Viewpoint: Inside the Machinery of Medical Abuse in Liability Claims

Within the realms of general liability (GL) and workers’ compensation (WC) insurance lines, medical abuse is often considered in narrow terms — excessive treatment, unnecessary surgeries, inflated bills. While such behaviors are indeed problematic, a wider spectrum of medical abuse exists, deeply impacting claims cost, reserve adequacy, network risk, and insurer liability. This article examines multiple forms of medical abuse in GL and WC claim contexts, maps how they can distort the claims life cycle, and supports arguments with regulatory and investigative evidence.

In this article, medical abuse refers to provider or system behaviors in the adjudication, delivery and billing of medical treatment associated with insured injuries that deviate from accepted professional, ethical or business practices norms. These behaviors may occur without necessarily causing direct physical harm (though they may), but rather distort the claims process and inflate cost. In the GL and WC claim world, medical abuse typically includes:

1. False or inflated billing/services not rendered: Providers billing for examinations, treatments or supplies that were not actually provided or lacked medical justification.
2. Referral or kick-back schemes: Networks of providers, attorneys, clinics or other actors steering claimants into high-cost modalities or prolonged treatment for financial gain.
3. Misleading or boilerplate provider reports/evaluations: Providers issuing standardized or inappropriate reports (e.g., independent medical exams (IMEs) or assigned medical evaluators (AMEs) that favor extended treatment, high impairment ratings, or liability without proper clinical support.
4. Manipulation of benefit systems or misclassification of injury/illness: Adjusting documentation, diagnoses or classification of workplace exposure to gain broader or more favorable treatment and payment eligibility.
5. Durable medical equipment (DME) and ancillary service abuse: Ordering excessive or unnecessary devices, supplies, transport or ancillary services that drive up claim cost without commensurate clinical value.

Below I explore how each of these manifests, why they matter in the claims context, and how insurers route to detection and mitigation.

False or Inflated Billing/Services Not Rendered

One of the most direct forms of medical abuse is billing for services that were never performed or that lack material justification. Regulatory guidance emphasizes this type of provider misconduct. For example, the California Department of Industrial Relations (DIR) lists as primary behaviors “bill for services never performed” or “misrepresent the nature of the medical services, procedures or supplies” as provider fraud in workers’ compensation. [i]

In practice within GL and WC claims, this might look like a claimant visiting a provider shortly after a minor accident, being billed for multiple advanced diagnostics and therapies, yet the documentation or chronology does not support the volume of treatment. Or the provider submits several claims for overlapping session or bills for new procedures without corresponding progress or medical justification.

From a claims management standpoint, this is highly significant: Costs increase without commensurate value, and it may mask or grease other abuses, such as referral schemes and prolonged treatment. Moreover, damages are increased because inflated medical costs may escalate settlement demands.

Referral or Kickback Schemes

Another critical vector of medical abuse in GL/WC lines is the referral network, or “treating-provider ecosystem” model, where providers, attorneys and clinics collaborate (sometimes implicitly) to steer claimants into higher cost services. For instance, the regulatory commentary on WC fraud identifies providers or attorneys engaging in referral-based billing as a common scheme.[ii]

In GL (e.g., auto liability or general liability bodily injury), the analogous phenomenon is when plaintiffs’ counsel refer injured claimants to clinics or pain-management centers known for high-volume injections, durable medical equipment (DME) orders, or long-term therapy — even when the documented injury might support a far more modest treatment path. This treatment escalation not only elevates medical cost but also increases settlement exposure, litigation risk, and reserve inflation for carriers.

Misleading or Boilerplate Provider Reports/Evaluations

Independent medical exams (IMEs), qualified medical evaluators (QMEs in WC jurisdictions such as California), or other provider reports play a pivotal role in determining treatment scope, duration, impairment rating, return-to-work readiness, and liability. Abuse occurs when providers issue reports that are cursory, boilerplate (same language across claimants), or are incongruent with documented clinical interaction. The Nevada attorney general’s “Provider Fraud” guidance lists as red flags “boilerplate reports” and “extensive treatment especially for minor or subjective injuries.”[iii]

In a WC claim, an IME might declare maximal medical improvement (MMI) prematurely or, conversely, extend treatment indefinitely by recommending myriad modalities, even when objective improvement is minimal. In GL, a provider’s diagnostic narrative might amplify injury severity to support high settlement demands or extended therapy. For insurers, these misreports complicate adjudication, heighten litigation cost, distort reserves, and may frustrate subrogation efforts or cost containment strategies.

Medical abuse can also manifest in misclassification of injuries or manipulation of documentation to exploit benefit systems. For example, in WC, an employer might influence medical reporting so that an employee’s injury appears “work-related” when the facts are weaker, enabling broader treatment coverage or higher indemnity. In GL, the claimant’s provider or attorney may exaggerate causation (e.g., linking unrelated symptoms to an accident) to support more intense treatment.

The New Jersey Workers’ Compensation Fraud Act emphasizes misrepresentation of physical condition, job status, or previous trauma for the purpose of wrongfully obtaining benefits.[iv] Such manipulations fuel medical cost inflation and challenge claims integrity and underwriting reliability.

Another form of abuse is the over‐ordering of DME, ancillary services (transportation, home care, extended therapy) that may be marginal in clinical value but high in cost. The DIR’s fraud-prevention material lists “inappropriate treatment” or “improper codes” by medical providers among typical fraudulent patterns in WC.[v]

In GL or WC claims, a minor soft-tissue injury might result in months of home health services, repeated private therapy sessions, transport to/from the clinic, and large bills for equipment, far beyond what standards of care would dictate. While each service may seem plausible in isolation, aggregated they produce outsized cost and may indicate a network orientated to maximizing reimbursement rather than supporting efficient recovery.

What’s Driving the Escalation

Medical abuse directly drives up medical cost per claim. In WC and GL lines, medical treatment often constitutes a substantial share of claim expense. When providers exploit the system (excessive treatment, inflated bills, referral networks), each claim’s potential settlement increases. Overtreatment accelerates cost, but the other forms of abuse described (billing for services not rendered, referral kickbacks, DME over-ordering, and manipulating classification) also raise the baseline. This cost escalation strains reserves, elevates stop-loss exposure, and increases indemnity cost (especially in WC when treatment prolongs disability).

Claims afflicted by medical abuse often last longer. For example, a claimant who is steered into extended therapy or multiple procedures may remain under treatment for months or years, delaying closure. In WC, this extended treatment delays return to work, increases indemnity, and creates a larger case management burden. For GL, extended treatment may mean higher settlement exposure, longer litigated file life, and less predictability. Tail risk becomes heightened as the carrier must reserve not only more dollars but potentially for a longer payment horizon.

Accurate reserving and actuarial modeling depends on stable, predictable utilization patterns. When medical abuse skews treatment volume, coding patterns, and service pricing, loss triangles shift unfavorably. This distortion challenges underwriting, premium calculations, and profitability forecasting. For example, when provider networks in a region exhibit high rates of “medical mills” (referral networks delivering high-volume treatment regardless of clinical necessity), historical cost baselines may understate future cost risk.

Inflated medical cost or questionable provider networks also increase litigation and subrogation complexity. When treatment is excessive or questionable, defense counsel may challenge causation or necessity, amplifying legal cost and liability. From a subrogation perspective (particularly in GL claims with third-party liability exposures), inflated medical cost can complicate recovery because of potential lien issues, provider referral networks, or fraud-associated attribution. Additionally, network risk arises: If a carrier allows or contracts with providers with unethical patterns, reputational, regulatory and financial risk escalate.

Providers who engage in fraudulent billing, referral kickbacks or misreporting face regulatory suspension, liability and exclusion. For example, the California DIR suspended 178 medical providers in the first eight months of 2022 for fraud-related reasons.[vi] When a provider network contains such high-risk providers, the carrier’s exposure increases. Insurers must manage compliance risk, potential recoupments, and network disruption. Furthermore, neglected detection of medical abuse may lead to regulatory scrutiny of the carrier or plan.

Medical abuse in GL and WC claims is not merely an issue of overtreatment. It operates through billing inflation, referral ecosystems, documentation manipulation, and excessive ancillary services, all of which expand claim costs, extend duration, and distort both reserves and actuarial expectations. These forces create a risk environment that is more complex and erosive than many stakeholders recognize.

In Part 2 of this series, we will examine how insurers and employers can identify abuse patterns early, integrate detection into claims workflows, and build strategic countermeasures that reduce exposure and strengthen control over claim outcomes.

• [i] https://www.shastacounty.gov/district-attorney/page/workers-compensation-insurance-fraud
• [ii] https://www.shouselaw.com/ca/defense/fraud/workers-compensation-fraud
• [iii] https://ag.nv.gov/About/Criminal_Justice/Provider_Fraud
• [iv] https://www.nj.gov/labor/workerscompensation/get-support/fraud/
• [v] https://www.dir.ca.gov/Fraud_Prevention/Workers-Compensation-Insurance-Fraud.htm
• [vi] https://www.dir.ca.gov/DIRNews/2022/2022-76.html

Topics Claims Liability Manufacturing