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HomeMy WebLinkAbout4/2/2003 - STAFF REPORTS (15) DATE: April 2, 2003 TO: Honorable Mayor and City Council FROM: Director of Human Resources Assistant City Manager APPROVE AWARD OF CONTRACT TO COLEN AND LEE FOR THIRD PARTY ADMINISTRATION OF THE CITY'S WORKERS' COMPENSATION PROGRAM RECOMMENDATION: It is recommended that City Council approve and authorize staff to negotiate a contract with Colen and Lee for Third Party Administration (TPA) of the City's workers' compensation program. SUMMARY: California's worker's compensation system has become progressively more complex resulting in increased cost, litigation and fraud.Average employers with good claims history are seeing 40 to 60 percent increases in their premiums. Current estimates project that California's businesses will pay $20 billion'for workers' compensation insurance in 2003. In fact, system costs and accompanying premiums are up significantly from 2002, and are projected to continue escalating. The City has self-administered its workers' compensation program for the past 26 years. Although the City has experienced relatively few problems over the years, the complexity and escalating costs of workers' compensation claims have caused staff to evaluate its program and to consider the use of a Third Party Administrator(TPA)to provide for a more effective and aggressive review and handling of claims. BACKGROUND: The City of Palm Springs has been permissibly self-insured for workers' compensation since October 5,1975. When the City first moved into self-insurance, the claims administration was placed with a TPA. In 1977, the claims administration was brought in- house. Sue Mills has been the claims administrator for the City of Palm Springs since 1977, and is certified by the State of California, Department of Industrial Relations, Self- Insurance Plans. In 1995, Ms. Mills was promoted from Workers' Compensation Specialist to the Director of Human Resources, while remaining the City's workers' compensation claims administrator. Because of the escalating cost of benefits and the increasing complexity of claim administration requirements, staff believes that it would be prudent for the City to re- evaluate the value of remaining self-administered. Also, litigiousness of the workers' compensation system makes it imperative that those responsible for delivering benefits and defending claims keep up with and understand current case law. Because of this, many excess workers' compensation insurance carriers are declining to write self-administered employers. Today,California's workers'compensation system continues to struggle under inefficiencies and skyrocketing costs, despite intense negotiations for the last four years. California's cost-drivers—the highest frequency of permanent partial disability in the country,excessive medical treatment utilization,excessive dispute, and litigation—arejeopardizing the stability /AC. Re: Contract to Colen and Lee April 2, 2003 Page 2 of the state's workers' compensation system. Although Governor Gray Davis and state legislators have negotiated legislation to give injured workers a benefit increase and enact other cost-saving reforms, California's maximum benefit levels are among the lowest in the nation, but the overall benefit costs—what it costs to pay claims—are, and continue to be, among the highest in the nation. A recent study released by a nonprofit, nonpartisan public policy research organization took a closer look at why California's workers' compensation benefit delivery system is so much more expensive than other states. The Workers' Compensation Research Institute (WCRI) found that California and Florida have higher benefit delivery costs compared to other states' systems, even among states that are generally considered to be higher-cost states. Medical management costs, litigation and claims adjusting expenses are the reasons that California and Florida's system costs are three times higher than Connecticut and Wisconsin, two states not otherwise considered to be lower-benefit cost jurisdictions. Like many public agencies throughout the State, the City has experienced an increase in costs associated with its workers'compensation program. Last fiscal year,the City had 96 workers'compensation claims totalling$121,669 in benefits paid. This is a slight decrease from Fiscal Year 2000-01, where the City paid $197,336 in benefits for 110 claims. Since 1999, the City has paid more than $5,577,000 in workers' compensation claims. In order to better control cost, as well as to provide more effective and aggressive review and handling of claims, staff believes it would be in the City's best interest to outsource the administration of the workers' compensation program to a third party administer. Third party administration of claims provides multiple layers of management and supervision, built-in redundancy of claim staff and support for increased caseload, ease in change of claim adjuster if conflict arises, greater flexibility in approach, economies of scale with vendor contracts, and greater funds available to invest in state-of-the-art workers' compensation claims software systems. Last December, the City issued a Request for Proposal (RFP 03-03) for Third Party Administration of the City's Workers' Compensation Program. This RFP was distributed to 23 firms specializing in workers'compensation programs. Six proposals were received by the due date and time of January 17, 2003. An initial evaluation of the proposals resulted in the short-listing of four firms. These firms were: JT2 Integrated Resources, Colen and Lee Risk Management Services, Hazelrigg Risk Management Services and Tristar Risk Management. The four short-listed firms were invited to make presentations to and respond to questions from the evaluation committee consisting of the Deputy City Attorney for Labor and Employment, Assistant City Manager, Director of Procurement and Contracting, and the Director of Human Resources. Based on the information provided in the RFP, interviews conducted with the four firms and reference checks, the evaluation committee has determined that the firm of Colen and Lee is best suited to provide TPA services for workers' compensation. Colen and Lee has been administering self-insurance programs for almost 20 years. The firm, which is based in Diamond Bar, offers a full-range of services including benefit delivery,coordination of benefits, medical management,disability management,vocational rehabilitation, litigation management, and subrogation. They currently handle 25 public agencies throughout Southern California,including our neighboring cities of Cathedral City, Rancho Mirage and Desert Hot Springs. A brief prospectus on the company is attached. 106 ::L Re: Contract to Colen and Lee April 2, 2003 Page 3 The estimated program cost for the first year of the TPA services is $117,970, which includes a one-time data conversion fee of$7,000. Funds are available in the current year budget and will be appropriated for the first year's estimated cost. TPA costs will be offset by the prior use of medical case management and attorney services for complex claim management. For example, in Fiscal Year 2000-01,the City paid approximately$222,000 for medical case management and attorney services. Over the past three years the average cost for these services has totaled more than $115,000 a year. In addition to the cost savings that will be derived from the TPA's handling of complex claims, it is anticipated that a TPA will lower claims costs to the City by reducing the number of incurred and pending claims through more aggressive claims management. The TPA will also work closely with staff in the implementation of a comprehensive injury prevention program, as well as the development and implementation of a PPO bill review program. It is anticipated that both programs will provide additional cost savings to the City. Although Colen and Lee has requested a five-year commitment,staff is only recommending an initial one-year agreement with an option to extend annually. This will enable staff to not only evaluate their overall performance in handling our workers' compensation claims, but we can review claim cost to ascertain the effectiveness of the entire workers'compensation program. Staff believes Colen and Lee has the necessary experience to effect a smooth transition from self-administration to third party administration.Therefore,it is staff's recommendation that the City Council approve the attached Minute Order awarding a contract to Colen and Lee for Third Party Administration of the City's workers' compensation program. DAVID H. READY City Manager Attachments: 1. Prospectus on Colen and Lee 2. Minute Order l�C � C OLEN AND LEE RISK MANAGEMENT SERVICES INTRODUCTION Since 1982, we have provided high quality claims administration, consulting and management information services in the areas of., n Liability and ❑ Workers' Compensation to self insured private corporations, public entities and non-profit organizations in Southern California. OUR APPROACH As administrators of Liability and Workers' Compensation self-insurance programs, we take a straight-forward, no-nonsense approach to providing excellent service at a fair price. When you place your self insured Liability or Workers' Compensation program with us, you work with a learn of Colen and Lee specialists who are pernnariently assigned to your account. They get to know your preferences and the special requirements of your program. Furthermore, you are as involved with (or removed from) your program as you wish. You may retain almost total control or simply set guidelines and attend to other matters while we take cure of the details. Strong lines of coin municatiou ensure that there are no surprises. Your Coleu and Lee representative periodically meets with you to discuss individual cases,general procedures and trends in your program. Carefully designed systems provide the support our people need to do the_job properly and efficiently. 'these systems, refined by years of experience, include quality control measures that ensure a consistently high level of service -- day after day, year after year. OUR PEOPLE Our people possess a combination of education, training and experience that nralccs them well-qualified to administer sell'-insurance programs. Key staff members arc properly licensed or State certified in accordance with State regulations. They are afforded every opportunity, through continuing education and training, to sharpen their skills and upgrade their knowledge. This is important in a field such as ours where change is rapid. Moreover, realizing that your public and employee relations can be enhanced or harmed by our conduct, we instill in our people a service-oriented attitude which manifests itself in a courteous and responsive demeanor. ADC OUR TECHNOLOGY We provide our people with the tools they need to do the job property and efficiently. Our facilities are equipped with modern communication, document processing and in formation technology. Every Colen and Lee employee, from the CEO to the receptionist, has a computer workstation that is tied to a high performance network that, in turn, has a high speed connection to the tnternet. At the heart of our systems are application and database servers running web- enabled, client-server, database management software that has been custom-designed by our software engineers to provide fast,reliable claim processing, on-line transaction processing (OLTP) and on-line client access. CLAIMS ADMINISTRATION This is one o f the most important aspects of a self-insurance program. After all, clai in costs usually account for the single largest portion of a program's budget. In administering Workers' Compensation claims, we provide services relating to: ❑ AO> /COLT Determination n Benefit Delivery ❑ Coordination of Benefits rn Medical Management ❑ Disability Management ❑ Vocational Rehabilitation ❑ Litigation Management u Cost Containment ❑ Subrogation In administering Liability claims, we provide services in the areas of. ❑ Liability Investigation ❑ Damage Verification ❑ Evaluation Negotiation ❑ Loss Adjustment ❑ Litigation Management All of our activities are conducted with a clear purpose in mind: to see that claims are handled properly, quickly and economically. In Workers' Compensation, the fundamental goal is to dchverbenclus with accuracy and timeliness, as prescribed by State law. But there is more to it than that. For example. we take the time to talk to your nnjured employees, to explain benefits to them and to answer any questions they may have. In this way, we avoid the kind or misunderstanding that often leads to costly litigation. At the same time, we fight abuse of the system. Not only exaggerated or fraudulent claims, but also overcharging by medical care providers and other vendors. In Liability, we act as a buffer between you and the claimant while gathering the in fotrnation we need to determine how the claim should be resolved. The goal here is to minimize loss, promptly paying claims that are owed, rejecting claims that are without merit and compromising claims that fall into the gray area. MANAGEMENT RLPORTS Accountability and feedback. 'These are the reasons why management reports are necessary. As an integral part of our progruns, we offer a variety of management reports that are designed to serve these needs. These reports depict current activity as well as historical data. They include such information as: u Management Summary ❑ Monthly Transactions n Claim Detail ❑ Loss Analysis We take care to ensure that these reports are accurate, timely, easy-to-read and i2fonnative. OTHER SERVICES In addition to claims administration and martagemem reports, we provide services in the areas of: ORIENTATION &TRAINING for management groups and/or other employees. REGULATORY REPORTING —we do the paperwork and electronic reporting required by various regulatory agencies. ACCOUNTING—we provide your accounting department with the information they need to monitor expenditures. CONSULTING --we can conduct special research projects or provide you with custom management reports. MINUTE ORDER NO. APPROVING THE AWARD OF CONTRACT AND AUTHORIZING STAFF TO NEGOTIATE AN AGREEMENT IN A FORM ACCEPTABLE TO THE CITY ATTORNEY WITH COLEN AND LEE FOR THIRD PARTY ADMINISTRATION OF THE CITY'S WORKERS' COMPENSATION PROGRAM -------------- I HEREBY CERTIFY that this Minute Order, approving the award of contract and authorizing staff to negotiate an agreement in a form acceptable to the City Attorney with Colen and Lee for third party administration of the City's Workers' Compensation Program, was adopted by the City Council of the City of Palm Springs, California, in a meeting thereof held on the 2nd day of April 2003. PATRICIA A. SANDERS City Clerk