ORLANDO -- Up to one-fifth of all US workers' compensation claims, amounting to a cost of $12 billion annually to employers and their insurance companies, are fraudulent, it was claimed at RIMS yesterday.

And California, whose liberal laws encourage all sorts of weird compensation claims, is "the fraud capital of the nations'', said Ms Ellen Cooper, a senior financial analyst with Walt Disney.

The National Insurance Crime Bureau (NICB) estimates fraud accounts for $4 billion of California's $11 billion compensation industry.

Although fraud is usually defined as the "intentional misrepresentation or concealment in order to secure unfair or unlawful financial gain'', Ms Cooper said she preferred another definition.

"The word I really like to describe what goes on in workers compensation fraud is `venality', which is defined as `the quality of being open to bribery and the use of a position of trust for dishonest gain', she said.

"A lot of what goes on in California -- and other states -- is venality.

Participants actually practice within the letter of the law but use positions of trust to secure dishonest financial gain.'' There are four types of workers' compensation frauds -- employer fraud, insurer fraud, employee fraud and medical/legal fraud, she said.

Employer fraud encompasses practices such as understating payroll or the number of employees a company has and misrepresenting the nature of the work they perform.

Insurer fraud generally involves individual insurance company employees who become involved in referral kick-back schemes, whereby they earn commissions or fees from attorneys or doctors for referrals.

Employee fraud, which is an employer's biggest headaches, spoke for itself, said Ms Cooper, but the fourth type of fraud, medical/legal, is more difficult to define.

"Broadly speaking, it is the generation of medical reports for bogus or trumped-up claims of injury and agreements among attorneys and doctors to refer claimants to one another in exchange for money.

"These doctors belong to so-called `medical mills' and turn out reports at a huge volume, charging substantial sums of money which must be paid entirely by an employer.'' One "mill'' in California took in billings of $1.5-$2 million every day and had annual receipts of a quarter of a billion dollars, she added.

"This is incredible,'' said Ms Cooper. "We should all be asking why we put up with it.'' "Up until last year, the mills used to run ads in Los Angeles newspapers and they continue to advertise on TV and radio. The ads ask if you have job problems, if you've been feeling stressed out or harassed on the job and they offer free consultations and the possibility of money in the form of workers' comp benefits.

"The mills and attorneys also employ what are called `cappers' or `runners' who approach people standing in line at the unemployment office to ask the same questions about whether they're feeling stressed or harassed.

"An unsuspecting person with no physical injury may indeed be feeling stressed out because of the job -- or lack of it -- and agree to a doctor's visit in hopes of getting more than a weekly unemployment cheque from the state.'' Doctors who write medical/legal reports do not actually treat anyone for an injury, she said. Instead, they write evaluations which are used as evidence to settle disputes with an employer or insurer.

Unlike unlawful practices like taking kickbacks and referring patients in exchange for payment, the nature of medical/legal reporting is legal, which Ms Cooper said was "exasperating''. Employers, and ultimately their insurers, have to spend up to $1,300 for medical/legal evaluations of claimants.

"With referral schemes, a patient ends up seeing several doctors for the same alleged injury so, in California, the average cost of medical/legal reports for one litigated claim is now over $3,000,'' she said. "That's a lot of money for one claim, especially since the employer is required to pay the entire cost.'' Ms Cooper said states needed to change their laws to reduce workers' comp fraud, adding that Disney has been involved with legislative reform over the past year to put limits on medical/legal evaluations and on the definition of compensable injury.

Although employers faced a difficult task preventing fraud, they could take a number of steps to recognise it, she said, as California-based company Ticketmaster, which serves as a central box office selling tickets for the sponsors of sports events, concerts, etc., had done to uncover an alleged fraud ring.

Ticketmaster noticed that 14 stress claims from one department, staffed by young, inexperienced people who operate a phone bank, had been filed by individuals within a short period of time.

When they examined the claims, they found the medical reports were similar and made by the same doctors -- working for different clinics which all had the same address. The different clinics and corporations all had the same officers and directors.

At this point, Ticketmaster contacted an attorney who issued Racketeer Influenced and Corrupt Organisation (RICO) lawsuits against the doctors. The case is pending.