

[(d) An offense under subsections (a) and (b) shall constitute a:

(1) Class C felony if the value of the moneys obtained or denied is not less than $2,000;

(2) Misdemeanor if the value of the moneys obtained or denied is less than $2,000; or

(3) Petty misdemeanor if the providing of false information did not cause any monetary loss.

Any person subject to a criminal penalty under this section shall be ordered by a court to make restitution to an insurer or any other person for any financial loss sustained by the insurer or other person caused by the fraudulent act.

(e) In lieu of the criminal penalties set forth in subsection (d), any person who violates subsections (a) and (b) may be subject to the administrative penalties of restitution of benefits or payments fraudulently received under this chapter, whether received from an employer, insurer, or the special compensation fund, to be made to the source from which the compensation was received, and one or more of the following:

(1) A fine of not more than $10,000 for each violation;

(2) Suspension or termination of benefits in whole or in part;

(3) Suspension or disqualification from providing medical care or services, vocational rehabilitation services, and all other services rendered for payment under this chapter;

(4) Suspension or termination of payments for medical, vocational rehabilitation and all other services rendered under this chapter;

(5) Recoupment by the insurer of all payments made for medical care, medical services, vocational rehabilitation services, and all other services rendered for payment under this chapter; and

(6) Reimbursement of attorney's fees and costs of the party or parties defrauded.

(f) With respect to the administrative penalties set forth in subsection (e), no penalty shall be imposed except upon consideration of a written complaint that specifically alleges a violation of this section occurring within two years of the date of said complaint. A copy of the complaint specifying the alleged violation shall be served promptly upon the person charged. The director or board shall issue, where a penalty is ordered, a written decision stating all findings following a hearing held not fewer than twenty days after written notice to the person charged. Any person aggrieved by the decision may appeal the decision under sections 386-87 and 386-88.]

(d) This section shall not supersede any other law relating to theft, fraud, or deception. Workers' compensation insurance fraud may be prosecuted under this chapter or any other applicable statute or common law and all such remedies shall be cumulative.

(e) In prosecutions for workers' compensation insurance fraud or related offenses including theft in sections 708-830, 708-830.5, 708-831, and 708-833, the offense charged is an "offense an element of which is either fraud or breach of fiduciary obligation" for the purposes of extending, pursuant to section 701-108(3)(a), the time limitations for prosecutions set forth in section 701-108.

(f) The insurance fraud investigations unit of the department of commerce and consumer affairs may investigate and initiate legal proceedings to enforce this section."

SECTION 5. Section 431:10C-307.7, Hawaii Revised Statutes, is repealed.

["§431:10C-307.7 Insurance fraud; penalties. (a) A person commits the offense of insurance fraud if the person acts or omits to act with intent to obtain benefits or recovery or compensation for services provided, or provides legal assistance or counsel with intent to obtain benefits or recovery, through the following means:

(1) Knowingly presenting, or causing or permitting to be presented, any false information on a claim;

(2) Knowingly presenting, or causing or permitting to be presented, any false claim for the payment of a loss;

(3) Knowingly presenting, or causing or permitting to be presented, multiple claims for the same loss or injury, including presenting multiple claims to more than one insurer, except when these multiple claims are appropriate;

(4) Knowingly making, or causing or permitting to be made, any false claim for payment of a health care benefit;

(5) Knowingly submitting, or causing or permitting to be submitted, a claim for a health care benefit that was not used by, or provided on behalf of, the claimant;

(6) Knowingly presenting, or causing or permitting to be presented, multiple claims for payment of the same health care benefit except when these multiple claims are appropriate;

(7) Knowingly presenting, or causing or permitting to be presented, for payment any undercharges for benefits on behalf of a specific claimant unless any known overcharges for benefits under this article for that claimant are presented for reconciliation at the same time;

(8) Aiding, or agreeing or attempting to aid, soliciting, or conspiring with any person who engages in an unlawful act as defined under this section; or

(9) Knowingly making, or causing or permitting to be made, any false statements or claims by, or on behalf of, any person or persons during an official proceeding as defined by section 710-1000.

(b) Violation of subsection (a) is a criminal offense and shall constitute a:

(1) Class B felony if the value of the benefits, recovery, or compensation obtained or attempted to be obtained is more than $20,000;

(2) Class C felony if the value of the benefits, recovery, or compensation obtained or attempted to be obtained is more than $300; or

(3) Misdemeanor if the value of the benefits, recovery, or compensation obtained or attempted to be obtained is $300 or less.

(c) Where the ability to make restitution can be demonstrated, any person convicted under this section shall be ordered by a court to make restitution to an insurer or any other person for any financial loss sustained by the insurer or other person caused by the act or acts for which the person was convicted.

(d) A person, if acting without malice, shall not be subject to civil liability for providing information, including filing a report, furnishing oral or written evidence, or giving testimony concerning suspected, anticipated, or completed insurance fraud to a court, the commissioner, the insurance fraud investigations unit, the National Association of Insurance Commissioners, any federal, state, or county law enforcement or regulatory agency, or another insurer if the information is provided only for the purpose of preventing, investigating, or prosecuting insurance fraud, except if the person commits perjury.

(e) This section shall not supersede any other law relating to theft, fraud, or deception. Insurance fraud may be prosecuted under this section, or any other applicable section, and may be enjoined by a court of competent jurisdiction.

(f) An insurer shall have a civil cause of action to recover payments or benefits from any person who has intentionally obtained payments or benefits in violation of this section; provided that no recovery shall be allowed if the person has made restitution under subsection (c).

(g) All applications for insurance under this article and all claim forms provided and required by an insurer, regardless of the means of transmission, shall contain, or have attached to them, the following or a substantially similar statement, in a prominent location and typeface as determined by the insurer: "For your protection, Hawaii law requires you to be informed that presenting a fraudulent claim for payment of a loss or benefit is a crime punishable by fines or imprisonment, or both." The absence of such a warning in any application or claim form shall not constitute a defense to a charge of insurance fraud under this section.

(h) An insurer, or the insurer's employee or agent, having determined that there is reason to believe that a claim is being made in violation of this section, shall provide to the insurance fraud investigations unit within sixty days of that determination, information, including documents and other evidence, regarding the claim in the form and manner prescribed by the unit. Information provided pursuant to this subsection shall be protected from public disclosure to the extent authorized by chapter 92F and section 431:2-209; provided that the unit may release the information in an administrative or judicial proceeding to enforce this section, to a federal, state, or local law enforcement or regulatory authority, to the National Association of Insurance Commissioners, or to an insurer aggrieved by the claim reasonably believed to violate this section."]

SECTION 6. Section 431:10C-307.8, Hawaii Revised Statutes, is repealed.

["§431:10C-307.8 Insurance fraud investigations unit. (a) There is established in the insurance division an insurance fraud investigations unit.

(b) The unit shall employ attorneys, investigators, investigator assistants, and other support staff as necessary to promote the effective and efficient conduct of the unit's activities. Notwithstanding any other law to the contrary, the attorneys may represent the State in any judicial or administrative proceeding to enforce all applicable state laws relating to insurance fraud, including but not limited to criminal prosecutions and actions for declaratory and injunctive relief. Investigators may serve process and apply for and execute search warrants pursuant to chapter 803 and the rules of court but shall not otherwise have the powers of a police officer or deputy sheriff. The commissioner may hire such employees not subject to chapter 76.

(c) The purpose of the insurance fraud investigations unit shall be to conduct a statewide program for the prevention, investigation, and prosecution of insurance fraud cases and violations of all applicable state laws relating to insurance fraud. The insurance fraud investigations unit may also review and take appropriate action on complaints relating to insurance fraud."]

SECTION 7. In codifying the new sections added by sections 2 and 3 of this Act, the revisor of statutes shall substitute appropriate section numbers for the letters used in designating the new sections in this Act.

SECTION 8. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 9. This Act shall take effect on July 1, 2006.

INTRODUCED BY:

_____________________________

BY REQUEST