[Senate Hearing 109-592]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 109-592

      LONGSHORE HARBOR WORKERS' COMPENSATION ACT: TIME FOR REFORM?

=======================================================================

                                HEARING

                                 OF THE

            SUBCOMMITTEE ON EMPLOYMENT AND WORKPLACE SAFETY

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                                   ON

EXAMINING PROPOSED REFORM OF LONGSHORE HARBOR WORKERS' COMPENSATION ACT

                               __________

                              MAY 9, 2006

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions


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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                   MICHAEL B. ENZI, Wyoming, Chairman

JUDD GREGG, New Hampshire            EDWARD M. KENNEDY, Massachusetts
BILL FRIST, Tennessee                CHRISTOPHER J. DODD, Connecticut
LAMAR ALEXANDER, Tennessee           TOM HARKIN, Iowa
RICHARD BURR, North Carolina         BARBARA A. MIKULSKI, Maryland
JOHNNY ISAKSON, Georgia              JAMES M. JEFFORDS (I), Vermont
MIKE DeWINE, Ohio                    JEFF BINGAMAN, New Mexico
JOHN ENSIGN, Nevada                  PATTY MURRAY, Washington
ORRIN G. HATCH, Utah                 JACK REED, Rhode Island
JEFF SESSIONS, Alabama               HILLARY RODHAM CLINTON, New York
PAT ROBERTS, Kansas

               Katherine Brunett McGuire, Staff Director
      J. Michael Myers, Minority Staff Director and Chief Counsel

                               __________

            Subcommittee on Employment and Workplace Safety

                   JOHNNY ISAKSON, Georgia, Chairman

LAMAR ALEXANDER, Tennessee           PATTY MURRAY, Washington
RICHARD BURR, North Carolina         CHRISTOPHER J. DODD, Connecticut
JOHN ENSIGN, Nevada                  TOM HARKIN, Iowa
JEFF SESSIONS, Alabama               BARBARA A. MIKULSKI, Maryland
PAT ROBERTS, Kansas                  JAMES M. JEFFORDS (I), Vermont
MICHAEL B. ENZI, Wyoming (ex         EDWARD M. KENNEDY, Massachusetts 
officio)                             (ex officio)

                       Glee Smith, Staff Director

               William C. Kamela, Minority Staff Director

                                  (ii)










                            C O N T E N T S

                               __________

                               STATEMENTS

                          TUESDAY, MAY 9, 2006

                                                                   Page
Isakson, Hon. Johnny, Chairman, Subcommittee on Employment and 
  Workplace Safety, opening statement............................     1
Murray, Hon. Patty, a U.S. Senator from the State of Washington, 
  opening statement..............................................     2
White, Robert M., vice president, Manson Construction, and 
  national chairman, Associated General Contractors Marine 
  Contractor Committee, San Pedro, California; Richard A. Victor, 
  executive director, Workers' Compensation Research Institute, 
  Cambridge, Massachusetts; Stephen Embry, Embry and Neusner, 
  Groton, Connecticut; and Lawrence P. Postol, Seyfarth Shaw LLP, 
  Washington, DC.................................................     4
    Prepared statements of:
        Mr. White................................................     7
        Mr. Victor...............................................    12
        Mr. Embry................................................    19
        Mr. Postol...............................................    25

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Letter from Boyd & Kenter, P.C. to HELP Committee............    37
    Prepared statement of Lewis S. Fleishman.....................    37
    Prepared statement of Bruce C. Wood..........................    38

                                 (iii)





  

 
      LONGSHORE HARBOR WORKERS' COMPENSATION ACT: TIME FOR REFORM?

                              ----------                              


                          TUESDAY, MAY 9, 2006

                                       U.S. Senate,
Subcommittee on Employment and Workplace Safety, Committee 
                 on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:10 a.m., in 
room SD-430, Dirksen Senate Office Building, Hon. Johnny 
Isakson, chairman of the subcommittee, presiding.
    Present: Senators Isakson and Murray.

                  Opening Statement of Senator Isakson

    Senator Isakson. We will convene the hearing. I appreciate 
everybody's patience. Senator Murray is on her way, so I 
thought I would open the hearing and make my statement. By the 
time I am finished, she will be here to make her statement, or 
we will interrupt testimony and let her make a statement when 
she gets here. We will proceed with the hearing.
    Today, we address the Longshore and Harbor Workers' 
Compensation Act. Before we delve into the details of this 
program, we should state from the start that workers covered 
under this program, from shipbuilders to stevedores, play a key 
role in national security and our global system of free trade. 
Americans rely on the ships and boats they build as well as the 
myriad of products they bring onto our shores.
    Longshore and harbor workers labor on the piers of 
Portland, Maine, in the dead of winter, just as they toil in 
the hot Southern sun in my home State of Georgia. Their work is 
undoubtedly difficult, and often dangerous. Given the 
industry's complexity and uniqueness, OSHA has maintained a 
special office for the maritime industry for decades. However, 
despite intense Federal regulation and consistent effort to 
improve safety throughout the maritime and shipbuilding 
industry, workers do get injured or even killed at a U.S. port 
and shipyard every day.
    These workers deserve a fair and effective workers' 
compensation program. Since 1927, longshore and harbor workers 
have had a unique program of their own. Congress enacted the 
act in response to Southern Pacific Company v. Jensen, a ruling 
by the U.S. Supreme Court in 1917. The Court held that the 
Maritime Clause of the Constitution forbids States from 
covering shore-based maritime workers who may become injured 
while working on vessels anchored in navigable waters. Now, 
nearly 90 years later, not only are private stevedoring 
companies covered by the act, but so are virtually all who work 
in construction projects on navigable waterways, builders and 
repairers of U.S. Naval and Coast Guard vessels, Federal 
contractors with overseas employees, oil rig workers, and even 
civilian employees at PXes on U.S. military installations.
    As I learned in the Georgia legislature and as our 
panelists are well aware, States nationwide regularly amend 
their programs to incorporate the modern and best workers' 
compensation practices. Since the act was last addressed by 
Congress in 1984, States from California to Rhode Island have 
found numerous methods of improving their workers' compensation 
programs, saving taxpayer dollars and eliminating waste, fraud, 
and abuse, while never leaving workers without appropriate 
medical care. However, unlike those responsible State 
legislatures, Congress has not addressed the Longshore Act in 
over 2 decades.
    Meanwhile, technology, events, and even Congressional 
interventions have dramatically changed our Nation's seaports 
and shipyards. Indeed, in 2002, per Congress's instruction, 
U.S. Customs and Border Protection began locating the so-called 
VACIS machines in U.S. terminals nationwide. These machines are 
enormous truck-mounted gamma ray imaging systems that produce 
radiographic images of the contents inside containers and other 
cargo to determine the possible presence of many types of 
contraband. Eventually, every port in the country will have 
these machines on site. Will maritime workers be exposed to 
radiation? If so, will they file claims against their employers 
when these machines are owned and operated by the Federal 
Government?
    In sum, the act is long overdue for attention from Congress 
and I am eager to hear from our witnesses as they testify on 
how the Longshore program falls short of the most recent 
innovations in workers' compensation practices and their 
suggestions on how this committee can improve the system for 
our Nation's longshore workers, for the taxpayers, and for our 
economy as a whole.
    I personally want to welcome the witnesses, whom I will 
introduce in a moment after we hear the opening statement from 
the distinguished ranking member, Senator Murray.

                  Opening Statement of Senator Murray

    Senator Murray. Mr. Chairman, thank you very much for 
calling this hearing this morning so that we can examine the 
important role the Longshore and Harbor Workers' Compensation 
Act plays in providing uniform protection and health care for 
eligible maritime workers.
    I am very fortunate to have a close connection to the 
maritime industry because my home State of Washington, through 
its ports and navigable waters, is the most trade-dependent 
State in the country, and I know from talking to longshoremen 
and harbor workers and those who build and repair ships and 
boats in Washington State that this act has helped countless 
injured workers and their families pay their bills, put food on 
their tables, and maintain their dignity.
    For workers, this act provides medical benefits, 
compensation for lost wages, and rehabilitative services if 
they are injured on the job or contract an occupational 
disease. But according to a random survey of claimants 
conducted by the U.S. Department of Labor, claimants are not 
always being advised by their employers at the time of their 
injuries that they have free choice of physicians. In addition, 
some claimants also complain that the initial payment of 
compensation is not being made in a timely manner by their 
self-
insured employer insurance carriers. And I know from reviewing 
the testimony of our witnesses this morning that they have 
their own ideas on how to reform this act.
    However, before this subcommittee moves forward on any of 
the longshore reform ideas suggested by our witnesses today, I 
believe that all of us in Congress would benefit from a 
comprehensive review of how well this program is working. This 
was last done when the Government Accountability Office 
reviewed this program back in 1990 to analyze the effects of 
the 1984 amendments to the act.
    In 1990, the GAO found that for occupational diseases 
claims, employers seldom accept claims and provide benefits 
voluntarily. They routinely dispute issues such as the cause 
and extent of injuries. There are frequent controversies 
regarding who is the liable employer when employees have worked 
for more than one employer. And only about 1 percent of 
employers voluntarily provided compensation without contesting 
them.
    GAO also found that the 1984 congressional amendments to 
the Longshore Act helped to clarify issues like the length of 
the statute of limitations, wage determinations for retirees, 
eligibility for survivors' benefits, and coverage for retirees.
    Since 1984, the act has functioned well, providing a 
reasonable level of wage replacement for maritime injuries 
while protecting the employers from the full cost of the 
injury. No one gets rich from receiving longshore benefits. The 
worker always gets less than the wages he is losing from the 
injury.
    The current system, while not perfect, is a reasonable 
compromise, generally fair, predictable, and easy to 
administer. Our Federal system for longshore compensation is 
far and way superior to our State system, which had been found 
to be inadequate, often failing to provide a basic floor to 
protect workers and their families from increased poverty, 
foreclosure, and a substantial decline in their quality of 
life.
    I hope the chairman will take a measured approach as he 
considers changes to the Longshore Act. Hundreds of thousands 
of workers do this dirty and back-breaking work each and every 
day, helping our economy by moving goods and products through 
our ports. We owe these workers a fair system of compensation 
when they are injured on the job. I look forward to working 
with the chairman in a bipartisan way to fairly measure the 
long-term benefits of the Longshore Act for workers and 
employers and to explore the need for any necessary reforms. 
Thank you, Mr. Chairman.
    Senator Isakson. Thank you, Senator Murray.
    I will introduce all of our panel at once and then let them 
testify in the order in which we recognized them.
    First is Robert White, General Counsel of Manson 
Construction Company of Los Angeles, California. Manson is one 
of the Nation's largest marine construction firms, building 
massive waterfront and waterborne structures across the 
country. Mr. White has a law degree from the University of 
Manitoba.
    Next is Dr. Richard Victor, who has been Executive Director 
of Workers' Compensation Research Institute since its inception 
in 1983. The Institute, located in Cambridge, Massachusetts, is 
an independent research organization providing objective 
information from workers' compensation systems. Dr. Victor 
received his J.D. and Ph.D. at the University of Michigan.
    Stephen Embry is a partner in Embry and Neusner in Groton, 
Connecticut. The practice is focused on personal injury, 
workers' compensation, the Longshore Act, and product 
liability. He is a graduate of the American University School 
of International Service in 1971 and the University of 
Connecticut School of Law in 1995. Mr. Embry is the past 
Chairman of the American Trial Lawyers Association Section on 
Workers' Compensation.
    Finally is Larry Postol, a partner at Seyfarth Shaw here in 
Washington. Mr. Postol has been practicing law since 1976, upon 
receiving his J.D. degree from Cornell University. 
Concentrating in the labor and employment area, Mr. Postal has 
extensive experience in workers' compensation defense generally 
and the Longshore Act specifically. Mr. Postol has tried over 
200 cases under the act and has won over a dozen Longshore Act 
cases before the Court of Appeals as well as two cases before 
the U.S. Supreme Court.
    I want to welcome all of you. I will tell you how our 
system works here. There is a little box in front of you that 
has a red, a green, and a yellow light. The red means stop, 
yellow means you have got a minute to go, and green means you 
have got 4 minutes, so it is a total of 5 minutes. If you go 
over a little bit, that is okay. If you go over a lot, we won't 
do anything initially, but we will get you later, so try your 
best to stay somewhat within the time. Following the testimony, 
we will have a round of questions.
    We really appreciate all of you being here. We will start 
with Mr. White.

     STATEMENTS OF ROBERT M. WHITE, VICE PRESIDENT, MANSON 
    CONSTRUCTION, AND NATIONAL CHAIRMAN, ASSOCIATED GENERAL 
CONTRACTORS MARINE CONTRACTOR COMMITTEE, SAN PEDRO, CALIFORNIA; 
 RICHARD A. VICTOR, EXECUTIVE DIRECTOR, WORKERS' COMPENSATION 
 RESEARCH INSTITUTE, CAMBRIDGE, MASSACHUSETTS; STEPHEN EMBRY, 
EMBRY AND NEUSNER, GROTON, CONNECTICUT; AND LAWRENCE P. POSTOL, 
               SEYFARTH SHAW LLP, WASHINGTON, DC.

    Mr. White. Good morning, Senator Isakson, Senator Murray. I 
appreciate the opportunity to be here today. Again, my name is 
Robert White and I am here as National Chairman of the 
Associated General Contractors Marine Contractor Committee. I 
am here speaking for marine contractors from around the 
country.
    The Longshore Act was promulgated in 1927. It was sorely 
needed at the time. It was to serve a class of workers that 
didn't have compensation. We recognized that. We recognize the 
need for the Longshore Act. We are not here today to tell you 
that the Longshore Act needs to go. I need to make that clear.
    The legislative history from 1927, I think was somewhat 
revealing. I am going to quote.

          ``The original intent of all workmen's compensation laws was 
        to transfer from society and from the courts the expense of 
        taking care of those injured in industry and transfer it to the 
        industry itself. Incidentally, it gave the worker a square deal 
        and eliminated the ambulance chaser.''

    The term ``square deal'' originated with Teddy Roosevelt 
when he offered the following admonishment. When we go in for 
reform, all sides should be remembered and justice should be 
extracted equally from each side, in other words, a square 
deal.
    Well, I can tell you today that the Longshore Act does not 
offer a square deal. Although it is a no-fault system, we have 
gotten rid of a number of lawsuits, the ambulance chasing has 
not been eliminated. In fact, the ambulance chasing has been 
emboldened and encouraged by the current provisions of the act.
    The legal machinations and the failure of the act to 
recognize changes in the compensation system over the last 
generation in State plans that have resulted in a more 
efficient allocation of health resources is something that 
needs to be recognized by this act. If that is not done, we are 
going to see a continued squandering of health care resources, 
less money for labor in wages and benefits, less money for 
safety training, and a lessening of morale within the workforce 
and the company.
    There are three areas I would like to address. I mean, 
there are numerous areas, but three areas in particular that I 
would like to address. The first area has to do with claims.
    Generally speaking, there are two types of claims that we 
see out there, or that a marine contractor sees. One is a 
trauma claim that is for a specific incident--broken toe, 
sprained ankle, foreign body in the eye. That is from a 
specific incident on the job. The other type of claim that we 
typically see is what I call continuing non-trauma-type claim. 
It is for injuries that are sustained not because of a specific 
incident, but that are sustained as a result of one's living, 
the aging process, and often the repetitive nature of one's 
work, a combination of all three.
    It is the latter cumulative non-trauma claim, that I am 
going to refer to as a CNT claim for brevity--that is the 
particular claim that gives us particular trouble. Critically, 
a working man does not file a CNT claim. A working man will 
file a claim for an injury sustained on the job, again, the 
broken toe, the foreign body in the eye. He receives his health 
care compensation. He receives benefits as necessary during the 
healing process and he returns to work.
    However, during that process, if he sees an attorney, quite 
often, we will see as a result of that a CNT claim, and that is 
a claim where an attorney makes broad allegations that are 
unrelated to that particular trauma, but are broad allegations 
that this person might have back problems, shoulder problems, 
knee problems, elbow problems. There has been no percipitating 
incident on the job that gives rise to those. Rather, it is the 
nature of one's work. It is something that occurs over time. 
The employer is faced with that, and how do you combat 
something like that? It is very difficult.
    One can argue that the attorney has a good sense when the 
employee comes in to see him to ask those kinds of questions 
and determine really what type of claims he should have. You 
have got a less-educated person than the attorney. He is 
telling that individual, this may be the appropriate medical 
care you need and so forth. But we think that the reporting of 
a trauma accident or a specific incident on the job is truly 
reflective of what has occurred on the job or what the injury 
is.
    When we see a CNT claim, it typically involves the same 
attorneys, the same doctors time and again, and there is always 
the allegation or the diagnosis that there is going to be some 
sort of permanent disability. The reason that you see a 
permanent disability is because it is very valuable. A trauma 
claim without a permanent disability is not that valuable. But 
once you allege the permanent disability, the employer is put 
in a position where they are going to have to either fight the 
claim, because they don't think it is based on fact, or the 
objective medical findings are not--or, pardon me, the 
subjective medical findings are not supported by objective 
medical findings, so the employer has choices to make.
    Typically, what we see with CNT claims is a situation where 
we are either going to take the thing to trial with an ALJ and 
we are looking at long-term costs to the company and resources 
going out to this particular situation when, in fact, at the 
end of the day, the employee is taking a lump-sum settlement, 
and I think taking the lump-sum settlement is very indicative 
of where the whole process is meant to go, and that is you take 
the lump-sum settlement, you settle the claim, you go back to 
work. A lump-sum settlement is final, binding, and you can 
return to work. If you take a permanent disability claim where 
you are getting lifetime benefits, those benefits can be set 
aside when you return to work.
    So what we routinely see are CNT claims alleging permanent 
disabilities, then taking the lump-sum settlement and going 
back to work. Well, they are inconsistent. If you have got 
permanent disability, you don't return to work, but that is not 
what we see. I think as a result of that, we see a squandering 
of health care resources and a lessening of morale amongst our 
workforce and folks within our company.
    We can appreciate that there are times where there are 
legitimate CNT claims. We understand that and we have no 
problem with taking care of those, whether it is resolved by 
lump-sum settlement or lifetime benefits. But I think that some 
things that we can do to assist us in overcoming some of these 
issues are to develop some mechanisms within the Longshore Act, 
and I will quote these four.
    Determine the likelihood of where and when an injury 
occurred. Provide for a health care panel to determine the 
medical treatment an employee requires. Base treatment on 
nationally recognized standards. And provide for a correlation 
between objective and subjective medical findings. We believe 
that these mechanisms would allocate health care resources 
where they are most needed, to workers that cannot return to 
the workplace as a result of workplace injuries.
    The second area I would like to address is the last 
responsible employer rule. In a nutshell, you can have a marine 
contractor with an employee working for you for a day or 6 
years. He leaves your employ and goes to work for a non-
longshore employer, and at some point during the life of that 
employment with the non-longshore employer, whether it is for a 
day or 6 years down the road, that individual can sustain an 
injury on the job and allege that that injury was an 
aggravation of a pre-existing injury sustained working for a 
longshore employer 6 years ago. There may be absolutely no 
report of any injury 6 years ago to that marine employee 
despite the fact that they have prompt requirements for 
reporting all accidents so that we can get the necessary health 
care to someone as it is needed, promptly.
    So as a result of this, we again face either a CNT claim, 
but this way it is back-doored in, to the marine contractor, 
who has, again, not experienced this claim, has not seen an 
individual injured 6 years back, but now they have to deal with 
a claim that really should belong on the doorstep of the 
employer where the individual is working.
    Senator Isakson. Let me ask you to sum up, if you will.
    Mr. White. OK. I am sorry. The last area I would like to 
address is the allocation of risk between longshore employers. 
Marine contractors sometimes own vessels. Marine contractors 
are longshore employers. They will call for a subcontractor to 
come out and perform services to the vessel that is also a 
longshore employer. If the employee of that subcontractor 
providing services is injured on the job, while on that vessel, 
the subcontractor is required to pay longshore benefits to that 
individual, but that subcontractor can turn around and assert a 
lien against the vessel owner for the full amount that they 
paid, and this is despite the fact that there can be a finding 
that the subcontractor is 99 percent at fault and the vessel 
owner 1 percent at fault. That needs to be changed.
    I would just say that, and I will conclude right now, I 
think that squaring the deal is not for the sole benefit for 
the marine construction contractor. It is for the benefit of 
employees, as well. Employers understand, as do their 
employees--and I was once one of those employees, I worked in 
the marine construction trades and I work for a marine 
contractor now--that incidents occur that call for payment of 
benefits. We don't have a problem with that. We will pay those 
benefits. We believe in taking care of our people. The flip 
side of that is we need to look at the gaming of the system, of 
those on occasion between attorneys and claimants that relates 
to permanent disabilities and lump sum settlements. Thank you.
    Senator Isakson. Thank you, Mr. White.
    [The prepared statement of Mr. White follows:]
                 Prepared Statement of Robert M. White
    Good morning Mr. Chairman and committee members. My name is Mitch 
White and I am grateful for this opportunity to speak to you. As 
National Chairman of the Associated General Contractors' Marine 
Contractor Committee, I offer the following testimony.
    The Longshore Act was established in 1927 to provide worker's 
compensation insurance to a class of workers that had no coverage. 
There is no denying that such coverage was sorely needed and the 
Federal Government wisely stepped in and provided it by enacting the 
Longshore Act. By the way, I am a former marine construction worker and 
know the importance of having a compensation system for the working 
man.
    Legislative history from March 1927 shows that, and I am quoting,

        ``the original intent of all workmen's compensation laws was to 
        transfer from society and from the courts the expense of taking 
        care of those injured in industry and transfer it to the 
        industry itself. Incidentally, it gave the worker a square deal 
        and eliminated the ambulance chaser.''

    The term square deal originated with Teddy Roosevelt when he 
offered the following admonishment: ``whenever we go in for reform each 
side must be remembered and justice should be extracted equally from 
each side''--in other words, a ``square deal'' must be sought. Well, I 
can tell you that today's Longshore Act does not provide a square deal. 
Although the need to file suit is eliminated through a no fault system, 
the ambulance chaser has not been eliminated, but rather encouraged and 
emboldened by the provisions of the current Longshore Act. Legal 
machinations and the failure of the act to recognize lessons learned 
over the last generation at the State level for delivering quality 
health care to injured workers have led to a costly and burdensome 
compensation system. As a result both the worker and the company 
sustain a loss of morale, there is less money for worker wages and 
benefits and less money for safety training. How can we square the 
deal?
    Although there are many areas of the act that require change, I 
want to address three areas in particular.
    The first area I wish to discuss involves cumulative non-trauma 
(CNT) claims:
    Contractors generally see two types of claims. A trauma claim that 
is for any specific injury sustained on the job (it is most prevalent) 
and a cumulative non-trauma (CNT) claim that is for a variety of 
injuries for which there is no percipitating incident. Rather, it is a 
claim for injuries sustained over time as the result of the repetitive 
nature of one's work and the general aging process. Some Longshore 
attorneys have learned to game the system through the overuse of CNT 
claims resulting in a waste of health care resources.
    Critically, a working man typically doesn't file a CNT claim until 
he has seen an attorney. Rather, our experience shows that an employee 
files a claim for a specific injury sustained on the job, in other 
words a traumatic claim, and the employer provides medical care and 
weekly compensation during the healing process. Although we do not deny 
that CNT claims may be legitimate, they typically arise when the same 
attorney, usually working with the same doctor time and again, files a 
claim on behalf of the employee following the employee's consultation 
on a traumatic injury. One can argue that the attorney has the good 
sense to ask medical questions that a less educated worker does not 
know to ask and thus the employee only gets appropriate medical care 
once an attorney becomes involved. However, we believe it far more 
likely that the initial traumatic injury claim by an employee is truly 
reflective of any injury sustained on the job (and our experience bears 
this out).
    Why is it that we usually see a CNT claim after the attorney 
becomes involved? The attorney realizes that the CNT claim is far more 
valuable at the end of the day, particularly to the attorney as the 
employer pays his fees. The CNT claim arises when the attorney makes 
broad allegations of various unscheduled injuries (typically to the 
knees, shoulders, back, etc.). A doctor inevitably opines that the CNT 
claims are work-related, although there is no specific incident giving 
rise to them, and the employee will be permanently partially or totally 
disabled even though more often than not the worker's subjective 
complaints do not coincide with the objective medical findings. An 
unscheduled permanent total or permanent partial disability claim is 
very valuable given that the employer must pay lifetime benefits to a 
worker for the term of the disability. It is telling, however, that the 
employee generally opts for a lump sum settlement rather than settling 
for lifetime benefits.
    We believe opting for settlement often belies the fact that the 
worker intends to work again and that he and his attorney are gaming 
the system. How so?
    By alleging permanent disabilities the worker enhances the value of 
any lump sum settlement because permanent disabilities call for 
lifetime benefits vastly increasing the value of a claim if it goes to 
trial. Moreover, it is to the worker's economic advantage to accept a 
lump sum settlement if he intends to work again because lifetime 
disability benefits may be set aside, in whole or in part, if the 
worker finds employment during the disability. A lump sum settlement 
cannot be modified. It is final and binding. In short, alleging 
permanent disabilities is at times simply a negotiating ploy to raise 
the lump sum settlement value.
    Again, we can appreciate that sometimes an employee has a 
legitimate CNT claim. However, we believe that this legislative body 
should provide a means to realistically assess a claim when this is not 
the case. Specifically, we believe that the Longshore Act should 
provide mechanisms that (1) determine the likelihood that an injury 
occurred and where; (2) provide for a health care panel to determine 
the medical treatment an employee requires; (3) base treatment on 
nationally recognized standards; and (4) provide for a correlation 
between objective and subjective medical findings.
    Where these mechanisms substantiate a CNT claim, we would be 
assured that the employee is receiving prompt medical care, 
compensation during the healing process and the period of disability, 
and that health care resources are not being wasted.
    The second area I wish to address is the last responsible employer 
rule. In a nutshell, the rule works as follows: an employee works for a 
construction contractor not subject to the Longshore Act. His previous 
employer was a marine contractor subject to the Longshore Act. The 
employee sustains an injury working for the latter contractor. No 
matter how minor that injury, the employee can file a Longshore claim 
against his prior employer if the employee can show that the injury 
aggravates or accelerates or combines with a prior injury, occuring 
during employment with that marine contractor.
    The claim against the former marine contractor must be made within 
30 days of the employee having become aware, or in the exercise of 
reasonable diligence or by reason of medical advice should have been 
aware, of the relationship between an injury and the prior employment.
    It is particularly troubling that a claim can be asserted against 
the marine contractor after the employee left the contractor's employ 
and performed construction work for an extended period for the non-
Longshore contractor. All the employee need to show is that a single 
day's work for the non-Longshore contractor aggravated a previous 
condition, caused a minor but permanent increase in the extent of 
disability and/or caused even a marginal increase in the need for 
surgery and the former employer is on the hook.
    Because Longshore benefits are much richer than non-Longshore Act 
benefits, the former employee and his attorney have an incentive to 
assert a Longshore claim against the marine contractor, even where 
there is no percipitating incident while in the marine contractor's 
employ. The marine contractor will be found fully responsible for 
Longshore benefits, assuming timely notice by the former employee. 
Longshore attorneys are adept at finding a Longshore employer where 
possible and they are adept at finding a doctor who will find that the 
injuries occurred while in the previous marine contractor's employ.
    We believe that this rule results in an unreasonable waste of 
health care resources, where:

     the employee reported no accident while in the marine 
contractor's employ despite policies that call for prompt reporting of 
all incidents no matter how minor;
     the employee is injured in his latter non-Longshore job 
and decides to assert an aggravation of an unreported injury with his 
former marine contractor employer;
     the employee sustains an injury, disabling or otherwise, 
while working for the non-Longshore employer and decides to assert a 
concurrent CNT claim or traumatic claim against his former employer.

    To avoid this waste of health care resources, we believe that the 
appropriate solution is to make the last responsible employer rule 
inapplicable to the prior Longshore employer where the employee is 
exposed to workplace conditions that may give rise to an injury during 
subsequent employment not subject to the Longshore Act.
    The last area I wish to address is the allocation of risks between 
Longshore employers.
    Quite often marine contractors own their own vessels and they hire 
Longshore employers as subcontractors to provide services to the 
vessel. When a subcontractor employee is injured on a vessel, the 
subcontractor is obligated to pay Longshore benefits to that injured 
employee. That subcontractor then has a lien against the vessel owner 
for the full amount of the compensation benefits and fees paid to the 
employee's attorney, even if the vessel owner is 1 percent at fault and 
the subcontractor is 99 percent at fault for the employee's injuries. 
In addition, the subcontractor can sue the vessel to recover its 
payments associated with compensation or the injured employee can sue 
the marine contractor's vessel. We certainly don't have a quarrel with 
the injured worker suing the vessel and being fully compensated for his 
losses. However, to the extent that the subcontractor's lien is not 
diminished by its concurrent negligence we think results in an unfair 
result. The marine contractors would like to see a compensation lien 
reduced in proportion to a subcontractor's fault, as is found in the 
Outer Continental Shelf Lands Act.
                               conclusion
    We believe that the square deal we seek will maximize the 
utilization of health care resources and it will properly allocate 
risks between employers. Again, we need mechanisms that will:
    (1) determine the likelihood that an injury occurred and where; (2) 
provide for a health care panel to determine the medical treatment an 
employee requires; (3) base treatment on nationally recognized 
standards; and (4) provide for a correlation between objective and 
subjective medical findings.
    One may think that squaring the deal is for the sole benefit of the 
marine construction contractor. However, employees of the contractors 
stand to gain as well. We understand, as do our employees, (and I was 
once one of those employees) that incidents occur that call for 
compensation benefits. We have no quarrel with paying benefits. Indeed, 
it is the right thing to do.
    The honest working man understands and expects a company to be 
responsible and fair. When he is hurt in the workplace, the company is 
obligated to provide him prompt and appropriate medical care and return 
him to work as quickly as possible. In return, the worker will be fair 
and responsible to the company. When a company fails in its obligations 
to the worker or the worker games the compensation system, both the 
company and the worker suffer. There is a loss of morale, less money 
for the company to provide in wages and benefits to labor, and less 
money for safety training.
    The reforms we would like to see will benefit both marine 
contractors and their employees. Thank you.
                      a common real life scenario
    A marine contractor hired a 48-year-old long-term construction 
worker, rodeo participant and livestock hauler. Many of you have seen 
cowboys that walk a bit bent over, that look like they have worked hard 
all their life. That is this man. He was hired to operate heavy 
construction equipment, weld and provide other work as needed. The 
first day on the job the employee complained that he had carpal tunnel 
syndrome and he had trouble holding a welding stinger while welding. 
The employer eliminated that task from the employee's duties and 
assigned him to operating heavy equipment so that he could avoid 
repetitive work with the right wrist. After 19 months on the job the 
employee injured the tendons in his right wrist. Although he declined 
recommended surgery, he was medically allowed to continue work. He 
worked an additional year before he was laid off. He then underwent 
three surgeries one for work-related tendonitis in the right wrist, and 
two for pre-existing non-work-related carpal tunnel syndrome and 
tendonitis in the right index and middle fingers. The latter two 
surgeries were admitted to have pre-existed his employment and were 
paid for by his union insurance. His doctor then released him to full 
duty with no restrictions other than he was not permitted to engage in 
very heavy lifting (90 lbs) with the upper right extremity. The 
employee then retired from the union after 25 years in the trades. 
During the retirement process, the employee obtained social security 
benefits, a union pension and retained a Longshore attorney who filed a 
cumulative non-trauma claim against the employer--the nature of the 
injuries alleged were to ``both shoulders, both arms, both wrists, both 
hands, back; bilateral carpal tunnel syndrome and trigger finger on 
index and middle fingers on right hand.'' The attorney for the worker 
threw a number of claims against the wall hoping that some would stick, 
including the two non-industrial injuries alleging that the employer's 
work aggravated the carpal tunnel syndrome and tendonitis in the right 
middle and index fingers. Up to this time, the employer was unaware of 
any work-related injuries other than the tendonitis in the right wrist. 
Although there were no objective medical findings supporting the ct 
claims to the back and shoulders and the carpal tunnel syndrome and 
trigger finger were pre-existing and surgically repaired, the worker's 
new doctor (routinely associated with the attorney) recommended a three 
disk fusion in the upper back, and surgery to the wrists and shoulders. 
The worker stated that he wanted the back surgery and the worker's 
doctor diagnosed a permanent disability--a very valuable claim.
    Rather than incur the risk of having to pay lifetime benefits (a 
seven figure sum) for a suspect claim, the employer opted to settle for 
$300,000 to the claimant and $50,000 to the attorney. Settlement was in 
spite of the facts that there was no incident or incidents 
percipitating the CNT claim, that the objective medical findings did 
not substantiate the retired employee's subjective complaints and the 
treating physician found that the employee was fit for full duty. 
Moreover, the former employee has not had surgery and continues working 
in the livestock trade. Was the system gamed? We believe so.

    Senator Isakson. Dr. Victor.
    Mr. Victor. Thank you. My name is Richard Victor. I serve 
as Executive Director of the Workers' Compensation Research 
Institute in Cambridge, MA. I have conducted research on 
workers' compensation systems for the past 27 years, first at 
the Rand Corporation in Santa Monica, CA, then at WCRI.
    My expertise is on State workers' compensation systems, not 
on the longshore system. In fact, I know very little about the 
longshore system. Then why am I here? Well, the State systems 
seek to meet many of the same goals that the longshore system 
does for workers and for employers. It may be that there are 
lessons that may be useful from the State systems in thinking 
about the longshore system.
    This morning, I would like to leave you with three lessons 
from our studies about State workers' compensation systems as 
they struggle with how to deliver quality care to injured 
workers in their time of need at affordable cost to employers.
    Lesson No. 1, we find that there is tremendous variation in 
the kind of care that is given to injured workers for a given 
injury, from State to State, from area to area within a State. 
It is unlikely that, given the diversity of these medical 
practices, that all of them are consistent with quality care, 
and it is even more unlikely that even if they were consistent 
with quality care, that they would all be cost effective. 
Hence, the care for intervention by policymakers at the State 
level to help ensure that injured workers are getting necessary 
and appropriate care and that employers are not paying for 
unnecessary care.
    Let me give you just one example, one of many examples from 
our study. Think about a group of workers who have back pain--
very common--and who have neurological symptoms--radiating pain 
down their legs, numbness in their hands. What are the odds 
that this worker, this group of workers, will get surgery? 
Well, if you are in Texas or California or Illinois, 30 to 40 
percent of those workers will get surgery. If you are in 
Tennessee or North Carolina, 65 or 70 percent of those workers 
will get surgery. It is unlikely that all of that surgery is 
necessary in those States with high surgery rates. It is 
unlikely that both approaches are correct.
    That brings us to lesson No. 2. One of the most complicated 
things that State officials deal with in workers' compensation 
is trying to figure out how to get quality care to injured 
workers at an affordable cost to employers. States use a number 
of common public policy tools. First, fee schedules that set 
maximum reimbursement rates. Increasingly in workers' 
compensation, this is tied to the Medicare rates in the State.
    Second, legislation that encourages groups of providers and 
a payor to contract with what are called network arrangements, 
mutually agreeable terms for reimbursement rates, for service 
expectations for the injured worker, and for treatment 
guidelines to try and standardize some of the treatment that we 
have described as all over the map.
    Third, legislation that authorizes the payor to conduct 
utilization review to compare the care being proposed or care 
offered with some standards of what is appropriate care.
    Fourth, an emerging trend in workers' compensation, 
legislation to permit or even require that the standards that 
are used to evaluate appropriateness of care are evidence-
based. Recent legislation in California and in Texas mandated 
that evidence-based standard be used, when available.
    And fifth, restrictions on either the payor's ability or 
the worker's ability to choose the provider, which brings us to 
lesson No. 3.
    Public policy debates in workers' compensation about who 
selects the medical provider are some of the most intense, some 
of the most emotional debates that I have seen. You know the 
arguments. Worker advocates argue that the worker has the best 
information about who is the right doctor for me. Worker 
advocates also argue that employers may select the company 
doctor, a doctor that will be inexpensive, not necessarily 
quality care, and rush the worker back to work. Employer 
advocates argue that payors have much better information about 
who are the good providers and that they can help get the 
worker access to those providers where the worker independently 
may not. The employer or payor advocates also argue that 
workers and their attorneys sometimes game the system by 
choosing doctors that maximize the settlement value, delay 
return to work, and I am sure that both sides are right to some 
extent. The question is, to what extent?
    We conducted a study that was published in December that 
looked at this question and what we found is that the simple 
black or white public policy debate, the worker gets to choose 
or the payor gets to choose, misses a really important point 
and maybe a win-win. We found when workers choose their family 
doctors, those who treated them prior to their injury for some 
unrelated condition, our study finds that the costs are not 
very different from when the employer chooses the provider and 
most worker outcomes are pretty similar. But when workers 
select providers who they have never seen before, the costs are 
higher and worker outcomes are either similar or poorer than 
when the employer chooses the provider.
    The key, it seems to us, is who has the best information 
about who is a good quality doctor. Well, the payor, because 
the payor is a repeat player, has better information than the 
worker who occasionally seeks medical care. So it is not a 
surprise that when the worker sees their own doctor, their 
family doctor, they have pretty good information about the 
quality. But when the worker has to go out and look in the 
yellow pages or get there through some informal networks of 
referrals, sometimes the worker will make bad choices. So, on 
average, the worker would be better off, shows our research, if 
the employer makes those decisions.
    The WCRI studies are publicly available. My colleagues have 
been resources for public officials in many, many States. We 
would be pleased to provide any additional information to the 
committee on these or other issues, if necessary. Thank you.
    Senator Isakson. Thank you, Dr. Victor.
    [The prepared statement of Mr. Victor follows:]
          Prepared Statement of Richard A. Victor, J.D., Ph.D.
    My name is Richard Victor and I serve as the executive director of 
the Workers Compensation Research Institute (WCRI) in Cambridge, 
Massachusetts. I have conducted research on the performance of workers' 
compensation systems for 27 years, first at the Rand Corporation in 
Santa Monica, California, and subsequently at WCRI. This written 
testimony is based on studies that my colleagues and I have conducted, 
and I would be happy to answer any questions now or at some later date. 
My expertise pertains to State workers' compensation systems, not on 
the Longshore and Harbor Workers' Compensation Program. The experience 
of those State systems may be instructive for the Longshore system. 
Each State has a workers' compensation system that seeks to meet many 
of the objectives of the Federal Longshore workers' compensation 
system. My comments will focus on the efforts of State policymakers to 
control medical costs paid by employers while ensuring the delivery of 
quality care to injured workers in their time of need.
    There are three lessons that I would like to bring to your 
attention:
    1. Although regulating medical costs is one of the most complex 
things that State policymakers do in workers' compensation, State 
policymakers do use a number of significant policy tools.
    2. There is wide variation in the practice of medicine to treat 
injured workers. It is unlikely that all of these practices are high 
quality and cost-effective.
    3. The policy debate about a key leverage point for cost 
containment and the quality of medical care--who should select the 
treating provider--often misses a very important point.
                              the context
    The rapid growth of workers' compensation medical expenditures in 
the early 1990s led many State legislatures to enact new workers' 
compensation medical cost containment laws and regulations, most 
between 1992 and 1997. Many of these changes were focused on regulating 
medical prices. Some States also enacted or authorized tools to help 
payors to better manage utilization. In the first half of this decade, 
two important States (Texas and California) made major changes to their 
health care financing and delivery systems for workers' compensation. 
Prior to making these changes, based on studies by WCRI and others, 
policymakers in the two States had learned that (1) employers in both 
States paid much higher medical costs per case than typical; (2) 
workers in both States received more medical services than typical; and 
(3) workers in both States reported similar or poorer outcomes than 
typical. Since medical prices in both States were already lower than 
average, the legislation focused on how to reduce unnecessary care 
while improving patient outcomes.
                       common policy instruments
    The legislation of the 1990s employed what I would call ``first 
generation policy instruments.''

     Fee schedules that set maximum provider fees, often tied 
to the State's Medicare rates. An analysis of these fee schedules can 
be found in Eccleston, et al., Benchmarks for Designing Workers' 
Compensation Medical Fee Schedules: 2001-2002.
     Legislation to encourage contracting arrangements between 
payors and providers to establish mutually agreeable fee levels, 
service expectations, and treatment protocols. An important focus of 
most of these contracts was provider prices that were established below 
the State fee schedule or the usual and customary fee paid to the 
provider. Studies by WCRI and others have found that such contracting 
arrangements (often called ``networks'') significantly reduce medical 
costs without adversely affecting patient outcomes--although patients 
report higher satisfaction with non-network care.\1\
---------------------------------------------------------------------------
    \1\ R. Victor, D. Wang, and P. Borba, Provider Choice Laws, Network 
Involvement, and Medical Costs (Cambridge, MA: Workers Compensation 
Research Institute, 2002); S. Fox, R. Victor, X. Zhao, and I. Polevoy, 
The Impact of Initial Treatment by Network Providers on Workers' 
Compensation Medical Costs and Disability Payments (Cambridge, MA: 
Workers Compensation Research Institute, 2001); and W. Johnson, M. 
Baldwin, and S. Marcus, The Impact of Workers' Compensation Networks on 
Medical and Disability Payments (Cambridge, MA: Workers Compensation 
Research Institute, 1999).
---------------------------------------------------------------------------
     Legislation to authorize the use of utilization review--
whereby proposed or rendered treatments are reviewed for medical 
necessity and appropriateness.
     Legislation to adopt or permit payors to use treatment 
guidelines that articulate standards for reimbursement of appropriate 
care. However, the 1990s versions were often based on a negotiated 
consensus-process involving medical providers, stakeholders, and public 
officials--not on a transparent and disciplined process for assessing 
the strength of the scientific evidence about different types of 
medical care.

    Descriptions of these tools and a State by State summary are found 
in Tanabe and Murray, Managed Care and Medical Cost Containment in 
Workers' Compensation: A National Inventory, 2001-2002.
    In many States that enacted some or all of these tools, medical 
costs--especially medical prices--were lower than they would otherwise 
have been. However, after a few years, the rate of growth often re-
accelerated--driven by growing utilization. Little information exists 
about the impact of these enactments on patient outcomes.
    The recent legislative enactments in California and Texas have the 
potential to define the ``second generation policy instruments.'' I say 
``potential'' because both States are in the early stages of 
implementation of the legislation and supporting regulations. It is 
premature to assess their impacts on payors' costs and patients' 
outcomes.
    What characterizes this second generation of policy instruments? 
There are a variety of elements from the first generation that were 
preserved or improved--like provider fee schedules that were lower than 
the typical State and were made much more comprehensive in coverage 
than their predecessors. The principal new elements were:

    1. A policy decision that ensured prompt access to care at the 
outset of the case. Sometimes workers were unable to obtain care (or 
providers risked nonpayment) until the payor accepted liability for the 
claim--that is, that the worker truly suffered a work-related injury or 
disease. This could take weeks or months after the injury occurred, and 
especially a consideration for repetitive trauma conditions, like back 
pain or carpal tunnel syndrome. In California, the new law requires 
that the payor is responsible for medical care rendered from the time 
the claim is filed until the time when a case is either accepted or 
denied, subject to a maximum liability of $10,000. Texas recently 
enacted a similar provision with a maximum liability of $7,000.
    2. A policy decision that defined quality medical care based on 
nationally recognized evidence-based treatment guidelines. In 
California, such guidelines can only be rebutted by scientific medical 
evidence. The State began by adopting the guidelines issued by the 
American College of Occupational and Environmental Medicine--as an 
interim measure while the State agency was developing a broader set of 
guidelines. In Texas, payors may adopt their own treatment guidelines 
as long as they meet minimum statutory requirements, especially that 
they are evidence-based, scientifically valid, and outcome-focused.
    3. A policy decision that workers could select providers who were 
part of a network of providers, where the providers in the network were 
designated by the payor. One important exception was that a worker 
could see a non-network provider if the worker pre-specified a provider 
with whom he or she had a preexisting relationship. The California 
legislature adopted this approach to substitute from the prior rule 
whereby the payor controlled the choice of provider for the first 30 
days after injury, and the worker controlled the choice of provider 
thereafter. The Texas legislature adopted a similar system to replace 
the prior system whereby the worker controlled the choice of provider.

    No. 3 above is probably one of the most important strategic changes 
in both States.
          wide variation in medical practice from area to area
    There is wide variation in the medical practice patterns to treat 
injured workers. It is unlikely that all the disparate practices are 
high quality and cost-effective.
    Below we cite two of many examples contained in Eccleston and Zhao, 
The Anatomy of Workers' Compensation Medical Costs and Utilization.\2\ 
Surgery rates vary widely from State to State. For example, for workers 
who have back pain with nerve involvement, fewer than 40 percent have 
surgery in California, Illinois, and Texas, while more than two-thirds 
have surgery in Tennessee and North Carolina. We cannot determine for 
certain whether there were unnecessary surgeries performed in North 
Carolina and Tennessee, but these statistics raise that possibility.
---------------------------------------------------------------------------
    \2\ See, for example, S. Eccleston and X. Zhao, The Anatomy of 
Workers' Compensation Medical Costs and Utilization in North Carolina, 
5th Edition (Cambridge, MA: Workers Compensation Research Institute, 
2005).




    A second example shows that about one-third of injured workers in 
Texas saw a chiropractor. But in a typical State, 5-10 percent saw a 
chiropractor. In Texas, workers who saw chiropractors averaged nearly 
40 visits per case, while in most States, chiropractors treated with 
about 20 visits. And in some States, chiropractors were rarely involved 
in providing care. Although we cannot tell for certain if there is 
excessive chiropractic care in Texas, or inadequate access to 
chiropractic care in States like Indiana, this slide raises those 
---------------------------------------------------------------------------
possibilities.




                       impact of provider choice
    The health care provider plays many critical roles in the outcome 
of a workers' compensation case. Those roles bear directly on most 
aspects of a worker's claim for medical and income benefits, and 
include diagnosing the condition and assessing its cause, which can 
affect the compensability of the claim; prescribing and providing a 
course of treatment and disability management practices, which can 
influence whether the worker returns to work and how quickly; assessing 
whether the worker's condition has reached maximum medical improvement, 
whether the worker is left with a permanent impairment or disability, 
and the extent of the impairment; and judging whether a preexisting 
condition contributed to the degree of impairment. From the perspective 
of either the employer or the worker, any of these decisions by the 
health care provider can be sufficiently important to warrant being 
able to control the selection decision. Thus, the selection of that 
provider is an important matter for all parties of interest.
    Worker advocates argue that the choice of the treating provider 
should be left to the worker. At a minimum, they argue that workers 
should be treated by those whom they trust and whose interests align 
with the workers'--interests that encourage prompt return to work, but 
only as medically indicated, and the fullest restoration possible of 
physical capacity. In contrast, employer advocates believe the choice 
of provider should be made by the employer, arguing that employer 
choice ensures that incentives exist for keeping the costs of care 
reasonable and appropriate, employer choice helps avoid excessive 
services and treatments, and providers familiar with the employer's 
workplace can use that knowledge to expedite return to work.
    A recent study published by WCRI found that a critical 
consideration was missing from the arguments of both groups of 
advocates.\3\ That is, on average, workers appear to have poorer 
information about the quality of providers when they select providers 
who they have never seen before. Compared to when the employer selects 
the provider, a worker selecting an unfamiliar provider can be expected 
to have poorer outcomes and the employer can be expected to pay higher 
costs for the care. However, when workers select providers with whom 
they have a prior treating relationship (e.g., their family doctors), 
it appears that the costs are not significantly higher than when the 
employer selects the doctor, and most patient outcomes are also 
similar. Among the most important findings of this study are:
---------------------------------------------------------------------------
    \3\ R. Victor, P. Barth, and D. Neumark, The Impact of Provider 
Choice on Workers' Compensation Costs and Outcomes (Cambridge, MA: 
Workers Compensation Research Institute, 2005).

     Compared with cases in which the employer selected the 
provider, cases in which the worker selected a provider who had treated 
the worker previously for an unrelated condition (a ``prior provider'') 
had costs that were similar. And patient outcomes did not appear to be 
very different between cases with employee-selected prior providers and 
those with employer-selected providers, except that satisfaction with 
overall care was higher when the worker saw a prior provider.
     Compared with cases in which the employer selected the 
provider, cases in which the worker selected a provider who had not 
treated him or her previously (a ``new provider'') had much higher 
costs and poorer return-to-work outcomes, generally no differences in 
physical recovery, and higher levels of satisfaction with overall care.

    Senator Isakson. Mr. Embry.
    Mr. Embry. Modern workers' compensation was born in the 
ashes of the Triangle Shirtwaist fire in New York, which in 
1913 killed several hundred young women who recently had just 
returned from a strike where they had been arguing for safer 
working conditions. What they found when they lost that strike 
was that they returned to places where the doors were locked 
and they could not escape the fires and they burned to death 
and had to jump to their death to escape the flames. Out of 
those flames and those ashes arose the workers' compensation 
system, which was designed to compensate people partially for 
their wage loss and to try to give them medical care that they 
needed when they were hurt.
    It became enshrined in our temple of law, where we could 
get at least a partial measure of justice until in 1972 the 
National Commission on Workers' Compensation Laws looked at it 
and found that the State workers' compensation systems were 
totally inadequate and didn't provide adequate coverage. Those 
who practiced workers' compensation at that time hoped that 
that would mean that we would have reforms that would improve 
workers' compensation.
    Unfortunately, through the 1980s and 1990s, there was a 
movement which swept the country, slashing workers' benefits 
and cutting health care. Workers in New York today can receive 
a maximum of $400 a week for an injury which renders them 
totally unable to work, not enough to pay for an apartment or 
to feed their families. In California, workers can no longer 
choose their own doctors. In Texas and Florida, doctors refuse 
to treat workers who have suffered work-related injuries 
because they are not paid enough money. Some workers have 
limited workers' compensation benefits for widows to 2 years. 
Death goes on forever, but benefits stop in 2 years. The result 
has been foreclosure, hunger, and many uneducated children.
    It is these failures that we should be looking at at this 
time. Why is it that our State systems have so miserably failed 
our workers and why is it that workers who are injured who do 
what we ask them to do, go out and go to work for a living, are 
not being treated fairly?
    The workers' compensation system is designed to be a social 
safety net to catch those injured workers when they fall. 
Instead, that net has been eroded and we have a hole in the 
ground that has been dug which is far too often called the 
grave, but it is deep enough so that when people fall into the 
hole, they can never bounce out.
    The Longshore and Harbor Workers' Compensation Act, on the 
other hand, is a reasonably fair act. It is generally fair, but 
not generous. Workers do not get paid to not work. They get 
compensated because they cannot work. This compensation is 
limited to two-thirds of their lost wages, but they must 
shoulder that additional loss of one-third. They don't get 
their pension benefits covered. They lose their family's health 
care, so that they pay approximately 50 percent of the economic 
loss of their injuries. They also get their medical cost 
covered as it relates to the injury, but as I indicated, they 
also lose their health insurance for their family, so it is not 
a perfect deal.
    Now, some want to take that away. The most shocking of the 
proposals will take away a worker's right to choose his doctor 
and then to allow the employer to dictate to the doctor the 
nature and means of treatment. How can we trust workers to 
build nuclear-powered submarines and aircraft carriers but not 
to choose their own doctor?
    One of the speakers has referred to ambulance chasers. 
Well, I think I was one of the ones he was referring to, and I 
admit that on occasion, I have followed an ambulance to the 
hospital, but what they are taking to the hospital is one of my 
clients who has suffered a heart attack, who is dying of 
cancer, or has had his hands amputated. It is not a pleasant 
thing to go to the hospital to see your clients when that has 
happened.
    What we are proposing here is not ambulance chasing but 
ambulance breaking. They want rules enacted which say that 
before you can get on the ambulance, you need their permission, 
that they get to pick the ambulance, and that the ambulance 
will drive you halfway there, but you will have to get off and 
walk the rest of the way.
    The relationship between a doctor and a patient is a 
special one based upon trust. The doctor uses his healing 
skills to get workers back to work as soon as possible. They 
want this to change so that they can pick doctors who will 
force them to go back to work or cut off his benefits before he 
is able to go back to work.
    The guidelines which have been proposed are regulations 
which would require doctors to follow bureaucratic rules rather 
than to treat the patient. It is socialized medicine by another 
name. It is socialized medicine without the socialism. What it 
actually is is mercantilized medicine, where the doctors are 
forced to send people back to work in order to save money for 
employers.
    The right to pick your own doctor is important. To give the 
employer the right to choose doctors and to control the doctor 
is like putting the fox in charge of the henhouse. It is like 
giving the employer the right to choose the claimant's lawyer, 
to tell him, you can pick any lawyer you want as long as it is 
Mr. Postol.
    Mr. Postol. More business.
    [Laughter.]
    Mr. Embry. More business, thank you.
    The Longshore Act is not perfect. Employers frequently 
engage in what Consumer Reports call starve-out tactics. In the 
year 2000, Consumer Reports looked at the State of workers' 
compensation in the United States and concluded that it was 
grossly inadequate and called upon the Congress to revisit the 
1972 Commission report and to try to improve State workers' 
compensation systems. Now is the time to do that.
    In terms of the Longshore Act, there are a number of things 
that do need to be improved. The PEPCO decision took away the 
right of the judge to award wage loss for certain types of 
injuries. If a person loses his hand, no matter what his actual 
wage loss is, he is limited to the scheduled award for the 
hand. Would those benefits be capped at one-half of the 
person's deceased wages rather than two-thirds?
    Employers frequently engage in what we call starve-out 
tactics. They will unilaterally, without reason, cut off 
benefits without explanation, even in accepted cases where they 
have been paying the individual for 6 months. They can do this 
without getting permission from the Department of Labor, 
without putting on a prima facie case. We think that they 
should at least be required to go to the Department of Labor 
and present their prima facie case, saying ``here is some 
evidence that indicates that the person is no longer 
disabled.''
    One of the comments was, why do so many cases settle? They 
settle because of these starve-out tactics, where the employers 
starve out the families and force them to the edge of 
bankruptcy and say, ``the only chance that you will ever have 
to get 10 cents on the dollar, and it was two-thirds of the 
dollar that you are supposed to get to begin with, is by 
settling for cheap money and going out and then going on other 
alternative sources, such as Social Security Disability.''
    In New York State, where the maximum rate is $400 a week, 
many individuals are better off going on Social Security 
Disability and going on the public trough rather than having 
the employer pay for the cost of the injuries that they have 
incurred and caused.
    In general, we think the workers' compensation system 
called the Longshore Act works relatively well. We have 
tremendous problems with what is occurring around the State 
level. One of the reasons that happens, of course, is that 
because of the way the State system works, the employers can 
engage in what we call an auction to the bottom. They can go 
and suggest that I am going to take my business out of New York 
State and move it across the river into New Jersey unless you 
cut your benefits here. So New York cuts its benefits. 
California cuts its benefits. Florida cuts its benefits. Texas 
cuts its benefits.
    The next year, Louisiana finds that their employers are 
saying, ``well, Texas cut their benefits.'' New Jersey says New 
York is cutting their benefits, and they cut their benefits. 
The following year, New York and Texas return to the trough and 
begin to try to have an auction where they bid less and less to 
the lives of their workers.
    This by itself leads to economic ruin for the worker. We 
cannot build a society where wealth is built on poverty. By 
driving down wages, by driving down benefits, by cutting 
pensions, we are not making people wealthier or better. Those 
people who lose their workers' compensation benefits because 
they are cut off as part of these starve-out tactics don't have 
money coming in. They can't buy cars. They can't buy clothes. 
They can't pay for their homes. Connecticut has studied this 
and found that with our workers' compensation system, when 
people are injured, the foreclosure rates go up dramatically.
    This is simply unfair and unworkable, and in this country, 
that is not what we should be striving for. We should be 
striving for a system in which workers participate in the 
economic boom, not just CEOs. There was a recent report that 
indicated that the president of United Health was going to get 
a bonus of $1.5 billion. The president of Pfizer was going to 
get a retirement of $6.8 million a year. And they want to cut 
workers' compensation benefits to $200 or $300 or $400 a week.
    All that we simply ask is that the Congress approach this 
problem very carefully. The workers' compensation system known 
as the Longshore Act has worked very well for some time and we 
ask you to leave that intact and to study it carefully before 
doing anything that might hurt our workers. Thank you.
    Senator Isakson. Thank you, Mr. Embry.
    [The prepared statement of Mr. Embry follows:]
                  Prepared Statement of Stephen Embry
    Good morning. I am Stephen Embry, an attorney who has represented 
over 10,000 injured workers under the Longshore Act over the past 31 
years. I am past chairman of the Workers' Compensation Section of the 
Association of Trial Lawyers of America, and past president of the 
Workplace Injury Law and Advocacy Group (WILG). I was intimately 
involved in the legislative process that amended the Longshore Act in 
1984, and am a co-author of the Longshore Textbook (4th Ed.). If being 
an expert means knowing too much about too little, I may qualify as 
such a person on Longshore matters.
    First of all the state of the workers compensation systems in our 
Nation is a disgrace: benefits are low, many workers not covered, 
medical care corrupted and unavailable. Consequently workers who have 
done what we ask of them, work for a living, and suffered injury or 
death are often left high and dry. Their families suffer foreclosure, 
college drop out, and hunger.
    In the last decade a wave of reductions in benefits has brought 
workers and their families to the edge of financial collapse. Rather 
than talk about lowering Longshore Act benefits we should be trying to 
raise State benefits to a living level.
    The Longshore and Harbor Workers Act is a national workers' 
compensation act providing uniform protection and health care for 
maritime employees who work upon the navigable waters of the United 
States or adjoining land areas customarily used for ship loading, ship 
construction and overhaul. Historically, the law was enacted following 
the U.S. Supreme Court's holding that the Admiralty provisions of the 
U.S. Constitution reserved to the Federal Government the right to 
regulate admiralty injuries, and that maritime workers were 
constitutionally entitled to a uniform remedy, and not subject to the 
growing hodgepodge of State workers' compensation acts. Southern 
Pacific Co. v. Jensen, 224 U.S. 205 Instead, the Constitution required 
that there be a uniform law that applied to such admiralty claims.
    Over the next 50 years the Longshore Act provided uniform but low 
benefits, and engendered substantial litigation costs and delays as 
employers argued over whether the injury met the jurisdictional 
requirements of the act. A worker would be covered if he fell into the 
water, but left high and dry if he landed on land. By 1972 the maximum 
benefit provided to a worker was $70.00 per week, and in order to 
obtain that benefit he regularly had to seek the support of the Federal 
Courts. Consequently, injured workers were usually forced to seek other 
remedies for catastrophic injuries. They frequently would sue the 
vessel owner for full damages for the negligence of the stevedoring 
company that had employed the longshoreman, and if that suit was 
successful the shipowner would, in turn; seek indemnification from the 
stevedoring company.
    The stevedores asked Congress for relief from these indemnification 
actions, and Congress agreed to provide such relief. But as part of the 
bargain, the benefit schedules of the Longshore Act were revised to 
provide fairer, but not munificent, benefits. In addition, due process 
under the act was improved by the provision of hearings by 
Administrative Law Judges. Director, OWCP v. Perinni North River 
Associates, 459 U.S. 297(1983).
    The 1972 amendments to the act coincided with the presentation to 
the Congress of the 1972 Report of the Commission on State Workers' 
Compensation Laws. That report documented the inadequacies of State 
workers' compensation laws that provided limited and inconsistent 
benefits to injured workers. The Commission reviewed the State laws and 
concluded that, indeed, the State acts were often unreasonably 
parsimonious and lacked basic coverage for many workers and widows. The 
Commission proposed a series of recommendations for national minimum 
standards for workers' compensation. For the Longshore Act, these 
included such common sense reforms as compensating workers for 66.66 
percent of the wages lost as a result of the injury to to a maximum 
based on the State average weekly wage eliminating caps on benefits and 
medical care, assuring that the benefits would continue as long as the 
disability did, and assuring that the maximum compensation rate would 
be adequate to compensate at least the average worker. In amending the 
Longshore Act, Congress also recognized that inflation frequently ate 
away at the purchasing power of the compensation benefits, and provided 
cost of living adjustments for workers who had suffered injuries 
causing permanent and total disability.
    These modest reforms greatly improved the act and saved many poor 
workers' families from destitution and foreclosure. In 1984 insurers 
argued that the unlimited cost of living adjustment provisions of the 
act made it difficult to underwrite insurance, and Congress passed an 
amendment capping the COLAs at 5 percent annually. It also defined a 
modest benefit for workers suffering from long latent diseases such as 
asbestosis. Since that time the Longshore Act has provided a generally 
fair, reasonable, uniform and predictable workers' compensation remedy 
to the men and women who are engaged in the important but dangerous 
work of moving our cargo, and building and repairing our ships.
    The Longshore Act also has been extended to cover those volunteer 
citizens who are working overseas at our defense bases in Iraq and 
Afghanistan to build and protect structures for our troops and move our 
military cargo. The act thus covers a group of workers who are uniquely 
important to our Nation. Longshore workers move billions of dollars of 
products, produce and materials through our ports daily. Shipyard 
workers produce and maintain our vessels used for commerce, war and 
recreation. They toil in dark, dirty and dangerous conditions to 
produce products vital to our national welfare and defense. Defense 
base workers are on the front lines of our national defense, 
volunteering for service that would otherwise require the reinstitution 
of the draft. All these workers typically toil in particularly harsh 
and dangerous environments, are subject to high rates of injuries, and 
their efforts contribute a high percent of the creation of our Nation's 
wealth.
    The combination of high risk of injury and wealth-producing 
functions means that these Longshore Act workers are compensated at 
rates which to a degree but not completely reflect the risks they take 
and benefits that they generate for the national economy. The act 
attempts to compensate them commensurate with their work, and the 
losses they suffer. Like all compensation acts, it is not perfect. 
Workers who become disabled still must bear a share of the loss, and 
shoulder completely the costs for loss of heath insurance for them and 
their families, and their pension benefits. Often even with the meager 
longshore benefits their families can no longer afford health 
insurance.
    We have now had a generation's time to test the workability and 
fairness of the act. It has performed well in providing a reasonable 
level of wage replacement for maritime injuries. There are two major 
reasons for this success. The act is a reasonable compromise, providing 
a fair measure of compensation for workers while protecting the 
employer from the full costs of the injury. No one gets rich by 
receiving Longshore benefits. The worker always gets less than the 
wages he is losing from the injury, bearing at least \1/3\ of the cost, 
and often more for high wage earners. He is not compensated for the 
loss of health insurance, pension benefits or other fringe benefits. 
Consequently, in real dollar value, a Longshore worker and his family 
bears 50 percent or more of the cost of injury or disease. The employer 
is protected from paying for the full economic losses and is relieved 
entirely from compensating the worker for pain and suffering and loss 
of life's enjoyment.
    Second, the act provides a fair procedural framework for benefits. 
The simple extension of the act in 1972 to adjoining land areas greatly 
reduced uncertainty and litigation and simplified insurance 
underwriting problems. The act is a national model for reducing 
litigation and increasing fairness in workers' compensation by removing 
the insurer's incentives to argue about apportioning liability among 
causes and employers. Under this act one need not be concerned that a 
worker may walk in and out of Longshore jurisdiction many times a day. 
One need not be concerned whether the vessel was on the New York or New 
Jersey side of the channel. Longshoremen may work for several 
stevedoring companies a day as they meet the stevedores' requests at 
the union hall.
    The Longshore Act works reasonably well by any standard. Properly 
complied with it is a fair and rational law, easy to administer, and 
has low transactional costs. It would not be reasonable to return to 
broken experiments, such as we had in 1972, or to return to a 
fragmented, roulette wheel approach to caring for our injured workers 
by creating a maze of exceptions to jurisdiction that will only drive 
up litigation costs.
    As has been stated, the present system is not perfect. For example, 
employers frequently unreasonably contest claims, sometimes in bad 
faith. The requirement of an informal conference before the District 
Director often delays the trial while the worker's claim languishes. 
Some employers use this to their advantage.
    Employers can unilaterally terminate compensation for no 
justifiable reason, and without making a prima facie case of 
reasonableness to the Department of Labor, or obtaining the 
Department's permission. Workers would like to have the right to a full 
remedy for such bad faith actions by the employer. Employers in cases 
where it is clear benefits are due should not be permitted to 
unilaterally terminate benefits without first making a prima facie case 
to the Department of Labor and obtaining permission to terminate 
benefits pending a prompt trial before an Administrative law judge,
    The Pepco decision should be overturned. Pepco took away the 
Court's ability to award compensation for the actual wage loss suffered 
by employees who have suffered a scheduled injury such as an injury to 
the hand or arm.
    The Longshore Act should be brought into conformity with the 1972 
Commission's recommendation and modern State workers' compensation law 
that widows' benefits be \2/3\ of their husbands' wages
    If Congress were to open the box for full review of the act, a 
large number of other reforms would be advanced to improve it. On the 
other hand, the act as currently written is a reasonably fair 
compromise--generally fair, predictable, easy to administer and is an 
effective and efficient delivery system. This is a sharp contrast to 
the situation that exists in the workers' compensation systems of the 
50 States.
    As previously indicated, the 1972 Commission examined State 
workers' compensation laws and found them to be inadequate and 
capricious. It recommended a series of minimum national standards that 
would provide a basic floor to protect workers and insure the economic 
stability of their families and of communities ravaged by work-related 
injuries and death. Unfortunately, not only have we failed to meet 
those standards, but across the Nation we have seen a wholesale 
degradation of workers' compensation systems resulting in increased 
poverty, foreclosure and family destruction.
    To give you just a few examples, in New York the maximum rate for 
total disability is $400.00 per week--not enough to cover rent let 
alone keep a family in food and clothing.
    In California, Florida and Texas total benefits are terminated 
after 104 weeks even though the worker remains totally disabled.
    In Kansas, the maximum for permanent total disability in 2005 was 
$449.00 per week. Worse yet these benefits were capped at $125,000.00. 
At the $449 the $125,000 cap is reached in just over 5 years.
    Florida caps widow's benefits even though death last forever.
    Texas and Florida have set medical reimbursements so low that many 
doctors will not treat work-related injuries. In New Jersey workers 
struggle to obtain authorized medical care through a litigious system 
that precipitates huge delays impeding the appropriate and timely 
delivery of effective medical treatment.
    Rhode Island apportions occupational diseases between the 
occupation and non-occupational causes. These and other apportionment 
schemes which seek to shift the burden of work-related injuries back 
onto the worker's families are not fair or workable; the worker never 
receives full compensation for his injury under a compensation act. The 
reduced rates and loss of remedies for pain and suffering already force 
the worker to bear much of the burden. Further such apportionment 
schemes are unworkable and based on junk science. They force delays and 
increase litigation.
    Iowa reduces awards for prior benefits paid on an old injury. If 
you are injured and return to work and latter suffer a second injury 
the employer gets credit for prior injury. Employers should not be 
rewarded for injuring their employees multiple times.
    Connecticut apportions compensation among all employers, driving up 
costs and delaying benefits for years while the employers argue over 
percentages, even where everyone agrees that the benefits are due and 
the worker's family has no income.
    Nevada requires that the work-related injury be the predominant 
cause of the disability, denying benefits to workers who were working 
with preexisting conditions and thereby establishing a barrier to 
hiring of the handicapped.
    The driving force behind these reductions and erosions of benefits 
in the States has been the astute use of the reverse auction threat. 
Businesses suggest that unless New York reduces its benefits, they will 
move to New Jersey. New York reduces its benefits and the next year New 
Jersey faces the same threat. The bids for business continue to fall. 
This drive to the bottom is an economic failure for many reasons and 
works to the detriment of the entire national economy. As a matter of 
principle, benefit levels for injured workers should not be subject to 
crass commercial arguments. The worker who becomes disabled suffers 
real losses and should not be asked to subsidize the employer's 
negligence by taking reduced benefits. Employers urge to place the 
concept of ``fault'' back into the workers' compensation process 
thereby eroding the fundamental principals upon which it was 
established.
    Such economic policies are always self-defeating. The actual effect 
of reducing benefits for workers is exactly the same as losing a job. 
If workers' compensation benefits are reduced by $9,000,000 that is 
exactly the same as losing 300 jobs paying $30,000 a year. The people 
of the State are poorer by that amount; businesses are hurt since the 
workers cannot spend that amount on cars and food. Children suffer 
since their parents cannot afford that much for education.
    In general, policies designed to make people poorer are not 
successful in making them richer. Poverty is not the way to wealth. The 
other result of this reverse auction concept is that the cost is 
shifted to workers' families and to the public and taxpayers at large, 
foreclosures increase, children are not fed. Families are forced to 
turn to welfare, food stamps, social security and Medicare to replace 
the losses created by workers' compensation reform. The Rand 
Corporation has looked at how effectively workers' compensation 
systems, in a number of States replace lost wages, and it found that 
before the recent reforms, the workers' compensation systems did 
poorly, and that after the reforms they are doing worse.
    It was just such fear of the economic fracturing and pitting worker 
against worker that led the founding fathers to reserve the regulation 
of Admiralty claims to the Federal Government. It was the original 
intent, and continuing common sense of the framers of the Constitution, 
that workers on the high seas, New York Harbor, the Port of Los Angeles 
and the Mississippi river should be treated equally and fairly. A 
uniform compensation act such as the Longshore Act prevents forum 
shopping in which the employers threaten to and occasionally do search 
for the weakest and meanest workers compensation law to move their 
activities.
    Oil should be applied where the squeaking occurs. The Longshore Act 
is relatively silent. The squeaks from the 50 State acts are 
significant. That is where our attention should be directed. We should 
revisit the concept of the 1972 Commission which felt that workers were 
valuable and entitled to a minimum compensation rate regardless of 
where the injury occurred. Perhaps it is time to force the States to 
restore fairness and justice to our system.

    Senator Isakson. Mr. Postol.
    Mr. Postol. Senators, my name is Larry Postol and I am a 
defense lawyer. I have other problems, too.
    [Laughter.]
    I have been doing this for 26 years and learned a few 
lessons along the way. The first thing I learned, which many 
people don't like to hear, is if you pay people too much money, 
it won't work. I mean, you see it again and again and again and 
you say, ``well, we are only paying them two-thirds of their 
wages, so why wouldn't they go back to work?'' Well, it is tax-
free money. So if they are in the 35 percent bracket, they save 
35 percent of the taxes. There is no Social Security taken out, 
no FICA, so that is another 7.5 percent. So now I am up to 42 
percent. In addition--so I am actually making more money 
because two-thirds tax-free for someone in the 35 percent 
bracket, remembering also State taxes, is worth more than my 
wages. In addition, for some of the lower-paid workers, there 
is a minimum compensation rate, so workers can get 100 percent 
of their wages tax-free as compensation. So why would I go back 
to work?
    In addition, what you see when you look in the file again 
and again is they are not only getting workers' compensation, 
there is no starve-out for longshoremen under the employer-
funded benefit plan. They get short-term disability and long-
term disability. So while I am fighting the comp case, 
actually, another employer fund is actually funding the 
claimant while he fights the case.
    In addition, we find that they have disability insurance. 
Their car note is not being paid because there is some 
insurance paying that. Their mortgage isn't being paid because 
that is also being paid by insurance. If they owe child 
support, the child support can't be attached for longshore 
payments.
    So for a lot of workers, when you look at the file, it is 
pretty obvious why the worker isn't going back to work. They 
are better off financially not working. And frankly, I blame it 
on the system.
    The cases you see where I think most of us would call 
abuse, they are not evil, terrible people. They are people who 
are actually making a relatively smart decision. They are 
realizing the benefits are so good that they are being tempted 
away from being honest. They go to the lawyer. The lawyer sends 
them to the same doctor again and again. The doctor makes lots 
of money. Two or three years of physical therapy at a physical 
therapy center he owns. So the doctor is making lots of money. 
The case gets litigated.
    Mr. Embry and I do very well because I get paid whether I 
win or lose. He gets paid not by the claimant, by the employer. 
So if you ask, well, the employer is just going to fight these 
cases when they have no defense, that doesn't happen, because 
they not only have to pay me, but then when they lose, they 
have to pay not only the claimant, but the claimant's lawyer.
    So the system isn't set up for employers to not pay the 
claimant. It is set up for the claimants to get paid, and 
unfortunately, they are getting paid so much, there is not an 
incentive even for an honest worker to go back to work.
    So to those who say the system works great, it works great 
for Mr. Embry and myself. We make a very nice living off of it. 
There are lots of cases being litigated. It works great for the 
doctors who get these patients who--they are not being paid by 
the patient, they are being paid by the employer. So why not 
have physical therapy for 2 or 3 years? The legal system has a 
hard time telling a doctor that your treatment is not right.
    In 1984, the amendments, we put in a provision that doctors 
can be barred if they abuse the system. How many doctors have 
been barred in the last 21 years after the 1984 amendments? 
None, because you are not going to find somebody who steals and 
cheats stupidly. They do it smartly. They just keep giving 
physical therapy. Is a judge going to come in and say, ``you 
know, I don't have a medical degree, but I am pretty sure this 
is wrong?'' Or you can have the Ninth Circuit, California, 
where the Ninth Circuit has said, even if the judge believes 
the independent doctor--independent, chosen by the employer--
that the care isn't needed, the worker still has a right to get 
the care that his treating doctor has prescribed.
    Now, I can understand the concern that, well, if you let 
employers offer a panel of doctors, they will just get doctors 
who will say whatever they want. Well, I would like to see that 
list of doctors. I have been looking for them for 25 years. I 
can never get them to say exactly what I want. I keep looking.
    What you find is two things. One is that they are afraid of 
medical malpractice, because if they send the worker back to 
work too soon, the worker can sue the doctor for malpractice, 
whether the employer's doctor or their own doctor. So doctors 
tend to be very, very cautious.
    When I started doing this work 25 years ago, if you had a 
herniated disk and surgery, you went back to full duty. That 
was the prescribed medical care. Now, every doctor, if you have 
a herniated disk and surgery, will put you on permanent 
restrictions of no lifting over 25 pounds. The human body 
hasn't changed. What has changed is that doctors are afraid of 
medical malpractice, so they are very cautious.
    So there is a check and balance system if you let the 
employers choose. If you let the claimants choose, there is no 
check and balance and what happens is the claimant gets 
injured, he goes to the lawyer, the lawyer refers him to the 
same doctor over and over again and the doctor gives the same 
treatment over and over.
    And then ultimately what happens is the employer has to 
settle the case because they look at it from an actuarial point 
of view and they say, ``my God, we are going to have to pay 
this guy for the next 30 years and we are going to have to pay 
him $1,000 a week.'' You run the calculator, the cost-of-living 
increase every year, and it is a million-dollar liability. So 
the accountants say, ``you better settle for $400 million.'' 
That is a great settlement because we will save $750,000.
    So then you settle the case and the next day, what five 
neurosurgeons couldn't cure, three orthopedists, two priests 
could never get this guy better, but as soon as he got that 
settlement check, a month later, he is at the doorstep. I am 
ready to go back to work. I have got my check. You see that 
over and over and over again. Again, great for the lawyers. We 
both got paid. The claimant got this nice chunk of money and he 
is back at work. But I don't think that was the system you 
envisioned when you passed this law.
    Two things to address. You mentioned the GAO study, 1 
percent of the workers were non-contested cases. I would 
suggest to you that is a little--not accurate in the sense that 
on occupational disease cases, you don't have any evidence. It 
is not like the worker got injured and someone witnessed it. So 
what happens is you get a medical report. The employer has to 
controvert it because they don't even know it is up. They don't 
even know--they have no medical records other than the worker 
went to usually a van that a lawyer supplied outside the 
employer.
    What you find in traumatic injury cases--and by the way, 
those occupational disease cases, once the employer gets the 
medical evidence, way over 95 percent of them are going to 
settle, again, because if the employer fights and loses, they 
pay both lawyers. Again, great for lawyers, not so great for 
the employers.
    Traumatic injury cases, 95 percent of employers end up just 
paying--they start from the beginning paying and they pay 
straight through. Why? Because they don't want to pay both 
lawyers. And ironically, what we are seeing now is lawyers are 
getting involved even when there are uncontested cases because 
it is a way to make money.
    I think that sort of--oh, I know, the dual jurisdiction. I 
almost forgot. As if this isn't good enough for the lawyers to 
make money, we make twice as much because we have dual 
jurisdiction. The claimant files a claim under the State act 
and the Longshore Act, so we get to try the case twice, which, 
of course, means twice the legal fees. If the State systems 
were so terrible--and no one, by the way, is suggesting that we 
take these longshoremen and put them under the State system--
but if it is so terrible, why are all these workers filing 
claims under both statutes? The reason is because they have 
differences. Some pay under a schedule. Some pay under straight 
wage loss. The workers get the best of both worlds.
    We have cases where workers have two treating doctors. They 
have one under the State act and they have one under the 
Federal act and they are being treated by two doctors at the 
same time for one injury. If that is a good system, I don't 
know. Maybe then lawyers should be running the country.
    [Laughter.]
    I apologize for rambling a little bit, but thank you.
    Senator Murray. As a preschool teacher, I object to that.
    [Laughter.]
    Mr. Postol. So do I.
    Senator Isakson. The lawyers or the rambling?
    [Laughter.]
    Senator Isakson. Both. Well, thank you very much.
    [The prepared statement of Mr. Postol follows:]
                Prepared Statement of Lawrence P. Postol
    I am a partner in the national law firm of Seyfarth Shaw LLP. I 
have represented employers under the Longshore Act since 1980. I have 
tried hundreds of cases, I have handled over 25 cases before the United 
States Courts of Appeals, and I have even won two cases before the 
United States Supreme Court. I have written two law review articles 
concerning the Longshore Act, as well as a chapter in an AMA text book 
entitled, ``Disability Evaluations.'' I am not testifying on behalf of 
any of my clients, and indeed, no one is paying for my time in 
presenting these comments and my testimony. My comments and testimony 
reflect my views, and do not necessarily reflect the views of my 
clients.
    My many years in this field have taught me a very simple reality--
if you pay someone enough money NOT to work, they will not work. The 
Longshore Act is way beyond that point, being far more generous than 
any other workers' compensation statute known to man. The Longshore Act 
is so overly generous, it begs workers to abuse the system. 
Unfortunately, it is a temptation which many workers can not resist. 
There is a reason ``entrapment'' is a defense to a criminal act which 
the Government encourages the person to engage in. The law recognizes 
that it is human nature to take something if we think we can get away 
with it. The Longshore system allows and even encourages abuse, so it 
is no wonder that workers take advantage of it.
    One example will make this point clear. Assume I am a 60-years-old 
longshoreman, and like the vast majority in that age group, I have some 
arthritis in my back. Indeed, MRI's are so sensitive, in persons 60 or 
older, over 50 percent of asymptomatic persons (having absolutely no 
back pain), the MRI will show abnormalities. In over 35 percent of such 
persons, the MRI will show a herniated disc. Yet, the person has no 
back pain. Now assume I have a minor back injury--it can be as simple 
as I bent over and felt pain. My choices are clear--if I recover, I 
might work another 5 years to age 65. If I complain of pain and say I 
hurt too much to work, I can recover 66 percent of my wages, tax free, 
for my lifetime--the next 20-plus years. Moreover, that is on top of my 
social security check and my retirement check. Indeed, if I am lucky, 
my car note and mortgage will have disability insurance, so I will be 
relieved of those payments. And if I owe child support, my longshore 
compensation check can not be attached to pay for child support.
    You ask, how would I be able to get a physician to support such a 
claim? First, I go to a Plaintiff/Claimant's lawyer who refers me to a 
``liberal'' doctor. The doctor can make a significant amount of money 
by ordering years of physical therapy at the facility he owns. Or I can 
get years of chiropractic care. The physicians understand that the 
lawyers and workers get to select who the treating doctor is, and thus 
they do not bite the hand that feeds then.
    Lastly, you wonder, wouldn't the trial judge see through all this? 
Very rarely is the unfortunate answer. Deference is given to the 
medical opinion of the ``treating physician,'' supposedly because he 
has seen the patient the most. However, since the patient and his 
lawyer selected him, he could hardly be more biased. Yet, the Judges 
are rarely willing to address that bias. Worse yet, every burden of 
proof possible is thrust onto the employer--there is a presumption the 
medical condition is work-related; and if the worker can not return to 
his regular work, the burden is on the employer to show there are other 
jobs available.
    This pattern of abuse is not limited, moreover, to older workers. 
Time and time again, I see workers claiming for 2 to 3 years that they 
are totally disabled and that they will never be able to work again, 
and medical providers gladly affirm the worker is ``permanently and 
totally disabled.'' Yet, as soon as their case is settled for say 
$250,000, the worker makes an amazing recovery, and goes back to his 
regular longshore work.
    I am afraid I could give you hours of horror stories, but let me 
try a few examples. One of my first cases was a shipyard worker who had 
disc surgery to his back. While his working supervisor had had the same 
surgery and returned to work in 6 weeks, the worker had been out 6 
months. When we took the doctor's deposition, the workers' counsel 
asked what percentage of the doctor's patients with this kind of 
surgery were able to return to work within 6 months. The doctor asked 
if we were talking about workers' compensation cases, or others. The 
other attorney and I were shocked (we were both novices) and asked why 
would it matter, the body is the same whether the injury occurred at 
work or at home. The doctor responded that was true, but his experience 
was that 90 percent of patients who are not workers' compensation cases 
return to work after disc surgery within 6 months, but in workers' 
compensation cases, it was only 50 percent. The doctor said he could 
not explain the difference, but that was in fact his experience, and he 
treated many longshoremen and shipyard workers.
    I had a case where the Judge ruled that just because the Claimant 
cheated on reporting his wages, and that he committed perjury in his 
deposition, did not mean he is lying about his un-witnessed injury. I 
have had cases where workers have gone to chiropractic treatment for 
over 3 years, with absolutely no improvement. I had a case where the 
employer sent a compensation check to the address the worker had on 
file with the Department of Labor, and yet when it turned out the 
worker had failed to update his address with the Department of Labor, 
the employer was still assessed a 20 percent late penalty. I have had 
Claimant's counsel file attorney fee petitions for over $50,000 in 
attorney fees they claim the employer should have to pay, when the 
Claimant recovered less than $2,500 in benefits.
    I had a worker exposed to pesticides who later developed a terrible 
nerve disorder. However, I had a full medical school professor, who had 
studied agent orange for Congress, testify that while pesticides are 
well studied and cause some types of nerve disorders, pesticides had 
never been associated with the nerve disorder this worker had. The 
Administrative Law Judge nevertheless held the employer had not 
rebutted the presumption of compensability and awarded compensation. 
While the decision was eventually reversed on appeal, not until the 
employer paid over $50,000 in compensation which it had no way to 
recover.
    I should also note that thanks to concurrent jurisdiction, lawyers 
get to try cases twice, and earn twice the attorney fees. The worker 
can file claims under both the Longshore Act and the State workers' 
compensation act where the injury occurred. In addition, there can be 
inconsistent results. I had a recent case where one doctor was declared 
the treating physician under the State statute, and the United States 
Department of Labor refused to recognize the State ruling, and thus 
held that under the Longshore Act, another doctor was the treating 
physician. Yes, two different physicians in the same specialty treating 
the same injury at the same time. I have also had a worker declared 
employable under the Longshore Act and thus only entitled to partial 
disability benefits; whereas, the State commission held it could ignore 
the Longshore Judge's decision, and awarded total disability benefits. 
Moreover, some States such as South Carolina, refuse to always provide 
a credit for Longshore Act payments against the liability found under 
the State act. Even Virginia, a conservative State, at times only 
allows a partial credit.
    We have a system that is great for lawyers, who can team up with 
physicians who profit from over treatment, and both make a lot of 
money, including getting to try cases twice thanks to dual 
jurisdiction. Workers quickly learn if they say they are in too much 
pain to work, and they go to the physician their lawyer directs them 
to, they will obtain tax free compensation benefits. The system rewards 
those who lie and cheat, while honesty must be its own reward, because 
the Longshore Act does nothing to encourage nor reward the honest 
worker and honest physician.
    Many States have reformed their workers' compensation system in 
recent years, and the Longshore Act is long overdue for reform. It is 
time to put limits on the amount of compensation injured workers 
receive, so they have some incentive to return to work and remain a 
productive member of the workforce. That is not only best for society, 
in the long run, it is also best for the workers as well. We need to 
take back control of the medical care, and limit the worker to a choice 
of a panel of physicians. The potential for medical malpractice 
lawsuits, and the natural relationship between a patient and doctor, 
will serve as an adequate check and balance on the fact the employer 
gets to select the panel of physicians. We need to assure the 
administration of the system is even handed, and does not tolerate 
fraud and abuse. Finally, we only need one legal system to adjudicate 
claims, and thus we need to eliminate the duplication of dual State and 
longshore jurisdiction. The only ones who will be hurt by these changes 
will be the lawyers, and those workers and physicians who have abused 
the system. For the honest workers and physicians, these changes will 
not adversely affect them in any material way. To the contrary, the 
changes will eliminate the temptation to abuse the system.
    I realize for those who have never seen the Longshore Act system in 
action, my comments no doubt sound harsh and overstated. I assure you, 
however, that if you read the published decisions in the Benefits 
Review Board Service, you will see that the system is out of control. 
Not that my comments result from a personal unhappiness with the 
system. To the contrary, I very much enjoy litigating these cases, I 
make a very nice living litigating cases under the current system, and 
yes I win some of my cases. However, if I view the system as a member 
of society, and not as a lawyer who profits from the system, it is all 
too clear the Longshore Act needs to be fixed.

    Senator Isakson. I would acknowledge that there is nothing 
better than a panel with a good plaintiff 's lawyer and a good 
defense lawyer on the same panel, and I think we have got that 
today.
    I think I heard correctly, and I will open the questioning 
and then go to my colleague, Senator Murray, I think I heard 
from everybody that I think you said, Mr. Postol, nobody is 
suggesting that we go to the State workers' compensation 
systems and everybody else said--you said, Mr. Embry, that the 
Longshore Act was reasonably good. You, Mr. White, said you 
support it, but with modification and changes, I think, is that 
correct?
    Mr. White. That is exactly correct.
    Senator Isakson. And I think Dr. Victor primarily commented 
on quality of care issues and didn't address that one or 
another, and because of his opening testimony, not knowing much 
about it, I would accept that, so thank you very much.
    I have a question that is going to sound like it comes out 
of left field or right field or the bullpen, but one of my 
responsibilities or our responsibilities on this committee is 
workplace safety. Because of some other issues and other 
professions that had nothing to do with ports, the issue of 
drugs has come up in terms of drugs and their relationship to 
accidents. And then recently with Senator Coleman, I was in 
Mexico looking at the Port of Manzanilla and some of the other 
ports, offshore, out of the United States with regard to 
homeland security and port security, and the issue of drug 
testing of longshoremen came up.
    I am asking this question because I think I will get the 
right answer out of this group. I was told that there is no 
drug screening for employment on the dock workers and that of 
those that are organized, that is a contractual situation where 
you can't drug test them. Do you know if that is correct or 
not? Does anybody know?
    Mr. Postol. I am not sure about pre-employment. I think 
that you are correct for pre-employment, you can't do a 
physical exam, you can't do a drug test. But I believe after 
most work accidents, the collective bargaining agreement does 
allow for drug testing. Now, unfortunately, that is sort of 
after the fact.
    Senator Isakson. That leads me to the second question of 
the Longshore Act. What does the Longshore Act say about use of 
drugs or alcohol?
    Mr. Postol. Unfortunately, it says, or maybe fortunately, 
that it is not a defense unless you can show that the sole 
reason of the accident was drugs. I have been doing this 26 
years. I have never won that defense, because how do you show 
it is solely the cause? The worker is up high. He falls down. 
He is dead and he has off-the-chart alcohol or drugs. But there 
is no way to know that the drugs alone caused the accident 
because he could have slipped off the ledge because he wasn't 
looking. So there is a provision in there, but it is useless.
    Senator Isakson. Yes, sir?
    Mr. Embry. I have been practicing for 32 years. I have 
represented over 10,000 workers. Never once has anybody ever 
suggested that those workers were taking drugs or that alcohol 
had caused their injuries. As a matter of fact, about 10 years 
ago, Electric Boat Corporation closed down their lunch period 
so that workers couldn't go across the street where there were 
a number of bars, and just sort of interestingly enough, what 
they found was that when they did away with that, work-related 
accidents increased in the half-hour after the lunch period 
compared to when they used to be able to go across the street 
to be able to get a shot.
    I am not suggesting that we ought to let them go across the 
street to get a shot. All I am simply suggesting is that the 
Electric Boat found it was not a problem. I have found in 32 
years of doing this that it is not a problem. These are workers 
who are working in dangerous conditions. They are not 
particularly excited about getting drunk or high.
    Mr. Postol. If I could just mention, I have seen cases 
where it happened, but I wouldn't call it a big problem. I 
mean, when it happens, it is very upsetting, but if you talk as 
a percentage of injuries----
    Senator Isakson. My question was less the effect on this 
and more the fact of whether or not drug testing was something 
that was legal to be done on some of these workers in work 
other than longshoremen and I think you have answered my 
question there and I appreciate it.
    Mr. Embry, I think you would be the right person to kind of 
expound on the other side of this question. A couple of the 
people testifying, again, Mr. Postal and Mr. White, referred to 
the lump-sum payments and people going right back to work. Do 
you want to address that for a second?
    Mr. Embry. There are a couple of things that are true. 
First of all, generally, the lump sums are driven by the 
employer. They are the ones who want to get a lump-sum 
settlement. The Consumer Reports looked at that in their 
article, ``Workers' Comp: Falling Down on the Job'' in February 
of 2000. I have offered copies of that to the committee. We 
also prepared a film called ``Disability Nightmare,'' which I 
have offered.
    What we find is that it really is not a significant 
problem. It is important to remember that these are workers who 
are out there struggling every day to try to make ends meet. 
They are merely trying to take care of their families. That is 
what is expected of them and that is what they are really 
trying to do. What we really need to do is figure out something 
to be able to take care of them when these injuries occur, 
Senator.
    Senator Isakson. So your contention would be that the 
employer really more often than not is encouraging the lump-sum 
settlement to get the case behind them and----
    Mr. Embry. And occasionally, the workers do, too. There are 
situations where the worker--where everybody is better having 
the case over for psychological reasons. Every single time that 
worker gets a workers' compensation check, that tells them that 
he is less than a human being, that he can't go back to work 
and that he can't support his family. Sometimes, he is simply 
better off getting the settlement and going out and trying to 
rebuild his life as much as he can, or at least have that 
grinding fact of that check coming in every week and also 
knowing that somewhere out in those bushes, there is somebody 
who is watching to see whether or not he is shoveling his snow 
and following him around, and that every year he is going to be 
sent to another doctor trying to cut him off, and that 
occasionally, he will be cut off for no reason whatsoever, 
simply to try to force him to settle. And that was what 
``Workers Compensation: Falling Down on the Job'' reported by 
Consumer Reports.
    It is a fact of life that sometimes there are settlements, 
Senator, but, in fact, in most of my widows' cases, and I 
primarily represent widows whose husbands have been killed by 
asbestosis and mesothelioma, I frequently recommend to them 
that they don't settle so that they can have that lifetime 
protection and the employers go berserk because they would 
really much rather save lots of money by settling the case 
cheaply.
    Senator Isakson. Thank you. Dr. Victor, I think I heard you 
say, and correct me if I am wrong, that when an injured worker 
selected their doctor, their personal doctor, that both the 
outcomes and the costs were generally predictably reasonable. 
It was when that worker selected somebody about whom they had 
no knowledge that the costs went high. Did I hear that right, 
or----
    Mr. Victor. That is correct.
    Senator Isakson. OK. So you are suggesting that if the 
family doctor treats somebody, the worker can pick him, but in 
the absence of that, who should pick him?
    Mr. Victor. In the State workers' compensation system, in 
many of the States, the employer controls the choice of 
physician. In the other roughly half the States, the worker 
controls by State law. And the debate is always, which of those 
two approaches is correct. This research suggests that there is 
a middle ground. So in States like Florida and Tennessee, where 
the employer controls the provider, it may be that you can 
improve worker satisfaction by letting the worker see their 
family doctor and without materially increasing the employer's 
cost. But in a State like Massachusetts, you may be able to get 
lower cost for employers without adversely affecting workers' 
outcomes by saying, ``unless you go see your family doctor, the 
employer gets to choose.''
    Senator Isakson. Let me just give you a hypothetical 
situation. I am a worker. I am hurt. I go to my family doctor, 
who is an internal medicine doctor. My injury is 
musculoskeletal. He says, ``you need to go to an orthopedist,'' 
and he refers me. Did the study go that far, even on the 
referral basis, the cost was better than when the guy was just 
going out on their own?
    Mr. Victor. The designation of a--this is based in part on 
surveys of several thousand injured workers and asking them, 
who chose their doctor, and especially who chose the doctor who 
they considered the primary treater, the one who controlled the 
course of care. And so this study looks at those doctors, 
regardless of whether it was really the family doctor or not, 
where the worker said, ``I saw this doctor previously for some 
unrelated condition.'' So it is really who is controlling the 
course of care.
    Senator Isakson. Senator Murray.
    Senator Murray. Thank you, Mr. Chairman.
    Mr. Postol and Mr. White, both of you reflected some real 
frustrations with the way the Longshore Act is currently 
written and administered. Mr. Postol, you had quite a few 
statistics you threw out. I was wondering if either one of you 
have any comprehensive data or statistics that you can share 
with our subcommittee to support your positions as we look at 
this program.
    Mr. Postol. I am just going by what my clients tell me as 
to how many injuries they have versus, frankly, how many files 
I end up litigating.
    Senator Murray. So to the best of your knowledge, you don't 
have any back-up data to verify some of the numbers that you 
threw out? There isn't any----
    Mr. Postol. No, but we could obtain it. I mean, it is not 
very hard. The employers keep track of how many injuries they 
have and how many they have who voluntarily started the comp. 
So I don't have it, but it could be obtained.
    Senator Murray. Mr. White, do you have any comprehensive 
data or statistics that you can share with the subcommittee on 
some of the concerns that you put out there?
    Mr. White. Nothing comes immediately to mind. There is data 
out there, I am sure, though, that we could provide you from 
NIAX and elsewhere.
    Senator Murray. Good. If either of you do have that, I 
think it would be helpful for the committee.
    Dr. Victor, let me ask you, you stated in your testimony 
that a number of States around the country have already 
reformed their State workers' compensation laws and others, 
including my home State of Washington, are looking at some 
changes. I would like to know, based on your years of 
experience in analyzing State workers' compensation programs, 
do you think it would be appropriate for Congress to look at 
State workers' compensation models to replace the Longshore Act 
as the best means of protecting our maritime workers, or----
    Mr. Victor. I am not sure about State as a model to 
replace. I think the States do a lot of innovation, some 
successful, some not, so that I think there are really 
important lessons that can be incorporated.
    Senator Murray. What are some of the inherent problems with 
our State workers' compensation plans?
    Mr. Victor. Well, the answer depends upon the State. Mr. 
Postol mentioned the low maximum weekly benefit in New York, 
which most observers agree----
    Mr. Postol. Mr. Embry.
    Mr. Victor. I am sorry, Mr. Embry. There are other States 
like Tennessee and Florida where our studies show workers have 
serious access to care problems. On the other hand, there are 
States like Massachusetts and States like Wisconsin where the 
costs to employers are reasonably affordable and where the 
outcomes that we see, as workers report to us in these surveys, 
are really quite good.
    Senator Murray. In your testimony, you said that there 
hasn't been any conclusive analysis done yet to determine 
whether these changes that are made to some of the programs 
have had the desired effect of reducing costs. Do you see a 
need for some kind of comprehensive analysis of State workers' 
compensation programs that might help us reach some 
conclusions?
    Mr. Victor. Would a researcher like to see more research? 
Yes.
    [Laughter.]
    Senator Murray. That was a free toss.
    [Laughter.]
    I think that it would be helpful. I think we hear a lot of 
anecdotal evidence and I think we need to be careful that we 
don't use anecdotes to produce laws. It never works very well.
    Mr. Embry, let me ask you a few questions. Some of the 
testimony I heard today focused on the need for reform of the 
Longshore Act, claiming it was too generous for the employee 
with the process slanted in favor of the injured worker. I know 
you are familiar with some of the provisions of the law. Do you 
think the law is working as the congressional authors 
originally intended it to?
    Mr. Embry. I think without a doubt. The Congress intended 
that there be wage replacement that was relatively prompt, not 
full, but some, and that there be health care. My clients by 
and large can get health care, although, frankly, a huge amount 
of our time is spent arguing with the employers over whether or 
not they are going to pay for the health care, and that is a 
problem. But in general, I think the Longshore Act provides a 
fairly good remedy.
    There are some statistics that indicate that there are 
problems, and you made reference to them yourself in terms of 
the 1990 study. As I indicated, I primarily represent widows 
whose husbands have died of work-related lung cancer and 
mesothelioma and I can tell you that from 1990 to the year 
2006, it hasn't changed one bit. Not a single case is ever 
accepted voluntarily. The widows are always dragged out for a 
year or two before their benefits start. Even in cases of 
mesothelioma, where their doctor agrees that the injury is 
work-related, it takes a year or more before the widow begins 
to receive her benefits. And, frankly, by that time, the 
claimant has died and his medical care wasn't paid for by the 
employer.
    So, consequently, we know that there are still some 
problems with the Longshore Act in terms of delay of benefits 
and cutting off benefits, and we know that that is also true in 
the State system because the Rand Corporation has looked at a 
number of States, including California, New Mexico and 
Wisconsin and found that, in general, they replace less than 
half of the wage loss that workers suffer, and that was before 
the reforms. There was some discussion about how the system 
works in Texas and Florida. Workers in Texas and Florida can't 
get a doctor. If they can get a doctor, they can't get workers' 
compensation, so they go on welfare and Social Security.
    Senator Murray. The Longshore Act was last amended in 1984. 
Do you think that we should relook at it? Do you think there 
are some potential reforms that we should be looking at?
    Mr. Embry. I think the act is working relatively well. It 
is not perfect. I have a couple of things I would like to have 
done. They would have some things that they would like to have 
done. But I was around and helped write the 1984 amendments and 
I can tell you that there was blood on the table before we got 
an agreement at that time. I would be hesitant at this time to 
reopen that agreement.
    One of the things that happens frequently, lawyers think 
that once you have won the case, the situation is done. 
Employers recognize that once you cut the agreement, you come 
back 4 or 5 years later and then try to get Congress to give 
you a better deal. We made a deal in 1984 and I want to stick 
with it and I haven't heard any reason why we shouldn't stick 
with it yet.
    Senator Murray. All right. Thank you very much. Thank you, 
Mr. Chairman.
    Senator Isakson. Mr. Embry, do you ever file both Longshore 
Act and State workers' compensation?
    Mr. Embry. Yes, sir.
    Senator Isakson. Why do you do that?
    Mr. Embry. As I pointed out to you, Your Honor--Your Honor, 
Mr. Chairman----
    [Laughter.]
    Senator Isakson. I am a lot of things, but I ain't that, so 
go ahead.
    Mr. Embry. OK. For a simple reason. I practice in 
Connecticut primarily. As I pointed out, under the Longshore 
Act, the widows' benefits are one-half of the wages of the 
deceased. In Connecticut, they are two-thirds of the deceased's 
wages. So Connecticut has decided to be more liberal and to 
give better benefits to widows and I try to get those benefits 
that Connecticut has decided that it wants its widows to have. 
I really don't think there is anything wrong with States' 
rights in saying that if Connecticut wants to give two-thirds, 
they should. I think there is something wrong with the system 
where Congress says the widows are only worth--only get the top 
half of their husband's wages.
    Senator Isakson. And in doing that, this is one of those 
unique systems where you actually have two insurance programs 
under which somebody can recover, is that correct?
    Mr. Embry. It is one of those situations in which there are 
two programs that provide parallel benefits. Sometimes, they 
can recover under both. In most cases, the Longshore Act is the 
primary one, in Connecticut. It might not be true, for 
instance, in Alaska or a State that has more liberal benefits.
    Senator Isakson. All right. I want to ask Mr. White a 
question which probably is going to elicit a response from both 
attorneys, but I want to make sure I heard you right. You were 
talking about last responsible employer being responsible for 
an injured person's benefits, is that correct?
    Mr. White. Yes, sir.
    Senator Isakson. As I understood last responsible employer, 
that meant the employer on whose job the worker was hurt, which 
led me to believe that there must be a reach-back on some of 
these benefits. You get a guy who was covered under the 
Longshore Act. He worked on the Port of Savannah, for example, 
retired or left, went to work in Savannah for a local 
construction company, not maritime related, filed a workers' 
compensation claim. Can he go back under cumulative effects or 
whatever and go under the Longshore Act, even though his injury 
took place on a non-covered----
    Mr. White. That is correct. Even if the injury was never 
reported and no matter how minor, it can go back.
    Senator Isakson. Under the Longshore Act?
    Mr. White. Under the Longshore Act.
    Senator Isakson. Is that correct, gentlemen?
    Mr. Embry. No. First of all, the last employer doctrine 
comes under the Cardillo rule which applies to occupational 
diseases and doesn't apply to acute trauma. What you can do--it 
is a different rule, and that is suppose you have a worker who 
falls off a ladder and ruptures three disks, goes to his doctor 
and gets a return to work but has a fusion and every time he 
bends over, his back flares up and he has to go out of work for 
another 6 months. He works and struggles with the shipyard for 
another 2 or 3 months and gets laid off because he can't report 
to work. He goes to work handing out shoes at a bowling alley. 
Six months later, he bends over and injures his back again 
because he has picked up the shoes. If you can prove that that 
injury occurred in the shipyard and that is what is causing the 
disability now, it is a shipyard injury, it is a Longshore Act, 
then the longshore employer is required to continue to pay for 
it.
    But the actual last employer rule simply says that the last 
longshore carrier to have exposed him to injurious stimuli, the 
last one to expose him to the asbestos that caused his 
mesothelioma is the one that pays, and it is a terrific rule 
compared to the rules that they have in, for instance, Rhode 
Island and Connecticut, where they bring in every employer who 
has ever spoken to him and then they spend 5 years arguing 
among themselves as to how to cut up the pot into 15 different 
pieces while the widow sits around and has no money coming in.
    Mr. Postol. Senator, if I could just----
    Senator Isakson. Mr. Postol.
    Mr. Postol. The problem is twofold. One, an occupational 
disease, if a man works at a shipyard for 1 day and is exposed 
to asbestos goes and works in an asbestos mine for the next 35 
years, then develops an asbestos-related disease, the longshore 
employer pays, not the asbestos mine. So while the rule was 
meant to be the last employer rule, and therefore was meant to 
even out eventually, you know, sometimes you go and work for my 
employer and vice versa, what has happened is it became the 
last maritime employer. So we hire workers from the coal mine 
or the asbestos mine, we pay. If they hire our workers and then 
they continue to expose them, even if their exposure was 99 
percent of the exposure, the longshore employer still pays. 
Obviously, that is not a good system.
    The second problem----
    Senator Isakson. Do you agree with that, Mr. Embry?
    Mr. Embry. That is, in general, part of the rule. What the 
actual rule is is that you then bring a claim against that 
asbestos mine that exposed them for the 30 years and they are 
the ones that really wind up, in most cases, because you have 
the dual State and Federal remedies, which you always have 
under those circumstances where the person is walking in and 
out of jurisdictions.
    That was precisely the reason why the 1972 amendments were 
enacted, to try to expand jurisdiction and to try to take away 
a little bit of those types of litigation issues that put more 
money in my pocket and Mr. Postol's pocket and not enough money 
into workers' pockets.
    Mr. Postol. But unfortunately, the employer can't bring a 
claim against the asbestos mines. The worker has either 
generally no incentive, because he is already being paid by us, 
or if he does bring it, and in most of the cases they do not, 
we are left holding 100 percent of the bag, then the State 
sometimes says, ``well, we are not going to give you credit for 
your longshore payments.'' So the dual jurisdiction and the 
last employer rule have combined to make a gigantic mess.
    In addition, there is a second problem and I think Mr. 
White referred to it, and that is the cumulative trauma 
injuries. Longshoremen don't work for a particular employer. 
There could be six, eight stevedore companies in the port and 
every day they will work for a different one, depending on 
which one has ships in. So then they get carpal tunnel syndrome 
or cumulative arthritis and then the question is, who is 
responsible? Unfortunately, the Longshore Act is not clear on 
this point at all, so what happens is the claimant's attorney 
says, ``sue them all.'' So all eight stevedores get claims 
against them.
    It is a defense lawyer's dream come true because every 
defense lawyer in the city gets a client. In fact, most of the 
time, they run out of defense lawyers, so I have to go down to 
Savannah or Charleston because they ran out of longshore 
defense lawyers because there were too many employers. And then 
all the employers end up spending a huge amount of attorney 
fees figuring out which one is liable and the claimant's 
attorney just sits there. His meter is running, but frankly, he 
doesn't have to do much of the work.
    Mr. Embry. Can I respond to that just briefly, Senator?
    Senator Isakson. I just love lawyers. They are wonderful.
    [Laughter.]
    Mr. Embry. I know. I love them, too, Senator.
    [Laughter.]
    One of the things that you just heard, I think, points up 
some of the problems we have. We were told that we are supposed 
to bring the claim against the State employer, not the 
longshore employer, but you are being told that if we bring two 
claims, we are bad people. How can we bring a claim against the 
subsequent asbestos manufacturer or mine and not bring it 
against the ship owner? One we bring under the Longshore Act, 
because that covers them. One we bring under the State act, 
because that is what covers them. It is not double-dipping.
    The Longshore Act specifically was amended in 1984 to say 
that to the extent that you get State benefits, the longshore 
carrier gets credit for it and they can cut off their payments. 
So as soon as I win that State case under the Connecticut 
Workers' Compensation Act for the widow, the longshore benefits 
cease and all those benefits transfer over to the State 
carriers. So that problem has already been addressed in 1984 
and that is what we are hearing today.
    Mr. Postol. Well, I am not saying----
    Senator Isakson. I will tell you what we are going to do 
here now. I am abusing my time and we have a lovely lady here 
from the State of Washington, who is a Senator, who has time to 
ask questions, so let us let her ask any that she has.
    Senator Murray. Mr. Chairman, as a preschool teacher, I 
know when time is up. I am fine. I am ready to move on to 
another hearing.
    Senator Isakson. OK. Then I guess I will give you the last 
word, Mr. Postol, but not a long word.
    Mr. Postol. I don't blame them. What I blame is there is 
uncertainty in the system the way the law is written, which is 
why it does need to be reformed, and second, having a dual 
system is inherently wasteful. That is the problem. So I am not 
blaming them. I am saying the system needs to be fixed.
    Senator Isakson. Let me thank all of you for coming today. 
We wanted to have this hearing and we got a lot of good 
information and probably will have more information that we 
will seek from all of you and would keep the record open. If 
you have anything you would like to submit to us based on 
things that came out in the questioning, please don't hesitate 
to give it to us on a timely basis, which I guess is 10 days, 
and we appreciate that very much.
    I look forward to working with the ranking member as we 
take a look at this issue and see if there are any things that 
we need to do or how we might need to do any of those things.
    Thank you. We are adjourned.
    [Additional material follows:]

                          ADDITIONAL MATERIAL

             Boyd & Kenter, P.C., Attorneys at Law,
                                Kansas City, MO, 64106-2317
                                                      May 12, 2006.
Senate Health, Education, Labor, and Pensions Committee,
U.S. Senate,
Washington, D.C. 20510.

Re: H.R. 940--Longshore and Harbor Workers Act Amendments

    Honorable Committee Members: It is a mistake to use model 
amendments to H.R. 940 and its progeny, based upon recent amendments to 
the States' workers' compensation acts. The majority of those changes 
eliminate traditional access and restrict historic coverage once in the 
programs. By way of illustration, Missouri's laws were amended 
effective August 28, 2005 which is described as destructive to the 
historic quid pro quo. That refers to the elimination of the injured 
workers' access to a jury trial in exchange for employers promises to 
furnish timely and appropriate medical care and wage loss replacement.
    A lawsuit has been filed in State court which challenges the 
constitutionality of this massive overhaul, effectuated by the 40 
substantive topic changes in my State's Senate Bills No. 1 & 130.
    The changes which have occurred in Missouri are not progressive, 
but are regressive. For example, over 90 percent of injuries 
traditionally covered since 1926 are now eliminated. Injuries have not 
been commensurately reduced, so the effect is clearly to transfer costs 
to (a) private health insurance, if available; (b) Medicaid; (c) 
Medicare; (d) taxpayers whose local taxes support charitable health 
care for which the recipient does not qualify for public or private 
insurance; (e) hospitals and physicians who in turn ultimately pass on 
the increased costs of uninsured care to those who are insured; and (f) 
the individual.
    To further illustrate this point, and the balance of what is wrong 
with using Missouri's recent experience as a template for Federal 
action, I provide you with a copy of S.B. 1 & 130, the Petition from 
the constitutional challenge, and, the brief we have filed in this 
action which supports why the changes are fundamentally and 
constitutionally flawed. It is respectfully suggested that other States 
are now attempting to compete with Missouri, by incorporating portions 
of this law into pending legislation in various stages of development. 
Kansas Governor Sebelius recently vetoed a bill which contained 
language borrowed from S.B. 1 & 130.
    Many of these changes are viewed in the light by their proponents 
of giving businesses a competitive advantage over businesses in 
adjoining States. Such changes create a race to the bottom, and lose 
sight of the initial purposes served by the creation of States workers' 
compensation acts of providing for the safety, health and welfare of 
America's workers injured or made sick by occupational exposures.
    Please consider these statements and enclosures as you deliberate 
upon the important measures before you. Injured workers and their 
families depend upon you to watch out for their interests, and to 
continue to provide them with the current levels of protection so as to 
avoid shouldering the additional costs of injury and death caused by 
their work.
            Sincerely yours,
                                                Boyd & Kenter, P.C.

    [Editors Note: Due to the high cost of printing, previously 
published materials submitted by witnesses (2005 Missouri legislative 
amendments, the Petition and Brief) may be found in the committee 
files.]
                                 ______
                                 
                Prepared Statement of Lewis S. Fleishman
    Thank you for providing me the opportunity to express my thoughts 
about reform of the LHWCA. My name is Lewis S. Fleishman. I am a 
practicing attorney in the State of Texas. I have practiced law for 
almost 30 years. Since 1985 I have concentrated my practice in maritime 
law. Over the past 2 decades, I have handled multiple hundreds of cases 
arising under the LHWCA. I have also acted as a mediator in LHWCA cases 
on numerous occasions. These were instances where both parties--the 
injured worker and the carrier--agreed to use my services in order to 
resolve a dispute. I am proud to have resolved all claims but one while 
acting as a mediator. I have a strong background in administrative law. 
I was a prosecuting assistant attorney general for the New Mexico 
Attorney General's office during the early 1980's. I prosecuted cases 
arising under the Uniform Licensing Act for a variety of administrative 
agencies. Since I commenced the practice of law in Texas, I have worked 
for a maritime defense firm as well as a claimants' firm. Accordingly, 
because of my varied background, I bring what I believe to be a 
balanced view to the table regarding the Longshore Act. I have 
presented as a speaker regarding the Longshore Act in the following 
programs:

     University of Texas, Admiralty and Maritime Seminar 
(Houston, Texas)
     Loyola Annual Longshore Conference--Three separate 
articles and Presentations (New Orleans, La.)
     Signal Mutual Indemnity Assn. Annual Roundup (Connecticut)
     U.S. Department of Labor Roundtable Discussion (Dallas, 
Texas) Houston Claims Association (Houston, Texas) Lorman Workers' 
Compensation Seminar (Houston, Texas)

    It is my understanding that the Subcommittee on Employment and 
Workplace Safety is considering testimony regarding amendments to the 
LHWCA. Specifically, I appreciate that testimony will be taken 
regarding the possible adoption of a different compensation and medical 
model based on recent State revisions. As a day-to-day practitioner, I 
have watched the system in Texas evolve into the present flawed model. 
The present system here has a number of defects which should preclude 
the hasty adoption of a similar system on a Federal scale without 
significant empirical data. For every horror story of abuse presented 
by an employer and carrier, I am confident that an equally compelling 
presentation can be provided by an injured worker or his family. 
However, data and specifics are what should be required before 
launching into a wholesale revision of the LHWCA. While imperfect, it 
is a significantly better system than what takes place in the Texas 
State system. The State system here in Texas suffers from at least the 
following major shortcomings:

    1. The unavailability of a sufficient number of orthopedic 
specialists to treat injured workers. This is caused by insufficient 
payment for services rendered and administrative red-tape.
    2. An increased burden on the public health care system caused by 
specialists not wanting to treat injured workers.
    3. An increased burden on the public health care system caused by a 
voluntary system of compensation. The workers' compensation system in 
Texas is voluntary in nature. Therefore, in cases where the employer 
opts out of workers' compensation coverage, there is no satisfactory 
remedy for the injured worker short of a negligence lawsuit brought 
against the non-subscribing employer. That defeats the goal of a State 
workers' compensation system wherein truly injured workers are treated 
in a timely fashion so that they can re-enter the labor force and 
become productive members of society once again.
    4. A decreased ability of injured workers to receive compensation, 
medical care or retraining because the Texas State system is voluntary, 
not compulsory.
    5. An increased burden on the administrative agencies running the 
compensation program because injured workers are unable to obtain 
adequate legal help to pursue claims regardless how legitimate or 
serious the injury.

    In closing, I have attached a reference to the WFAA-TV 
investigative series entitled State of Denial, which revealed a Texas 
workers' compensation system in crisis. While I cannot vouch for each 
of the articles referenced in the attachment, I am confident that a 
General Accounting Office (GAO) study or a credible analysis containing 
hard data should be a pre-requisite to any significant changes in the 
LHWCA. Anything less is to abandon a system refined over the course of 
a century without proper reflection.
                  Prepared Statement of Bruce C. Wood
    The American Insurance Association welcomes the opportunity to 
comment on issues arising under the Longshore and Harbor Workers' 
Compensation Act, the Federal program providing workers' compensation 
coverage to our Nation's maritime employers and employees.\1\
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    \1\ The American Insurance Association (``AIA'') is a national 
property and casualty trade association of over 460 members writing a 
major share of workers' compensation throughout the Nation, including 
the Longshore Act. AIA is headquartered in Washington, D.C. and 
operates with six regional offices throughout the country and retained 
counsel in every State.
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    It has been 22 years since the Longshore Act was last amended and 
as long as Congress has sought to evaluate how the program is 
operating. Among the States, a focus on workers' compensation is 
continual, and it is not uncommon for legislatures to amend their 
statutes on an almost annual basis. All of which is to say that 
Congress' review of this program is long overdue. Since 1984, the world 
has changed considerably and so has the world of workers' compensation. 
States, many of which faced a financial crisis in the late 1980s and 
early 1990s, acted--some repeatedly--to rein in rapidly escalating 
benefit system costs and an equally dysfunctional insurance mechanism 
which had driven employer costs to record high levels while leading 
many insurers to exit the voluntary insurance marketplace. The result 
was a national financial crisis in workers' compensation, with annual 
multi-billion dollar losses that drove some insurers into insolvency, 
including the largest writer in Texas, and drove several State workers' 
compensation systems into an insurance meltdown, where coverage in 
voluntary markets was all-but-non-existent and residual market 
deficits--all requiring to be paid by these same insurers--reached 
billions of dollars.
    Out of this blowtorch experience evolved sharpened disability 
management practices intended to improve availability of high-quality 
medical treatment from physicians with more of a focus on occupational 
medicine, improve determinations of permanent partial disability by 
ensuring a more consistent determination of impairment and a 
streamlined means of paying PPD benefits, strengthen workplace 
causation for injuries with weak workplace nexus, and enhanced return-
to-work incentives. State systems responded and the financial crisis 
abated. State workers' compensation programs face continued cost 
challenges, with recent actions in California and Texas indicative of 
the States' response.
    Unlike the atmosphere of a cost crisis that accompanied the 1984 
amendments, the current program is not in the midst of crisis, although 
there are many aspects of the program that demand attention and for 
which improvements should be incorporated. Several of the act's design 
flaws are inherent to the Longshore Act and its unique maritime 
jurisprudence. However, many weaknesses are common to other workers' 
compensation programs and, for this reason, there are lessons to be 
drawn from the States' experience that can benefit the Longshore Act. 
Several problems are ``unfinished business'' from the 1984 amendments--
issues unresolved all this time--while others are of more recent 
vintage. Congress should not wait until the next cost crisis to address 
the Longshore Act. It should recognize that the Nation's injury 
compensation program for maritime workers is in need of updating. In 
view of the States' record of ``constant gardening,'' it is truly 
remarkable that the year Congress last amended the act this year's 
college graduating class was born.
    From what key program weaknesses does the act suffer and how might 
they be remedied? How would a new-century Longshore program look? Let's 
start with unfinished business:
                          i. dual jurisdiction
    The Longshore Act is the only workers' compensation program in the 
Nation that permits filing under, and recovery from, multiple workers' 
compensation statutes. This quirk stems from the lack of clarity under 
the 1972 amendments, in which jurisdiction was extended landward of the 
water's edge to adjoining areas on the docks, and the U.S. Supreme 
Court's 1980 decision in Sun Ship v. Pennsylvania. In that decision, 
the Court held that the extension of Federal jurisdiction landward 
under the 1972 amendments, to encompass areas that heretofore had been 
solely within the jurisdiction of State workers' compensation programs, 
supplemented and did not supplant State jurisdiction. Thereafter, 
injured workers have been able to file under both Federal and State 
systems.
    Although Longshore benefits are normally more generous than State 
system benefits--indeed, Longshore benefits generally are the most 
generous in the Nation, by far--there are States in which some feature 
provides benefits more generous than Longshore. In these circumstances, 
the act effectively permits an injured worker to pick and choose his 
benefits, not unlike a Chinese menu approach to workers' compensation. 
Although Congress attempted to address this flaw in the 1984 
amendments, by incorporating an offset, the design of the offset itself 
is flawed, so as to be ineffectual, and the mere presence of a dual 
remedy drives up insurance coverage costs, as employers are required to 
purchase coverage under both systems. Furthermore, the assertion of 
dual coverage drives up administrative costs, as employers and carriers 
are required to administer claims under both State and Federal systems. 
This makes no sense.
    Some States, not waiting for Congress to act, have acted on their 
own to withdraw State coverage where Federal coverage exists--New 
Jersey, Florida, Louisiana, Texas, Oregon, and Washington among them. 
However, this is a patchwork remedy. Far better for Congress to fix 
this problem with a comprehensive, Federal solution by eliminating dual 
jurisdiction and finally, after decades of inaction, overturn Sun Ship 
and vindicate the intent of the 1972 amendments to preempt State 
workers' compensation laws where Longshore jurisdiction exists.
                         ii. last employer rule
    The ``last employer'' rule, common under State workers' 
compensation laws, holds that the last employer to injuriously expose a 
worker assumes all liability for that claim. This is sound workers' 
compensation policy, in successive employment situations, because it 
obviates the need for dispute and litigation between and among 
employers over which percentage of responsibility each employer might 
bear. Longshore Act case law also recognizes the ``last employer'' rule 
and has for decades. The problem arises, again with friction between 
Federal and State workers' compensation programs, where a worker's last 
employment was covered by State workers' compensation but prior 
employment--perhaps decades earlier--was subject to the Longshore Act. 
In that circumstance, the Longshore Act does not recognize the last 
employer as the last State-covered employer but the last maritime 
employer. Thus, an employee injured under a State workers' compensation 
program can still file a claim under the Longshore Act, despite not 
having been employed last--or for decades--by a maritime employer. 
However, if the worker first worked in State-
covered employment and later in Longshore-covered employment, the 
Longshore employer also is responsible in this circumstance. This is a 
jurisdictional quirk that guarantees the maritime employer loses--
whether the coin flip comes up heads or tails. This is inequitable, 
another flaw left unaddressed by the 1984 amendments.
                           iii. special fund
    The Longshore Special Fund serves a variety of purposes, but its 
initial role, and still its most costly feature, is to subsidize 
employers for the cost of certain pre-existing injuries or conditions, 
where a subsequent injury has combined with the pre-existing condition 
or injury to produce disability more extensive than what would have 
obtained through the subsequent injury alone. The noble purpose behind 
such so-called ``second injury'' or ``subsequent injury'' funds derives 
from a desire to encourage hiring (or retention) of disabled 
(``handicapped'') workers. The theory--in contrast to the practice--was 
that an employer would be more willing to hire (or retain) a previously 
disabled worker if it knew that with a subsequent injury, it would not 
be saddled with the entire cost of the new and greater disability. 
Second injury funds were enacted in many State workers' compensation 
laws following World War II, to accommodate returning disabled 
veterans. The Longshore Act incorporated the same mechanism, in which 
all employers are assessed by the Labor Department annually for the 
expected cost of Special Fund claims during the ensuing year. Thus, the 
Special Fund, like Social Security, is financed on a pay-as-you-go, 
rather than on an incurred, basis. With a qualifying pre-existing 
condition, an employer (or its insurer) is responsible for the first 
104 weeks of benefits and the Special Fund reimburses the employer (or 
its insurer) for the rest, perhaps lifetime benefits.
    As noble has been the objective, there has never been an iota of 
demonstrable evidence under the Longshore Act or any State workers' 
compensation second injury fund that these funds have resulted in the 
hiring or retaining of a single ``handicapped'' worker. Even the 
theoretical foundation for these funds is obsolete with enactment of 
the Americans With Disabilities Act, affording employees a direct 
remedy for disability-related discrimination. All second injury funds 
have succeeded in accomplishing is permitting more hazardous employers 
to slough off their liabilities onto other employers who are assessed 
regardless of whether they ever have a claim qualifying for second 
injury fund ``relief.'' Second injury funds benefit normally larger 
employers, those employers with more claims and therefore more second 
injury fund claims--at the expense of smaller and/or safer employers 
who experience fewer claims and perhaps no second injury fund claims.
    Not surprisingly, the Special Fund has gotten into financial 
trouble. Indeed, this has been the experience with second injury funds 
under State workers' compensation systems. Injured workers still 
receive their benefits, but these funds have accumulated enormous 
unfunded liabilities; they have encouraged employers to ``hunt for a 
pre-existing injury'' as a means of limiting liability, created 
dispute, litigation, and generated unnecessary administrative costs as 
a consequence. The General Accountability Office has estimated several 
years ago that the Longshore Special Fund has an incurred deficit of 
over $2.5 billion. Many States, recognizing the financial time bomb 
these huge unfunded liabilities involve for their employers--
assessments are not unlike another employment ``tax''--have abolished 
their second injury funds, shutting off new claims and running off old 
liabilities which will take decades. Since 1990, 15 States have 
abolished their second injury funds, a clear trend in the States. 
Actuarial analyses of their unfunded deficits are astounding: 
Connecticut ($6 billion), Florida ($4.5 billion), Georgia ($1 billion), 
and Kentucky ($2.5 billion). (New York's second injury and related 
funds' deficit is also expected to total multiple billions, but the 
actuarial analysis completed about 4 years ago at the behest of the 
Workers' Compensation Board has never been released).
    The Special Fund's annual assessment currently is nearly $140 
million--an effective ``tax'' on all maritime employers who must pay 
this tribute year in and year out.
    The Special Fund's problems were recognized in the early 1980s, in 
the years leading up to the 1984 amendments. However, there was 
insufficient support among some employers for repealing the Fund, 
because the perceived benefits still outweighed the ``costs'' of 
assuming all losses directly. Congress adopted a different assessment 
formula designed to impose a ``user fee'' as a means for requiring 
employers using the Fund to pay proportionately more. However, this did 
not fix the underlying problem of rising incurred liabilities, a 
problem that has only worsened in subsequent years.
    Since the 1984 amendments, second injury funds have come under 
intense scrutiny from the accounting profession, increasingly disturbed 
by reports of mounting unfunded liabilities and a recognition that 
insurers were obligated for those liabilities indefinitely. To enhance 
balance-sheet transparency, in 1997, the American Institute of 
Certified Public Accountants (AICPA), endorsed subsequently by the 
Federal Accounting Standards Board (FASB), adopted revised accounting 
rules (SOP 97-3) governing funds, such as insurance guaranty funds and 
second injury funds, requiring publicly traded companies to recognize 
on their balance sheets their proportionate share of a second injury 
fund's ultimate loss. In certain circumstances, this loss-recognition 
was not necessary, where the assessment was premium-based rather than 
loss-based, and the loss-generating event was therefore deemed to be 
premium-owed and not occurrence of the loss (work-related injury). For 
insurers, this change not only has forced footnoting their financial 
statements but effectively reduced the capital otherwise deployable 
into the workers' compensation market.
    In 1999, 2 years later, the National Association of Insurance 
Commissioners (NAIC) adopted revised accounting rules (``statutory 
accounting'' rules) governing all insurers that largely mirrored the 
AICPA rules but went one step further, exempting insurers from booking 
incurred second injury fund losses only where the assessment was based 
on premium and collectible through a separately stated policy 
surcharge.
    The Special Fund's assessment formula is loss-based, meaning 
insurers are subject to the accounting profession's mandate for 
recognizing their proportionate share of the Fund's over $2.5-billion 
incurred deficit and constituting a drag on deployable capital.
    A modernized Longshore Act would repeal the second injury component 
of the Special Fund and alter the assessment basis to premium, 
collectible through a policy surcharge.
    So much for ``old business.'' As to ``new business,'' there are 
three key areas where the Longshore Act embodies weak or flawed 
policies, correction of which would not only restrain benefit system 
costs, but improve an employer's (or its insurer's) ability to manage 
disability:

     Ensuring delivery of high-quality medical treatment 
consistent with evidence-based medicine, reflected in nationally 
recognized treatment guidelines;
     Encouraging return-to-work through a more equitable 
indemnity payment formula, one that ensures injured workers receive 
benefits based more closely on actual pre-injury wages; and
     Enhancing anti-fraud protections.
        iv. ensuring delivery of high-quality medical treatment
    (A) Medical Networks.--One clear trend among the States over the 
past 15 years has been law changes enhancing the ability of employers 
(or their insurers) to direct treatment, through medical networks 
similar to what workers encounter with their health insurance. 
Treatment networks preserve for workers the ability to select treating 
physicians from within a network while giving employers the ability to 
negotiate volume prices and, by virtue of a contractual relationship 
with a network, minimize treatment disputes while preserving for 
workers the ability to dispute treatment, first through network 
processes. The Longshore Act, as do still about half of State workers' 
compensation laws, permits an employee an unfettered authority to 
select the treating physician. The problem is that frequently these 
treating physicians are unfamiliar with workers' compensation--they may 
only treat a few cases annually--and be unfamiliar with the nature and 
intensity of treatment required to treat a work injury. Neither do they 
have any preexisting relationship with the insurer, and they may have 
been selected by a claimant's attorney whose client's position is 
already legally adverse--all of which produces an atmosphere for 
greater dispute.
    What is central to recognize is the workers' compensation medical 
treatment is not the same as medical treatment delivered under other 
payment systems. First, its objective differs from that provided under 
an employee's health benefits plan, in that such treatment is 
inseparably part of a disability program, with the overarching 
objective of returning injured workers to work. Therefore, certain 
treatment, appropriate in nature and intensity to a health benefits 
claim, may not be appropriate in treating a work injury. Second, 
workers' compensation medical treatment remains first-dollar coverage, 
without dollar or duration limitations, or co-pays. Thus, demand 
controls common on the group health side do not exist on the workers' 
compensation side. For these reasons, it is imperative for the workers' 
compensation system to have tools to manage medical treatment that are 
critical to comprehensive and cost-effective disability management.
    In the years since 1984, extensive research has been conducted on 
delivery of medical treatment via networks, and the results confirm the 
critical importance networks can play in not only delivering necessary 
treatment but in quicker return to work. The Workers' Compensation 
Research Institute (WCRI) has produced analysis in recent years that 
has shown:

     ``. . . [W]orkers' compensation networks are associated 
with much lower medical costs, and . . . those savings do not increase 
the duration of disability or income-benefit costs among claims treated 
exclusively or predominately within those networks . . . [N]etwork care 
is less expensive because prices in network are lower; but the more 
important factor is that providers in workers' compensation networks 
use fewer services than do providers out of network.'' ``Are workers' 
compensation networks saving money by cutting back care and, in turn, 
increasing both the duration of disabilities and payments for those 
disabilities? Although we cannot say for certain, we found no evidence 
in the data we analyzed . . . In fact, we know that indemnity costs for 
claims treated in workers' compensation networks were lower than the 
costs for non-network claims. In every injury type, across all three 
States [studied], the duration of disability payments was shorter and 
indemnity costs were lower among claims treated in workers' 
compensation networks.'' [The Impact of Workers' Compensation Networks 
on Medical Costs and Disability Payments; Workers' Compensation 
Research Institute; Executive Summary].
     ``Workers' compensation networks are generally associated 
with lower medical costs--16-46 percent lower if the patient is treated 
exclusively by network providers, and 0-11 percent lower if the patient 
is treated predominantly, but not exclusively, by network providers . . 
. Lower network medical costs . . . do not appear to increase the 
indemnity benefit costs among claims treated predominantly in network . 
. .''
     ``The initial non-emergency visit plays an important role 
in determining the extent of network/non-network costs differences. 
When the initial non-emergency visit is with a network provider, this 
is the single largest factor that determines higher subsequent 
involvement by network providers. We found that network involvement in 
the initial visit was associated with very large differences in network 
penetration rates . . . Claims treated exclusively within workers' 
compensation networks has medical costs that were between 16 and 46 
percent lower than claims treated exclusively outside of networks. 
Claims treated predominantly within the network had medical costs that 
were between 0 and 11 percent lower than similar clams that were 
predominantly treated outside of the network . . .'' [The Impact of 
Initial Treatment by Network Providers on Workers' Compensation Medical 
Costs and Disability Payments; Workers' Compensation Research 
Institute; Executive Summary].
     ``Comparing cases in which the worker selected the primary 
provider with otherwise similar cases in which the employer selected 
the provider, we found that costs were generally higher and return-to-
work outcomes poorer when the worker selected the provider. Workers 
reported higher rates of satisfaction with overall care but similar 
perceived recovery of physical health'' [emphasis added]. [The Impact 
of Provider Choice on Workers' Compensation Costs and Outcomes; 
Workers' Compensation Research Institute; Executive Summary].

    A modernized Longshore Act would be informed by this extensive 
research.
    (B) Evidence-Based Medicine and Treatment Guidelines.--``Evidence-
based medicine (EBM) uses analysis and summaries of scientific studies 
to: (1) guide effective clinical decisionmaking; (2) ensure the 
consistent use of proven medical practices; and (3) reduce unproven, 
ineffective care . . . EBM has evolved into a different style of 
medical practice based on knowledge and application of the medical 
literature underlying each clinical decision rather than anecdote or 
personal experience.'' \2\
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    \2\ Harris and Swedlow, Evidence-Based Medicine & the California 
Workers' Compensation System: A Report to the Industry, January 2004, 
p. 2.
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    The application of EBM in workers' compensation is a newly evolving 
``best practice,'' having been incorporated into recent reforms adopted 
in California and Texas. It is a construct through which both employers 
and employees can be assured the injured worker is receiving medical 
treatment that is consistent with that recognized by the scientific 
literature. EBM evolved from early 1970s studies by the British Health 
Service and leading commentators within the United Kingdom, the 
Canadian Medical Association, American Medical Association, and in 
Federal legislation enacted with the 1989 Omnibus Budget Reconciliation 
Act creating the Agency for Healthcare Policy and Research (AHCPR).
    Through EBM can be developed treatment guidelines that are 
consistent with an accepted hierarchy of quality evidence and the 
application of ``clinical judgment and logic to formulate 
recommendations for practice or practice guidelines.'' \3\ According to 
the National Institute of Medicine (NIM), ``high-grade'' guidelines 
would evince: Validity (``Guidelines should consider outcomes and costs 
of alternative courses of action, the strength of the evidence, and the 
relationship between the evidence and the recommendation''); 
Reliability and Reproducibility (``Practice guidelines should be 
reliable and reproducible, so that another panel of experts would reach 
the same conclusions and practitioners would interpret and apply them 
similarly in similar circumstances''); Clinical Applicability 
(``Guidelines should apply to as many patient groups as possible''); 
Clinical Flexibility (``Guidelines should identify known or expected 
exceptions to their recommendations''); Clarity (``Guidelines should 
use unambiguous language, precisely defined terms, and logical, easy-
to-follow presentation''); Multidisciplinary development (``Guidelines 
should be developed with representatives of key participants''); 
Scheduled Review ((``Guidelines should include provisions and 
timetables for periodic review as evidence or professional consensus 
change''); Documentation (``Documentation should include methods, 
participants and their affiliations, evidence used, assumptions and 
rationales''); and Disclosure (``Developers should disclose all 
affiliations and economic interests and be independent of political, 
legal, and economic pressure and influence.'') \4\
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    \3\ Ibid, p. 4-5.
    \4\ Ibid, p. 6-7.
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    CWCI's study of EBM concluded that:

          Evidence-based medicine offers significant promise to curb 
        excessive, unnecessary, and sometimes harmful levels of medical 
        care in the California workers' compensation system. The 
        results of this study added to the results of other research, 
        make it clear that under correct conditions, such guidelines 
        can both raise the quality of care and reduce costs.\5\
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    \5\ Ibid, p. 40.

    CWCI's study focused on the benefits of guidelines promulgated by 
the American College of Occupational and Environmental Medicine 
(ACOEM). Foreshadowing actual experience under the California reforms 
which adopted the ACOEM Guidelines, CWCI's analysis concluded that 
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there was:

        significant variation and excess levels of radiological imaging 
        testing . . . significantly higher than ACOEM-expected levels 
        of medical services for physical medicine, chiropractic and 
        surgery, and longer than expected durations of temporary 
        disability. The gulf between actual and expected levels of 
        treatment illustrates the scope of the challenge that lies 
        ahead--yet it also points to the huge potential to reduce 
        unnecessary or ineffective treatment and generate significant 
        savings. To reduce medical costs and assure the highest quality 
        of care, as intended by the Legislature, will require all 
        stakeholders to integrate EBM guidelines into their medical 
        practices, administrative processes, and judicial 
        determinations.\6\
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    \6\ Ibid, p. 40-41.

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    CWCI's post-2004 reform research:

        . . . found no evidence to support the assertion that providing 
        treatment outside ACOEM-recommended targets improves medical 
        treatment or return-to work outcomes for injured workers with 
        low back soft tissue injuries. On the other hand, among claims 
        involving physical therapy and chiropractic services, those in 
        which the level of care remained within the ACOEM guidelines 
        were associated with reduced treatment duration, faster return 
        to work, and reduced medical and indemnity payments. Beyond 
        that, claims in which services exceeded ACOEM-recommended 
        levels were strongly associated with higher total (medical and 
        indemnity) claim costs, prolonged treatment, and delayed return 
        to work, as evidenced by the greater number of temporary 
        disability days. In some cases the costs were substantial . . 
        .\7\
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    \7\ California Workers' Compensation Institute; Bulletin; No. 05-
14; September 28, 2005.

    A modernized Longshore Act would integrate evidence-based medicine 
and require treatment to be in accordance with a high-quality treatment 
guideline, as ACOEM has been proven to represent.
    (C) Utilization Review: Closely linked to the application of 
evidence-based treatment (and the incorporation of treatment 
guidelines) is an accepted process for ensuring expeditious and 
balanced review of treatment. Here again, the private sector over the 
past 15 years has developed accepted ``best practices,'' not only for 
workers' compensation but all medical treatment. Utilization review 
standards consistent with those promulgated by the Utilization Review 
Accreditation Commission (URAC). Established in 1990, URAC 
certification of networks and providers, recognized by 35 States and 
three Federal agencies, is intended to assure regulators of those 
certified abide by high standards of professional health care.
    A modernized Longshore Act would recognize URAC-consistent 
utilization review standards as a benchmark for ensuring injured 
workers receive the quality of medical treatment consistent with 
treatment standards.
   v. encouraging return-to-work through a more equitable indemnity 
  payment formula, one that ensures injured workers receive benefits 
             based more closely on actual pre-injury wages
    In addition to providing all reasonable and necessary medical 
treatment, workers' compensation replaces lost wages, generally for the 
duration of the disability. However, in order to encourage return-to-
work, workers' compensation does not seek to replace 100 percent of 
lost wages but a portion thereof. Historically, most workers' 
compensation laws provided for replacement of two-thirds of the 
worker's pre-injury average weekly wage--a formulaic determination, 
itself a matter of some dispute among State systems and the Longshore 
program. When workers' compensation laws were first enacted, nearly a 
century ago, two-thirds of average weekly wages generally was close to 
two-thirds of actual pre-injury wages, but with actual pre-injury 
income now distorted by progressive income tax laws, post-injury 
benefits based on two-thirds of gross wages--tax-free--commonly 
replaces far more than two-thirds of actual pre-injury wages--sometimes 
close to or more than 100 percent. Furthermore, actual wage-replacement 
ratios are skewed by the effect of different tax brackets, meaning that 
wages replaced of workers in different tax brackets are highly 
variable.
    In its 1972 report, the National Commission on State Workmen's 
Compensation Laws, recommended that States adopt a benefit formula tied 
to net pay instead of gross pay. The Commission made 83 other 
recommendations, and Congress incorporated the thrust of one other into 
the 1972 amendments--a maximum benefit of 200 percent of the national 
average weekly wage--but ignored the net pay recommendation. In the 
years since, several States have adopted a spendable income formula--
typically either 75 or 80 percent of after-tax income.
    The Longshore Act also includes an archaic formula for determining 
a worker's average weekly wage, one that inflates actual pre-injury 
wages and therefore guarantees, in conjunction with the distortions of 
a gross pay benefit formula, that post-injury benefits bear no 
relationship to a percentage of actual pre-injury earnings that would 
encourage return to work.
    A modernized Longshore Act would incorporate a spendable income 
benefit formula and rationalize average weekly wage determinations, and 
thereby inject stronger return-to-work policies.
                               vi. fraud
    State workers' compensation laws over the past 20 years have 
incorporated stronger tools for combating fraud. These include 
authority to deny a claim based on fraudulent representations, and to 
require restitution of ill-gotten benefits. They also have imposed 
obligations on system participants to report suspected fraud to State 
workers' compensation or insurance department fraud bureaus for 
investigation and/or referral for prosecution. The Longshore Act does 
not include these tools.
    A modernized Longshore Act would (1) provide an affirmative defense 
for a knowingly false statement, thus precluding the improper payment 
of benefits in the first place; (2) provide for restitution for 
benefits paid as a result of fraud; and (3) require employers, 
insurers, medical providers, and other system participants to report 
suspected fraud, while ensuring civil immunity to those with the 
obligation.
                               conclusion
    The Longshore Act is a relic of an earlier part of the last 
century. Although it has been amended a number of times since its 
enactment in 1927, no changes have been made in virtually a 
generation--changes at the time that were necessary to staunch the 
bleeding caused by amendments adopted in 1972 that inflated system 
costs exponentially. The world of workers' compensation has passed by 
the Longshore Act. Congress should meet its responsibility to review 
the act and to consider reforms that would reflect improved disability 
management policies, while ensuring injured workers receive improved 
medical treatment and are able to promptly return to work. That is the 
promise of any successful workers' compensation program. It is a 
promise that the Longshore Act currently fails to meet.

    [Whereupon, the committeee was adjourned]

                                    

      
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