How Carriers Can Break the Cycle of Medical Abuse

In Part 1 of this series, we examined how medical abuse extends far beyond excessive treatment, encompassing inflated billing, referral networks, misleading provider reports, and misuse of ancillary services. These behaviors can distort reserves, extend claim life cycles, and undermine actuarial predictability. Part 2 focuses on detection and strategic response — how insurers, employers and claims managers can operationalize early red-flag identification, credential provider networks, manage litigation, and integrate analytics to reduce the financial and regulatory consequences of medical abuse.

Detection, Red Flags, and Claims Workflow Integration

To manage the risk of medical abuse, GL and WC claims professionals must integrate detection strategies early and continuously. Key red flags include:

• Providers with unusually high average cost per claim or treatment volume relative to peer group benchmarks.
• Clinics or physicians with referral patterns inconsistent with typical injury causation (e.g., high injection volume for minor soft-tissue injuries).
• Billing for services on weekends/holidays or with overlapping time entries. Nevada’s provider-fraud guidance flags “weekend/holiday billings” and duplicated billing.[i]
• Reports (IME/QME) that are boilerplate in language across claimants or that deviate markedly from examining physician notes.
• Treatment plans that persist beyond expected recovery timelines without meaningful improvement or return to work.
• Durable medical equipment or ancillary service orders that appear disproportionate to the injury or follow-up.
• Claimants rapidly funneled to specific clinics or providers by attorneys or “steerer” networks.
• Provider has financial interest in referral services (e.g., ownership of therapy clinic or imaging center), or the claimant is sent to network providers repeatedly without objective change.
• Patterns of misclassification of injury or employer/claimant statements inconsistent with medical/imaging findings.
• State regulatory action or provider exclusion lists published (e.g., suspended providers in California).

When such indicators surface, the claims workflow should trigger the following: utilization review, provider credentialing check, audit of billing and clinical documentation, early intervention (e.g., case-management referral), and potential network exclusion.

Strategic Response for Insurers, Employers and Claims Managers

Use Data Like a Detection Tool. Carriers should invest in claims data analytics that profile provider behavior over time, tracking cost per claim, modality utilization, treatment duration, and outcome (return to work, closure time). Unsupervised machine learning research has shown promise in healthcare fraud detection by identifying providers with outlier billing patterns. Building such profiles helps insurers identify high-risk networks in GL/WC portfolios.

Reclaim Control of Treatment Paths. Claims managers must shift focus from simply paying bills to managing outcomes: verifying that each treatment is justified, monitoring progress, challenging repeated referrals to high-cost modalities without improvement, and encouraging early return-to-work (especially in WC contexts). Utilization review, concurrent review, and case management integration are critical.

Build Better Networks, Not Bigger Ones. Insurers and self-insured employers should implement rigorous credentialing: verifying providers’ past billing patterns, referrals, sanction history, ownership of ancillary services, and network reputational standing. Contracts should include termination clauses for providers who demonstrate abusive patterns. Preferred provider networks (PPNs) should be structured around outcome metrics, not just volume. In GL settings, adjusters should monitor for referral loops to high-cost clinics.

Don’t Leave Money on the Table. Retrospective audits of high-cost claims are essential. When overbilling or referral kickback schemes are suspected, recoveries may be pursued, and providers may be excluded. In WC, regulators (e.g., California DIR) publish lists of suspended providers; insurers must integrate this information.[ii]

This Isn’t Just a Claims Problem. Underwriting models in GL and WC must incorporate “treatment inflation risk” or “provider network abuse risk” into loss cost assumptions. Self-insured employers should review provider networks prior to adoption and monitor ongoing usage. Products may include cost containment features such as preauthorization for high-cost services, second-opinion requirements, or managed care networks with measured outcomes.

Where the Real Friction Lives.

• Balancing Access to Care and Oversight: Claims professionals must ensure injured parties receive appropriate care while still safeguarding against abuse. Overrestriction may result in undertreatment, which itself can lead to worse outcomes and liability.
• Clinical Judgment vs. Abuse Boundary: Distinguishing legitimate complex treatment from abusive escalation requires clinical review and expert input. Poor documentation or ambiguous injury patterns complicate this.
• Data Limitations and Provider Behavior Transparency: Claims data alone may not capture the full clinical picture. Setting up provider behavior metrics requires investment, and providers may adapt behavior (e.g., shifting treatment codes) in response to scrutiny.
• Extended Tail Risk: Abuse may remain hidden until late in the claim life cycle, for example, when settlement is approached or when provider networks are legally challenged. Reserving for long-tail risk is therefore critical.
• Legal and Regulatory Variation Across Jurisdictions: WC and GL systems vary by state; provider fraud statutes, reporting requirements, and sanctions differ. Insurers operating multistate portfolios must navigate this complexity.
• Provider Network Disruption: Excluding providers for abusive patterns may disrupt claimant access or network availability, especially in rural/geographically limited markets.

Medical abuse in GL and WC claims will not disappear through incremental oversight or better bill review alone. As medical networks evolve, treatment modalities shift, and litigation funding accelerates, the incentives fueling abuse are multiplying faster than most claims organizations can track. The carriers that win in the next market cycle will be the ones that stop treating medical abuse as a downstream cost problem and start treating it as a strategic exposure — one that belongs in underwriting models, provider contracting decisions, and executive-level risk dashboards.

The question is no longer whether abuse exists. It’s whether insurers choose to recognize its architecture early enough to influence outcomes rather than react to them. The organizations that make that shift will reshape cost trajectories, claim duration, and claimant experience. Those that don’t will find themselves managing a future built by someone else’s incentives.

[i] https://ag.nv.gov/About/Criminal_Justice/Provider_Fraud/

[ii] https://www.dir.ca.gov/DIRNews/2022/2022-76.html

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