WCRI Releases Annual Study Highlighting Impact of the 2007 Workers’ Compensation Reforms in New York

WCRI Releases Annual Study Highlighting Impact of the 2007 Workers’ Compensation Reforms in New York

Introduction

In December 2011, the Workers’ Compensation Research Institute [Cambridge, MA] (“WCRI”) published its fourth annual report evaluating the effects of the so-called workers’ compensation “reforms” passed unanimously by the New York Assembly and Senate in March 2007, and signed into law by then Governor Spitzer. The 88-page report, by Carol A. Telles and Ramona P. Tanabe, entitled “Early Impacts of the 2007 Reforms in New York,” is a continuation of WCRI’s effort to assess whether the goals of the New York legislation have been accomplished and whether any unintended consequences have also resulted from the regulatory changes. The WCRI report presents some 75 baseline measures of performance of the workers’ compensation benefit delivery system. Data for the report was gathered from private insurers, self-insurers, and the state insurance fund. Claims arising under the Federal Employees Compensation Act (FECA) or Longshore and Harbor Workers' Compensation Act were excluded from the study. An exhaustive set of trend reports is set forth in Chapter 4 of the WCRI study. In addition, the report contains a valuable list of references for those wanting to dive even deeper into the subject [Copies of the study, as well as other WCRI reports, can be purchased online by visiting the WCRI website: http://www.wcrinet.org/recent_pub.html]

Summary of the 2007 Workers’ Compensation Reforms

As the WCRI study notes, the primary features of the 2007 regulatory changes were [additional information regarding the 2007 legislation and the goals of the reforms can be found at the web site of the New York State Workers’ Compensation Board (http://www.wcb.ny.gov/)]:

  • to increase the maximum weekly benefit
  • to put caps on duration of permanent partial disability
  • to create and implement medical treatment guidelines
  • to adopt a pharmacy fee schedule
  • to create networks for diagnostic services, and thresholds for preauthorization of services
  • to make administrative changes to the system to increase the speed of case resolution

Increase in Statutory Benefit Maximum

The study indicates that while the full impact of the legislative changes is still to be seen, some trends are already clear. One such area relates to the increase in the statutory maximum weekly benefit. Prior to the 2007 Reforms, the maximum weekly benefit was $400--about 37 percent of the statewide average weekly wage. Effective July 1, 2008, the maximum rose to $550. On July 1, 2009, the maximum rate rose again to $600--about 54 percent of the statewide AWW. As of July 1, 2010, the maximum rate is equal to two-thirds of the statewide average weekly wage, indexed and adjusted annually. One of the important stated goals of the legislation was to reduce the number of injured workers whose benefits were affected by the maximum. This seems to borne out by the data. The WCRI report indicates that the first two increases reduced the number of workers affected from 48 percent to 29 percent. WCRI estimates that with the third increase, the percentage has likely fallen to 24 percent.

Caps on Duration of PPD Benefits

The effect of the new caps on the duration of PPD benefits is much less clear, however, according to the authors of the study. Under the 2007 legislation, the number of weeks of PPD wage replacement benefits is limited to a maximum of 10 years [225 to 525 weeks, depending upon the injured worker’s disability and loss of wage-earning capacity]. Formerly, there was no such maximum; the injured worker could receive PPD benefits for his or her lifetime. Lifetime medical benefits still continue, however. The study indicates that while the limitations on the duration of PPD Benefits should save employers and carriers money in the long run, no significant savings have been realized at this point.

The 2007 Reforms do add a safety net for some workers who lose PPD benefits of the new duration limitation. If the worker’s loss of wage-earning capacity is greater than 80 percent, the worker may apply to be reclassified as permanent totally disabled and he or she may then qualify for lifetime benefits.

Medical Treatment Guidelines

A prominent feature of the 2007 Reforms was the requirement that the New York State Department of Insurance develop medical treatment guidelines. Guidelines for testing and treatment of shoulder, cervical spine, knee, and middle and lower back injuries took effect on December 1, 2010 [PDF images of the Guidelines are available on the Board’s web site noted above]. They apply prospectively to existing and future injuries. Guidelines have also been developed for carpal tunnel syndrome, but they have not yet been adopted.

The study indicates that while employers and carriers may see some sort of reduction in the cost of medical treatment, insufficient data exists at present to make any judgment.

Pharmacy Fee Schedule

Initially, the 2007 Reforms called for a fee schedule setting maximum reimbursement rates for pharmaceuticals to those allowed for Medicaid. On July 1, 2008, the pharmacy fee schedule was changed so as to reimburse at the average wholesale price (AWP), less 12 percent, plus a $4.00 dispensing fee for brand name medications. For generic medications, reimbursements are set at the AWP, less 20 percent, plus a $5.00 dispensing fee. WCRI reports that the fee schedule has generally had the effect of decreasing the average per pill price by 10 to 20 percent, depending upon the drug and the dosage.

The study points to at least one bit of bad news in New York. New York continues to be one of the states with the highest use of narcotics per claim, some 80 percent higher than the median of the 17 states studied.

Diagnostic Testing

The 2007 Reforms increased the threshold for prior authorization for diagnostic testing from $500 to $1,000 and allowed employers and carriers to contract with networks to provide most of these routine testing services. During the two years following the enactment of the reforms, New York saw a six percent increase in the number of visits for minor radiology services, but very little change, otherwise. The study cautions that it is still probably too soon to see the full impact of the testing rules.

Speed of Case Resolution

One of the key goals of the 2007 Reforms was to reduce the time from dispute of a claim to establishment or denial of the claim to 90 days. In October 2008, the so-called “rocket docket” rules became effective. While streamlined processes for controverted claims were issued in November 2008, the implementation date was postponed until January 1, 2009. Generally the decision to controvert the claim must now be made within 25 days. Here again, it seems a bit too soon to judge the effect of the rules. The WCRI study points to some interesting data: defense attorneys involvement in indemnity claims increased more than 50 percent from the 2003/2004 to 2008/2009 and the portion of indemnity claims at 12 months experience with payments to defense attorneys increased from 18.2 percent in 2003 to 30.1 percent in 2008. WCRI indicates that the growth in defense attorney involvement had begun to increase before the enactment of the 2007 Reforms and it is, therefore, difficult to draw specific conclusions. Payment to defense attorneys is the only metric used in the study to relate to controverted claims. WCRI presumes that the rate of worker attorney representation is roughly equivalent to that on the defense side. It appears that while the speed of resolution may be quickened under the 2007 Reforms, the cost of doing so has not been reduced.

Conclusion

As indicated above, WCRI carefully notes that while the data underlying some of the measures in its report are sufficiently mature to begin to see early effects of the 2007 legislation, several more years are required before the full impact of the reforms will be reflected in other data. It is vital to remember that the 2007 Reforms don’t exist in a vacuum; other factors outside the workers’ compensation world affect the claims process and impact injured workers, their employers and carriers. Not the least of these other factors is the so-called “Great Recession.” The long, painful downturn within our economy has affected the number and types of claims, indemnity costs, the duration of temporary disability, etc., and it is difficult to separate out these external pressures.

The WCRI report is, nevertheless, an extremely valuable tool not only for those whose lives are impacted by the New York workers’ compensation arena, but by attorneys, adjusters, administrators, legislators and others across the 50 states. As someone once said, the structure of our government provides us with 50 different experiments in democracy. States should and do look at their neighbors to determine what seems to be working and what does not. State legislatures learn not only from their own failures and successes, but from the experiences of other jurisdictions. The WCRI report, particularly as it is supplemented each year by additional data, is an important barometer on the New York experience in workers’ compensation.

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