August 2004 Bulletin

Workers’ compensation: What orthopaedic surgeons need to know

Why reform is needed

By J. Mark Melhorn, MD

One of the hot topics in every state legislature is workers’ compensation reform. The anguish is initiated by the costs to society and the proposed solutions, but what is workers’ compensation and why does it need to be reformed?

Workers’ compensation is the oldest social insurance program in the United States, adopted in most states during the 1910s. It is a no-fault system, meaning that injured employees need not prove the injury was someone else’s fault to receive benefits for an on-the-job injury. The workers’ compensation system is premised on a trade-off between employees and employers. Its no-fault structure was designed to, and in fact did, eliminate then-prevalent litigation over whether employers were negligent in causing workers’ injuries. Current litigation issues center on whether the injury was sustained on-the-job, what benefits the injured worker is entitled to receive, and if the individual can return to gainful employment.

Although the laws on workers’ compensation on each state are different, all systems have three basic parts: benefit structure, benefit delivery and benefit financing.

Trends in Worker's Compensation Payment


% Total Payments from Worker's Compensation


Range in Regional Divisions

National Average

1992 - 1993

16% - 23%


1994 – 1995

15% - 22%


1996 – 1997

15% - 21%


1998 - 1999

15% - 21%


2000 – 2001

15% - 22%


Based on AAOS member surveys

Benefit structure

The benefit structure defines what injured workers are entitled to receive when they sustain an injury “arising out of and in the course of” their employment. There are six basic types of workers’ compensation benefits available depending on the nature, date and severity of the worker’s injury and modified by each state’s specific legislation: medical care, temporary disability benefits, permanent disability benefits, vocational rehabilitation services, supplemental job displacement benefits and death benefits.

Initial efforts at reform focused on reducing costs, specifically medical care costs. Reform measures included limiting visits and developing medical fee schedules. This approach had limited impact because more than two thirds of total average costs per case are nonmedical expenses. Practice guides have been suggested as another way to limit costs, but unfortunately, evidence-based medicine to support specific treatment patterns may not be available for several years. Yet another approach was to legislate changes in benefits by lowering caps or limiting eligibility for other benefits.

Benefit delivery and financing systems

Unlike most social insurance programs, workers’ compensation is administered primarily by private parties, not by a government agency. The state’s role is to oversee the provision of benefits; provide information and assistance to employees, employers and others involved in the system; and resolve disputes that arise in the process.

Benefit administration is handled primarily by insurance companies or self-insured employers. Most workers’ compensation claims are handled expeditiously, without dispute or litigation. Usually, these are smaller claims (which account for 75 percent of all claims); medical care and a few days of disability may be all that’s involved.

It is the other 25 percent of claims that are problematic. They account for more than 80 percent of the total costs, usually have significant periods of disability and involve litigation. Most disputed or “litigated” cases are settled using a compromise approach. The settlement may be a running award or a lump sum. Commonly, fees for defense attorneys are not regulated and fees for the plaintiff’s attorneys are limited to 30 percent of the settlement plus expenses. Although establishing legal fee schedules has been discussed, no state currently has one. An argument in their favor says that legal fee schedules could reduce indirect costs and speed resolution of a case.

The benefit financing system is the way in which employers finance their liability for workers’ compensation benefits. The three most common benefit financing systems are self-insurance, private insurance and state insurance.

The costs

Taking into account both direct and indirect costs associated with workers’ compensation injuries—such as regulatory compliance, reduced productivity and loss of customers due to errors made by replacement workers—the total yearly cost of all workplace injuries is estimated at well over $1 trillion or 10 percent of U.S. gross domestic product. According to the National Academy of Sciences, musculoskeletal disorders (MSDs) are an important national health problem. MSDs (injuries and illnesses) of the arm and back resulted in more than one million workers missing time from their jobs each year, at a cost of more than $50 billion a year.

In 2002, the Bureau of Labor Statistics reported that 29 percent of all MSDs were in the services industry, and 21 percent were in manufacturing. Debates over causation and subsequent financial responsibility have delayed the opportunity to provide effective medical management and reduce disability by appropriate, early return to work for workplace-associated musculoskeletal pain.

Although most people consider injuries and illnesses to be the same, the distinction between them, particularly regarding workplace disabilities, is important for both the patient and the physician. Occupational injuries result from a work-related event or from a single instantaneous exposure in the work environment. Occupational illness results from any abnormal condition or disorder (other than one resulting from an occupational injury) caused by exposure to a factor(s) associated with employment. Cumulative trauma disorders such as carpal tunnel syndrome and other MSDs fall into this category. Unfortunately, these illnesses are commonly described as injuries, which add to the confusion.

Although efforts are being made to reduce incidence rates for this category, disproportional higher costs are associated with workers’ compensation claims involving MSDs. In a review of 185,927 claims in the federal workforce, upper extremity MSDs had much higher costs for direct and indirect medical care because of the longer duration of treatment and greater work disability. Another study found that the mean cost per case for upper extremity MSDs was $8,070 compared to a mean cost for all other cases of $824. Bureau of Labor Statistics indicate that the median number of lost workdays for all cases in 1996 was five days, but cases of carpal tunnel syndrome had a median 25 lost work days.

The science

Unfortunately, many myths about work-related injuries have developed because of the difficulty of integrating risk factors for the individual and the workplace. Current studies demonstrate that occupational diseases involve multiple factors and that specific job tasks may represent a trigger for the individual at risk but are not the cause. This epidemiological evidence was used to support the suggested development of ergonomic standards in the workplace.

However, there is still insufficient science to resolve the causation debate. Consequently, the current legal definition of work compensability continues to apply. The individual is covered under workers’ compensation if the job contributes to or changes the injury or illness in any way or by a predetermined percentage. This definition adds little to the scientific understanding of causation and has often brought emotional issues to the debate.

Why orthopaedics?

What impact do workers’ compensation cases have on the average orthopaedist? Based on ongoing AAOS member surveys over the past 10 years, the share of an orthopaedic surgeon’s income received from workers compensation has remained constant at approximately 17 percent of total payments. Among nine regional divisions, the range is from 15 percent to 22 percent.

Orthopaedic surgery, by definition, is the medical specialty that includes the preservation, investigation and restoration of the form and function of the extremities, spine and associated structures by medical, surgical and physical methods. Therefore, the orthopaedist is ideally positioned by training to help improve the outcomes for workplace injuries.

Six tasks have been identified to improve occupational orthopedic care: