3 Reasons Why Simple Workers’ Comp Claims Result in Catastrophic Costs

Simple injuries that spiral into catastrophic claims account for a disproportionate share of overall workers' comp dollars. Understanding how we think about pain can go a long way toward developing effective treatment strategies.

By: Michelle Kerr | November 9, 2018

Employers and payors dread the cases sometimes called “creeping catastrophic” claims — the simple injury such as a strain or sprain that never seems to heal. The injured worker’s pain persists or worsens, prompting numerous procedures, treatments and often extended use of pain medication. Medical and indemnity costs keep piling up, and there’s no clear end in sight.

These cases are fairly rare, but unfortunately they account for a disproportionate share of workers’ comp costs industry wide. There are three factors that can play a significant role in what makes these claims so difficult to resolve.

1) Psychophysiology of pain

Brain and body chemistry have a significant impact on pain response. Any time that you experience pain, you are experiencing both a physical and an emotional response to the pain stimulus, even though you don’t even realize it.

The psyche is so powerful that it can even cause genuine pain based solely on how severe an injury looks to the injured person. In a much-discussed case in the UK, a 29-year-old construction worker experienced excruciating pain after impaling his foot on a 6-inch nail, requiring fentanyl and midazolam to block the pain and sedate him enough to extract the nail from his boot sole. Once doctors removed his boot, however, they were startled to discover that the nail had slipped cleanly between his toes, leaving the foot completely unharmed. Yet there was nothing fake about his pain.

The interaction of mind and body are complex. Psychological stress causes activation of the autonomic nervous system and response pathways, leading to the release of catecholamines (stress hormones) into the bloodstream. Emotional stressors, and an individual’s perception of the severity of those stressors, are known to significantly lower the pain threshold, as well as exacerbate or prolong emotional reactivity and the accompanying physiological response.

Stop trying to “fix” the source of the pain, and instead focus on giving the injured worker the tools to manage his or her own pain and gain better control of their own physiological response.

So for someone who is experiencing stress, anxiety, depression or other emotional turmoil concurrently with the injury, the negative emotions are going to intensify — and potentially prolong — the pain experience.

This mind-body interaction can affect not just the pain response but also the body’s ability to heal. Psychological distress may impair muscle growth and repair processes by prolonging the presence of stress hormones, like cortisol, that impair immunity and inhibit the action of anabolic factors that support healing.

Understanding the psyche’s role in pain and addressing the sources of emotional distress will go a long way toward helping practitioners and case managers better meet the needs of injured workers.

2) Outmoded treatment strategies

The medical community has a linear approach to injury: Identify the cause of the problem, then fix it. For workers’ comp patients with ongoing pain, the pursuit of that goal may include procedure after procedure, a range of diagnostic tests, multiple surgeries and a long-term course of opioids — all without an end to the pain.

These cases may require practitioners to pivot and change objectives. Stop trying to “fix” the source of the pain, and instead focus on giving the injured worker the tools to manage his or her own pain and gain better control of their own physiological response.

Numerous studies bear out the potential for pain patients to influence their pain levels. One Stanford University study used functional magnetic resonance imaging, which measures activity in different areas of the brain, to see whether patients could learn to control a brain region involved in pain.

Study subjects were shown the pain-related activity in their own brains and were given visualization instructions to manipulate the pain activity. The results were overwhelmingly positive, with some subjects reporting a 30 to 40 percent reduction in pain level.

Various disciplines have shown promise for helping patients control their own pain, including cognitive behavioral therapy (CBT) and mindfulness practices such as meditation and yoga, as well as biofeedback.

Mindfulness techniques help injured workers shift the way they think about pain, moving away from a goal-oriented mindset (I want to stop the pain) toward an attitude of awareness and exploration. It’s about acknowledging the pain and understanding it. Where, exactly, is the pain? What happens when I relax the area experiencing the pain? How does it impact the pain if I engage deep breathing exercises?

Training the brain to respond differently to pain signals — to engage the pain rather than try to avoid it — may be more effective than traditional physical therapy and medication and has been shown to have lasting effects with continued practice.

3) Opioids

For moderate musculoskeletal injuries, opioids do more harm than good. Opioids block pain, but the body reacts by increasing the number of receptors working to get the pain signal through to the brain.

Prolonged use actually increases sensitivity to pain and exacerbates any pain related to the original injury. That’s why, when the drug wears off, a person experiences increased pain.

When opioids are stopped, pain sensitivity should revert to normal within a few days. But most people don’t understand that and take more opioids instead, trying to get back to the pain-free state. As use continues, the drug becomes less and less effective. The pain keeps increasing — not because of the injury, but because of the opioids themselves. It’s fairly easy to understand how so many people get addicted.

Opioids make pain worse in other ways. Our bodies have natural opioids called endorphins. If the body becomes conditioned to opioid pain medication, its ability to create and use its natural endorphins is compromised — so the body loses its ability to reduce pain on its own.

Blocking pain also prevents injured workers from developing the mental resilience they need in order to work through an injury and achieve recovery.

By making pain an all-or-nothing condition, they have no motivation to learn the coping skills and healthy pain-management techniques that might have helped them recover successfully. Instead, they’re trapped in the vicious pain cycle perpetuated by opioids.

For most non-complex injuries, it’s typically possible to manage with non-opioid analgesics like acetaminophen, ibuprofen or a combination of the two. If pain is disrupting sleep, a low-dose opioid for one or two nights can help ease the pain without risking a slide into the opioid pain cycle.

It’s in the best interest of injured workers if employers and payers give workers the information and support they need to recover from injury without opioids. &

Michelle Kerr is Workers’ Compensation Editor and National Conference Chair for Risk & Insurance. She can be reached at [email protected].

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.