Keeping Disability Payments in Check

Monitor—and question, if necessary—the impairment levels that doctors calculate for injured workers.

By David Tobenkin May 1, 2010

0510cover.gifCall it a hidden health cost. While the health reform debate has focused on rising medical and insurance costs, a separate health issue below the radar can create significant costs for employers: It’s the assessment of an injured worker’s level of impairment, used in many states to help determine disability payments. Some employers and insurers say doctors’ assessments, for various reasons, often overstate a worker’s degree of disability.

HR professionals know the process: After an injured worker enters a state’s workers’ compensation system and recovers from the injury, treatment ends and a doctor, often the treating physician, evaluates the worker to determine how much physical impairment remains.

The resulting impairment rating is used—or may be used—in 44 states in establishing benefit payments for permanent disability caused by the injury. Disability ratings are expressed as a percentage of loss of the employee’s whole-body function. They range from zero, indicating no further problem, to 100 percent, meaning total loss of bodily function.

In turn, ratings affect state and federal payouts as well as direct and indirect costs for employers. Inaccurately high impairment ratings can elevate costs for self-insured companies or increase premiums for companies with experience-based insurance coverage.

In addition, impairment ratings can trigger obligations under the Americans with Disabilities Act (ADA). "Employers need to understand that if the employee has a permanent rating combined with permanent restrictions and they are an employer subject to ADA compliance, they have to immediately address accommodations and permanency," says Margaret Spence, chief executive of Douglas Claims & Risk Consultants Inc. in Boca Raton, Fla., and a member of the Society for Human Resource Management’s Employee Health, Safety and Security Special Expertise Panel.

Theoretically, impairment ratings should be a clear, objective aspect of a state’s workers’ compensation processes. Doctors are, after all, highly trained professionals, and many conditions that lead to workers’ compensation claims, like back and extremity injuries, are common.

Further, most states have statutory guidelines, generally based on the American Medical Association (AMA) Guides to the Evaluation of Permanent Impairment, that are intended to standardize impairment-rating best practices and provide more-consistent ratings.

However, since release of the sixth edition of the AMA Guides, in December 2007, the ways that ratings are made and used have become increasingly controversial.

Insurers and employers contend that ratings are often inflated by physicians’ miscalculations and bias arising from their wishes to help their patients by advocating for their claims.

Labor unions and plaintiffs’ attorneys contend that efforts to reform impairment ratings and use them to determine disability payments often shortchange employees. Some critics claim that the sixth edition allows the rater less flexibility, resulting in lower ratings and therefore unfairly undercompensating injured workers.

The sixth edition standardizes the methodology for all impairment ratings by general diagnosis principles rather than, as in past editions, by providing different diagnostic approaches for different body parts. It alters rating guidelines to reflect updates in medical treatment, including treatments most common to workers’ compensation claims.

The good news, experts say, is that there are steps that employers can take to help ensure that ratings are performed accurately. The HR professional’s role can include:

  • Initiating impairment-rating reviews.
  • Advocating doctor training.
  • Interacting with insurers.

"HR people need to make sure that the people who manage their claims are using experts on the AMA Guides to review ratings and not just accepting them," says Dr. Christopher Brigham, an editor of the AMA Guides and chairman of Impairment Resources LLC, a consulting firm. "In years past, there was a tendency of HR people to accept anything physicians did because they were physicians. Then, they realized that they needed to see if it was appropriate and began to implement utilization reviews. The same thing needs to happen with impairment ratings—they need to hold the doctors accountable."

Elevated Assessments?

Insurers and some medical experts say impairment ratings generally overestimate workers’ degree of impairment because those who do the ratings often fail to follow the AMA Guides methodology and instead substitute their own impressions.

In a 2005 study by The Hartford, an insurer based in Hartford, Conn., experts on using the AMA Guides applied these objective standards to 180 existing ratings received over a six-month period in 2004 and 2005. They found that roughly half of the 145 ratings that contained enough data to be rated again differed from the initial ratings. Dr. Robert Bonner, the company’s medical director, says about 90 percent of the 70 files with rating differences were judged to be originally higher than warranted.

A second study by The Hartford involved recalculation of 40 different random ratings received in the fourth quarter of 2007, and 50 percent were judged to be inaccurate, but the degree of inaccuracy had decreased.

Brigham says that of the more than 5,000 cases brought to his company for review over a four-year period up to last January, 78 percent were judged to be erroneous.

Overstated impairment ratings can cause insurance claims to balloon, says Jill Dulich, a senior director of claims services in western states for Marriott International Inc. She says 39 of 49 reports she submitted to Impairment Resources for review were judged to be wrong. "The average original whole-person impairment was 22 percent, while the revised impairment figure after review was 9 percent. … Given a cost of $1,325 per percentage point of impairment, that adds up to $17,225 in excess claim amount per claim that would have been charged if unchallenged."

Another Perspective

For their part, some workers’ compensation plaintiff attorneys complain that employers and insurers use the AMA Guides to reduce what workers can recover from legitimate claims. "What the AMA Guides have become is essentially a tool for insurance carriers to lower workers’ compensation awards to insured workers for permanent injuries," says attorney Troy Rosasco, a partner at New York City-based Turley, Redmond, Rosasco & Rosasco LLP. "Each new edition" of the guide, he says, "becomes more onerous on injured workers."

In addition, some criticize the AMA Guides on the grounds that their physician-authors rely on consensus among themselves in determining impairment ratings and place insufficient reliance on research data that details the relationship between impairments and the resulting consequences, including the impact on activities of daily living and work disability. "That shortcoming has been pointed out," says workers’ compensation expert John F. Burton Jr., a business professor emeritus at Rutgers University.

Brigham responds that applicable research data are used when available. Many such criticisms confuse research on disabilities, which is not the direct subject of impairment ratings, with research regarding the degree of impairment itself, which is relevant to impairment ratings, he adds.

Greg Krohm is executive director of the Madison, Wis.-based International Association of Industrial Accident Boards and Commissions—mostly government agencies that administer and regulate workers’ compensation laws. He says several states "have modified laws or suspended legal requirements to use the most recent version because they don’t want to automatically go from the fifth edition to the sixth edition because of problems they have with the sixth. Changing the law is a real vote of no confidence."

Process and Practices

Typically, at larger companies, employer monitoring of impairment ratings would be handled by the coordinator of risk management or of workers’ compensation. At smaller organizations, it may be an HR manager’s responsibility.

Employers relying on insurers or third-party administrators to process claims can expect these parties to take the lead, but would be wise to check that they are monitoring the development and use of impairment ratings, Spence says.

In all states, a treating physician provides the initial impairment rating after the point of maximum medical improvement. At that point, either the insurer or the employer can request the rating.

All states allow employers to have independent third parties review such ratings. Some provide a right for another doctor hired by the employer or insurer or, alternately, by the state, to perform an independent exam. In some regimes, an administrative judge or other individual is empowered to decide among rival ratings.

Frederick Uehlein, a workers’ compensation attorney and a director of Brigham’s Impairment Resources, says HR professionals should "check with their insurer or third-party administrator to make sure that they have a methodology to make sure the ratings are accurate, or should use outside vendors to check accuracy."

In most jurisdictions, the last employer is responsible for the entire value of a work-related disability, even if some portion of the disability was caused outside the workplace, Uehlein says. But some states, including California, Connecticut, Florida, Massachusetts and New York, allow for apportionment between pre-existing conditions and the harm caused by an on-the-job injury. In such states, it’s especially important that employers monitor claims.

HR professionals have to be aware of past-injury red flags, Spence says. Ask the insurance carrier or the third-party administrator to:

  • Identify prior injuries that are work-related or not work-related.
  • Review medical records for those injuries to determine if the current injury is similar to a past injury.
  • Send a case manager to the issuing doctor and ask him or her to review the prior medical records in relation to the rating. The case manager should ask the issuing doctor to justify the rating if there is a pre-existing injury similar to the current injury.
  • "Case management intervention should be routine for back, shoulder, knee and ankle injuries," says Spence. "Insurers routinely do prior-injury checks, and they may be the ones calling HR to tell them about the pre-existing condition."

Moreover, she continues, "the HR person needs to continue to follow up on the claim throughout the process. If the employee has an injury that shows signs that it is an aggravation of a pre-existing condition or may be an aggravation of an old work-related injury or a non-work-related injury, then the HR person needs to make sure that every doctor who has the ability to offer the employee a rating has that information. If the doctors do not have this information, they will base their rating solely on the current injury." Do not assume that the insurer or third-party administrator sent the information to the doctor, Spence says.

Other Concerns

Bear in mind that impairment ratings can directly feed into ADA obligations.

"As a best practice," Spence says, "when HR realizes that an employee is getting ready to be released by the treating physician and there may be an impairment rating attached, HR should make sure that there is either a vocational assessment completed for the employee or make sure that the pre-injury job description is in the hands of the rating physician and the following questions are asked and answered: Can the employee return to this position without restrictions? If not, what are the permanent restrictions, and can he do this job based on those restrictions?

"If there is a vocational assessment, HR needs to determine if the employee has transferable skills that can be used in their work environment, and they need to kick their [ADA] process into high gear."

Train and Monitor

Some employers are taking aggressive action to ensure accurate ratings by requiring physicians who are in the employers’ medical networks and are treating injured workers to undergo training in use of the AMA Guides.

Louise Holleran, workers’ compensation manager at National Steel and Shipbuilding Co., a San Diego subsidiary of General Dynamics, says that later this year the company will provide training on the sixth edition for her staff and doctors who evaluate employees. "You want doctors to call it as they see it; however, they must justify the rating based on objective, reliable criteria and ensure correct application of the guides."


The author is an attorney and freelance writer in Chevy Chase, Md.

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