Over the last year, we have received countless calls from Social Security Disability attorneys and advocates stating that they are not making as much money as compared to previous years. As a business that connects potential claimants to attorneys, we constantly track the ROI as a result of using our service. Thus, we were determined to uncover if and why Social Security law is less profitable than in past years. While we acknowledge that there are many metrics that affect profitability prior to a hearing, this article will focus specifically on the profitability of claims that make it to the hearing level.

Hearing Approval Rates

The attorneys with whom we work typically blame the decline in hearing level profitability on the decrease in the hearing approval rate. While the hearing approval rate has undoubtedly decreased in the last 4 years, the decrease from 2013 to 2014 does not explain a substantial decline in profitability. Below is a chart for reference. Take a firm that has 10 hearings per month or 120 hearings per year. Winning the national average of 47.77% of hearings this year vs. 49.54% of hearings last year would represent losing 2.124 additional hearings. Assuming an average hearing attorney fee of $3000, the decline in hearing approval rate represents $6372 less profit or 3.57% of profit generated at the hearing level. Although the national average approval rate has decreased, there is great fluctuation in the yearly hearing approval rate between specific ODARs. For example, the fully favorable hearing approval rate is up over 5 percentage points in the Lansing, Phoenix, Los Angeles West and Creve Coeur ODARs. The same rate is down over 5 percentage points in the Santa Barbara, San Juan, Fort Wayne and Lexington ODARs. Finally, the decrease in hearing win percentage appears to be negatively affecting profitability, but it does not equate to the magnitude of decreased profit reported by attorneys.

(compiled from www.ssa.gov/appeals/DataSets/archive/archive_data_reports.html)

Number of Hearings Held to Decisions

Although a disability law firm’s profitability will likely decrease more than 3.57% this year, there is good news. Unlike the permanently lost profit from winning fewer cases, additional profits are delayed instead of completely lost. Over the past 4 years with the decline in hearing approval rates, the ratio of hearings held to decisions per year has also decreased. In 2010, there was about one decision for every hearing that was held. As you can see in the table below, in 2014, there have been nine decisions for every ten hearings. The firm that has 120 hearings a year would receive 106.81 decisions in 2014 vs. 111.64 decisions in 2013. If the firm receives 4.83 less decisions this year and wins the national average of 47.77% of hearings, the firm will receive 2.31 less favorable decisions in 2014. Assuming an average hearing attorney fee of $3000, the firm will have $6930 or 3.89% of profitability delayed to 2015 due to the increase in claim processing time.

(compiled from www.ssa.gov/appeals/DataSets/archive/archive_data_reports.html) *projected at current pace

Volume of Disability Applications

So, why are there fewer decisions than hearings per year? Could an increase in disability applications be increasing the backlog? Not exactly. Below is a table, which shows that the number of disability applications has decreased every year over the last 4 years.

(compiled from http://www.ssa.gov/OACT/STATS/dibStat.html#f3) *projected at current pace

Staffing Considerations

Since the number of disability applications is decreasing and Administrative Law Judges (ALJs) are at least as efficient with processing claims (Judges averaged 404.86 decisions in 2013 and 405.60 decisions in 2014), the increase in processing time appears to be due to a reduction of the workforce in a magnitude substantially greater than the decrease in applications and/or a decrease in prehearing efficiency. The below chart confirms our first hypothesis that the number of disability judges has decreased more rapidly than applications. Looking at the last year, the number of judges making decisions decreased by 5.2% while applications decreased by .78%.

(compiled from www.ssa.gov/appeals/DataSets/archive/archive_data_reports.html)

Additionally, the number of hearing level “on the record” decisions has drastically decreased due to reductions of Senior Attorney Advisors (SAAs). Below is an explanation of the role and reduction of SAAs according to the Social Security Administration. “SSA implemented the SAA Program in November 2007 to issue high quality, fully favorable OTR decisions while maintaining the current level of ALJ decision writing support. By having SAAs issue fully favorable OTR decisions, SSA would be able to conserve ALJ resources for the more complex cases and cases that require a hearing. SSA originally included a provision to end the program on August 10, 2009, but it extended the Program twice through August 2013.” (http://oig.ssa.gov/audits-and-investigations/audit-reports/a-12-13-23002) With the reduction of SAAs, many individuals who would have never appeared before a Judge because an OTR decision would have been awarded are forced to wait a substantially longer time for a hearing. It appears that the increase in time to receive a hearing decision can be attributed to the fact that there are fewer judges with larger workloads due to the reduction of Senior Attorney Advisors.

Other Considerations

If you are like many Social Security law firms and profitability is down for 2014, there is a good chance that you have more pending hearings than previous years and will realize your profits in future years. If yearly profits are down, remember that your ROI should be relatively stable and should be realized in future years. Hopefully this sheds light on how profitability has changed at the hearing level. Additionally, approval rates at the initial and reconsideration level are also changing which has impacted the profitability of cases prior to the hearing level. Is prehearing profitability increasing? That is a discussion for a different day.