Statement of Principles on State Workers’ Compensation Reform

Statement of Principles on State Workers’ Compensation Reform


Government policy should encourage fair and sustainable state-based workers’ compensation laws that provide quality medical care and benefits to injured workers, and focus on workplace safety and successful return-to-work programs. Fair laws maintain an equitable balance between the interests and accountability of both employers and employees. Sustainable laws facilitate free-market competition and private sector funding of workers’ compensation programs through commercial and self-insurance.

In many states, injured workers are receiving inconsistent treatment that is not in-line with solid evidence-based medical guidelines and are, at times, becoming trapped in a system that discourages workers from returning to work in an expeditious manner.  Innovative reform of workers’ compensation laws is necessary to restore a system intended to protect workers and return them to the workforce in a fair and timely manner.

Effective solutions must be directed at delivering quality recovery to injured workers, enabling workers to return to work quickly, and inherently controlling key cost drivers.  To ensure speedy and meaningful return to work, employees unable to perform preinjury jobs need access to temporary alternate work with the same employer, reemployment assistance when viable work options don’t exist with their employer, and vocational rehabilitation only when substantiated and reasonable necessity can be shown.

Because of the variance of state workers’ compensation laws, there is no one-size-fits-all solution; thus, ALEC has opted to develop this Statement of Principles to identify major areas of concern and offer guidelines for reform. Many of the primary needs for reform can be categorized into four areas: Appropriate Medical Care, Agency Red Tape, Unnecessary Litigation, and Court Interpretations of the Law.

Section 1. Appropriate Medical Care.

The Problem: Under workers’ compensation systems, employers cover 100% of an employee’s medical and pharmaceutical costs. Employer coverage and medical provider accountability are key to ensuring the worker gets appropriate and prompt medical care focusing on recovery as well as enabling a return to work as quickly as advisable. But for the system to function well in a state economy, the injured worker must get the right care at appropriate market rates rather than inflated rates. For many years, workers’ compensation medical costs have increased at a greater rate than generic medical costs without increasing benefits to the injured worker. Medical care reform should minimize the cost of transferring maximum benefits to the injured worker. Excessive medical procedures, legal actions and regulatory burdens increase transaction costs for the employer without also increasing benefits to the injured.

Recommended Solutions:  Solutions to such problems must be state specific and begin with identifying the areas of greatest concern.  Important issues to explore include:

  • Evidence-based Medicine Guidelines. These established, nationally-recognized guidelines rely on a critical appraisal of available scientific evidence for diagnosis, treatment, causation, and other aspects of healthcare decision making. When combined with appropriate tools governing precertification and utilization review, and incorporated into a system that is deferential to treatment within the guidelines, the use of nationally-recognized evidence-based medicine can deliver the most appropriate medical treatment while avoiding wasteful and unnecessarily costly treatment. Evidence-based medicine guidelines also contribute to the speedy resolution of medical disputes thereby minimizing litigation.
  • Elimination or strict regulation of physician-dispensed prescriptions. Studies have not been able to show that physician dispensing of medications offers any real benefit to the patient.  Rather, physician-dispensed or -compounded medications cost more money and may be associated with longer work absences than pharmacist-dispensed medications.
  • Drug Formularies.  Nationally-recognized formularies list appropriate prescription drugs chosen based on evaluations of efficacy, safety, and cost effectiveness and are used by medical practitioners to identify those drugs that offer the greatest overall value and are approved for prescription. Formularies help the physician avoid prescription medications, particularly certain opiates, for patients at high risk of developing drug dependence.
  • Medical Fee Schedules.  A medical fee schedule is a listing of fees, typically the maximum amount of allowable charges, payable to reimburse for various medical services.  A number of states now use some form of medical fee schedule as a benchmark control for the pricing of medical services covered by their workers’ compensation programs. When fee schedules are reasonable and used in conjunction with treatment guidelines, they can be an effective means of controlling escalating medical costs.
  • Minimizing Doctor Shopping.  Rather than returning to work when recommended by their original treating physician, workers may be encouraged by their attorney to get a second, third and fourth opinion until that opinion recommends additional medical treatments and time away from work. Doctor Shopping, as allowed by many state regulators and eagerly pursued by claimant attorneys, thwarts the original intent of workers’ compensation laws and invariably results in additional litigation and increased cost. More accountability from injured workers and reductions in agency red tape can expand access and direction of care to the best medical providers, supporting improved outcomes and benefits.

Section 2. Agency Red Tape.

The Problem: Where a state’s workers’ compensation agency has excessive rules and regulations, it can be a significant cost driver in the system. When the state agency unnecessarily interjects itself between the employer and the employee, delays ensue, medical care suffers, satisfaction dwindles, and costs increase.

Recommended Solutions: Solutions to problems of regulatory inefficiency are, of necessity, state specific. Generally, however, statutory reforms that bring agency rule-making in line with legislative intent can result in a much improved and more cost-effective workers’ compensation system. Problem points to consider include:

  • The lack of communication on employee rights and responsibilities before an injury occurs
  • Regulations that unnecessarily impede employer communication and involvement in the claim process
  • Regulations that increase medical costs unnecessarily without an attendant improvement in outcomes
  • Regulations that delay return to work by promoting disability as opposed to ability
  • Regulations with inefficient paperwork requirements that impose excessive time constraints and fines
  • Regulations that may create the problems mentioned in the medical care and litigation sections.
  • Outdated paper-only record systems. Legislators should consider shifting to electronic records and communications compatible with existing electronic frameworks
  • Regulations that allow excessive time periods to report injuries that occur at a known time and place.

Section 3. Unnecessary Litigation.

The Problem:  All Workers’ Compensation laws provide no-fault coverage to employees whose injuries arise out of and in the course of their employment. Despite there being no need in a no-fault system to litigate over fault, the systems are often still plagued by needless litigation resulting in millions of dollars in increased costs, with no corresponding increased benefit to the injured worker.

Recommended Solutions: Solutions will focus on more efficiently delivering care and benefits without excessive litigation. While each state workers’ compensation law is different, solutions to this problem must begin with identifying the specific areas within a state’s law that foster excessive litigation.  Consider:

  • Liberal Construction Provisions: Many state statutes provide that workers’ compensation laws must be liberally construed in favor of the employee. As enacted, the provisions were intended to protect the employee by liberally construing the laws in their favor. However, these provisions are often used to justify liberal constructions of the facts in a case, allowing cases with little proof of injury to recover and encouraging abuse. Needless litigation can be substantially reduced by simply eliminating that statutory provision, and in its place, provide for strict construction of the law and a preponderance of the evidence test for burden of proof.
  • An administrative appeals system that requires accountability and safeguards for both employers and employees.
  • Court decisions or statutory provisions that expand the opportunity for litigation in a no-fault system that should provide appropriate medical care for injured workers with minimal transfer costs

Section 4. Court Interpretations of the Law.

The Problem: In many states, a commonsense reading of the workers’ compensation law would not suggest the need for statutory reform.  However, activist judiciaries in some states have taken great liberties in interpreting workers’ compensation laws and many statutes now greatly broaden their original intent.

Recommended Solutions: States wishing to reform their laws will have to evaluate relevant judicial decisions and identify the areas where courts have broadened the scope of workers’ compensation laws thereby inflating costs. Solutions may:

  • Reform liberal construction provisions.  As mentioned above, liberal construction provisions are often used to liberally construe the facts rather than the law. Where this method is employed, pay great attention to any subsequent expansions of the law as they may lack merit.
  • Reaffirm statutes of limitations. Where courts allow actions after the statute of limitations has expired, it’s important to consider the implications of the decision and offer statutory reversals.
  • Uphold Subrogation limitations. Decisions greatly limiting or even denying employers or their insurance carrier their statutory right to subrogate against a third party responsible for causing injury to their employee result in greatly increased cost to employers and double recovery by the worker.
  • Strengthen the Exclusive Remedy.  As workers’ compensation systems are no-fault, they are also generally the exclusive remedy for those injured in the workplace. However, the exclusive remedy tenet is continually threatened by excessive litigation.
  • Reaffirm Meaningful Causation Standards. Several states have enacted a commonsense requirement that any physical impairment or disability must have arisen out of and in the course of employment.

Section 5. Additional Items for Consideration.

Double Compensation for Disability Unemployment: Many states’ public pension systems offer injured employees a disability retirement pension, monies compensating the employee for an inability to work just as workers’ compensation disability payments do.  In most but not all of these states, there is an offset by which disability pension payments are reduced by the workers’ compensation disability receipts, or vice versa.  States that effect no offset between these two payment sources should consider creating a total or partial offset in the interest of preserving the solvency of the public pension or workers’ compensation funds.