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SR 07-25-2017 3B Ci ty Council Report City Council Meeting : July 25, 2017 Agenda Item: 3.B 1 of 8 To: Mayor and City Council From: Gigi Decavalles -Hughes, Director , Finance Department, Risk Management Edward F. King, Director, Big Blue Bus, Transit Services Department 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 California - based company, for workers’ compensation claims administration services; 2. Authorize the City Manager to negotiate and execute an agreem ent 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 w ill 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 three - year pilot pro gram 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 in - house staff in the Risk Management Division of the Finance Department to a private claims administrator, referred to as a “T hird P arty A dministrator” (TPA). Pilot program performance will be evaluated and monitored by BBB and Finance throughout the pilot period. 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 2 of 8 administration services. Based on this process, staff recommends that the City enter into an agr eement 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’ compensa tion 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. Backgr ound 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% annu ally 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 o f 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 , whi ch 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 ide a 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 establishe d 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. Discussion The Risk Management Divisio n of the Finance Department is responsible for managing the City’s Workers’ Compensation Program. In this capacity, the Department has relied 3 of 8 on in -house personnel to administer workers’ compensation claims since 2001. The decision to use internal or ext ernal staff to administ er 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 m ade advancements in the quality, sophistication, and breadth of services offered to their clients. TPAs also ha ve a variety of advantages over an in -house program like the City’s. A few key examples include:  TPAs can provide their employees with incenti ves for consistently exceeding performance targets. Public sector compensation plans are not set up to contemplate incentive plans of this na ture.  Due to size, TPAs have systems in place to automatically redeploy examiner staff when the account’s assigne d 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 t o provide this type of back -up .  TPAs have more r esources available to support claims staff and improve outcomes. An established TPA can provide e verything from proprietary risk management information systems (RMIS) that offer unique capabilities (e.g., employees can track claim status and medical appoi ntments 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., administrati ve staff, training, RMIS, office rents, etc.) across all of their clients. Collectively, these advancements and advantages have positioned TPAs to provide very cost -effective claims administration services. This information was presented to the Working G roup and prompted their subsequent support for pursuing a pilot program 4 of 8 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 gro up 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 i deal test group in t he 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 e stablished the following parameters for purs u ing 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 p rimary contact throughout the pilot program. BBB already handles certain human resources -oriented tasks with internal staff, and as such, is uniquely positioned to effectivel y oversee the efforts of a TPA. The balance of the City’s claims will continue t o be managed by the City’s in - house 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 exami ner , which is equivalent to the TPA examiner caseload requirements set out in the RFP and consider ed an industry best practice. 5 of 8  Ongoing Oversight: BBB, Finance/Risk Management, and Human Resources will work together to closely monitor the TPA’s performan ce during the pilot period to ensure that any issues with TPA performance are detected an d addressed in a timely manner.  Employee Notification: Injured employees with open workers’ compensation claims will be provided ample notice of the changeover so al l 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 calcul ated 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 Self - Insurance F und 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 inv entory, 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 renewal options), or possibly expanded to include a larger segment of the City’s workers’ compensation claims. TPA Selection Results 6 of 8 On March 7, 2017, the City published an RFP for workers’ compensati on 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 notifi ed of the RFP and 3 1 downloaded the bid. T he following seven firms submitted a response: AdminSure Inc.; Athens Administrators ; Broadspire Services Inc.; CorVel Corporation ; Intercare Holdings Insurance Services, Inc.; Tristar Risk Management ; and Y ork R isk 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 firm s 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, refer ences, and price. Therefore, staff recommends Intercare Holdings Insurance Services as the best - qualified firm to provide the claim s administration services requested in the RFP. Contracted Services Policy While the City’s Contracted Services Policy cont emplates 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 better positioned to resp ond 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 wit h the Council’s polic y for contracting out services. 7 of 8 TCS Contract The City currently has an agreement in place with TC S Risk Management Services, LLC for workers’ compensation consulting services. The contract was awarded to TCS by the City Council at i ts 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 goe s 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 S elf -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 Self - Insurance Fund. All subsequent expenses for the TCS agreem ent will be paid out of 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 . 8 of 8 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 Ci ty Council Report City Council Special Meeting: December 15, 2015 Agenda Item: 3.A 1 of 3 To: Mayor and City Council From: Gigi Decavalles -Hughes, Director , Finance Department, Risk Management Administration Subject: Award Agreement to TCS Risk Management Services, LLC for Workers’ Compensation Program Data Analysis and Reporting Services Re commended Action Staff recommends that the City Council: 1. Award Request for Proposal (RFP) # 54 to TCS Risk Management Services, LLC, a California -based company, for workers’ compensation program data analysis and reporting services; and 2. Authorize the City Manager to negotiate a five year professional services agreement with TCS Risk Management Services, LLC in an amount not to exceed $212,500, with future funding contingent on Council budget approval. Executive Summary Staff recently solicited propo sals from consultants for workers’ compensation program data analysis and reporting services. The City received one response to the proposal, and it came from the consulting firm currently providing this assistance, TCS Risk Management Services, LLC (TCS). In light of this, staff verified the RFP was distributed to qualified firms and sought their feedback on the limited response. This effort satisfied staff that reissuing the RFP would not attract additional proposals. Staff subsequently moved ahead with c onfirming TCS’s submittal met the requirements of the RFP and offered competitive pricing. As such, staff recommends the City pursue a five year contract with TCS for an amount not to exceed $212,500. Funding for the agreement is contained in the Workers’ Compensation Self -Insurance Fund which is financed with contributions from all City Departments. Background Controlling the City’s escalating workers’ compensation costs continues to be a priority . Critical to this effort is the availability of in -depth analyses and reporting tools that provide staff with the ability to effectively monitor and manage program performance. Generating data of this sophisticated nature, however, exceeds the capabilities of the City’s current risk management information system (RMIS). Therefore, it has been necessary to hire a consultant to download and analyze the City’s workers’ 2 of 3 compensation claims and financial data, and prepare the required analyses and reports. TCS Risk Management Services, LLC has fulfilled this role for the City since December of 2010. TCS’s current contract, awarded by the Council on December 11, 2012, is set to expire on December 31, 2015 (Attachment A). Discussion At the onset of the consulting contract with TCS Risk Management Services, LLC (TCS), st aff developed a set of key performance measures to assess the City’s Workers’ Compensation Program’s financial and operational performance. Since then, the consultant has tracked, analyzed, and reported to the City on these measures on a quarterly basis. T his information has provided Finance staff with the tools to proactively monitor program performance (e.g., isolate program trends down to the division level, gauge the effectiveness of individual cost containment initiatives, etc.); encourage departmental participation in program management; develop new cost -control strategies; and concisely report the program’s financial and operational standing to key stakeholders. Given the value of these services, staff recommends the City continue to use a workers’ compensation consultant to prepare quarterly, in -depth program performance analyses. Further, staff envisions a need for these services well into the future. Even the state -of - the -art risk management information systems currently under evaluation by staff to replace the City’s outdated system are not geared to generate the type of analyses provided through this agreement. Consequently, staff prepared and released a n RFP with a scope of work that mirrors the current agreement. The results of this process a re detailed below. Vendor/Consultant Selection On October 1, 2015, the City issued an RFP for workers’ compensation data analysis and reporting services. The RFP was posted on the City’s on -line bidding site, and notices were advertised in the Santa Mon ica Daily Press in accordance with City Charter and Municipal Code provisions. Ninety vendors were notified of the RFP; 24 vendors downloaded the RFP. TCS, the City’s current workers’ compensation 3 of 3 consultant, submitted the only response to the RFP. Given the small pool of consultants who perform the type of specialized workers’ compensation data analysis services requested in the RFP, the single vendor response was not surprising. That said, staff verified the RFP was distributed to qualified firms and su rvey ed vendors for feedback on the limited response. The effort yielded two responses (i.e., one vendor was not interested, the other was relocating across the country) and satisfied staff that reissuing the RFP would not attract additional proposals. Staf f subsequently moved ahead with confirming that TCS’s proposal met the RFP’s minimum requirements and offered competitive pricing. As such, staff recommends the City pursue a five year agreement with TCS for a total amount not to exceed $212,500. Financ ial Impacts and Budget Actions The agreement to be awarded to TCS is for an amount not to exceed $212,500. First year costs will total $41,100, of which half, $20,550, is included in the Finance Department’s FY 2015 -16 budget (the agreement runs on a calen dar year basis). The cost of the agreement will then increase by 1.7% each year thereafter. All agreement expenses will be charged to account 59235 .555060. Future year funding is contingent on Council budget approval. Prepared By: Deb Hossli, Risk Manage r Approved Forwarded to Council Attachments: A. December 11, 2012 Staff Report (Weblink) REFERENCE:    Agreement  No. 10506   (CCS)