Title
Recommendation to Authorize the City Attorney to Execute a Three Year Agreement With the Option to Extend for Two Additional Years, with LWP Claims Solutions, Inc. for Professional Services as the Third Party Administrator (TPA) of the City of Alameda’s Self-Insured Workers’ Compensation Program in an Amount Not to Exceed $1,145,879 for Five Years, Plus Related Charges, and Authorize Budget Amendments for the Fiscal Years (FYs) 2021-22 and 2022-23 Biennial Operating Budget by Increasing the Workers’ Compensation TPA Services Line Item by $25,000 for FY 2021-22 and $30,450 for FY 2022-23. (City Attorney 711)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
The City of Alameda (City) has contracted with Sedgwick Claims Management Services, Inc. (Sedgwick) for services to administer the City’s self-insured workers’ compensation program since 2012. The current agreement will end June 30, 2021. Following a competitive selection process, staff is recommending that the City Council authorize the City Attorney to execute an agreement with LWP Claims Solutions, Inc. (LWP) for professional services as the TPA of the City’s self-insured workers’ compensation program for the period from July 1, 2021 through June 30, 2024, with two additional one-year options at the City’s discretion to exercise. The proposed annual claims administration fee for Fiscal Year (FY) 2021-22 are $218,000, $223,450 for FY 2022-2023 and $229,036 for FY 2023-2024. The annual claims administration fee for years four and five, if the City opts in, would be $234,762 and $240,631, respectively.
BACKGROUND
Workers' compensation, which is mandated by the State Labor Code, provides medical treatment coverage, temporary and permanent disability payments, survivor’s death benefits, and total disability pension benefits for employees, officers and elected officials suffering from an industrial injury or illness. The City self-insures for workers’ compensation and contracts with a third-party administrator (TPA) to administer claims. The TPA model allows the City to benefit from professional experienced claims handlers who are able to draw on a large knowledge pool of past experiences and current trends to assist in reducing outside litigation costs.
The City has contracted with a TPA since 1976 and periodically solicits competitive proposals to ensure that it is obtaining the best price for the most efficient services. Sedgwick Claims Management Services, Inc. has served as the City’s TPA since 2012.
On March 22, 2021, the City Attorney’s Office issued a Request for Proposals for Workers’ Compensation TPA. Nine companies responded. After an initial review of the responses, five firms were selected to participate in a presentation/panel interview conducted over Zoom. The firms selected for interviews were CorVel Enterprise Comp., Inc., Pegasus Risk Management, LWP, Acclamation Insurance Management Services, Inc. and Sedgwick.
On May 12, 2021 and May 13, 2021, a panel heard presentations from each of these five prospective TPAs and interviewed representatives from each company. The panel was made up of City representatives from the City Attorney’s Office, Human Resources and the Fire Department as well as the City’s workers’ compensation consultant. Following the interviews, staff contacted references for the two TPAs most highly scored by the panel.
Staff considered various factors in making a final selection, including the annual claims administration fee to the City, the cost for additional services (including bill review and utilization review), the staffing levels offered by the TPA as part of the flat annual claims administration fee (such as the account manager, the claims examiner and future medical examiner), the TPA’s experience working with public entities, the TPA’s recommendations for reducing the City’s overall expenditures on workers’ compensation claims, and recommendations by other current public entity clients. Based on these factors, staff recommends LWP as the best qualified to meet the City’s needs and administer the workers’ compensation program.
DISCUSSION
LWP has been in business for over thirty years and has extensive experience with self-insured municipalities. Based on a review of LWP’s detailed written proposal, the presentation by LWP staff and discussions with current public entity LWP clients, staff believes that entering into an agreement with LWP will, over the course of the agreement, promote financial stability by reducing the current inventory of open claims, resolving future claims before the litigation stage and ensuring that injured City employees receive early aggressive medical treatment.
LWP’s proposed annual claims administration fee is a flat fee to be paid in twelve monthly installments. The amount of this annual claims administration fee is as follows: $218,000 for FY 2021-22, $223,450 for FY 2022-23, $229,036 for FY 2023-24, $234,762 for FY 2024-25 and $240,631 for FY 2025-26. The fee covers claims administration, claim review meetings and litigation management. The City’s account will be assigned to an LWP account manager, a claims supervisor, an indemnity examiner and a future medical examiner. LWP’s proposed claims administration fee is in the middle range of the other eight TPA proposals.
In addition to the claims administration services, and consistent with the City’s existing TPA contract, LWP will offer medical cost containment services. These services include medical bill review and utilization review for selected individual claims in which the LWP team will collaborate with healthcare providers to determine the appropriateness and quality of medical care so that workers have the best outcome at optimal costs. The fees for these services are separate from the annual claims administration fee of the agreement. The goal of these additional services is to reduce the overall cost to the City for medical care and comply with State Medical Fee schedule while ensuring injured City employees receive appropriate and high-quality medical care. Based on the City’s projected number of future claims, staff anticipates that the medical cost containment services to cost approximately $237,410 annually, plus other related service charges. LWP’s medical cost containment services fees are in the middle range of the other eight TPA proposals. These costs can be absorbed by the City’s existing budget allocation for such services.
ALTERNATIVES
The City Council could choose not to approve the agreement with LWP and instruct staff to seek a different TPA provider. These options could result in a gap in coverage of workers’ compensation administration services as the current TPA agreement with Sedgwick expires on June 30, 2021.
FINANCIAL IMPACT
Should the City Council approve the agreement with LWP, the proposed budget for the claims administration fee for TPA services for FY 2021-2022 and 2022-2023 will need to be increased to cover LWP’s claims administration fee by the amounts listed in the chart below.
|
Fiscal Year |
Proposed Budget for Claims Administration Fee for TPA Services |
LWP Claims Administration Fee |
Requested Budget Increase for Claims Administration Fee for TPA Services |
|
2021-2022 |
$193,000 |
$218,000 |
$25,000 |
|
2022-2023 |
$193,000 |
$223,450 |
$30,450 |
|
2023-2024 |
n/a |
$229,036 |
n/a |
|
2024-2025 |
n/a |
$234,762 |
n/a |
|
2025-2026 |
n/a |
$240,631 |
n/a |
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
Recommendation to Authorize the City Attorney to execute a three year agreement with the option to extend for two additional years, with LWP Claims Solutions, Inc. for Professional Services as the Third Party Administrator (TPA) of the City of Alameda’s Self-Insured Workers’ Compensation Program in an amount not to exceed $1,145,879 for five years, plus medical cost containment services costs based on utilization and other related service charges, and authorize budget amendments for the FY 2021-22 and 2022-23 biennial operating budget by increasing the Workers’ Compensation TPA services line item by $25,000 for FY 2021-22 and $30,450 for 2022-23.
CITY MANAGER RECOMMENDATION
The City Manager recommends approval to authorize the City Attorney to execute a three year agreement with the option to extend for two additional years with LWP Claims Solutions, Inc. as the Third Party Administrator.
Respectfully submitted,
Elizabeth A. Mackenzie, Chief Assistant City Attorney/Risk Manager
Financial Impact section reviewed,
Annie To, Finance Director
Exhibit:
1: Service Provider Agreement
cc: Eric Levitt, City Manager