The greatest unknown in SB 899 is the new determination of permanent disability. This, along with medical treatment, is one of the two greatest cost drivers in the system. Proponents of the RAND stealth PD system argue that this new mechanism will bring certainty, equity and predictability to the PD rating process. (Or was that liberté, égalité et fraternité?)

In the process, RAND’s proposal presumably will reduce litigation, speed benefit payments and facilitate return to work. These are certainly laudable goals.

The question remains: How will this be accomplished? What we have seen so far, and what has been codified to an extent in SB 899, is the concept of “uncompensated wage loss.” Arguably, this will establish a relationship between the impairment and the historic wage loss attributable to that impairment. It is important to recognize that this is a schedule based on “average” people, not the particular injured worker. Thus, if wage loss for shoulders is greater than elbows, more PD will be awarded to shoulders.

This sounds simple enough. The data requirements for maintaining such a system will be enormous. Considering benefit increases in AB 749 still are kicking in, the schedule is likely to become outdated annually, making the triennial mandated adjustments potentially very expensive.

Did we say litigation?

Furthermore, the quality and relevance of the data that the initial schedule will be based on appears highly suspect, given that the data predate the AB 749 benefit increases entirely. And the rating process for that time was based on a system that no longer exists, especially as it relates to the effect of the treating physician presumption and the quality of ratable reports.

Over time, PD cases will become more expensive, even though fewer in number. As wages inflate and the average weekly wage maximum stays constant, more workers will have more uncompensated wage loss, even with AB 749 benefit increases.

The RAND methodology, to the extent anyone other than RAND and a few other chosen actually understand it, also raises interesting questions about wage loss data from those who are permanently totally disabled or who have been awarded a life pension, because their benefits are indexed. The data from these cases really are not added appropriately to the mix for the rest of the claims. Furthermore, these high-cost claims – which, by the way, got even more expensive with SB 899 – also pose the greatest threat for litigation, because they are statistically dissimilar from the rest of the claims they are lumped together with.

Did we say litigation?

Methodological issues aside, the RAND study, and the likely new rating system, are really nothing more than a correlation between specific body injuries and uncompensated wage loss. The industry has heard this many times in many different reports.

To look at it in a more accurate way, however, the new schedule will reduce to a formula a number that reflects the frequency of injuries to specific body parts to wage earners by classification. Consequently, injuries will produce higher ratings if, over all, there is a higher frequency of that injury within classifications of employment that have higher wage earners. Higher wage earners, in turn, will be measured by the difference between their average weekly wages and the maximum average weekly wage established by statute used to calculate maximum PD benefits. See where this is going?

But these are minor details that will work out over time, say about five years or so. That reality, however, is lost on nervous legislators and anxious business owners who feel that savings from this yet unknown system should be immediate and profound.

Well, before gloom and doom fully settle in, consider the following. The RAND study and the task for the administration is to make a permanent disability rating system capable of relatively uniform application and able to minimize disputes. The new schedule is intended to link an impairment rating generated by the AMA Guides to an age and occupational modifier. The occupational modifier will be based, likely in large part, on the RAND study. Consequently, there is little room for doubt on how the new PDRS will be applied, even if there is significant doubt as to how the numbers in the new schedule have been derived. In other words, if “it” produces the desired result, does it really matter what “it” is?

Key to the success of the new PDRS will be how quickly the community understands the difference between the current method of evaluating impairments and that required under the AMA Guides. Judges, raters, evaluators, claims professionals and treating physicians will have to take a crash course on the Guides, and the sooner the better. Promised savings from PD reform won’t occur by application of the mysterious uncompensated wage loss concept but by reduced PD frequency due to application of the AMA Guides.

Unfortunately, there is still reason for concern even if the justification for the new PD schedule is blissfully irrelevant. The Labor Code states that the ratings derived from the schedule are “prima facie” evidence of the extent of permanent disability and impairment. On a case-by-case basis this means that the employer or the injured worker may present evidence that the rating derived from the application of the schedule is not correct. Will parties use this to undermine the new schedule? Likely so. Will the Legislature be asked to change the “prima facie evidence” to a conclusive presumption? Possibly. Will this have to be resolved in the courts, regardless of what the Legislature and the administration do? Definitely. Did we say litigation