Damages for work injuries increasing — ‘lump sum culture’

Analysis

Damages for work injuries increasing — ‘lump sum culture’

The NSW workers compensation scheme is increasingly at risk of developing a costly ‘lump sum culture’, according to a report prepared for WorkCover by PricewaterhouseCoopers.

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The NSW workers compensation scheme is increasingly at risk of developing a costly ‘lump sum culture’, according to a report prepared for WorkCover by PricewaterhouseCoopers.

According to the latest actuarial valuation report for the scheme, liability for workplace injury (or common law) damages (WID) has continued to escalate in every valuation since June 2007, due to an increasing number of claims.

‘[This] is of particular concern given the risk associated with the development of a lump sum culture within in the scheme,’ the report said.

‘This could potentially lead to a significant deterioration in the Scheme’s financial position which would be extremely difficult to remediate.’

Costly attitudes and behaviour of claimants, etc  

In addition to ‘exacerbating’ the direct WID costs, the report said a lump sum culture would also indirectly increase the scheme’s costs via changes in the attitudes and behaviours of: 

  • ‘Claimants towards return to work, which may result in an increase in the continuance of claims on weekly and medical benefits in anticipation of receiving a lump sum.
  • Agents, via a redirection of staff and focus to managing an escalation in settling lump sums at the expense of injury management and return to work.
  • Providers, in particular legal providers, who play an important role of triggering the initiation of a WID matter.
Recommendations
 
In light of the risks associated with the movement towards a ‘lump sum’ culture, the report said that it is ‘imperative that WorkCover rapidly develop and implement an effective strategy to managing this emerging issue’. Namely, it is recommend that WorkCover:
  • ‘Review the guidelines to Scheme Agents to question medical assessments
  • Introduce more rigour in applying the threshold tests to establish entitlement to claim WID (i.e. WPI greater than 15%, proof of negligence, three year statute of limitations and demonstrated economic loss) and defending matters
  • Review legal cost guidelines.’
‘WorkCover may need to also consider the need for legislative reform in order to correct the significantly deteriorating lump sum experience,’ the report said.

‘A key risk to the next (and future) valuation(s) is that the emerging trends continue at levels beyond that allowed for in the current valuation basis.’

Other areas of concern
 
The report also identified other areas of the scheme that need to be addressed:
  • ‘Section 66 [Permanent impairment] — Over the last two and a half years there has been a significant increase in the number of Section 66 payments, especially those relating to top-up payments. We recommend that WorkCover investigate the drivers of this recent experience as it is currently resulting in increased settlement sizes and an increasing proportion of claims obtaining access to S67 [pain and suffering] benefits. In conjunction with recent experience in WID, this adds to our concern regarding the development of a lump sum culture.
  • Medical costs — During the period 2005–2009 inclusive, medical costs (including Allied Health) increased significantly above the rate of normal economic inflation. WorkCover has undertaken significant analysis to identify trends and outliers at a more detailed level and developed a strategy to address the issues identified.
During 2010 and 2011 WorkCover has specifically targeted some areas of medical expenditure based on their analysis and strategy. Monitoring reveals costs have been reducing in these areas. We recommend WorkCover continues to put emphasis on implementing its strategy. 
However, certain types of medical spend, including care costs, have continued to escalate. We recommend that WorkCover undertake further analysis in order to holistically understand the drivers, identify any possible issues and implement strategies to control this escalation.
  • Catastrophic medical claims — 113 open medical claims represent 23% of the total medical outstanding claims liability of the Scheme. WorkCover has previously undertaken a detailed file review of these claims. These file reviews have highlighted the lack of independent care need assessments, care plans, controls around expenditure and outcomes.
We recommend WorkCover now develop a strategy for better managing and caring for this significant subgroup of claims.
  • Front end Return to Work performance — In the two years to December 2009, Return to Work has deteriorated across all measures. During the first half of 2010, front-end RTW rates commenced reducing. However, over the twelve months to 30 June 2011, the Return to Work measures have stabilised. Underlying this result are varying levels of performance by Agents. We recommend that WorkCover continue to focus on improving the Scheme’s front end performance, especially as:
    • Some of WorkCover’s largest Agents do not appear to be improving
    • Early intervention and management can be vital in positive claimant outcomes, and
    • Upfront performance is key to maintaining stable break-even premium rates.’

 

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