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LIRR disability claims down since fraud scandal 

Experts are at odds over whether federal prosecutions triggered the dramatic decline.

Preet Bharara headed the government's case as U.S.

Preet Bharara headed the government's case as U.S. attorney for the Southern District of New York. Photo Credit: Charles Eckert

Far fewer Long Island Rail Road employees are being awarded federal disability benefits since dozens of former workers admitted making fraudulent claims more than 10 years ago.

Experts, however, are divided over whether the fraud prosecutions triggered the dramatic decline.

The U.S. Railroad Retirement Board, which oversees all insurance claims for rail workers, granted disability benefits to 29 LIRR retirees last year, compared with 216 in 2007 — an 86.5 percent drop, statistics show. In the first eight months of this year, the board approved disability benefits for four LIRR retirees.

The board approved 147 LIRR retiree disability applications in 2008, when the fraud was revealed through news stories. The government prosecuted more than two dozen former LIRR employees along with doctors and a retirement board employee on charges that included fraud and perjury. Eventually, 33 pleaded guilty or were convicted. The U.S. attorney's office in Manhattan has estimated that the excessive disability payouts could have topped more than $1 billion.

Federal investigators discovered that several ex-LIRR employees with disability pensions, which averaged $33,000 a year, were out playing golf, competing in bicycle races, teaching martial arts classes and training to become firefighters.

Experts see the impact of the fraud prosecutions differently. There is even disagreement inside the railroad retirement agency on what is behind the drop in disability awards.

Board officials see the decline as a testament to how it has “greatly strengthened its program integrity efforts” to combat fraud, including through additional training for claims examiners and closer tracking of doctors and disability applications by employees of specific railroads, said Michael Freeman, a spokesman for the agency. 

“These two systems were not in place 10 years ago,” Freeman said. “If they existed at that time, the agency would have been better able to identify and respond to the instances of physician-assisted fraud, then associated with LIRR disability applicants."

But the board’s watchdog, inspector general Martin Dickman, described the measures as “window dressing.”

Dickman said the number of disability benefits granted has plummeted, but the percentage of applications being approved remains high. Of 581 occupational disability claims processed from January through July, 569 were approved — 98 percent, according to Dickman’s office.

"It's still the same old, same old. They bend over backwards to give these people occupational disability," said Dickman, who credited the drop in applications to the "deterrent effect" from the federal fraud prosecutions. "It’s nothing that the board’s ever done.”

The LIRR says it has done its own work to combat fraud. The railroad, said  spokesman Aaron Donovan, has bolstered the ethics training it requires workers to take. The training stresses that only those who deserve disability benefits should apply for them, he said.

 LIRR stats also show a drop in the rate of retiring workers who apply for occupational disability benefits. According to the railroad, the percentage of LIRR retirees covered under the 1980s pension plan who have applied for disability has steadily fallen from 72 percent in 2010 to 26 percent last year. 

“The bottom line is that workers who are injured on the job deserve just compensation and disability benefits, and those that try to scam the system should be punished — because that only undermines things for everyone else," said U.S. Sen. Chuck Schumer (D-N.Y.), who pushed for increased scrutiny of applications and praised the changes. "The LIRR disability system was in bad shape and had too much waste, fraud and abuse."

For Washington-based insurance expert William Arnone, the federal prosecution of LIRR retirees had a “chilling effect” on those who might not be entitled to disability benefits.

“People realized that there’s a spotlight now. ‘Why should I even bother if I can wait a little bit and go into the retirement system’ ” said Arnone, chief executive of the nonprofit National Academy of Social Insurance, which studies insurance and pension issues. “They say, ‘My neighbors are going to call me a fraud’ or ‘People will say I’m taking advantage of a broken system.’ And they haven’t even applied.”

Arnone, though, points out that an upbeat economy also could be a factor in the reduction in railroad disability claims since the Social Security Administration also has seen a drop in disability claims.  

“When the economy is better, fewer people apply for disability,” he said.

Prosecutors have said LIRR employees hired before 1988 took advantage of a loophole in their contract that created an incentive to retire at age 50, collect a full LIRR pension and subsequently apply for federal disability benefits, which they could collect until they were eligible for federal retirement benefits.

To some extent, the steady decline in disability cases involving LIRR retirees over the last decade reflects the gradual attrition of LIRR workers covered under the pre-1988 pension plan, experts have said.

Dickman, the retirement board’s watchdog, has long criticized the board’s lax standards for approving disability claims, most for musculoskeletal injuries. Dickman said the three-member retirement board, under pressure from unions to leave the system as is, has effectively made disability benefits an entitlement for all railroaders. In 2017, according to Dickman, the board paid out about $1 billion in disability awards, which are funded by taxes paid by railroad employees and their employers.

“It’s not that these people are so injured or anything,” Dickman said. “The fraud continues in these cases, but they’re very difficult to prove.”

The International Association of Sheet Metal, Air, Rail and Transportation Workers, LIRR’s largest union, declined to comment.

As evidence of the gaps in the system, Dickman pointed to the more than 90 percent of LIRR retirees who lost their disability benefits because their doctors were convicted of fraud, later reapplied and won back their benefits — even under more stringent screening standards.

The high reapproval rate, uncovered by Newsday in 2014, formed the basis of the appeals of three men serving eight-year prison terms for fraud. An appeals panel last year refused to reverse the convictions.

“The government found it easier to find a few scapegoats than to the criticize the structural nature of the program . . . and the reissuance of all the disabilities after the second review is proof of that,” said Thomas Durkin, the defense attorney for Dr. Peter Lesniewski, who was convicted of falsifying medical records. Lesniewski is set to be released in 2020.

“I don’t think locking up Dr. Lesniewski for eight years was anything close to justice,” Durkin added.

                                          United States Railroad Retirement Board

                                            2007          2015        2016       2017      2018

Total applications              3,795         2,064      1,957     1,871        916

Total awarded                    2541          1015        988        729         126

LIRR applications                222              61          65           61          23

LIRR awarded                      216             35           46           29           4

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