Title
Recommendation to Authorize the City Attorney to Execute a Second Amendment to the Agreement with Sedgwick Claims Management Services, Inc. for Professional Services as the Third Party Administrator of the City of Alameda’s Self-Insured Workers’ Compensation Program, Extending the Term One Year with the Option of an Additional One Year Extension, for a Total Two Year Compensation Not to Exceed $333,507. (City Attorney 711)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
The City of Alameda (City) has engaged Sedgwick Claims Management Services Inc. (Sedgwick), as successor in interest to York Risk Services Group, Inc. (York), as the Third Party Administrator (TPA) of the City’s self-insured workers’ compensation program from July 1, 2012 through June 30, 2020. Staff is recommending that the City Council authorize the City Attorney to execute an amendment to the agreement with Sedgwick for professional services as the TPA of the City’s self-insured workers’ compensation program for the period from July 1, 2020 through June 30, 2021, with an additional one year option at the City’s discretion to exercise. The proposed annual fee for Fiscal Year (FY) 2020-21 is $164,695 and is $168,812 for the optional FY 2021-22.
BACKGROUND
Workers' compensation is mandated under California Labor Code § 3600 and provides medical care and compensation as the remedy for workplace injuries or illnesses.
Since July 1, 2012, the City has contracted with a TPA to assist in administering and adjusting workers’ compensation claims. The TPA model allows the City to benefit from professional, experienced claims handlers who are able to administer multiple facets of the City’s workers’ compensation program, including claims adjusting, bill and utilization review, oversight of nurse case management needs, subrogation recovery, and mandatory Medicare/Medicaid reporting. These services help ensure that the City is properly providing the required benefits and avoiding unnecessary payments.
The City first contracted TPA services with York in 2012 (Exhibit 1) and executed an amendment on June 2, 2015 (Exhibit 2), to extend the contract until 2020. Sedgwick acquired York in September 2019, but the transition did not result in any service interruptions as the individuals handling the City’s account remained the same. Sedgwick’s account team for the City includes a claims examiner, claim assistant, claims supervisor, and a designated senior account manager.
DISCUSSION
The City’s current contract with Sedgwick for TPA services is scheduled to expire on June 30, 2020. Since performing TPA services for the City, Sedgwick has demonstrated a high level of service and has become very familiar with the City’s self-insured program and claims history. The proposed extension will provide program continuity with minimal increases in our contract rates. The proposed administration fees for FY 2020-21 and the optional FY 2021-22 represent a 2.5% annual increase from the prior year’s fee, with the fee for FY 2020-21 at $164,695 and FY 2021-22 at $168,812. (Exhibit 3) The scope of the administration services include processing all workers’ compensation claims in accordance with applicable California Labor Code regulations, engaging services related to investigation and defense of claims, engaging the services of appropriate medical providers, and determining the appropriate benefits to pay.
In addition to the claims administration services, Sedgwick will continue to offer managed care services. These services include robust medical bill review and utilization review where the Sedgwick team collaborates with healthcare providers to determine the appropriateness and quality of medical care so that workers have the best outcome at optimal costs. The bulk of these fees are based on a percentage of the savings realized by the City as a result of their review of the medical bills and provider services. The fees are paid from these savings, not from the City's General Fund.
Over the past eight years, the City has saved $13,773,103 in medical costs by having Sedgwick review all medical billings. The bill review service resulted in an average of 53% overall savings in medical expenses. Sedgwick’s utilization review program over these same eight years has realized savings of $1,979,661. Together, the City has realized savings of $15,752,765 between these two services.
The only proposed increase to costs of these managed care services is an increase of the bill review fee from $6.25 to $6.75 per bill; all other proposed costs of these managed care services have not changed.
ALTERNATIVES
The City Council could choose not to approve the agreement and instruct staff to seek a different TPA provider or to hire in-house City staff to take up such functions. These options would result in a gap in coverage of workers’ compensation administration services.
FINANCIAL IMPACT
Budget for the contract is included in the Workers’ Compensation Program (Fund 711) of the City Attorney’s Office; thus, no additional budget appropriation is required. Sedgwick has proposed an annual claims administration fee of $164,695 for FY 2020-21 and $168,812 for FY 2021-22. The City Council previously approved the original contract and the contract amendments as presented below:
|
Contract |
Approval Date |
Authorized Amount |
|
Original Contract |
July 1, 2012 |
FY 12-13: $134,757 FY 13-14: $134,757 FY 14-15: $138,800 |
|
1st Amendment |
June 2, 2015 |
FY 15-16: $138,800 FY 16-17: $138,800 FY 17-18: $145,470 FY 18-19: $153,027 FY 19-20: $160,678 |
|
2nd Amendment - Proposed |
|
FY 20-21: $164,695 FY 21-22: $168,812 |
|
Total |
|
$1,478,596 |
The chart below shows the charges to the City for the billing and utilization review. The City has saved $13,773,103.89 in medical costs as a result of the billing review and saved $1,979,661.44 for the same time period as result of the utilization review program. The Workers’ Compensation budget includes funding for these services.
|
Fiscal Year * |
Billing Review |
Utilization Review |
|
2012/2013 |
138,925.17 |
90,285.49 |
|
2013/2014 |
235,095.44 |
118,025.58 |
|
2014/2015 |
244,121.00 |
126,889.88 |
|
2015/2016 |
214,324.69 |
111,953.85 |
|
2016/2017 |
237,563.07 |
172,301.44 |
|
2017/2018 |
190,505.75 |
161,496.00 |
|
2018/2019 |
121,666.82 |
128,914.00 |
|
2019/2020 |
153,661.40 |
142,699.00 |
|
Total |
$1,535,863.34 |
$1,052,565.24 |
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is consistent with the Alameda Municipal Code process for approving contracts.
ENVIRONMENTAL REVIEW
This action is not a project for the purposes of the California Environmental Quality Act (CEQA) pursuant to CEQA guidelines section 15061(b)(3) as there is no possibility that this action may have a significant effect on the environment.
CLIMATE ACTION
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Authorize the City Attorney to execute a second amendment to the Agreement with Sedgwick Claims Management Services, Inc. for professional services as the third party administrator of the City of Alameda’s Self-Insured Workers’ Compensation Program, extending the term one year with the option of an additional one-year extension, for a total two year compensation not to exceed $333,507.
CITY MANAGER RECOMMENDATION
The City Manager recommends approval.
Respectfully submitted,
Montague Hung, Deputy City Attorney/Risk Manager
Financial Impact section reviewed,
Nancy Bronstein, Interim Finance Director/Human Resources Director
Exhibits:
1. Original contract
2. First Amendment
3. Second Amendment
cc: Eric Levitt, City Manager