The Legislature failed to fix Florida's no-fault auto insurance law that has made the state No. 1 for both questionable claims tied to staged accidents and medical provider fraud. And Tampa is the new ground zero.
What. Auto insurance fraud.
Issue. Tampa's the worst, but one of its legislators voted against the fix.
Impact. $1 billion in higher auto insurance costs in 2011.
In Tampa, questionable claims involving staged auto accidents zoomed from 125 in 2008 to 739 last year, a 591% increase, boosting Florida to No. 1 in the nation in that insurance fraud category. The Sunshine State also claims top billing for medical provider fraud, which fraud experts say is tied to auto insurance fraud schemes.
It will cost Florida's no-fault auto policyholders $1 billion in premiums in 2011, according to Ron Poindexter, the southeast regional director of the National Insurance Crime Bureau. That's more than $100 a year per two-car household.
An Insurance Information Institute report concludes that since 2008 no-fault fraud cost Florida vehicle owners and their insurers an estimated $853 million, and it could rise to $1.5 billion by the end of 2011 if the problem isn't addressed.
“In my professional opinion, fraud will flourish in an environment where no one is watching,” says Poindexter, who points out that enforcement efforts in south Florida likely moved the problem north to Tampa, Fort Myers and Orlando. It's no coincidence he's based in Tampa, the new ground zero for no-fault fraud.
Legislators, and the division of insurance fraud under CFO Jeff Atwater's Department of Financial Services, were watching the numbers climb and pushed for legal reform. But after sailing through the House Insurance and Banking Subcommittee, the House Health and Human Services Committee rebuffed the reform attempt April 25 when two key merged bills died by a one-vote margin.
Hillsborough County Sheriff's deputies first started seeing a trend of suspicious crashes in accident reports in September 2009. The Sheriff's office partnered with Poindexter's outfit and the state's fraud task force to implement “Operation No Pain No Gain.” Using undercover detectives and confidential informants the team infiltrated fradulent medical clinics.
The effort paid off this month with the 53 warrants for arrest issued for workers and owners of four Tampa area medical clinics. Of the 53 charged, 23 are in custody, including crash participants, clinic owners, massage therapists and recruiters who rounded up fake victims willing to get a share of the insurance money.
Despite that success, Poindexter says, “It's only the tip of the iceberg.” It's estimated that insurance company losses during the five-month investigation attributed to fraudulent claims from staged crashes is in the $1 million to $2 million range.
There are 158 personal injury protection medical provider businesses operating in Hillsborough County compared to 74 in Pinellas County, 22 in Pasco County, and 20 in Manatee County. Some of these medical providers participate in the fraud by pretending to provide treatment and services to staged-crash victims who are not injured.
“It's no more complex than it's easy money,” explains Frank Scafidi, spokesperson for the National Insurance Crime Bureau. “It's pretty much a given if you're setting someone up in a crash, and you have 'injuries' from that, you're going to get a few bucks for your activity.”
Personal injury protection, or “PIP,” as it's known, is no-fault motor vehicle insurance. In a no-fault system, medical and other benefits are provided regardless of fault in return for limitations on lawsuits.
Florida and 11 other states require the coverage to operate a passenger or commercial motor vehicle, though Florida is the only one in the Southeast that requires the insurance.
In Florida, the statute requires motorists to carry at least $10,000 of PIP coverage per person, which provides payments of medical, surgical, funeral and disability benefits to the person insured and also persons injured while in, or hit by, the insured vehicle without regard to fault.
The law puts limits on lawsuits for non-economic damages, such as pain and suffering, in exchange for assurance of payment of these benefits. Insurers typically must pay these benefits within 30 days, which makes it difficult for insurers to fully investigate a suspicious claim in that limited time.
Doctors and lawyers kill bills
To address the problem, legislators attempted to pass the Comprehensive Insurance Fraud and Prevention Act, which passed the House Insurance and Banking Subcommittee 12-2. A related measure, the Personal Injury Protection Insurance bill, passed the committee 13-2. That measure, HB 967, was sponsored by Rep. Mike Horner, R-Kissimmee.
The fraud bill, HB 1411, sponsored by Rep. Jim Boyd, R-Bradenton, attempted to attack the problem in several ways.
The measure requires law enforcement to list all passengers in accident reports to eliminate a problem with so-called “phantom passengers.”
These “passengers” jump in the vehicles involved in a minor staged accident. Then they claim they have a soft-tissue injury that can't be disproved and run-up the PIP payments that a medical provider in on the scheme shares with the accident “victims.” A single staged accident can yield more than $100,000 in PIP claims divided among the parties, according to the crime bureau. (See box, left)
Boyd's fraud bill also would have given insurers more time to make a PIP payment when fraud is reasonably suspected, allow insurers to obtain records to review, examine PIP claimants under oath before having to pay PIP benefits, address billing practices of medical providers and require healthcare clinics to document eligibility for PIP reimbursement, among other provisions.
“Unfortunately, it didn't work out,” says Boyd. “My bill was definitely less controversial. [Horner's] bill was a little more controversial, though good policy.”
Horner's bill was more controversial because it targeted lawyers by capping attorney fee awards in PIP disputes at $200 per billable hour and prohibiting the use of certain multipliers used in the legal profession to set PIP fee awards.
The decision by bill sponsors to combine the two bills may have led to the measure's defeat because of the opposition against Horner's provisions.
According to Chris Neal, the spokesperson for State Farm Mutual Automobile Insurance Co., who attended the April 25 committee meeting, “When the bills were combined into one, that gave some legislators pause, either ones tied to the legal community or the medical community.” State Farm may have the most at stake with the biggest share — roughly 20% — of the Florida auto insurance market.
Neal says the message committee members received was that medical providers want to be paid for their services, but they wouldn't be able to find lawyers to sue if attorneys' fees were capped as Horner's bill required.
“It created an unholy alliance of the trial bar and the medical industry,” says Neal about the two professions that much more often find themselves in opposition.
The merged measure fell one vote short in the Health and Human Services Committee, with Rep. Janet Cruz, D-Tampa, voting against it. If Tampa is ground zero, Cruz's District 58 is the hottest spot.
Cruz, who serves on both committees, voted in favor of each bill when the bills came before the Insurance and Banking Subcommittee. A healthcare executive who is married to USF Health Associate Professor Dr. Stephen Rifkin, Cruz joined other medical industry legislators to defeat the measure 9-8 when the bills were combined.
All six Democrats on the committee opposed it. Of the three Republicans who voted against the bill, only one — Rep. Doug Holder, R-Sarasota — doesn't have direct ties to the medical industry.
Neither Cruz nor Holder responded to requests to explain their stance on the merged measure.
Despite this month's success rounding up a segment of the PIP fraud crime ring in Tampa, the crime bureau's Poindexter thinks it's still on the rise tied to the poor economy. “I'm not optimistic that the numbers will be lower,” he says, especially in Miami and Tampa.
“They'll continue to grow in Fort Myers, Sarasota and Orlando,” Poindexter also predicts. “We hoped that the Legislature would have fixed some of the loopholes, but that didn't happen.”
Ashley Mayer, a legislative liaison in CFO Jeff Atwater's office, who pushed for the PIP reform bills, says some parts of the bills were salvaged and tacked onto other bills that made it through, and are now up to Gov. Rick Scott to sign.
New civil penalties can now be added for insurance fraud, and more funding was approved to hire prosecutors dedicated to fraud. “That's as helpful as anything,” she says, “to have them working on our cases so we don't have to get in line with the violent crimes that preoccupy the state attorney's offices.” The names of all passengers in an accident will also now have to be listed on all accident forms.
Mayer remains hopeful for the next session. “I think you'll see a renewed effort,” she says. Boyd, for his part, hints that he hasn't given up yet either, but he's not wanting to show his hand quite yet. Still, he says, “It's costing lots of money to good law abiding citizens. I understand how politics work. By the same token, there's a big problem we got to get our arms around.”
Boyd can count on assistance from the division of insurance fraud, better staffed state attorneys' offices, and the crime bureau, if not Democrats or doctors and lawyers.
“Until the PIP statute is changed to close some of the loopholes that currently allow the criminals to penetrate the system, we're going to have that problem,” laments Poindexter. “It's riddled with fraud.”
Staging an accident
In a scheme involving six to 10 people, the first of four vehicles in a line stops at a freeway off-ramp and checks for police, fire or witnesses. If the driver sees none, he gives a thumbs up and leaves the scene.
The second vehicle, with only a driver, comes to a stop. The third vehicle deliberately rear-ends the second vehicle hitting the left rear with the right front.
Four or five people in the last vehicle then get into each of the damaged vehicles. They then wait for the highway patrol to arrive to take an accident report to use for proof for the insurance company. The alleged victims are not injured but claim they are hurt.
How it adds up:
Property damage of $7,500 per vehicle = $15,000
Passengers/drivers seek $20,000 each to cover injuries = $60,000 to $80,000
Alleged victims are usually paid $1,000 each and attorneys and medical providers split the remainder of insurance payment.
Two passengers in the at-fault vehicle file for $5,000 each as part of the medical pay endorsement = $10,000. They usually get $2,500 each and the attorneys and the medical provider take $2,500 each.
Total per accident = $85,000 to $105,000
Source: National Insurance Crime Bureau