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ARIZONA STATE SENATE
Fifty-Sixth Legislature, First Regular Session
AMENDED
workers' compensation; fraud investigations; adjudications
Purpose
Requires the Industrial Commission of Arizona (ICA) to establish a Fraud Unit for the purpose of investigating fraudulent activities made in connection with workers' compensation claims. Allows the Fraud Unit, if satisfied upon investigation that fraudulent activities were made in connection with a workers' compensation claim, to report the violations of law to prescribed entities for prosecution.
Background
The ICA is the state regulatory agency responsible for processing and adjudicating a workers' compensation claim (A.R.S. Title 23, Ch. 6). Any person who knowingly makes a false statement or representation for a workers' compensation claim in order to obtain any compensation, benefit or payment for themself or another person is guilty of a class 6 felony. If the person is a claimant for compensation, the claimant must also forfeit all rights to any further temporary or permanent disability compensation for the claim on which the false statement or representation was made after conviction of the offense (A.R.S. § 23-1028).
Upon request from the Director of the Department of Insurance and Financial Institutions (Director), the Attorney General (AG) may seek and obtain an injunction in a superior court that prohibits a person knowingly making a false statement or representation from engaging in the unlawful fraudulent act. The court may enter any order or judgement that is necessary to: 1) prevent the unlawful fraudulent act; and 2) return any monies, interest or real or personal property that was acquired by the unlawful fraudulent act. An order of restitution may include expenses incurred and paid by an insurer in connection with any medical evaluations or treatment services. The AG, on petition or complaint to the court, may recover from that person, on behalf of the state, a civil penalty of no more than $5,000 for each violation, if the court that finds the person has committed the unlawful fraudulent act. The court may also award the AG costs, including reasonable attorney fees and investigative costs for the services rendered. The Director must forward to the appropriate licensing agency the name of any person who is convicted of, enjoined from or penalized for the unlawful fraudulent act (A.R.S. §§ 20.466.02 and 20.466.04).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
Fraud Unit
1. Requires the ICA to establish a Fraud Unit for the purpose of investigating fraudulent activities, statements or representations made in connection with workers' compensation claims.
2. Allows the Fraud Unit to investigate allegations of fraud either on receiving a complaint or on the Fraud Unit's own motion.
3. Requires any allegation involving an unfair claim processing practice or bad faith by an employer, self-insured employer, insurance carrier or claims processing representative to be addressed in accordance with the unfair claim processing practice statutes.
4. Directs the ICA to adopt rules to establish a process for receiving fraud complaints and conducting fraud investigations.
5. Requires the rules to establish:
a) a process by which the Fraud Unit verifies claimant annual earnings reported with the Department of Economic Security (DES) unemployment insurance information for the purpose of investigating workers' compensation fraud;
b) a process of timeliness for receiving and processing fraud complaints;
c) criteria for determining which allegations of fraud warrant investigation; and
d) duties and authorities of fraud investigators, including issuing and serving subpoenas for witnesses and documentary evidence, taking depositions, administering oaths and examining witnesses under oath relevant to the fraud investigation.
6. Allows the Fraud Unit, if satisfied upon investigation that the fraudulent activities, statements or representations were made in connection with a workers' compensation benefits or payments claim, to report the violations of law for prosecution to the:
a) claimant or the claimant's representative;
b) reporting employer, self-insured employer or insurance carrier;
c) appropriate occupational licensing agency; and
d) appropriate county attorney or attorney general.
7. Asserts that the ability for the Fraud Unit to investigate workers' compensation fraud does not limit:
a) the authority of the ICA, the Department of Insurance and Financial Institutions (DIFI) or any other entity to pursue any remedy in accordance with the unfair claim processing practice statutes or statutorily prescribed legal remedies; or
b) the obligation of an insurer to report a workers' compensation fraud claim in accordance with statutory requirements.
Commercial Workers' Compensation Insurers
Miscellaneous
10. Makes a technical change.
11. Becomes effective on the general effective date or later, subject to the provisions of the conditional enactment.
Amendments Adopted by Committee
1. Allows, rather than requires, the ICA to investigate allegations of fraud.
3. Requires adopted rules to establish a process by which the ICA verifies, rather than routinely compares, claimant annual earnings reported with the DES unemployment insurance information for the purpose of identifying workers' compensation fraud.
4. Adds that adopted rules must establish criteria for determining which allegations of fraud warrant investigation.
5. Eliminates the requirement for a hearing to be conducted as expeditiously as reasonable, but no later than 60 days.
6. Asserts that the ability for the ICA to investigate and adjudicate workers' compensation fraud does not limit the authority of the ICA, DIFI or any other entity to pursue any remedy in accordance with the unfair claim processing practice statutes.
7. Eliminates the requirement that any person receiving permanent workers' compensation benefits to annually report to the ICA all of the person's earnings for the prior 12-month period.
8. Makes technical and conforming changes.
Amendments Adopted by Committee of the Whole
1. Requires the ICA to establish a Fraud Unit for the purpose of investigating fraudulent activities, statements or representations made in connection with workers' compensation claims.
2. Specifies that the Fraud Unit, rather than the ICA, may investigate allegations of fraud.
4. Specifies that rules adopted by the ICA must establish a process by which the Fraud Unit, rather than the ICA, verifies claimant annual earnings reported with the DES unemployment insurance information for the purpose of investigating, rather than identifying, workers' compensation fraud.
5. Requires, rather than allows, the ICA rules to establish duties and authorities of fraud investigators.
a) reporting employer, self-insured employer or insurance carrier;
b) appropriate occupational licensing agency; and
c) appropriate county attorney or attorney general.
7. Eliminates the requirement for the ICA, if an investigation reveals credible evidence of fraudulent activities, statements or representations made in connection with a workers' compensation, benefits or payments claim, to refer the matter to the administrative law judge division for adjudication.
8. Adds that the ability of the ICA to investigate fraud does not limit the obligation of an insurer to report a workers' compensation fraud claim in accordance with statutory requirements.
9. Makes conforming changes.
Amendments Adopted by the House of Representatives
1. Adds that the Fraud Unit may report violations of law to the claimant or claimant's representative.
2. Eliminates the stipulation that an insurance carrier, a self-insured employer or the ICA's Special Fund has the right to issue a notice affecting the status of a workers' compensation claim at any time, if prior determination of compensability or entitlement to benefits was procured by fraud.
4. Conditions the enactment of the clarification relating to commercial workers' compensation insurers on the enactment of H.B. 2431.
5. Makes technical and conforming changes.
Senate Action House Action
COM 2/15/23 DPA 4-3-0 COM 3/14/23 DPA 6-2-2-0
3rd Read 3/2/23 16-14-0 3rd Read 5/15/23 42-16-1-0-1
Prepared by Senate Research
May 15, 2023
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