City Council
Report
City Council Meeting: July 25, 2017
Agenda Item: 3.B
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To: Mayor and City Council
From: Gigi Decavalles-Hughes, Director, Finance Department, Risk Management Edward F King, Director, Department of Transportation
Subject: Workers' Compensation Claims Administration Services Recommended Action
Staff recommends that the City Council:
1. Award RFP #105 to Intercare Holdings Insurance Services, Inc., a Californiabased company, for workers’ compensation claims administration services;
2. Authorize the City Manager to negotiate and execute an agreement with Intercare Holdings Insurance Services, Inc. for three years, with two one-year renewal options in an amount not to exceed $1,699,509 over a five-year period, with future year funding contingent on Council budget approval; and
3. Authorize the City Manager to negotiate and execute a first modification to agreement #10234 in the amount of $113,800 with TCS Risk Management Services, LLC, a California-based company, for workers’ compensation data analysis and consulting services. This will result in a five-year amended agreement with a new total amount not to exceed $326,300, with future year funding contingent on Council budget approval.
Executive Summary
The Finance Department and Big Blue Bus (BBB) are requesting to engage in a threeyear pilot program to determine the most cost-effective model for managing workers’ compensation claims. BBB will serve as the test group for the pilot program. As proposed, administration of BBB’s workers’ compensation claims will transfer from inhouse staff in the Risk Management Division of the Finance Department to a private claims administrator, referred to as a “Third Party Administrator” (TPA). Pilot program performance will be evaluated and monitored by BBB and Finance throughout the pilot period.
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In order to pursue the pilot program, staff from the Finance, BBB and Human Resources Departments solicited formal proposals from TPAs for workers’ compensation claims administration services. Based on this process, staff recommends that the City enter into an agreement with Intercare Holdings Insurance Services, Inc. for an amount not to exceed $1,699,509 over a five-year period. In addition, staff recommends that the City amend its existing contract with TCS Risk Management Services, the City’s workers’ compensation consultant, for assistance with transitioning claims administration services to the TPA and tracking and monitoring the pilot program’s performance. The amendment will cost $113,800 and result in a new agreement amount not to exceed $326,300.
Background
The City’s workers’ compensation costs continue to grow at an accelerated pace. In FY 2017-18 alone, the City’s contributions to the Workers’ Compensation Self-Insurance Fund increased by 50%. Further, contributions are projected to rise by 10% annually thereafter if current claims trends continue. In response to this, the Finance Director convened a Workers’ Compensation Working Group composed of the Assistant City Manager, City Attorney, Human Resources Director, and Risk Manager for the purpose of promoting initiatives to curb the City’s growing workers’ compensation costs. Under the guidance of the Working Group, a variety of pilot cost control projects have been put in place across the City. Examples include the “Wow, That’s Fast” Program, which provides comprehensive case management services to injured sworn personnel and post-job-offer functional capacity testing to ensure prospective employees are capable of safely carrying out essential job functions prior to placement. The most recent idea to emerge from the Working Group involves a BBB/Risk Management Division proposal to contract with a TPA to manage the BBB’s workers’ compensation claims. The idea was intriguing to the Working Group due to the many advantages a reputable and established TPA could have over an in-house program, and it resulted in the development of a three-year pilot program proposal to determine which model is more cost-effective. The details of the pilot program proposal follow. 3 of 8
Discussion
The Risk Management Division of the Finance Department is responsible for managing the City’s Workers’ Compensation Program. In this capacity, the Department has relied on in-house personnel to administer workers’ compensation claims since 2001. The decision to use internal or external staff to administer claims is unique to each employer. In 2001, the City selected an internal management model in hopes of improving program outcomes through direct control over claims administration. Over the past two decades, however, TPAs have made advancements in the quality, sophistication, and breadth of services offered to their clients. TPAs also have a variety of advantages over an in-house program like the City’s. A few key examples include:
• TPAs can provide their employees with incentives for consistently exceeding performance targets. Public sector compensation plans are not set up to contemplate incentive plans of this nature.
• Due to size, TPAs have systems in place to automatically redeploy examiner staff when the account’s assigned examiner is out of the office (e.g., vacation, medical/family leaves, etc.). This ensures that claims continue to move forward when the assigned examiner is unavailable. The City’s program is too small to provide this type of back-up.
• TPAs have more resources available to support claims staff and improve outcomes. An established TPA can provide everything from proprietary risk management information systems (RMIS) that offer unique capabilities (e.g., employees can track claim status and medical appointments on smart phones, etc.) to in-house training units devoted to keeping claims staff up-to-date on the latest developments/best practices in the workers’ compensation arena. • TPAs are able to spread their fixed administrative costs (e.g., administrative staff, training, RMIS, office rents, etc.) across all of their clients. 4 of 8
Collectively, these advancements and advantages have positioned TPAs to provide very cost-effective claims administration services. This information was presented to the Working Group and prompted their subsequent support for pursuing a pilot program to determine whether the City could benefit from using a TPA to manage its workers’ compensation claims.
Pilot Program Proposal
The Working Group selected BBB to serve as the test group for the pilot program. BBB represents a little over one-quarter of the City’s workers’ compensation open claim inventory and generates roughly 90 to 100 new claims per year. Further, it receives claims from a cross-section of workers that mirrors the City’s total inventory of claims (i.e., claims from workers performing sedentary jobs and physically demanding jobs).
These characteristics, coupled with the BBB’s keen desire to be more involved in managing its workers’ compensation claims, make it the ideal test group in the City for the pilot program.
Once BBB was selected for the pilot, a group of staff from BBB, Finance/Risk Management, and Human Resources was assembled to develop and issue an RFP for claims administration services. The group also established the following parameters for pursuing the pilot program:
• Implementation: The TPA will manage all of BBB’s existing workers’ compensation claims and any new claims received during the pilot period. BBB staff, in turn, will serve as the TPA’s primary contact throughout the pilot program. BBB already handles certain human resources-oriented tasks with internal staff, and as such, is uniquely positioned to effectively oversee the efforts of a TPA.
The balance of the City’s claims will continue to be managed by the City’s inhouse staff in Risk Management. Efforts of the in-house staff previously devoted to BBB will be redeployed to the remaining claim inventory. This will bring down internal staff caseloads to approximately 110 claims per examiner, which is 5 of 8
equivalent to the TPA examiner caseload requirements set out in the RFP and considered an industry best practice.
• Ongoing Oversight: BBB, Finance/Risk Management, and Human Resources will work together to closely monitor the TPA’s performance during the pilot period to ensure that any issues with TPA performance are detected and addressed in a timely manner.
• Employee Notification: Injured employees with open workers’ compensation claims will be provided ample notice of the changeover so all questions/concerns can be addressed and all medical services and benefit payments continue without interruption.
• Accounting Arrangements: The BBB’s share of the Workers’ Compensation Self-Insurance Fund’s (Fund 59) assets and liabilities will be calculated and transferred to a newly created fund so that pilot program financial performance can be accurately tracked. Once these figures are available, staff will return to Council for authorization to create a Transit Workers’ Compensation SelfInsurance Fund and transfer the assets/liabilities. • Program Evaluation: BBB and Finance/Risk Management will evaluate the pilot program’s success against a set of objective performance measures (e.g., total cost per claim, lost-time per claim, total open claim inventory, overhead costs per claim, etc.) and subjective performance measures (e.g., employee satisfaction surveys, employee focus groups, etc.) throughout the pilot period and at its conclusion. BBB and Risk Management will be responsible for reporting out at regular intervals to the Working Group on the pilot program’s performance. At the conclusion of the three-year pilot period, the Working Group will make a recommendation to the City Council as to whether the TPA contract should be terminated, extended for BBB only (thus the inclusion of the two, one-year 6 of 8
renewal options), or possibly expanded to include a larger segment of the City’s workers’ compensation claims.
TPA Selection Results
On March 7, 2017, the City published an RFP for workers’ compensation claims administration services for the BBB. The RFP was posted on the City’s online bidding site and notices were advertised in the Santa Monica Daily Press in accordance with City Charter and Municipal Code provisions. 373 potential firms were notified of the RFP and 31 downloaded the bid. The following seven firms submitted a response:
AdminSure Inc.; Athens Administrators; Broadspire Services Inc.; CorVel Corporation; Intercare Holdings Insurance Services, Inc.; Tristar Risk Management; and York Risk Management Services.
An evaluation panel comprised of staff from BBB, Finance/Risk Management, and Human Resources evaluated all seven RFP responses based on the criteria in SMMC
2.24.073, including price, staffing commitment, understanding of program goals and objectives, references/experience, incentive plan commitment, and value-added services. The panel used the criteria to narrow the field to four firms who were invited to make on-site presentations. The interviews confirmed all four of the firms were capable of competently fulfilling the RFP’s scope of work and offered competitive pricing and value-added services. On balance, however, Intercare Holdings Insurance Services offered the best combination of staffing, transit claim experience, references, and price.
Therefore, staff recommends Intercare Holdings Insurance Services as the bestqualified firm to provide the claims administration services requested in the RFP.
Contracted Services Policy
While the City’s Contracted Services Policy contemplates physical or manual work as opposed to professional services, the intent of the policy, coupled with its evaluation criteria, provided staff with guidance for assessing the appropriateness of pursuing the pilot program. Specifically, the proposal contained in this staff report meets the “spirit” of at least five of the criteria set out in the policy: 1) it is a pilot program; 2) the City would benefit cost-wise from the contractor’s economies of scale; 3) the contractor is 7 of 8
better positioned to respond to workload fluctuations; 4) the contractor is equipped with back-up staffing options; and 5) the contractor’s performance can be measured through objective means. In light of this, staff determined that pursuit of the pilot program was consistent with the Council’s policy for contracting out services.
TCS Contract
The City currently has an agreement in place with TCS Risk Management Services, LLC for workers’ compensation consulting services. The contract was awarded to TCS by the City Council at its December 2015 meeting (attachment A) after engaging in a competitive selection process. TCS provides Risk Management with indepth quarterly analyses on the financial and operational performance of the Workers’ Compensation Program. Staff is requesting to amend TCS’s agreement to include assistance with developing the pilot program’s performance measures, transitioning claims administration services to the TPA, and monitoring pilot program performance. This assistance will ensure the TPA transition goes smoothly for staff and injured workers, and BBB and Risk Management are able to closely and accurately monitor the pilot program’s performance. The contract amendment will cost $113,800.
Financial Impacts and Budget Actions
The agreement to be awarded to Intercare Holdings Insurance Services, Inc. is for an amount not to exceed $1,699,509 over a five-year period. FY 2017-18 contract costs total $327,900. Further, the agreement modification to be awarded to TCS Risk Management Services, LLC is $113,800 for an amended agreement total not to exceed $326,300. This will increase the FY 2017-18 contract costs by an additional $41,067.
Funds for the initial payments required in FY 2017-18 for both agreements have been budgeted in the Workers’ Compensation Self-Insurance Fund (Fund 59) in account 59235.555060. Once the Transit Workers’ Compensation Self-Insurance Fund referenced in the “Discussion” portion of this staff report is created (September 2017), the new Transit Workers’ Compensation Self-Insurance Fund will reimburse Fund 59 for all costs incurred to date for these two agreements. All subsequent expenses for the Intercare agreement will be paid out of the Transit Workers’ Compensation SelfInsurance Fund. All subsequent expenses for the TCS agreement will be paid out of 8 of 8
Fund 59. However, each year, the Transit Workers’ Compensation Self-Insurance Fund will reimburse Fund 59 for its share of TCS’s expenses. Future funding for both agreements is contingent on Council budget approval.
Prepared By: Deb Hossli, Risk Manager
Approved Forwarded to Council
Attachments:
A. December 15, 2015 Staff Report
B. Intercare Holdings Insurance Services Inc Oaks Form