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HomeMy WebLinkAbout04-10-1995 Item #4Agenda Item #_= 1 ______ it I"I':IZti(1)\\I�:L ll)l�:I":•1Il"I��II�:\"1' April 10, 1995 CITY Of NEWPORT BEACH APR 1 019% APITU TO: Honorable Mayor Hedges and Members of the Newport Beach City Council FROM: Duane Munson Lauren Farley RE: Workers' Compensation Self -Insurance Program RECOMMENDATION: Approve the attached contract to provide Third Party Administration (TPA) services for the self-insured Workers' Compensation programs of the cities of Newport Beach and Costa Mesa, by Hazelrigg Risk Management Services, Inc. (HRMS). The final contract will be substantially in the form attached. BACKGROUND: The City of Newport Beach has had a self-insured Workers Compensation program for over 20 years. During that time the City has contracted with various third party administrators (TPA's) to handle the claims administration portion of the program. The benefit of using a TPA in a self insured workers compensation program is: Minimal city staff needed to maintain the program; the TPA can provide a higher level of claims administration service to employees, medical providers, other vendors and employer alike; and the TPA possesses the technical expertise needed to manage the ever changing State workers compensation benefits enabling the city to maintain its State self-insured certificate. We have experienced a decline in the level of service from our current TPA contractor over the last year or so, and we have been looking into various options for developing a cost effective solution to improve the level of service for both employee and employer which our current contractor has been either unwilling or unable to provide. Staff started exploring options for improving our service level and reducing our costs over a year ago. First it was thought that we could bring the whole function in- house. This idea appeared that it could save money, but we knew that our claims volume could not justify sufficient staff size to maintain or improve the service level. Next staff considered putting together a partnership, using a joint powers authority (JPA), of two or more cities to conduct Workers Compensation administrative services. Although this idea may still have long range potential, it was rejected because of a large field of unknowns, ranging from the individual financial responsibilities, to being unsure if two or more agencies could receive this type administrative service without inter -agency conflict. Finally, staff determined that these questions could be answered by finding another city that would be willing to experiment with joint administration by sharing a contract with an established TPA. This led us to make the discovery that the City of Costa Mesa is having the same level of unsatisfactory experience with their TPA (a different contractor) as we are. Beginning last Summer, our Risk Manager, Lauren Farley started working with Costa Mesa's Risk Manager, Karen Adams to see if our mutual problem had a common solution. This prompted us to join together and send out requests for proposals (RFP's), trying to identify a TPA who could put together a package which would involve a "dedicated claims unit" within their organization that would be assigned to work exclusively on the claims generated by Newport Beach and Costa Mesa. Ten (10) firms responded to the RFP's with proposals. Six of the proposals were considered to be viable following the preliminary review process and were selected for interviews by the panel consisting of the risk managers of Costa Mesa, Anaheim, Newport Beach and the Newport Beach Police Chief. The field was narrowed to three firms who were subjected to on-site visits and extensive reference checks. The final decision came down to two firms who had both presented very competitive pricing structures, a solid field of very satisfied customers from both the public and private sectors, well organized offices staffed with well trained personnel, supplied with state-of-the-art equipment and materials. The final decision was to select Hazelrigg Risk Management Services (HRMS), and this decision was based on several considerations, which included their longevity in the business (eight years, five longer than the other firm), home office based in Diamond Bar (the other company is Northern California based with a Southern California regional office), and their references would hire them again without hesitation (the other firm's references did not have enough experience with the firm to give such a statement). The annual fee of $245,000 will be split 50/50 between the Cities. From a contract cost stand point, the City of Newport Beach will experience a $9,500 reduction in annual fees ($132,000 to $122,500 annual claims administration fees). The annual fees will be subject to an audit, conducted by the Cities, at the end of the contract to determine an equitable re -apportionment of fees based on claim counts, if necessary. Each City will be charged a one-time data processing conversion fee, up to a maximum of $6,000. The transition process has already begun. This process will be very involved and briefly entails the following: Hand selection of the dedicated claims unit by personally interviewing the prospective claims personnel. We are currently engaged in an in-house, systematic review of all of our open claim files with a goal to close a percentage of files prior to the changeover. Our current TPA, Hertz Claims Management (HCM), has been given the mandatory 30 day notice of cancellation, per our contract. Next we will begin training for the purpose of updating our supervisors, managers and department heads on the City's Workers Compensation policies and procedures. Finally, we plan to introduce the new TPA to City staff and to clarify their role in the City's workers compensation program. The actual change over is scheduled to take place on May 1, 1995. Costa Mesa plans to remain with their current TPA through June, and to make their change over effective July 1, 1995. It is staff's belief that as a result of this change, our injured employees will be receiving more personalized attention and much closer monitoring of the treatments and procedures used to facilitate their recovery and return to work. The City will realize significant cost savings in the actual costs of our claims by having a dedicated claims unit to provide continuous claims administration and this stronger more proactive claims administration will translate into a better overall managed city Workers Compensation program.