Friday, March 30, 2007

Surveillance exposes Disability Fraud-Black Hole II

Chalk one up for the good guys. As you read this stop and ponder what happens when behavior like this becomes engrained in a company's culture. Hat tip to BenefitsLink which has a great aggregation service for the story here.

Employee On Short Term Disability Terminated Based On Video Surveillance

from Spencer’s Benefits Reports: An employer did not violate ERISA when it terminated an employee on disability leave based upon surveillance showing the employee engaging in physical activities beyond his supposed disabilities. This was the decision of the Tenth Circuit U.S. Court of Appeals in Denham v. Sunoco, Inc. (No. 06-5040).

John M. Denham worked at Sunoco’s lubricants refinery in Tulsa, Okla. On May 25, 2000, Mr. Denham began a medical leave of absence due to neck, shoulder, and back ailments, and he began receiving short term disability benefits under Sunoco’s disability income plan. As required by company policy, Mr. Denham periodically reported his medical condition to his supervisor and to Sunoco’s company physician at the Tulsa refinery, Dr. Campbell. Mr. Denham also gave consent for his medical records to be shared with Sunoco.

During the time that Mr. Denham was on disability leave, his supervisor heard comments from other Sunoco employees indicating that Mr. Denham might have been engaging in physical activities apparently incompatible with his disabilities. In order to verify these rumors, Sunoco hired a private investigative agency to look into the matter. Rex Merritt, a local investigator experienced in surveillance work, then followed Mr. Denham and videotaped his activities. Mr. Merritt submitted a videotape to Sunoco’s human resources department showing Mr. Denham working on a truck, making a trip to a local auto-supply store, and unloading 50-pound sacks. On Nov. 15, 2000, Mr. Denham was summoned to Sunoco’s HR department, where the videotape was shown to Mr. Denham, Dr. Campbell, and other HR personnel. After Dr. Campbell concluded that Mr. Denham could not have been performing the activities shown on the videotape with his claimed impairments, Sunoco terminated Mr. Denham’s employment.

Now stop and ponder what happens when behavior like this is becomes part of your culture and word spreads. If your firm has 3000 employees and 1% behave this way each and every year what is the economic impact. Lets do the math and assume a $50,000 annual salary (low for a refinery) and 60% STD and LTD plans with a 6 month STD benefit period and followed by LTD.

STD Cost $15,000 per claim X 30 claims = $450,000 in direct costs
LTD cost of $30,000 per claim X 30 claims= $900,000 in direct costs

Total Direct Costs = $1.350,000 annually

A refinery must be efficient to drive profits but for the sake of argument lets low ball the productivity ROI and call it a 2-1 return on labor costs.

Total Indirect Costs = $2,700,000 annually

Total Direct and Indirect Cost of STD Fraud equals $4,050,000 annually.

Notice we have not even included costs for over-time or excess staffing but these are very real for an employer in this predicament. Welcome to the black hole, that giant sucking sound you hear is the black hole of STD (see earlier post by The Group Guy) crushing your benefits and payroll budget. Fraud--a little goes a long way.

The good news is I have solved this very problem at numerous companies large and small.


Anonymous said...

This happens all the time in Fayetteville, NC, at AT&T. I know one employee who goes on short term disability two years in a row. She works for the Call center in customer service. In 2008 she saw a doctor who was recommended to her by other employees. This doctor is on the fraud. She goes for an initial appointment. Once her short term is approved she never visits the doctor again. She calls the doctor and the doctor extends her short term by phone. The doctor prescribes zoloft and sleeping pill on the first visit and that the extent of her care for mental stress. The doctor recommended that she check herself into the hospital for 24 hours and tell them she wants to kill herself and this enabled her to get short term in 2009. There is nothing in the least wrong with her but like I said she has suceeded doing this two years straight. She may have worked a total of 6 month in two years and a half. I just do not understand why AT&T get away with this. She works at the call center. Well actually she is employed there, but she doesn't do much work.

The Group Guy said...

She gets away with it because no one reports it and those handling the Short term disability leaves are not competent. Call it in.