Permanent Disability Redefined

Saturday, September 9, 2006 | 0

By Michael Sullivan

Ed. Note: This is the sixth in a series of articles. The prior articles can be accessed by clicking on the titles in the side bar at right.

A number of changes have been made to the concept of permanent disability.

A. Continuity of Payments

Labor Code Section 4650(b) provided that if injury caused permanent disability, the first payment was to be made within 14 days after the last payment of temporary disability indemnity. It was provided that where the standard of permanent disability could not be determined at the date of the last payment of temporary disability, the employer nevertheless should commence the timely payment required of permanent disability.

New language was added here to reinforce the requirement of continuous payments without a break. It is indicated that "When the last payment of temporary disability indemnity has been made pursuant to subdivision (c) of Section 4656, and regardless of whether the extent of permanent disability can be determined at that date, the employer nevertheless shall commence the timely payment required ..." Payment is still to be made based upon a reasonable estimate of the amount due at the end of the period for the payment of temporary disability, regardless of whether the permanent disability can be precisely defined.

This caused a great deal of trouble. There appears to be no more "PD delays." Often adjusters receive notice that the applicant is permanent and stationary, but no work restrictions or impairment is offered. It seems that under this standard, at least a minimum permanent disability must be advanced unless the adjuster can justify a determination that there is no permanent disability.

B. Permanent Disability Redefined

According to Labor Code Section 4600(a), permanent disability was determined based upon the nature of the physical injury or disfigurement, the occupation of the injured employee, his or her age at the time of the injury, and the employee's diminished ability to compete in an open labor market.

This has changed. No longer is permanent disability based upon an assessment of the applicant's loss of ability to compete in an open labor market. The new standard for permanent disability is what the applicant's lost future earning capacity is as a result of the injury. What this exactly means is unfortunately still unclear, and is the subject of continued speculation.

Furthermore, the "nature of the physical injury or disfigurement" is now to incorporate descriptions and measurements of physical impairments and corresponding percentages of impairments that have already been published in the American Medical Association's Guide to the Evaluation of Permanent Impairment, Fifth Edition (AMA Guides). This is a tremendous change, and represents an attempt to rein in the perceived variation in permanent disability ratings for cases with the same objective findings. While (as discussed below) the new permanent disability rating schedule was the subject of emphatic controversy, the objectification of permanent disability was less controversial. There has been some grumbling that the objective standards of the AMA Guides are illusory, and that they were never meant to serve as the basis for solving litigated disputes. However, a change was needed, and that seems to be generally accepted.

The days of speculative work restrictions being described by doctors and interpreted by raters in order to serve as the basis of permanent disability assessment are rapidly disappearing. Now, the AMA Guides are used with tremendous detail, and what is objective about diagnostics and the physical examination serve as the basis for an impairment rating. Each and every body part has a chapter, and a method for determining impairment based on objective evidence and the physical exam. There is a chapter on pain, and chapters on general use. A great deal of discretion has been taken out of the hands of examining physicians.

The process is just beginning, but there are almost endless possible issues presented by the existence of this very thick book, the AMA Guides. Applicant's attorneys are scouring the AMA Guides to find ways to attack its use when it suits their purposes. There will no doubt be litigation on a variety of issues for decades to come. It has even been proposed that the AMA Guides themselves allow a physician to go outside the bounds of the Guides where appropriate.

Using the AMA Guides will likely become an area of specialized expertise. Although classes and seminars are everywhere, this can often be a case of a little knowledge being a bad thing. In a national study done by Bringham and Associates, 80% of all ratings were incorrect; 89% of those were too low. In the experience of many practitioners, most of the ratings done by physicians in their own reports are wrong.

Work restrictions are still needed for return to work considerations, as well as implementation of vocational rehabilitation or the voucher. Work restrictions are needed in medical reports and are consistently being provided. However, disability is no longer about work restrictions. It is about impairment, measured by a consistent standard as objectively as possible.

The New Permanent Disability Schedule

Under the new Labor Code Section 4660(b)(2), the administrative director was mandated to produce a new schedule for rating permanent disabilities. This happened, and a plethora of regulations were modified in order to produce it. The new rating schedule is now in common use.

This has perhaps been the single most controversial part of Senate Bill 899 since it began. The strong perception has been that the new rating schedule produces a disability far below what was previously allowed. As described in the prologue to this booklet, studies have been done and allegations made regarding the alleged unfairness of this schedule. The complaint is that it was the intention of SB 899 to objectify permanent disability, but not reduce it dramatically across the board. Interestingly, the anger and controversy centers primarily not on the statutory changes in the law, but rather the schedule itself, which is an administrative creation. Andrea Hoch, the administrative director who created and published the schedule, was charged with abusing her discretion and disregarding directives given by the statutes.

This schedule is intended to produce a percentage measure of the applicant's diminished future earning capacity. It begins with the impairment as dictated by the AMA Guides, and then adjusts that number three times, to produce a final permanent disability percentage. Adjustments are made for age, occupation, and -- a whole new category is created here -- future earning capacity loss. This last adjustment exists in recognition of the fact that the AMA Guides do not consider the impact on work when assessing impairment. Thus, there needs to be an upward adjustment in order to compensate.

Most practitioners are aware of the string of numbers characterizing a typical rating. The new system is not so different. There is a new way of characterizing body parts and producing a stating number on the string, and of course there is now a third adjustment. There is an entirely new way of calculating psychiatric impairment; now the Global Assessment of Functioning (GAF) score is used as the basis for this. The multiple disability table has been replaced with a combined values chart. Value decisions are made by the schedule on the subject of pain and resulting impairment. The use of this schedule is just beginning, and we certainly will see issue after issue raised about its use in the future.

According to Labor Code Section 4660, the administrative director was to create the new permanent disability schedule based upon the Evaluation of California's Permanent Disability Rating Schedule Interim Report. This was published in 2003 by the Rand Institute. She was also to rely on "data from additional empirical studies." The accusation has been made that this was not done, and a wide campaign has been mounted challenging the legitimacy of this schedule. That includes media attacks, legislative sessions and proposals, and challenges in the courts. The Office of Administrative Law (whose approval was required) put out a memo supporting the enactment of the emergency regulations that created the schedule. It was pointed out that the legislature mandated its issuance, and that the administrative director had used "all available relevant information".

Thus far, the schedule has survived, but it remains under attack in all three areas. Hoch, in seeking confirmation as administrative director, was a target. She was confirmed, but in that process assurances were made that the schedule would be looked at and possibly revised. The current acting administrative director, Carrie Nevans, stated that sufficient empirical data about the issue of whether the new schedule indeed unfairly reduced permanent disability benefits will be available, and the earnings capacity adjustment numbers will be reviewed, only after July of 2006. Civil court challenges have failed, and the issue has been brought at the WCJ level; it is just a matter of time before this is reviewed. Legislative efforts continue. It may be that at least a revision of this schedule is inevitable.

Application of the New Schedule

Given the allegedly low numbers, the application of the new schedule has been a huge issue in every day practice. Labor Code Section 4660(d) sets the standard for this. It states that:

The schedule ... shall apply prospectively and shall apply to and govern only those permanent disabilities that result from compensable injuries received or occurring on and after the effective date of the adoption of the schedule ... For compensable claims arising before Jan. 1, 2005, the schedule as revised ... shall apply ... when there has been either no comprehensive medical-legal report or no report by a treating physician indicating the existence of permanent disability, or when the employer is not required to provide the notice required by Section 4061 to the injured worker.

The schedule was published before Jan. 1, 2005. In the eyes of at least one local judge, this language means that the new schedule does not apply to those cases with dates of injury before 2005 (Aldi v. Carr (2006) case number SFO 0485703). We do not agree, and in our experience, neither does most of the community. The statute sets out that the new schedule applies to all dates of injury. However, a case may still fall into the old schedule if one of three exceptions are met. The DWC published a clarification letter in August 2005 that supports this idea.

1. There is a "comprehensive medical-legal report" done in the case before Jan. 1, 2005, that indicates the existence of permanent disability.

2. There is a treating physician's report done before Jan. 1, 2005, that indicates the existence of permanent disability.

3. The defense before Jan. 1, 2005, is required to provide the applicant with notice under Labor Code Section 4061. That section provides that "together with the last payment of temporary disability" the applicant is to be sent a notice. Therefore, the question is whether the last payment of temporary disability was made before Jan. 1, 2005.

There is the possibility that any comprehensive medical-legal report done before Jan. 1, 2005, will suffice to invoke the old schedule. The language is awkward here: "there has been either no comprehensive medical-legal report or no report by a treating physician indicating the existence of permanent disability." Does the requirement of a finding of permanent disability apply to both treating reports and QMEs, or just the treating doctor reports? The defense should take the former position.

The statutory scheme arguably contemplates application of the old schedule where there some idea of permanent impairment or at least P&S status before Jan. 1, 2005. There is also the question of what constitutes a report that indicates the existence of permanent disability. Does this indication have to explicit, or will evidence of serious pathology such that no reasonable person could envision zero permanent disability be sufficient?

We will no doubt be seeing cases on all of this in short order. In the meantime, we are left with a variety of issues. What exactly constitutes the "last payment of temporary disability?" What does it mean that a medical report, whether medical-legal or treating in nature, be "has been?" Sometimes reports are not received until well after the exam. Sometimes reports are not written, and decisions regarding the case are not made by a doctor, until well after the exam. In the writ denied case of Biller v. WCAB (2006) 71 CCC 513, a report was written before Jan. 1, 2005, but was signed and served after that date. The new schedule was used in this case.

Applicant's attorneys and physicians have almost universally tried a tactic that has not been accepted by the defense, and in our experience, by the judges. A series of reports issued in December 2004 in almost every case that was still the subject of temporary disability. The report would attempt to make a finding of permanent disability even without a permanent and stationary status. The report would state that there was indeed permanent disability, or that it was certain that permanent disability would exist. There is not citable case law on this yet, but in Daniel Vera v. Sapper Construction (case number SDO 0318989), the board not only supported a multiple level analysis of when the new schedule applies, but also specifically refused to recognize a treating doctor's report which used just this tactic.

Getting Away from the Schedule

Applicant's attorneys have proposed ways to get around the use of the schedule if it is accepted as legitimate. It should be said first, though, that they may not always want to. Despite the hue and cry over the relative impact of the schedule, at one convention the audience was advised to accept use of the new schedule in heart and psychiatric cases. In some cases, the new schedule can indeed produce higher permanent disability ratings than the old.

The main strategy proposed here is to introduce evidence extrinsic to the rating schedule. The argument runs that the schedule may not in every case fairly demonstrate the actual permanent disability as newly defined, i.e., the applicant's loss of earning capacity. There is some precedent for this. Labor Code Section 4660(c) allows for the schedule to serve as "prima facie evidence of the percentage of permanent disability". This language did pre-exist SB 899.

On the other hand, Labor Code Section 4660(b) states that "... an employee's diminished future earning capacity shall be a numeric formula..." (emphasis added) and goes on to describe the schedule from there. This language seems to require that the earnings capacity be defined by the schedule. This language did not exist prior to SB 899, and therefore any prior case law on the point may not be effective any longer.

Assuming that this statutory burden is overcome, applicant's attorneys will rely on cases such as the well-known and often used LeBoeuf v. WCAB (1983) 48 CCC 587. In that case, a finding of permanent disability was set aside because the applicant's inability to complete vocational rehabilitation had not been considered. In accordance with this thinking, the schedule is certainly only a prima facie showing of permanent disability. In fact, in LeBoeuf, the court emphasized that the applicant's vocational retraining was an important factor that should be known before permanent disability could be properly assessed, because it certainly could affect his ability to compete in the open labor market. The definition of permanent disability has changed. Absent statutory prohibition, however, the logic arguably remains the same. Post SB 899 there is one writ denied case where this kind of evidence was allowed. This is County of Los Angeles v. WCAB (Harun) (2005) 70 CCC 1339.

Applicant's attorneys have visualized a system wherein a vocational expert is called in every case, preferably testifying by way of written report. In this version of reality, which does seem to exist in some other jurisdictions that use the AMA Guides, the parties agree on a vocational expert just as they would on an AME. The expert compares the disability with the applicant's former job duties, experience, education, and other relevant factors, in light of the impairment as described by medical experts. Preferably some scientific data is used. He or she then produces an opinion regarding the percentage loss of earning capacity suffered by the applicant. It is argued that the schedule does not accurately reflect the applicant's loss based on this extrinsic evidence.

Applicant's attorneys are serious about this, and have put on witnesses of this sort in selected cases. One local judge allowed the extrinsic evidence in, and made a finding in excess of the schedule. Naturally, the defense has shown little tolerance for this. One problem which may be helping to deter these sorts of actions is: who is going to pay for the expert? This is not medical-legal evidence. The applicant's attorneys are looking at Labor Code Section 5811, and are hopeful this will be considered a justifiable cost. However, they may have to front the expense in these sorts of cases.

It was pointed out that the age adjustment in the schedule remains the same. Since the definition of permanent disability has changed from loss of ability to compete in the open labor market to a loss of earning capacity, arguably the age adjustment should have changed completely. Being young reduces the permanent disability per the schedule. However, while being young was an advantage in terms of ability to compete, it may provide for a greater loss of earning capacity because there is much more time to work. Also, the occupational variant has been called into question given this change of definition, with arguments along the same lines.

C. Increase in Permanent Disability for Serious Injuries

Labor Code Section 4658 lays out the number of weeks of permanent disability which are to be paid depending on the percentage of permanent disability. New subsection (d)(1) sets forward a new standard here. This Labor Code applies to injuries on or after Jan. 1, 2005.

For those injuries which result in permanent disability of 70% to 99.75% (life pension cases), the number of weeks for which permanent disability is paid is raised to sixteen. This is a dramatic increase from prior allowances.

D. Permanent Disability Benefits Modified for Return to Work

Labor Code Section Section 4658(d)(2) and 4658(d)(3) contain a new incentive program to return injured workers to their job, or to a modified or alternate position. Changes were made by SB 899 in regards to the return to work program attempted in earlier reforms. Revisions of Labor Code Section Section 62.5 and 139.48 essentially gave up on those former programs. There are also in the works proposed regulations, numbered 10001 through 10003, which clarify certain aspects of the new program and provide forms to be used. At this writing, those regulations are in their third draft form, and have not yet been adopted. The practitioner will have to be aware when they are adopted, as a failure to use the required forms may invalidate any offer by the employer to return to work.

Labor Code Section 4658(d)(2) specifies that the applicant may receive an increase in permanent disability if he or she is not offered the former regular job, or modified or alternative work. Subsection (d)(3) also decreases permanent disability if the offer is made. The increase applies if the employer has at least fifty employees. The decrease applies regardless of the size of the company. This is not such a good deal for the applicants.

The employer's offer of modified or alternative work is only valid under certain conditions. The offer of work must be for at least a 12-month duration. It must be work within a reasonable commuting distance, the pay must be at least 85% of what it was for the regular position, and the work must be within the applicant's capabilities. If the applicant is a seasonal worker, proposed regulation Section 10002(g) provides for work to be offered within a year, under reasonably similar conditions.

Further guidance is given by Section 4658.1, subsections (d), (e) and (f). Subsection (d) specifies that increasing working hours does not count for purposes of specifying comparative wages. Subsection (e) specifies that when determining the actual wages and compensation, the minimums and maximums for purposes of permanent disability are not considered. Subsection (f) indicates that the reasonable distance of the employee's residence may be waived by the employee, that any objection is deemed waived if the employee accepts the work and does not object to the location within 20 days of being informed of the right to object; and finally, if the offered work is at the same location and the same shift as the employment at the time of injury, it is conclusively deemed to be a non-issue.

If the offer is not made, the applicant is entitled to a 15% increase in the payments of permanent disability. Note that this is not a 15% increase to permanent disability in general. Rather, it is a 15% add-on to each check sent to the applicant for permanent disability following the close of the 60-day period. On the other hand, if within the same 60 days the employer does offer the applicant regular, modified or alternative work, each permanent disability payment made after the date of the offer is decreased by 15%. If the applicant is terminated by the employer before the end of the permanent disability payout, the decrease is eliminated and payments are further increased by 15%. If the applicant voluntarily terminates employment, he or she does not get the increase, and the decrease stays in place.

Problems in Application

The offer must be made within 60 days of permanent and stationary status. This can be burdensome to adjusters, who sometimes struggle to obtain work restrictions from physicians who issue PR-2 reports mentioning only that P&S status has been achieved. Note that the statute provides for both the increase and decrease contingent only upon the offer, and not the return to work. If the applicant returns to work within sixty days from the P&S status, it is reasonable to assume that an offer was made and accepted, even if there is no documentation to that effect. However, one could envision a situation where the offer was not made on time, and the injured worker returned to work after the 60-day period expired. In that case, applicant attorneys will argue that there must be a 15% increase, and of course no decrease.

Further, this could get a bit tricky as the permanent and stationary status is an issue of medical fact, and one often in contention. One could envision multiple problematic scenarios here. One possibility: an offer could be made in good faith, following the issuance of a P&S report by a treating doctor. Later a QME could reveal that the P&S date was considerably earlier. On the face of it, a 30% difference in permanent disability could arise as a result.

Proposed Regulation Section 10002(c) discusses the situation where the claims adjuster relies on a report for P&S status, and an offer is made. Later a dispute arises as to the actual P&S date. In that event, the adjuster may enforce the 15% decrease until there is a final adjudication of the issue. If the applicant proves a later P&S date, he or she is reimbursed until another offer is made. Also, if the defense wins the issue, the applicant gets reimbursed up until the date the determination is made. There doesn't seem to be much of a point to withholding the money under this scheme, except for the period between the determination and the new offer. Of course, if the applicant wins the issue, most often there will be back owed temporary disability for that period anyway.

When does the adjusted payment begin? According to subsection (d)(2)the increase only begins after the 60 days has passed to make the offer of work. So only the remaining payments need be adjusted. The employer therefore has some time without penalty to analyze the matter and make a decision. A decrease goes into affect according to subsection (d)(3) "from the date the offer was made".

This structure is disparate from other areas of the law. The provisions in the 2003 legislation respecting modified or alternative work in the "voucher" system had provided for an offer to be made to the applicant at the end of temporary disability payments - not the permanent and stationary status as specified in these statutes. Employment and labor law requirements of course permeate the process at every stage, but the requirements of permanent accommodation apply as of the date the work restrictions are assessed and communicated. This is made even more interesting by the new Labor Code Section 4658.1. This defines regular work, modified work and alternative work, and lays out the conditions under which these terms may be properly utilized for purposes of employing an increase or decrease in permanent disability as noted herein.

There seems to be general agreement that this new standard applies only to dates of injury on or after Jan. 1, 2005. The proposed regulations use that date. However, this consideration is subject to the extremely confusing Labor Code Section 4658(d)(4). That indicates that "the schedule provided in this subdivision" is to take effect for all injuries on or after April 30, 2004. It also provides that injuries before that date also are subject to this "schedule," if one of the three exceptions outlined in Labor Code Section 4660 is met. It is very confusing as to what this refers. It may refer to the number of weeks specified in subsection (d)(1), but that subsection explicitly refers only to dates of injury on or after Jan. 1, 2005. If it is intended to speak to the return to work program, arguably the 15% increase/decrease could have an earlier date of application.

It is important to be aware that applicant's attorneys are making quite a bit of noise about the obligations of the employer under the Fair Employment and Housing Administration (FEHA) and Federal requirements as well. Discrimination against a disabled person can subject an employer to suit. With the subtraction of vocational rehabilitation from the system, this issue has been pushed to the forefront. Although the obligations of the employer to reasonably accommodate such workers has been around for a long time, the removal of vocational rehabilitation has given employees more incentive to engineer cases so that they can return to work.

Note that the insurance adjuster has to work with the insured to provide any offer of return to work. This can become complex and difficult because of the employer's independent obligations in this area. The obligation of the employer is complex and burdensome. Meeting the requirements of this return to work program is not sufficient to discharge those obligations.

Attorney Michael Sullivan can be reached by e-mail at mike@mikeslaw.com, or by phone at (310) 337-4480.

-------------------

The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.