SR-10-02-2012-3FCity Council Meeting: October 2, 2012
Agenda Item: 3r
To: Mayor and City Council
From: Gigi Decavalles- Hughes, Director of Finance
Subject: Professional Services Agreement for Workers' Compensation Medical Bill
Review Services
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute a professional services agreement with InterMed Cost Containment Services, a
California -based company, in the not to exceed amount of $750,000 over a five -year
period for workers' compensation medical bill review services. Funding for future years
is contingent upon Council budget approval.
Executive Summary
Staff was recently advised by the City's workers' compensation medical bill review
provider, Aon eSolutions, that it intended to phase out its current bill review software
system and replace it with a more sophisticated version that could potentially reduce
workers' compensation costs. Aon further advised that once the software was in place,
its charges for bill review services would increase significantly. Given this information,
staff opted to solicit proposals from bill review firms to determine if Aon's new software
and pricing represented the best the industry is offering. A panel of Finance staff and
an outside Workers' Compensation expert reviewed proposals and concluded that
InterMed Cost Containment Services submitted the most advantageous proposal. Staff
recommends the City enter to a five -year contract with the firm in the amount of
$750,000.
Discussion
The Risk Management Division of the Finance Department oversees the City's Workers'
Compensation Program. As part of managing this program, staff annually processes
approximately 5,100 medical bills for medical care provided to injured City workers. The
medical services range from physician office visits for routine procedures to
hospitalizations for serious conditions. Each medical bill received must be reviewed for
compliance and reconciled with the State's fee schedule for medical services. This is a
critical cost containment component of the City's Workers' Compensation Program as
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the State's fee schedule for medical services is substantially lower than health care
providers' usual and customary charges. For example, in FY2011 -12, the City's bill
review process saved the City $3,315,080 (a 63% reduction) in medical costs.
Risk Management has historically contracted out workers' compensation medical bill
review services. The contractor is responsible for: 1) manually reviewing bills to ensure
charges reflect medical services approved by the City's Workers' Compensation
examiner staff, and 2) electronically reconciling the bills with the State's fee schedule.
The City's current contractor, Aon eSolutions, recently advised staff of its plans to phase
out its existing bill review system software and replace it with a more sophisticated
version that would increase the City's bill review savings by providing greater access to
discounted medical service pricing through preferred provider organizations (PPOs).
Aon further advised that once the software was in place, its charges for bill review
services would increase significantly. Given this information, staff opted to solicit
proposals from bill review firms to determine if Aon's new software and pricing
represented the best the industry is offering.
Consultant Selection
A Request for Proposal (RFP) for workers' compensation medical bill review services
was posted on the City's online bidding website in May 2011. Five bill review firms
submitted responses to the RFP. A panel composed of City Finance staff and the
Workers' Compensation Program Manager from the City of Beverly Hills evaluated the
proposals on the basis of experience, qualifications, references and cost. The panel
ranked the proposals and conducted follow up telephone interviews with the three most
qualified firms. Each of the three firms interviewed demonstrated they were equally
capable of providing high quality medical bill review services; all offered access to PPOs
for medical service pricing discounts beyond the State's fee schedule. The panel opted
to recommend the City pursue a five -year contract with InterMed Cost Containment
Services at a total cost of $750,000 as it proposed the least costly pricing schedule.
Staff estimates that InterMed will be able to save the City another $100,000 to $200,000
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per year in medical expenses beyond what is achieved under the current contact (the
estimate represents a net savings figure).
Financial Impacts & Budget Actions
The agreement to be awarded to InterMed Cost Containment Services is $750,000 over
five years. Funds in the amount of $150,000 are included in the FY2012 -13 budget in
account 59235.522010. Budget authority for subsequent years will be requested in
each budget cycle for Council approval ($150,000 per year for FY2013 -14, FY2014 -15,
FY2015 -16, and FY2016 -17). Future funding is contingent on Council approval.
Prepared by: Deb Hossli, Risk Manager
Approved: Forwarded to Council:
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J
Rod Gould
City Manager
Reference Agreement No.
9650 (CCS).