5 Factors Driving Higher Costs in New Jersey Workers’ Compensation

It’s no secret that workers’ compensation costs have been rising sharply in recent years in New Jersey. In the 2020 Oregon Workers’ Compensation Premium Rate Ranking Summary, New Jersey had the highest costs for workers’ compensation in the nation at $2.52 per $100 of payroll. This was not always the case – New Jersey used to be in the middle of the pack among states, so what has contributed to escalating New Jersey workers’ compensation costs? There are five primary factors that have led to this increase. 

1. High Cost of Medical Care 

The single most significant factor behind rising workers’ compensation costs is the absence of a medical fee schedule. Unlike most states, like New York and Pennsylvania, New Jersey has no workers’ compensation fee schedule. In New Jersey, the standard is not a fee schedule but rather a vague “usual and customary” paradigm. There is never any agreement on what costs are usual and customary, which means surgery costs are often much higher in New Jersey than in neighboring states.  
So much higher, in fact, that huge numbers of New York and Pennsylvania physicians are opening practices in New Jersey and directing surgery to New Jersey even for their New York and Pennsylvania workers’ compensation patients. It is not unusual to see a $200,000 physician’s bill for a two- to three-hour fusion surgery, not to mention a bill for almost half that amount for the assisting surgeon, as well as hospital or surgical center charges. The reimbursement for New Jersey surgeons is often five to ten times higher than their counterparts in New York and Pennsylvania. 

2. Law Changes on Medical Claims Filed by Providers 

Legislation passed 10 years ago prohibited physicians and medical providers from filing civil lawsuits against employers and injured workers for balances due arising from workers’ compensation. The goal of the legislation was to force providers to file all medical claims arising from work injuries in the Division of Workers’ Compensation and remove cases from the Superior Court. Legislators were trying to help individuals and employers avoid lawsuits from workers’ compensation providers, but they did not foresee that surgeons and medical providers would begin to accept payments from third-party administrators and carriers under usual and customary charges for their medical procedures and then file Medical Claim Petitions for the balance. There are now thousands of such claim petitions in New Jersey seeking the difference between the amount paid to the provider and the amount billed.  

Consider this scenario: A medical provider who is not restricted to a preset network fee performs a fusion surgery on the spine. The bill for $200,000 is repriced by a medical repricing company to $60,000 for the fusion surgery. The doctor cashes the $60,000 check and then turns around and hires a law firm to file a Medical Claim Petition seeking the difference of $140,000. The doctor will not get $140,000 but he or she will almost always get some fairly substantial increase in payment.  

Because of this, there are now many law firms who visit a provider’s office and review all the workers’ compensation payments to the provider and then file scores of medical claim petitions on behalf of that provider seeking more money in workers’ compensation court. The medical providers do not pay legal fees to these lawyers unless their lawyers recover additional monies.  

Medical Claim Petitions are now clogging the Division of Workers’ Compensation, and providers are getting paid way more money than they were supposed to get when their bills were repriced to “usual and customary.” Doctors are raising charges, knowing that bills will be repriced. The company that reprices the bill gets a percentage of savings, and then the doctor files a medical claim petition to seek additional fees. The judges in workers’ compensation are not familiar with “usual and customary” charges in workers’ compensation because there is no agreement anywhere in the state on what is usual and customary. However, everyone knows that workers’ compensation pays 10 or 20 times higher than Medicare would pay and quite a bit more than what Personal Injury Protection (PIP) would pay. Without a fee schedule, payment for surgery centers, surgeons, and hospitals is becoming the wild west and medical provider claim petitions are skyrocketing.  

3. Wage Inflation 

When the average weekly wage in New Jersey rises, workers’ compensation indemnity benefits rise by the exact same percentage. The Department of Labor pegs indemnity benefits in New Jersey to the increase in the State Average Weekly Wage (SAWW). In 2022, the SAWW rose by 10% over the prior year, so temporary disability benefits for wage loss in workers’ compensation rose by 10%. For unknown reasons, New Jersey also bases rates for permanent partial disability on the percentage increase in SAWW, even though permanent partial disability benefits are not really wage loss payments. The employee has returned to work in almost all cases or has returned to another job.  Permanent partial disability awards are for loss of bodily function. This is a major flaw in the New Jersey system and cries out for legislative change. 

Let’s consider an employee who is out of work for a year from a serious back injury and receives an award of 50% permanent partial disability. In 2021, the maximum rate was $969 per week; in 2022 it rose 10% to $1,065 per week, which is the amount the employers will pay for lost wages for a high wage employee. The employee returns to work and later receives an award of 50% of partial total disability. In 202,1 that award for the back fusion surgery would have cost the municipality $193,800.  The same award in 2022 costs the municipality $213,000 (10% more).  

Additionally, the worker’s attorney receives a fee of 20% in all percentage awards. That fee also went up 10%. There is no more work put in by the lawyer to receive the increased fee, but in New Jersey, the municipality (like any employer) pays 60% of the fee for the lawyer who represents the injured worker!   

All this may sound confusing, so let’s look at a practical example. If a claimant gets an award of 50% of partial total, the municipality pays $213,000 (10% more than 2021). In addition, the employer pays $25,560 to the lawyer who represented the injured worker!  That is an increase of $2,304 over 2021. The total increase on the municipality for the very same 50% award in 2022 over 2021 is $21,504. Why? Because the Department of Labor ties increases in partial permanent disability awards to the Statewide Average Weekly Wage.   

4. Pro-petitioner Legislation 

Since 1979, there have been zero bills passed that reduce workers’ compensation costs for employers, but there have been half a dozen bills passed benefiting injured workers just in the past five years. One fairly recent bill took away the employer’s right to make a bona fide offer (which saved on counsel fees for employers), and several bills created presumptions in favor of certain workers who suffer certain diseases. 

There is now a new 2022 parking lot law (S771) that will cost all employers for injuries in off-site parking lots leased by the employer but not owned or controlled by the employer. Injuries during the walk from the parking lot to the work site and back will also be covered, a bill that was passed to reverse the decision in Hersh v. County of Morris.  Since the Supreme Court ruled for the County of Morris in this important parking lot case, attorneys for injured workers lobbied for a change in the law and they got it from the legislature. 

5. The End of Offsets for Accidental Disability Pensions 

Public sector employers used to argue that someone who receives an accidental disability pension in workers’ compensation should not be able to receive an award in the Division of Workers’ Compensation for the same injury.  That has been eliminated by regulation in the past year, and now the Division of Pensions gets the offset for whatever the injured worker receives in workers’ compensation. But the public employer must pay the award in workers’ compensation without any offset for the accidental disability pension. 

John H. Geaney 
Capehart Scatchard 
Exclusively for GSMJIF