TO:
Honorable Mayor and Members of the City Council
THROUGH:
Mark Danaj, City Manager
FROM:
Teresia Zadroga-Haase, Human Resources Director
SUBJECT:Title
Contract with AdminSure, Inc., for Third Party Administration Services in Support of the Self-Insured Workers’ Compensation Program (Human Resources Director Zadroga-Haase).
APPROVE AND APPROPRIATE
Line
_________________________________________________________
Recommended Action
RECOMMENDATION:
Staff recommends that the City Council approve a three year contract effective July 1, 2016, with two option years with AdminSure, Inc. (AdminSure) for third party administration (TPA) and ancillary medical management services, and authorize City Manager to execute same (Attachment 1). The total estimated expenditure for the contemplated full five year contract period would be $1,571,709.
Body
FISCAL IMPLICATIONS:
The annual estimated value of the contract in years one and two is $307,511, with $186,000 being applied to claims administration services and $121,511 being applied to ancillary claims costs. Adequate funding for these services has been included in the proposed two-year budget for FY 2016-17 and FY 2017-18. The year three total would be $313,091, with $191,580 allocated to claims administration and $121,511 being applied to ancillary claims costs. Year four, the first option year, would have a total expenditure of $318,838, with $197,327 allocated to administration and $121,511 to ancillary claims costs. Year five, the final option year, would have a total expenditure of $324,758 with $203,247 allocated to administration and $121,511 to ancillary claims costs.
The combined costs for these services in FY 2014-15 was $337,164. The projected costs for current fiscal year for these combined services based on charges through April 23, 2016 is $347,205. The trend for the costs of these services has been upward. The costs for these combined services in FY 2011-12 was $203,826. This upward trend has been driven by increased medical treatment activity in conjunction with a per unit pricing model for the ancillary services. This new agreement provides a flat rate pricing model for the larger bill review element of ancillary services and a move towards flat rate pricing for the utilization review services mandated by statute. Estimated savings over projected FY 2015-16 expenditures for FY 2016-17 are $39,694 and for the full five years of the agreement are $164,314. By creating a flat rate pricing structure the volatility of the per unit piecing model is eliminated and a more stable funding structure for these services is implemented and budgeted appropriately.
BACKGROUND:
The City of Manhattan Beach has been permissibly self-insured for workers’ compensation since May 1, 1974. The City was originally covered under State of California Certificate Number 7122. The City was a founding member of the Independent Cities Risk Management Authority (ICRMA), a risk pooling joint powers authority (JPA). ICRMA was started in 1980 and initially only offered excess general liability coverage. In 1983 an excess workers’ compensation pool program was created and the City has been participating in that program since inception. In July of 2003 the City chose to revoke their individual self-insured certificate and since that time has been covered under the ICRMA State of California Certificate Number 5023. The City maintains a self-insured retention (SIR) level of $750,000 per claim and Human Resources Risk Management staff provides oversight and coordination of the claims administration process and services provided by our TPA.
Due to the level of training, expertise, volume of activity, and technological infrastructure required for effective claims management, the City has historically contracted with a TPA firm that has the expertise and economies of scale to handle the daily mechanics of claims administration activities. The city contracted with Colen and Lee effective May 1, 2000 for workers’ compensation TPA services. The corporate name was changed to AdminSure, Inc., on September 1, 2007. The contract has essentially been renewed by addendum for the 16 years AdminSure has been providing services.
As the services had not been marketed for sixteen years, the City issued Request for Proposals No. 1044-15 on May 14, 2015, seeking proposals for professional TPA ancillary medical management services. There were nine proposals submitted for consideration. There were five vendors chosen for oral interviews. AdminSure and York were chosen as the two finalists for consideration after the oral interview process was completed. While both presented well as competent professional service providers, York’s proposal was significantly more costly when the fee for services rates were applied to actual usage in prior years. Consideration was also given to the fact that claims administration effectiveness is greatly diluted during the first year of any transition, which ultimately adds to program costs above the norm. Based on these factors, staff determined that AdminSure should be recommended for award of the contract for TPA and ancillary services associated with the self-insured workers’ compensation program.
In the process of contract discussions, staff was able to negotiate a reduction of AdminSure’s proposed administrative services fee, flat rate pricing for bill review services, and institution of a new protocol for utilization review services intended to create greater efficiency in procuring treatment for our injured employees and lower City costs. These steps will enhance the move towards cost stabilization related to this suite of services.
DISCUSSION:
The TPA services for the City’s self-insured workers’ compensation program being provided by AdminSure have been competent and committed. Their services have been essential in assisting the City in establishing and implementing proactive claims management practices. In showing a willingness to restructure the pricing model, AdminSure has shown a commitment to reducing City costs and creating efficiencies for the City’s workers’ compensation program.
The structure of the current agreement allows for ancillary medical management services to be performed and charged to the claim file on a fee for service basis. These services are charged directly to the claim file and not included in the administrative overhead expenses. These services are administrative in nature and should be performed judiciously as necessary. AdminSure has agreed to restructure this portion of the service delivery and costing elements of the contract, which will allow for more control of these services and stabilization of their associated costs. This in turn results in increased cost transparency and improved ability to track costs and project program funding requirements.
Having a competent TPA provider that is committed to program improvement and also develops a familiarity with our work environment and claims issues creates a stable and effective program. The proposed agreement will allow for a continued relationship with a vendor that is knowledgeable of our claims and our jurisdiction, which creates a benefit to the City and to our employees.
POLICY ALTERNATIVES:
There are no viable policy alternatives for this action.
PUBLIC OUTREACH/INTEREST:
As this is an internal service contract, public outreach was not deemed necessary.
ENVIRONMENTAL REVIEW
There were no environmental issues associated with the services being sought.
LEGAL REVIEW
The agreement has been reviewed and approved by the City Attorney’s office as to legal form.
Attachment:
1. Agreement with AdminSure, Inc.
2. Exhibit A to Agreement with AdminSure, Inc.
3. Exhibit B to Agreement with AdminSure, Inc.
4. Exhibit C to Agreement with AdminSure, Inc.