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August 2, 2017
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This article appeared in the August 2, 2017 edition of WorkCompCentral.

By J. Todd Foster, Reporter for WorkCompCentral Inc.

Business groups say they are holding private conversations with Pennsylvania state lawmakers on a legislative remedy to a state Supreme Court decision that blocks impairment rating evaluations.

The so-called Protz ruling removed what defense attorneys say is a powerful tool to cap employers’ exposure on long-term workers’ compensation claims.

The decision was so monumental that it is triggering a “significant” interim loss cost filing scheduled to be released by Aug. 15, the Pennsylvania Compensation Rating Board said.

Legislation enacted in 1996 included the impairment rating evaluation (IRE) process. Once a claimant received 104 weeks of total disability benefits and had reached maximum medical improvement, the employer could request an IRE. Under the law, the doctor was required to use the most recent version of the American Medical Association’s Guides to the Evaluation of Permanent Impairment, currently in its sixth edition.

If the doctor found that the work injury caused less than 50% whole body impairment, the worker’s benefits could be moved from total to partial disability status, with benefits capped at 500 weeks. Total disability benefits have no cap in Pennsylvania.

The high court said Section 306(a.2), which governs IREs, was an unlawful delegation of legislative authority to a private entity, in this case the AMA.

Alex Harper, director of of government affairs for the Pennsylvania Chamber of Business and Industry, said the fact that the Rating Board is contemplating a mid-year loss cost filing demonstrates the magnitude of the issue.

“Conversations with lawmakers are ongoing,” Harper said. “There are a number of different options being considered, but it’s too early to tell what direction they might take.”

The Pennsylvania legislature is now on summer break, but is scheduled to return to Harrisburg in late August to hammer out a revenue bill to pay for a $32 billion budget that passed earlier this year. Business leaders said they hope they’ll have a bill ready to sponsor when the fall session opens.

“The Supreme Court didn’t reject the concept of impairment rating evaluations or using a standard to cap benefits. So it was disappointing and has only become more daunting as the magnitude of the decision has really become more apparent,” Halper said.

The Pennsylvania chapter of the National Federation of Independent Business has called in its top legal gun to help small businesses cope with the consequences of Protz.

Elizabeth Milito, senior executive counsel at the NFIB’s Washington headquarters, will lead a webinar for Pennsylvania members on Aug. 15, said Suzanne Stoltenberg, communications director for the organization’s Pennsylvania office.

“I know our folks have spoken with some lawmakers about the problem. I don’t know the nature of what’s being proposed,” Stoltenberg said. “We’re really worried about seeing maybe a double-digit increase in rates because it’s one of our members’ biggest concerns, the cost of workers’ compensation.”

The Rating Bureau issued Circular No. 1685 on July 27 to its members, saying its preliminary estimates will force an interim loss cost filing that will have a “significant monetary impact.” The filing, the first interim one in more than 20 years, would apply to new and renewal policies with effective dates that begin Nov. 1.

Milito is on vacation this week and unavailable to comment. But she said on public radio July 11 that the Protz ruling was “monumental” and “troubling.”

“This is going to put a lot of pressure on the General Assembly to work to create standards that fit within the parameters of what the Supreme Court has laid out. I think it’s going to create a lot of litigation, both short and long term,” Milito said on WITF’s “Smart Talk” program.

“I think a lot of employees, once they get word of the decision and have already been found under 50% disabled, are going to head to the courthouse” to reopen their cases if an IRE was used to cap benefits, she said.

Claimants’ attorney Drew Gannon, who also appeared on the program, said in his 23-year career, he has represented only two workers with impairment ratings of 50% or higher. A leg amputated at the hip represents only a 40% disability, he noted.

“I think concerns are overstated at this point,” said Gannon, of Katherman Briggs & Greenberg’s York office. “I would caution the General Assembly about taking any further steps until we see if there’s truly any long-term impact from this decision.

“Until we have some true empirical data, I think it would be rash for the General Assembly to put something else in place, to try and fix a problem that may not exist,” Gannon told listeners.

There are differing opinions on what a legislative remedy to Protz would look like.

John F. Burton Jr., professor emeritus at Rutgers and Cornell universities, said his reading of Protz means it would be “impossible” to reference the AMA guides in any new legislation.

He said Pennsylvania has two options: It could develop its own rating guide as Minnesota, Florida and New York did, or it could adopt a schedule of body parts with corresponding durations of benefits for total loss of each body part and have the impairment rating determined by expert medical testimony or by administrative law judges.

“So, to use an example from New Jersey, the schedule indicates that a 100% loss of the arm entitles the worker to 330 weeks of [permanent partial disability] benefits,” Burton emailed. “If the worker has a 50% loss of an arm, then the worker is entitled to 165 weeks of benefits. The percentage loss is based on testimony from doctors and if the parties do not agree on the extent of disability, the workers’ compensation judge makes a decision.

“As you can expect, the New Jersey approach has a lot of litigation over the extent of disability, which is one reason why carriers and employers prefer use of the AMA Guides, because the Guides reduce (although surely do not eliminate) the amount of litigation,” Burton said.

University of Wyoming law professor Michael Duff said there is a relatively easy legislative fix.

Lawmakers could adopt the sixth edition of the AMA Guides and direct the Department of Labor & Industry annually to review them, and determine whether that edition should continue to be used or whether a subsequent edition should be adopted.

“I’m suggesting a hybrid model: Point to a particular edition and then allow some sort of regulatory mechanism whereby an agency has the authority by regulation to adopt the next edition,” Duff said.

Sam Marshall, president and chief executive officer of the Insurance Federation of Pennsylvania, said that after the Rating Bureau’s interim loss cost filing around Aug. 15, the Insurance Department will take about 30 days to approve or reject the recommendation.

He suggests reinstating the IRE process by identifying the sixth edition of the AMA Guides as the standard.

“Losing IREs is a significant thing and will result in a significant cost,” Marshall said. “Legislators are understandably focused on the practical impact and ramifications of a ruling. In the world of insurance, the practical impact is largely reflected in the impact on rates. I would hope the General Assembly would say we understand the value of IREs.”

Until IREs are reinstated, defense attorneys said they will work with insurers to limit their exposure.

“The main option to modify benefits outside of the IRE process is what we call the vocational option, which is sending the injured worker to a doctor to get an assessment of whether they’re able to work, and then sending them to a vocational expert and going through an interview process, and taking their skill set and applying that to the job market,” said Lancaster defense attorney Denise E. Elliott of McNees Wallace & Nurick.

“That has always been an option even when we had the IRE tool in the toolbox, but that’s a lengthier option, a costlier option and a litigious option,” she said.

The vocational option carries a much higher threat of litigation, agreed Joshua Schwartz, a partner at Barley Snyder in Lancaster.

“An IRE was automatic before the Protz decision,” Schwartz said. “As long as the IRE was initiated within the right timeframe, there was no litigation. Whatever that IRE doctor said pretty much became the facts of that case.”