sr-011910-1o~~
City Council Report
City of
Santa Dfonica~
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City Council Meeting: January , 2010
Agenda Item: 1 -'
To: .Mayor and City Council
From: Carol Swindell, Finance Director
Subject: Workers Compensation and General Liability Claims Management System
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute a contract amendment with AON eSolutions (formerly Valley Oaks. Systems,
Inc.) to purchase a software license and approve a five year maintenance agreement
extension for an amount not to exceed $247,593, bringing the total contract value to
$617,593.
Executive Summary
In 1999, the City purchased a claims management software package from Valley Oaks
Systems Inc., (now AON eSolutions) and entered into an agreement for the related
ongoing maintenance. The contract has been amended twice since that time to
purchase additional software modules and extend the maintenance agreement.' A third
amendment is now necessary to purchase software to comply with new Medicare
reporting regulations ($26,688) and extend the system. maintenance agreement for
another five years ($220,905). The cost of the original contract, along with the two
amendments approved to date, totals $37Q060. The cost of the third amendment will
not exceed $247,593, bringing the contract total value to $617,593. Funds to cover the
current year software purchase ($26,688) are available in the Comprehensive, Workers'
Comprehensive, and Bus Self Insurance Funds. Funds to cover the costs of the
maintenance agreement extension ($220,905), effective July 2010, will be requested in
future year annual budgets.
Discussion
Risk. Management has contracted with Valley Oaks Systems, Inc. since 1999 for the
software and associated maintenance support of our Liability and Workers'
Compensation claims management system. Valley Oaks Systems, Inc. was recently
acquired by AON eSolutions. Therefore, the contract is now between the City and AON.
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The contract amendment proposed as part of this item authorizes staff to purchase new
software to comply with Medicare reporting regulations and extend the system
maintenance agreement for five years
Mandatory Medicare Reporting Regulations
In late December 2007, the Federal Government enacted legislation .that places new
mandatory Medicare reporting regulations on the City. Effective April 1, 2010, the City
must provide the Center for Medicare and Medicaid Services (CMS), the Federal
agency that oversees the Medicare Program, quarterly electronic reports of all Workers'
Compensation and Liability Program medical settlements, judgments, awards or
payments to claimants who are or could be Medicare beneficiaries. Failure to comply
with the reporting regulations will result in $1,000 per claim, per day penalties.
The purpose behind the new legislation is to ensure the Medicare Program is not paying
medical expenses to Medicare beneficiaries that are the responsibility of another party,
such as a group health plan, a Workers' Compensation Program or a Liability Insurance
Program. The mandatory reports will provide CMS with the data to determine if there is
another responsible party and seek reimbursement from that party if Medicare has paid
medical expenses on their behalf.
Risk Management's current claims management system is not capable of complying
with the new CMS reporting requirements. Therefore, it will be necessary to upgrade
our system with a new software module. The software module is available through AON
and will cost $25,000. The City will also be assessed an ongoing annual maintenance
fee of $3,375.
Maintenance Agreement Extension
The current system maintenance agreement is set to expire at the end of the current
fiscal year. Staff recommends extending that agreement for 5 additional years at a cost.
of $39,978 in the first year (effective July 2010). Each year thereafter, the contract will
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increase by a maximum of 5% resulting in a total cost over the five year period of
$220,905.
Consultant Selection
The City selected the original software system in 1999 after going through a competitive
bidding process. The City received seven responses from vendors to the Request for
Proposals -all of which were reviewed by a committee composed of Risk Management,
Information Systems, and a software consultant. The Committee recommended that the
City contract with AON (formerly Valley Oaks Systems, Inc.) based on system
functionality, reporting capabilities and costs.
Risk Management did not conduct a competitive bidding process for the new Medicare
software module or maintenance agreement extension. The new software module must
be compatible with Risk Management's existing AON claims management system, and
the most cost effective way to insure compatibility is to purchase software developed by
AON. Further, maintenance services for the claims management system are only
available through AON. Given this, staff concluded it was-not cost effective to bid out
these two services.
Financial Impacts & Budget Actions
Purchasing the Medicare reporting software module will result in a one time cost of
$25,000 during 2009-10 and an annual maintenance charge of $3,375, of which a pro-
rated share of up to $1,688 will be due during 2009-10. Funds for these expenses are
available in the following accounts:
^ .56232.533580: $ 8,940
^ 57233.533580: $ 4,404
59235.533580: 13 344
Total: $ 26,688
The maintenance agreement extension will not take effect until July 2010 and cost
$39,978 in the first year. Each year thereafter, the contract will increase by a maximum
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of 5% resulting in a total cost over the five year period of $220,905. Funds to cover the
costs of the maintenance agreement extension will be requested in future year annual
budgets.
In summary:
Contract costs to date: $ 370,000.
Current Amendment: $ 247,593
Total Cost: $ 617,593
*$ 26,688 for software/maintenance + $220,905 for maintenance agreement = $247,593
Prepared by: Deb Hossli, Risk Manager
Approved:
Forwarded to Council:
N~ Carol Swindell
Finance Director
Ewell
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