Federal workers' comp program remains vulnerable to fraud

The federal workers’ compensation program remains vulnerable to fraud, mostly due to a limited access to data, according to the Government Accountability Office.

GAO studied a handful of federal agencies, including the Labor Department, and their oversight of the 1916 Federal Employees’ Compensation Act, which provides benefits to about 251,000 feds injured on the job and their survivors. The watchdog’s report praised agencies for employing experienced staff to handle claims and conducting regular reviews to corroborate the validity of compensation claims, but there are still too many risk factors in the system, GAO said.

“Specifically, we found that limited access to necessary data is potentially reducing agencies’ ability to effectively monitor claims and wage-loss information,” the report stated. In addition, agencies’ overreliance on self-reported data from claimants, the frequent use of physicians not employed or selected by the government, and the expense involved in conducting investigations and prosecutions have stymied efforts to stamp out fraud. GAO noted that investigations are the “most costly and least effective” way to reduce fraud, but the ability to prosecute those who cheat the system is a valuable deterrent.

The Federal Employees' Compensation Act provides compensation for wage loss and medical care for those injured or killed on the job, helps employees return to work and pays benefits to survivors. It covers 2.7 million federal employees and postal workers, and paid out $1.9 billion in wage-loss compensation, impairment and death benefits, and $898 million in medical and rehabilitation services and supplies during the 2010 chargeback year, which ended on June 30, 2010. The funds come out of the Employees' Compensation Fund, and most agencies repay the money.

Restrictions on accessing claimants’ employment and wage data are a major problem in combating federal workers’ comp fraud, GAO found. The Labor Department, which administers FECA, does not have the authority to compare private or public wage data with FECA wage-loss compensation information to uncover fraud. “This prevents agencies from verifying key eligibility criteria submitted by claimants, such as income,” the report stated. In some instances, poor coordination and information-sharing among agencies are to blame, but legal interpretations and privacy concerns are more of a roadblock, according to the report.

For example, GAO is trying to obtain access to the National Directory of New Hires database, which includes employment and wage information. The Health and Human Services Department maintains the directory but has told GAO that it does not have authority to access the records. “HHS’ denial of access has slowed the progress of this engagement reviewing federal beneficiary fraud and abuse and has limited our ability to assess the potential vulnerability of the FECA program to fraud and abuse at the national level,” the report stated.

Legislation is pending in both chambers that would ensure GAO’s access to the data.

Under FECA, employees disabled on the job can receive 66 2/3 percent -- or 75 percent for those with dependents -- of their basic salary tax-free, plus medical-related expenses. The 66 2/3 percent rate is comparable to most state systems, but many federal recipients, including those past retirement age, receive the 75 percent compensation rate. Claimants cannot receive FECA benefits and certain other federal disability or retirement benefits at the same time, or they must have benefits reduced to eliminate any duplicate payments. There is no age limit for receiving FECA benefits.

Many have criticized FECA, saying it is too generous and should be reformed so that employees receive lower benefits and return to work faster. The law has not been amended since 1974.

The House in November passed legislation that aims to provide greater support for some feds injured on the job and to make the workers' compensation program more accountable. The bipartisan bill would streamline the claims process for those workers who sustain a traumatic injury in a designated armed conflict zone, label injuries sustained due to terrorism as war-risk hazards, and provide $6,000 in benefits for funeral expenses and $50,000 in compensation for facial disfiguration. It also would permit physician assistants and nurse practitioners to certify disability for traumatic injuries and ensure that they are reimbursed for their services. In addition, it would allow the Labor Department, which administers workers' compensation, to verify federal employees' salaries against Social Security Administration data and to collect administrative fees from employing agencies. On the Senate side, the Homeland Security and Governmental Affairs Committee approved a postal reform bill in November that includes provisions related to FECA. One measure, taken from legislation Sen. Susan Collins, R-Maine, introduced in February, would convert employees on workers' compensation to the appropriate retirement system when they reach retirement age. It also sets the maximum compensation rate at 66 2/3 percent in most instances. Labor has recommended a uniform compensation rate of 70 percent for all claimants.

Agencies have recovered sizable amounts of money by rooting out fraud in the program, according to GAO’s report. For example, the Postal Service’s inspector general has found 476 claimants since 2008 committing fraud and recovered $83 million in medical and disability judgments. The Navy uncovered a claimant who fraudulently received benefits while working. That employee was sentenced to 18 months in prison, three years supervised probation, and $302,380 in restitution for lying to obtain FECA benefits.

Labor and the other agencies included in the report (Defense, Homeland Security, the Postal Service and Veterans Affairs) agreed with GAO’s findings.