Indiana Law Review The Guides To The Evaluation of Permanent Impairment and Workers' Compensation in Indiana Charles Richard O'Keefe, Jr.* Introduction Workers' compensation systems across the country are under severe strain.' The cost of medical care under workers' compensation has skyrocket- ed. From 1985 through 1989, general health care expenditures increased by 43.8% while health care expenditures for workers' compensation increased by 79.2%, almost twice as fast.^ Fraud has infected many systems. Experts believe that as many as twenty percent of all claims are fraudulent.^ Increased litigation is having a disastrous impact on costs and is diverting an alarming proportion of benefit dollars away from injured workers in some systems. "* Further, employee advocates and other groups have continued to push for expansion of workers' compensation laws to cover a continuously growing list of injuries and illnesses connected to workplace activity.^ State legislatures have reacted to these pressures by repeatedly amending workers' compensation laws. Indiana recently amended its Workers' Compensation Act^ ("Act") when Governor Evan Bayh signed House Enrolled Act 1517 into law on May 20, 1991.^ The new law introduced many significant changes to the Act, especially with respect to the permanent partial * J.D. Candidate, 1994, Indiana University School of Law—Indianapolis; B.A. Economics 1985, Beloit College; B.A. Government 1985, Beloit College. 1 . Ira Magaziner, President Clinton's Chief Policy Development Adviser, said at a recent meeting of the National Association of Manufacturers that "[t]he only thing worse than health insurance is workers' compensation. It's a mess. It's full of fraud and abuse and has huge adjudication costs." Mary Jane Fisher, Auto, WC Figuring Into Clinton Plan, Nat'l UNDERWRIT- ER, May 17, 1993, at 54. 2. Ruth Gastel, Workers Compensation, iNS. iNFO. iNST. Rep., Oct. 1992, at *2, available in LEXIS, COMPANY Library, IIABS File. 3. Peter Kerr, Vast Amount ofFraud Discovered In Workers ' Compensation System, N.Y. Times, Dec. 29, 1991, at Al. 4. Gastel, supra note 2, at *3. In California, for example, despite recent reforms, many cases, particularly stress-related claims, still are litigated. Statewide, the overall litigation rate reached a record 13.8 percent of total new claims reported during the second quarter of 1991, up 17 percent from 1989. ... A study of more than 1,000 claims settled in Kansas found that lawyers were involved in more than 70 percent of the cases. . . . Massachusetts is yet another state where costs have been driven up by litigation. Lawyers representing claimants made $86.6 million in fees in 1990, according to the state's Industrial Accident Board. 5. Gastel, supra note 2, at *7. 6. IND. Code § 22-3-1-1 to -12-5 (1988 & Supp. 1992). 7. Act of May 12, 1991, Pub. L. No. 170-1991, 1991 Ind. Acts 2426. 648 INDIANA LAW REVIEW Vol. 27:647 benefit scheme,^ which is one of the most complex and controversial aspects of any workers' compensation system.^ This Note examines Indiana's permanent partial benefit scheme and, specifically, the role played by the American Medical Association Guides to the Evaluation of Permanent Impairment {''Guides'') '° in determining an injured workers' level of permanent partial impairment. Part I begins the examination by briefly describing the origins of workers' compensation laws and the basic forms of compensation available to an injured worker in Indiana. Part II provides a brief general history and analysis of the permanent partial benefit and the theories which underlie its payment. Part III describes the permanent partial benefit in Indiana and how it was modified by House Enrolled Act 1517. Part IV then describes the role of the Guides in the rating process, addresses criticisms of its use as a tool to rate permanent partial impairment, and concludes that the use of the Guides should be mandated in Indiana. I. Origins And Forms Of Compensation A. The Origins of Workers ' Compensation Laws At common law, the only way employees could recover for workplace injuries was to sue their employers for negligence." Employers, however, had many powerful defenses at their disposal, including fellow servant fault, employee assumption of risk, and contributory negligence by the employee, which often precluded the employee from recovering damages. ^^ During the 19th century, the industrial base in the United States increased dramatically. This expansion was accompanied by a significant increase in workplace accidents and injuries. Common law recovery was time consuming, costly, and often resulted in employees and their families being denied compensation.'^ The "grossest deficiencies and inequities of the common law led to employers' liability laws, which restricted the employer's legal 8. Permanent partial benefits are those benefits which are paid to an injured worker when he sustains an injury that reduces his mental or physical capabilities. See infra note 41 and accompanying text. 9. Nat'l Comm'n on State Workmen's Compensation Laws, Report of the Nat'l Comm'n on State Workmen's Compensation Laws 66 (1972). 10. American Medical Association, Guides to the Evaluation of Permanent Impairment (4th ed. 1993) [hereinafter Guides]. 1 1. Gastel, supra note 2, at *7. 12. Eliza K. Pavaiko, State Timing of Policy Adoption: Workmen's Compensation in the United States, 1909-1929, 95 AM. J. OF SOC. 592, 593 (1989). 13. See Nat'l Comm'n on State Workmen's Compensation Laws, supra note 9, at 34. 1994 WORKERS' COMPENSATION 649 defenses."'"* Under these laws, however, employees were still required to prove employer negligence.'^ As an alternative to employer liability laws, workers' compensation statutes began to emerge in the United States in the early 1900's. The first workers' compensation law was enacted in New York in 1910, but was held unconstitutional the following year. '^ As a result of New York's efforts, ten states, led by Wisconsin, enacted workers' compensation laws in 1911.'^ By 1949, every state had enacted some form of workers' compensation legisla- tion.'^ Indiana's workers' compensation law can be traced to July 7, 1909 when Mr. Addison C. Harris presented a paper to the Indiana State Bar Association entitled, "Modem Views of Compensation for Personal Injuries."'^ The paper described the plight of injured workers and urged Indiana lawyers to consider reform of the law dealing with workplace injuries. ^^ The State Bar Associa- tion subsequently began drafting a workers' compensation plan to present to the Indiana General Assembly.^' From 1909 through 1912 the Association wrestled with this issue, and later joined with the General Assembly to produce Indiana's first workers' compensation legislation, entitled the 1915 Workmen's Compensation Act.^^ The current Indiana Worker's Compensation Act, as well as all other workers' compensation laws, reflects a compromise struck by employers and injured workers. An employer is obligated to provide limited compensation to workers whose injuries and illnesses arise out of and in the course of his employment, regardless of fault. ^^ Workers who were previously precluded from recovery under common law theories are thus guaranteed compensation. In exchange, an injured worker relinquishes the right to sue his employer for negligence,^'' and an employer's liability is thereby reduced. The scheme is 14. Id. 15. Id. 16. Ben F. Small, Workmen's Compensation Law of Indiana § 1.2, at 5 (1950) (citing Ives v. S. Buffalo R. Co., 94 N.E. 431 (N.Y. 1911) (rejecting the idea of liability without fault)). 17. Id. 18. Id. 19. /^. at6. 20. Id. 21. Id. 2X1. 22. Id. 23. Collins v. Day, 604 N.E.2d 647, 648 (Ind. Ct. App. 1992). 24. Gastel, supra note 2, at *6. The exclusiveness of workers' compensation as the injured workers' sole remedy is often provided by statute. The Indiana Act provides: The rights and remedies granted to an employee subject to IC 22-3-2 through IC 22-3-6 on account of personal injury or death by accident shall exclude all other rights and remedies of such employee, the employee's personal representatives, dependents, or next of kin, at common law or otherwise, on account of such injury or death, except for 650 INDIANA LAW REVIEW Vol. 27:647 not based on notions of tort or contract law, but is instead social legislation designed to aid workers and their dependents'^ and "shift the economic burden for employment related injuries from the employee to the employer and consumers of its products."'^ B. The Basic Forms of Compensation in Indiana Most workers' compensation claims involve the payment of wage replace- ment and medical benefits for injuries or illnesses arising out of, and in the course of employment.'^ The balance of claims involve either the payment of a permanent total disability benefit or a permanent partial impairment benefit. 1. Wage Replacement.—Indiana law requires employers to pay wage replacement benefits and provides in part: "Compensation shall be allowed on account of injuries producing only temporary total disability to work or temporary partial disability to work.'"^ The wage replacement benefit is payable to an injured worker for up to 500 weeks of disability or until the worker's medical condition becomes permanent and quiescent,'^ whichever occurs sooner. ^° The amount of the benefit depends on the worker's average weekly wage over the year preceding the date of the accident,^' subject to maximum wage levels set forth in the Act.-" remedies available under IC 12-8-6." IND. Code § 22-3-2-6 (Supp. 1992). 25. Small, supra note 16, § 1.2, at 2-3. 26. Collins, 604 N.E.2d at 648. 27. The phrases "arising out of and "in the course of are often the source of much controversy under the Act. These phrases emanate from the Act, which provides that employers and employees are "to pay and accept compensation for personal injury or death by accident arising out of and in the course o/ the employment." iND. CODE § 22-3-2-2 (Supp. 1992). "Arising out of refers to the origin or cause of the accident and "in the course of pertains to the time, place, and circumstances surrounding the accident. See, e.g., Tom Joyce 7 Up Co. v. Layman, 44 N.E.2d 998, 999-1000 (Ind. Ct. App. 1942). 28. iND. Code § 22-3-3-7(a) (Supp. 1992). Subsection (a) reads in its entirety as follows: Compensation shall be allowed on account of injuries producing only temporary total disability to work or temporary partial disability to work beginning with the eighth (8th) day of such disability except for medical benefits provided in section 4 [22-3-3-4] of the chapter. Compensation shall be allowed for the first seven [7] calendar days only if the disability continues for longer than twenty-one [21] days. 29. See Vantine v. Elkhart Brass Mfg. Co., 572 F. Supp. 636, 644-45 (N.D. Ind. 1983), aff'd, 162 F.2d 511 (7th Cir. 1985). If it is determined a worker's injury has become permanent and quiescent, and the employee has not fully recovered from his or her injury, the employee may be entitled to a permanent partial impairment benefit or a permanent total disability benefit. White V. Woolery Stone Co., 396 N.E.2d 137, 139 (Ind. Ct. App. 1979); see also infra Part III.B. 30. iND. Code ij 22-3-3-8 (1988). 31. Id. 32. iND. Code § 22-3-3-22 (Supp. 1992). 1994 WORKERS' COMPENSATION 651 The purpose of the wage replacement benefit is to provide injured workers with income during their disability from work." The untoward circumstance of a disabling injury and the resulting discontinuance of income catches many workers without adequate means of support. Absent the immediate financial assistance provided by a wage replacement benefit, many workers would be in financial jeopardy during their recovery. 2. Medical Benefits.—The employer must also pay medical benefits to the injured worker. Indiana Code section 22-3-3-22 provides in pertinent part: After an injury and prior to an adjudication of permanent impairment, the employer shall furnish or cause to be furnished, free of charge to the employee, an attending physician for the treatment of his injuries, and in addition thereto such surgical, hospital and nursing services and supplies as the attending physician or the worker's compensation board may deem necessary.^'' The liability of the employer for medical benefits is limited "to such charges as prevail in the same community for similar service to injured persons of like standard of living when such service is paid for by the injured person." ^^ Neither the employee nor the employee's estate have any liability to a health care provider for payment for services obtained under the Act.^^ Claims for such services must be made against the employer and the employer's insurance carrier.^^ Medical benefits are provided to ensure that injured workers are restored as nearly as possible to their pre-injury medical status, and also to assist in returning the injured worker to gainful employment as soon as possible."'^ 5. Permanent Total Disability.—A third basic form of compensation available to certain injured workers is the permanent total disability benefit. Indiana Code section 22-3-3- 10(b)(3) provides that an employee shall receive 500 weeks of benefits at the employee's temporary total disability rate for 33. Nat'l Comm'n on State Workman's Compensation Laws, Compendium on Workmen's Compensation 24 (1972). 34. IND. Code § 22-3-3-4(a) (Supp. 1992). 35. iND. Code § 22-3-3-5 (Supp. 1992). 36. Id. 37. Id. Prior to amendment by House Enrolled Act 1517 in 1991, see supra note 7, medical providers were allowed to "balance bill" employees for the portion of medical services not paid by the insurance carrier or employer. Thus, medical charges were infrequently challenged and there was suspicion that charges under workers' compensation were inflated and the result of cost shifting. With the amendment, several insurance carriers and employers are now challenging tlie reasonableness of medical charges in an attempt to control their medical costs. Telephone Interview with Douglas Meagher, Executive Director, Indiana Worker's Compensation Board of Indiana (Sept. 14, 1993). 38. John H. Lewis, Report to the Governor, Major Issues in the Indiana Worker's Compensation System 27 (Dec. 1990). 652 INDIANA LAW REVIEW Vol. 27:647 injuries resulting in permanent total disability. ^^ "To establish a 'permanent total disability', the workman is required to prove he or she 'cannot carry on reasonable types of employment.' The 'reasonableness' of the workman's opportunities are to be assessed 'by his physical and mental fitness for them and by their availability. ""*° 4. Permanent Partial Benefit.—The fourth type of compensation available to an injured worker is the permanent partial impairment benefit. Simply put, this benefit is payable to any worker who sustains an injury that reduces his overall physical or mental capabilities."*' The benefit is paid when the worker's physical condition is permanent and quiescent."*^ At the point of permanence and quiescence, temporary total disability benefits and medical benefits terminate."*^ II. History and Underlying Theories of the Permanent Partial Benefit Permanent partial benefit claims account for the majority of workers' compensation costs in most systems. "*"* In Indiana, only 2.5% of all cases involve a permanent impairment, yet the cost of permanent partial impairment claims represent more than 50% of total system costs."*^ Permanent partial benefits are also the most controversial and complex aspect of workers' compensation."*^ No other class of benefits has produced more variation among states or more divergence between statutes and practices. ''^ An injured worker who returns to work may be entitled to a permanent partial benefit based on physical impairment alone, disability caused by the impairment, or some combination of the two concepts depending on the state's statutory scheme. Impairment and disability are not synonymous in workers' compensation systems, and it is important to distinguish between the two concepts. Impairment refers to an "anatomical, physiological, intellectual or emotional abnormality or loss.'"*^ Disability refers to "inability or limitations in performing social roles and activities such as in relation to work, family, or 39. IND. Code § 22-3-3-1 0(b)(3) (Supp. 1992). 40. Rork V. Szabo Foods, 439 N.E.2d 1338, 1342 (Ind. 1982) (citations omitted). 41. Lewis, supra note 38, at 53. 42. See infra notes 102-03 and accompanying text. 43. Id. 44. Nat'l Comm'n on State Workmen's Compensation Laws, supra note 9, at 66. 45. Lewis, supra note 38, at 53. Permanent partial impairment benefits represent 27.3% of total system costs in Indiana. Individuals who receive permanent partial benefits however, also usually receive temporary disability and medical benefits, bringing the total cost of permanent partial cases to more than 50% of total system costs. Id. 46. Nat'l Comm'n on State Workmen's Compensation Laws, supra note 9, at 66. 47. Id. 48. Monroe Berkowitz & John F. Burton, Jr., Permanent Disability Benefits in Worker's Compensation 6 (1987) (citation omitted). 1994 WORKERS' COMPENSATION 653 to independent community living.'"*^ Workers' compensation systems that award benefits on the basis of disability involve determinations of the economic consequences of the injury. ^° Alternatively, systems that award benefits on the basis of physical impairment do not consider the economic consequences of the injury and focus only on medical issues regarding the extent of the injury.^' Disability and impairment represent the basic under- pinnings of three theories for paying permanent partial benefits: (1) actual wage-loss; (2) permanent impairment; and (3) earning capacity loss.^^ A. Actual Wage-Loss The earliest workers' compensation statutes paid permanent partial benefits based on the actual wage-loss theory." An actual wage-loss statute compares post-injury and pre-injury earnings and pays compensation for weeks in which actual post-injury earnings are less than pre-injury earnings.^"* Such a system has no scheduled losses. ^^ Although the earliest workers' compensation laws employed an actual wage-loss rationale, no such system exists today in its pure form.^^ Actual wage-loss systems were gradually eroded by certain changes in workers' compensation laws and practices, such as the introduction and expansion of scheduled losses." The first statutes incorporating loss schedules appeared in 1912.^^ A schedule is a list of body members with a number of weeks of benefits assigned to each member for its loss or loss of use.^^ The early schedules were justified on two grounds: (1) "the gravity of the impairment supported a conclusive presumption that actual wage loss would sooner or later result; and (2) the conspicuousness of the loss guaran- teed that awards could be made with no controversy whatever." ^° Initially, schedules were restricted to the loss or severance of major body members and did not cover partial loss or even total loss of use.^' The schedules were gradually extended beyond major body members to cover smaller and smaller 49. Id. at 8 (citation omitted). 50. Lewis, supra note 38, at 54. 51. Arthur Larson, Workmen's Compensation § 57.14(a), at 10-69 to 10-70 (1986). 52. Id. While the theories for payment of permanent partial benefits are analytically discrete, most systems are comprised of some combination of the theories. Lewis, supra note 38, at 57. 53. Larson, supra note 51, § 57.14(a), at 10-70. 54. Id. 55. Scheduled losses are discussed infra at notes 59-63 and accompanying text. 56. Larson, supra note 51, § 57.14(a), at 10-70. 57. Id. § 57.14(d), at 10-81 to 10-82. 58. Id. 59. See, e.g., IND. CODE § 22-3-3-10 (Supp. 1992). 60. Larson, supra note 51, § 57.14(c), at 10-78. 61. Id. ^ 57.14(d), at 10-82. 654 INDIANA LAW REVIEW Vol. 27:647 members, the back, internal organs, the voice mechanism, and the body as a whole.^^ In addition, schedules were extended to cover the partial loss of use of certain body members.^^ Workers' compensation systems also began to pay scheduled benefits in a lump sum rather than over a period of weeks, months, or years as originally intended.^'' This practice further obfuscated the underlying presumption of scheduled benefits, which was that the benefit represented future wage loss.^^ Workers came to view the lump sum permanent partial benefit as payment for a lost member,^^ and worse, often spent the benefit as quickly as they received it thereby retaining no means to cover lost earning capacity/^ Actual wage loss systems also faded from existence because they failed to address non-economic injuries. Under an actual wage-loss system, workers who return to their prior employment at the same level of pay, and who nevertheless experience tremendous difficulties in their personal life, receive no compensation for the non-economic loss they have suffered. ^^ In addition, the administrative cost of tracking an employee's future wages and accounting for changes in wage levels that are not caused by an injury also contributed to 62. Id. at 10-82 to 10-83. 63. Id. at 10-83. 64. Id. 65. Id. § 57.14(c), at 10-78. 66. Arthur Larson, Basic Concepts & Objectives of Workmen 's Compensation, in 1 Supplemental Studies for The Nat'l Comm'n on State Workmen's Compensation Laws 31, 33-34 (1973). Larson refutes any notion that an injured worker is entitled to permanent partial benefits due to his physical loss of function alone. This "school of thought," says Larson, came about as a "result of a combination of mistaken notions about the nature of schedule benefits." Id. at 33. Further, Larson states: This controversy is of prime importance in analyzing what is wrong with workmen's compensation today. The trend toward indiscriminate awards of small lump sums for small permanent partial injuries, the "give-the-poor-guy-something" attitude, and the perversion of lump-sum commutations from their original purpose to a facile way of getting a quick short-term disposition of a case satisfying to the immediate parties and their attorneys, adds up to a significant reason why the system is under criticism and in some instances is not doing the job it was intended to do. Id. at 34. 67. Id. 68. Lewis, supra note 38, at 56. Larson, however, rejects the inequity of this situation and asserts that "any argument based on genuine unfairness would have to assume that the injury was attributable to the fault of the employer, using fault in a genuine moral sense, rather than in some constructive legal sense." Larson, supra note 66, at 34. In this regard, Larson further states, "It would be certainly morally unfair to force the employer to pay the employee for a purely physical loss that the employee has brought upon himself by his own negligence or other misconduct." Id. Note, however, that failure to address non-economic losses attributable to an injury led the National Commission on State Workmen's Compensation Laws to recommend in its report that permanent partial benefits should include limited payments for permanent impairments. Nat'l Comm'n on State Workmen's Compensation Laws, supra note 9, at 69. 1994 WORKERS' COMPENSATION 655 the system's demise.^^ In other words, compensable changes in wage levels had to be distinguished from non-compensable influences like inflation, the employee's motivation to work, and intentional under-employment7° B. Pure Impairment The second theory for paying permanent partial benefits is pure impair- ment. The focus of this theory is the medical consequences of an injury. The impairment benefit is thought of as a proxy for lost earning capacity or actual wage loss,^' or a method of compensating injured workers for losses they experience in their personal life unrelated to work.^^ Pure impairment theory requires an injured worker's condition to be evaluated and rated for loss of physical function or ability to function. The rating is then converted into a benefit payable to the employee. The attractiveness of this system is its simplicity. The only two questions to answer are: (1) Is there a permanent impairment?; and (2) What is the level of that impairment?^^ The opportunity for dispute is minimal, and as a result there is generally less litigation than in other systems.^"* The major criticism of a pure impairment system is its failure to directly address the economic impact of an injury.^^ For example, a stenographer whose hand is amputated sustains a greater economic loss than a lawyer with the same injury because the stenographer is unlikely to return to his vocation, yet both are equally compensated under a pure impairment theory. In addition, there is no guarantee that the method of rating permanent impairment will be uniform in a pure impairment system. The rating criteria may differ from doctor to doctor, or even if the same criteria are used, there is an element of subjectivity in the methods in which the criteria are applied to the rating process.^^ C. Earning Capacity Loss Earning capacity loss, the third basic theory for payment of permanent partial benefits, attempts to combine actual physical impairment with its economic effects to determine the employee's potential loss of earning capacity.^^ Such considerations as the individual's age and education, the 69. Lewis, supra note 38, at 56. 70. Id. 71. See John H. Lewis, Indiana's Workers' Compensation Program: The Inexpensive Model?, in JOHN BURTON'S WORKERS' COMPENSATION MONITOR, Sept.-Oct. 1991, at 5, 13. 72. Nat'l Comm'n on State Workmen's Compensation Laws, supra note 9, at 69. 73. Lewis, supra note 38, at 54. 74. Id. at 55. 75. Id. 76. Id. See also notes 236-67 and accompanying text. 77. Lewts, supra note 38, at 57. 656 INDIANA LAW REVIEW Vol. 27:647 impact of an injury on the employee's daily work activities, and the individu- al's work experience are considered in determining the permanent partial benefit/^ In the previous example of the stenographer and the lawyer, an earning capacity loss system is more likely to provide the stenographer with a greater benefit because of his inability to return to his vocation. Earning capacity loss systems also suffer from significant difficulties. Sorting out the multitude of factors that affect the benefit level is a cumber- some process, which typically produces prolonged settlement negotiations and, often, litigation.^^ Although experts claim that there is a movement to restore the centrality of the earning capacity loss theory, ^° the practical ability of this system to deliver benefits to those with the greatest economic loss has yet to be demonstrated.^' Increased litigation tends to consume benefit dollars to the detriment of injured workers, and prolonged settlement negotiations keep needed benefits from injured workers. III. Indiana's Permanent Partial Benefit A. History Generally speaking, Indiana's permanent partial benefit is based on pure impairment.^^ This has not always been the case. The 1915 Indiana Workmen's Compensation Act provided for permanent partial benefits based on disability, rather than impairment.^"' Recovery of the benefit was not based on "loss of a member, such as the loss of a limb, but . . . [on] the loss of earning capacity actually caused by the loss of the limb."*"* Scheduled losses were based on a presumption of diminished earning power extending through life.*^ Recovery for non-scheduled losses required proof of dimin- ished earning capacity because the section of the 1915 Act dealing with such losses referred only to disability.^^ In 1919 the Indiana General Assembly amended the section of the Act dealing with permanent partial benefits and replaced the word "disability" with 78. Id. 79. See id. 80. Larson, supra note 51, § 57.14, at 10-69. 81. See Lewis, supra note 38, at 57. 82. One important exception to this proposition is disfigurement. Disfigurement is compensable "[i]n all cases . . . which may impair the future usefulness or opportunities of the employee." IND. Code § 22-3-3-1 0(b)(7) (Supp. 1992). "Usefulness" and "opportunities" have been construed to require proof that the disfigurement interfered with the claimant's ability to earn a living. See Campbell v. Kiser Corp. & Diecast, Inc., 208 N.E.2d 727, 729 (Ind. Ct. App. 1965). 83. Centlivre Beverage Co. v. Ross, 125 N.E. 220, 221 (Ind. Ct. App. 1919). 84. Id 85. Id. (quoting In re Denton, 117 N.E. 520, 523 (1917)). 86. Id. 1994 WORKERS' COMPENSATION 657 the word "impairment" in every instance where the resulting condition was permanent.^^ Shortly thereafter, the amended Act was construed to allow permanent partial benefits for "physical impairment" and not just diminution of earning power for both scheduled and non-scheduled losses. ^^ Arguably, after the amendment to the Act in 1919 replacing the word "disability" with the word "impairment" Indiana's permanent partial impair- ment benefits were considered a proxy for lost earning power. For example, in his treatise, Workmen's Compensation Law of Indiana, Dean Ben F. Small defined impairment as "either a partial or a total loss of the function of some part or parts of the body, or of the body as a whole, with the result that work opportunities are limited." ^^ It is not clear, after the 1991 amendments to the Act by House Enrolled Act 1517,^° that this statement remains an accurate description of Indiana's permanent partial benefit as it exists today.^' B. Indiana's Current Permanent Partial Benefit Today, the payment of permanent partial benefits is governed by Indiana Code section 22-3-3-10.^^ Paragraph (a) covers complete losses, including amputations, blindness, enucleation of an eye, hearing, and the loss of testicles.^^ Paragraph (b) covers total loss of use, partial loss of use, pennanent total disability, whole body impairment, and disfigurement. ^"^ Paragraph (c) covers the same losses as paragraphs (a) and (b), but provides a different method of computing the permanent partial benefit for accidents occurring on and after July 1, 1991.^^ Indiana's impairment scheme under the Act can be roughly divided into scheduled and non-scheduled losses. Scheduled losses under the Act include total or partial impairment by amputation or otherwise to a finger, hand, arm. 87. See Edward Iron Works v. Thompson, 141 N.E. 530, 531-32 (Ind. Ct. App. 1923). 88. Id. 89. Small, supra note 16, § 9.5, at 247 (citations omitted). 90. See supra note 7. 91. The Report of the National Commission on State Workmen's Compensation Laws stated in its recommendation for reform of permanent paitial benefits that impainment benefits might be appropriate in a worker's compensation system. Nat'l Comm'n ON STATE Workmen's Compensation Laws, supra note 9, at 69. The Commission stated such benefits are justified because of loss incurred by a worker that is unrelated to lost remuneration. Id. Because the loss would have no relationship to wage loss, "there would be no necessity to link the value of the weekly benefits to the worker's own weekly wage." Jd. Interestingly enough, one of the changes made to the Indiana Act in 1991 involved removing the connection between the average weekly wage and impairment benefit levels. See infra note 142 and accompanying text. Therefore, the benefit now more closely represents compensation for impairment rather than lost earning capacity. 92. Ind. Code § 22-3-3-10 (Supp. 1992). 93. Id. § 22-3-3-1 0(a). 94. Id. ^ 22-3-3-1 0(b). 95. Id. § 22-3-3-10(c). 658 INDIANA LAW REVIEW Vol. 27:647 toe, foot, leg, eye, hearing, and the complete loss of one or both testicles.^^ Also included under scheduled losses are double amputations (both hands or feet) or the total loss of sight of both eyes.^^ Non-scheduled losses covered by the Act involve impairment to the whole body including injuries to the back, pelvis, internal organs, psychological impairment, as well as any other impairment to the person not covered by the scheduled losses. ^^ Permanent partial benefits are paid to employees for impairment attribut- able to injuries arising out of and in the course of their employment. ^^ The determination of impairment is completely distinct from the question of disability, and an employee may receive impairment benefits whether he is able to return to work or not. "'Impairment', as the word is utilized in the [Indiana] Workmen's Compensation Act, . . . connotes the injured employee's loss of physical fiinction.""^^ Disability on the other hand, refers to the injured employee's inability to work. '°' An injury must be permanent and quiescent before permanent partial benefits are paid.'^^ A finding of permanence and quiescence ensures that further medical benefits will not be required and prevents premature settlement or adjudication of claims. The permanence and quiescence of an injury are medical questions that must be established by expert testimony. '°^ Conse- quently, the employee is not allowed to testify regarding this issue. '^'^ The assessment of impairment must be based on the functional loss present at the point when the employee's injury has become permanent and quiescent, and not based on a concern for future functional loss.'^^ The degree of impairment, in contrast to the permanence of the impair- ment, is a mixed question of lay and expert medical opinion. Thus, the employee may testify based on his experience and knowledge. ^°^ Evidence of lost earning capacity and disability is admissible to prove or disprove impairment of body function. '°^ As a practical matter however, employee testimony is rarely relevant to the issue of impairment. Although statistics are not available, experience indicates that only a small percentage of claims 96. Id. 97. IND. Code § 22-3-3-1 0(c)(2). 98. Andrew C. Charnstrom, Words for Permanent Partial Impairment and Death in Worker's Compensation Law 1988 12 (1988). 99. iND. Code § 22-3-2-2 (Supp. 1992); see supra note 27. 100. Rork V. Szabo Foods, 439 N.E.2d 1338, 1342 (Ind. 1982) (citations omitted). 101. M at 1343 (citations omitted). 102. White v. Woolery Stone Co., 396 N.E.2d 137, 139 (Ind. Ct. App. 1979). 103. Kenwood Erection Co. v. Cowsert, 115 N.E.2d 507, 508 (Ind. Ct. App. 1953) 104. Id. 105. Sears Roebuck & Co. v. Murphy, 508 N.E.2d 825, 831 (Ind. Ct. App.), reh'g denied, 511 N.E.2d 515 (1987); see infra note 259. 106. Kenwood Erection Co., 115 N.E.2d at 509. 107. Small, supra note 16, § 9.5, at 246 (citing Miers v. Standard Forgings Co., 69 N.E.2d 180 (Ind. Ct. App. 1946)). 1994 WORKERS' COMPENSATION 659 proceed to a formal hearing on the issue of impairment where the employee's testimony would be heard. '°^ Most permanent partial impairment benefits are paid by agreement between the employee and employer, or their law- yers, '°^ subject to approval by the Worker's Compensation Board of Indiana (Board). "^ Thus, there is usually no opportunity for an injured worker to testify about the degree of impairment. The Board, as trier of fact, is given broad discretion to determine the level of impairment.'" The findings of the Board will not be disturbed on review unless, based upon substantial evidence in the record, reasonable men would reach a contrary conclusion."^ The Board may choose from the impairment ratings presented to it or compromise the values."^ The calculation of the permanent partial impairment benefit is simple but differs slightly depending on the date of accident. For accidents occurring prior to July 1, 1991, the benefit is calculated by converting the impairment rating into a number of weeks of benefits derived from either the schedule in the statute for scheduled losses or as a percentage of 500 weeks for non- scheduled losses."'* The value of each week of benefits is based on a percentage of the employee's average weekly wage."^ The number of weeks of benefits is multiplied by the weekly benefit, credit for wage replacement benefits is taken if appropriate, "^ and the portion accrued as of the date of the accident is paid in a lump sum with the remaining portion paid weekly until exhausted."^ For example: Suppose an employee sustains an injury that results in a ten percent permanent partial impairment to the left hand. Total loss of use of a hand is valued at 200 weeks, and ten percent of 200 weeks is twenty weeks. Assume that the employee was subject to the maximum compensation rate of $120 each week."^ The permanent partial impairment benefit would be $120 multiplied by 20 weeks, or $2,400. Until July 1, 1991, the maximum weekly wage for permanent partial benefits was $120."^ This positioned Indiana at the low end of a nationwide scale for payment of permanent partial benefits. '^° Observers complained 108. Telephone Interview with Douglas Meagher, supra note 37. 109. According to a telephone and income replacement survey conducted by John Lewis, 22% of all permanent partial claims have attorney involvement. See Lewis, supra note 71, at 12. 110. Telephone Interview with Rita Bradley, Claims & Statistics Director, Worker's Compensation Board of Indiana (Sept. 14, 1993); see IND. CODE § 22-3-4-4 (Supp. 1992). 111. See Huffman v. United States Steel Corp., 268 N.E.2d 1 12, 1 13 (Ind. Ct. App. 1971). 112. Rork V. Szabo Foods, 439 N.E.2d 1338, 1341 (Ind. 1982) (citations omitted). 11.3. Wilson V. Betz Corp., 146 N.E.2d 570, .572 (Ind. Ct. App. 1957). 114. IND. CODE § 22-3-3- 10(b)(6) (Supp. 1992). 115. iND. Code § 22-3-3-10 (Supp. 1992). 116. Id. 117. Id. 118. See Ind. Code § 22-3-3-22 (Supp. 1992). 119. Id. 120. Lewis, supra note 71, at 12. 660 INDIANA LAW REVIEW Vol. 27:647 that a low maximum benefit, coupled with impairment ratings determined by physicians, rendered Indiana's system deeply flawed and incapable of delivering appropriate benefits.'^' Throughout the late 1980s employee representatives pursued major changes in Indiana's workers' compensation system because of these and other perceived inequities. '^^ These factors provided the impetus for Indiana to reform its workers' compensation system. In 1990 Governor Evan Bayh appointed a Worker's Compensation Task Force (Task Force) to review the Indiana system and generate a comprehensive reform package to be introduced to the 1991 session of the Indiana General Assembly. '^^ Governor Bayh's administration sought reform based on the belief that numerous amendments had caused the Act to stray from its original intent, which was "to provide an injured worker a certain source of compensa- tion by eliminating the need to prove the employer's fault, while also providing the employer a relatively predictable level of financial exposure upon which it could seek insurance."'^"* Bayh's administration sought to simplify the law thereby making it more accessible and understandable to the persons it was intended to serve. '^^ The Task Force was comprised of seven individuals from management, labor, and government. '^^ Five committees were formed with appointees from business, labor, the legal and medical professions, and academia.'^^ These committees included Agency Infrastructure and Data Management, Cost, Self-Insurance, Medical Care and Physical Rehabilitation, and Compliance and Safety Initiatives.'^^ Each committee was charged with analyzing specific workers' compensa- tion issues and reporting their findings to the Task Force. '^^ Governor Bayh also retained John H. Lewis to conduct an independent evaluation of the Indiana system and to provide information and assistance to the Task Force and the committees. '^° Permanent partial benefits were analyzed by the Task Force, which adopted, by a 6-0 vote, recommendations proposed by Lewis. '^' 121. Id. 122. Id. at 5 ("Most of their concerns centered around the need for additional benefit increases, but they also included other issues such as the choice-of-physician mechanism, occupational disease coverage, and the ability of the employer or insurance carrier to terminate temporary total disability benefits at will."). 123. Release from Governor Evan Bayh, Governor of Indiana, New Governor's Task Force Announced (June 22, 1990) (copy on file with the Indiana Law Review). 124. Id 125. Id. 126. Id 127. Id. 128. Id. 129. Lewis, supra note 71, at 5. 130. Id. 131. Governor's Task Force on Worker's Compensation and Occupational Disease Laws Reform, Task Force Recommendations, 28 (Dec. 17, 1990). 1994 WORKERS' COMPENSATION 661 These findings were presented to Governor Bayh in the December 17, 1990 Task Force Recommendations Report and later became law with some modification, by the Task Force, of the benefit levels which were suggested by Lewis.'" As part of his analysis of the Indiana workers' compensation system, Lewis conducted telephone and income replacement surveys'" and conclud- 132. See IND. CODE § 22-3-3- 10(c) (Supp. 1992). Although increasing benefit levels for the most severely injured, the benefit schedule passed by the Indiana General Assembly actually reduced benefits for persons with low impairment ratings as compared to the previous schedule. [A]s a result of the manner in which the phase-in [of increased benefits] is structured, those injured during the period July 1, 1991 through June 30, 1992 who have an average weekly wage of $200 or more and an impaiiment of thirty-five percent or less of the body will receive less than they would have received under the old law. The level of impairment affected by this benefit reduction will decrease during the phase-in, until it reaches ten percent on July 1, 1994. Lewis, supra note 71, at 16. The phase-in structure referred to by Lewis is provided below: Dollars per Degree Degrees of Impairment Current 1-100 $ 600 7/1/91 7/1/92 7/1/93 1-35 500 36-50 900 51-100 1,500 1-20 500 21-35 800 36-50 1,300 51-100 1,700 1-10 500 11-20 700 21-35 1,000 36-50 1,400 51-100 1,700 Robert A. Fanning, Worker's Compensation—Changes in Defense Practice in WORKERS' Compensation 1991 24 (1991). 133. Lewis, supra note 71, at 12. The findings of these studies included among other things: (1) "Ninety-seven percent of those in the telephone survey returned to work"; (2) 843 workers who were permanently injured in the first quarter of 1986 were doing better economically than a control group of workers randomly selected from the unemployment compensation program data base; (3) attorney involvement was substantially lower than most jurisdictions at only 22%; (4) two percent of those who were employed were not making as much as they were at the time of the injury; (5) "Sixty four percent felt that they had no work restrictions as a result of their injuries"; (6) "Eighty-three percent returned to the same employer, and approximately fifty percent of those were still with that employer four years later." (7) Thirteen percent were not working and 8.3% consider themselves disabled and unable to work; (8) "the only factor that could be identified as providing any correlation between injury factors and post-injury income loss was the level of 662 INDIANA LAW REVIEW Vol. 27:647 ed that the Indiana system, although simplistic and low cost, had begun to accomplish several meritorious goals. '^'* A significant percentage of perma- nent partial benefits provided by the statute went to employees rather than attorney's fees and litigation costs. '^^ Lewis also concluded that Indiana "returns a very high proportion of permanently injured workers to substantial employment." '^^ To the extent that impairment benefits are intended to provide for future lost earning capacity or income, Lewis said: [I]t appears that there are relatively few permanent partial cases in Indiana that require income replacement assistance, or claimants who believe that their job abilities are any way affected by their injuries. For those who are suffering such losses, the impairment approach appears to be a reasonable way to predict who is likely to have the greatest [economic] need.'" The Indiana permanent partial benefit suffered from one major shortcom- ing according to Lewis. In his report to Governor Bayh, Lewis stressed that the benefit was one of the lowest in the nation. '^^ To correct this situation, Lewis rejected solutions such as replacement of the pure impairment system with a pure wage-loss or loss of eaming-capacity system because benefit levels would need to be increased significantly to enable such systems to deal with economic losses. '^^ He also noted that there was little evidence to suggest that such an increase would go to the injured worker because litigation would most likely consume much of the increase. '"'^ Lewis concluded that if there was an interest in trying to more closely tie permanent disability benefits to economic loss, the existing permanent partial benefit system should be retained, but restructured, so that those who suffer the greatest impairment and who are most likely to suffer the greatest economic losses receive greater benefits.'" To accomplish the goal of directing more benefit dollars to those who are most likely to suffer economic loss, Lewis recommended two modifications of the then-existing system which were eventually adopted by the Indiana General Assembly. First, the connection was severed between benefit levels and average weekly wages. '"^^ Second, benefits were increased for higher impairment, and the only predictor (but not a guarantee) of eventual income loss was a relatively high level of impairment." Id. 134. Id. 135. Id. 136. Id. at 17. 137. Id. at 13. 138. Lewis, supra note 38, at 59. 139. /^. at60. 140. Id. 141. Id. \A1. See IND. Code § 22-3-3- 10(c). Lewis justified elimination of the average weekly 1994 WORKERS' COMPENSATION 663 impairment ratings.'''^ The new scheme of computing permanent partial impairment benefits retained the scheduled losses contained in the statute.''*'* Rather than each scheduled loss representing a number of weeks of benefits, each loss was converted to degrees of impairment. ''*^ The degree-based schedule retained the relative weight assigned to each scheduled loss in the week-based schedule. '''^ Whole body impairment, previously expressed as 500 weeks of loss, was expressed as 100 degrees of loss. '''^ Each degree of impairment was assigned a dollar value with the greater values at the higher levels of impairment '''^ and the benefit was calculated in a cumulative fashion. '^^ Payment of the benefit under the new system, as amended by the Indiana General Assembly, is still made on the basis of the employee's average weekly wage, but is now paid at the employee's temporary total disability rate.'^« In his report to Governor Bayh, Lewis also briefly addressed how impairment is evaluated and rated by physicians in Indiana. He touched upon various issues raised by the present practice, but made no specific recommen- dation for legislative action.'^' As a result. House Enrolled Act 1517 left the method of evaluating impairment unchanged. Part IV of this Note undertakes an examination of this issue and concludes that the Indiana General Assembly may have some additional work to do to fulfill Governor Bayh's mandate. '^^ wage as a basis for paying permanent partial benefits on his finding that 80% of permanent partial benefit recipients were receiving the maximum benefit under the old system. Lewis, supra note 38, at 62. Thus, according to Lewis, Indiana might consider simply recognizing the fact that most workers are compensated irrespective of their average weekly wage and build the new system around this premise. One should note, however, that severing the connection between average weekly wages and benefit levels lessens the likelihood that economic loss is being compensated. If economic loss is the basis for the permanent partial benefit, it is illogical to compensate workers irrespective of their wages. See supra note 91. Perhaps the average weekly wage scheme could have been retained with the maximum average weekly wage gradually increased for higher levels of impairment. This would have allowed only those with higher wages to collect higher benefits. Thus, the benefit would more closely compensate for economic loss. 143. See iND. CODE § 22-3-3- 10(c). 144. See id. 145. See id. 146. See id. 147. See id § 22-3-3-10(c)(ll). 148. See id § 22-3-3-1 0(d). 149. See id § 22-3-3-10. 150. See id. 151. Lewis, supra note 38, at 63-64. 152. See supra notes 123-25 and accompanying text. 664 INDIANA LAW REVIEW Vol. 27:647 IV. Evaluation of Permanent Partial Impairment in Indiana A. The Role of the Guides to the Evaluation of Permanent Impairment Generally speaking, Indiana does not prescribe under the Act, or by Board rule, a method for rating impairment. '^^ Physicians, claims adjusters, and lawyers are given no legislative guidance regarding the content or extent of impairment evaluations. This is not to say that the practice of rating impairment is chaotic in Indiana.'^'* In fact, most persons involved with workers' compensation claims in Indiana agree that the lion's share of permanent partial benefits are paid on the basis of an evaluation that relies in some measure on the American Medical Association Guides to the Evaluation of Permanent Impairment. '^^ The Guides' role in the Indiana workers' compensation system is to provide a physician, or other expert, with one method of evaluating and rating impairment. It is not the only impairment rating tool available to physi- cians'^^ nor are its reporting and evaluation requirements always fol- lowed. '^^ To a significant degree, the Guides plays only a supporting role in the system. Impairment ratings derived from the Guides are usually applied to the schedule in the Act,'^^ or to other impairment rating tools developed by the Board, in order to derive a permanent partial impairment benefit. The Guides originated from thirteen separate articles published from 1958 through 1970 in The Journal of the American Medical Association}^'^ The first edition of the Guides was published in 1971 with the fourth and latest edition released in 1993.'^° The fourth edition of the Guides consists of fifteen chapters, eleven of which relate to the evaluation of impairment for specific bodily systems. The first two chapters provide an overview of impairment evaluation and methods 153. Two exceptions include the Board's "bone loss" rule and "multiple digital loss" schedule. See infra notes 300-09 and accompanying text. 154. Lewis, supra note 38, at 63. 155. Guides, supra note 10. Interview with Douglas Meagher, supra note 37 (stating the Guides are the major source of impairment ratings in Indiana). See also infra note 210 (without exception, every health care professional interviewed for this Note used the Guides to some degree in evaluating impairment). 156. There are several alternative sources available to rate impairment. See Richard E. Johns, Compensation and Impairment Rating Systems in the United States, JOURNAL OF Disability, Oct. 1990, at 198-99. 157. See infra notes 197-233 and accompanying text. 158. The permanent partial impairment benefit for anon-scheduled loss is derived directly from the impairment rating. See supra note 98 and accompanying text. 159. American Medical Association, Guides to the Evaluation of Permanent Impairment xix (3rd ed. rev. 1991) [hereinafter Guides - 3rd ed.]. 160. Guides, supra note 10, at 1. 1994 WORKERS' COMPENSATION 665 for preparing records and reports. The final two chapters address psychologi- cal disorders and pain. The purpose of the Guides is to provide "a standard framework and method of analysis through which physicians can evaluate, report on, and communicate information about the impairments of any human organ system."'^' Under the Guides, impairment and disability are defined in roughly the same manner as under Indiana law.'^^ Impairment is defined in the Guides as the "deviation from normal in a body part or organ system and its functioning."'^^ It is assessed by medical means and is a medical issue. '^"^ Disability, which the Guides is not intended to evaluate, is defined in the Guides as "an alteration of an individual's capacity to meet personal, social, or occupational demands, or statutory or regulatory requirements, because of an impairment." '^^ Evaluating disability is "a nonmedical assess- ment of the degree to which an individual does or does not have the capacity to meet personal social, occupational, or other demands, or to meet statutory or regulatory requirements."'^^ 161. Id. (emphasis added). The ability of any impairment evaluation system to accomplish this task is problematic. Indeed, the editors of the Guides acknowledge that the Guides does not and cannot provide answers about every type and degree of impairment, because of . . . [the inability of physicians to identify objective data on the normal functioning of some organ systems] and the infinite variety of human disease, and because the field of medicine and medical practice is characterized by constant change in understanding disease and its manifestations, diagnosis, and treatment. Id. at 3. 162. See supra notes 100-01 and accompanying text. 163. Guides, supra note 10, at 1. 164. Id 165. Mat 2. 166. Id. at 317. The distinction in the Guides between impairment and disability appears fairly clear. However, consider the following passages from the Guides: In the Guides, impairments are defined as conditions that interfere with an individual's "activities of daily living," some of which are listed in the Gloss