HomeMy WebLinkAboutMemo ClaimsCITY OF MIAMI, FLORIDA
INTER -OFFICE MEMORANDUM
TO : DATE : FILE
Carlos A. Migoya September 22"d, 2010
City Manager SUBJECT :
Claims - Third Party Administration
and Managed Care Services
FROM : �, (� REFERENCES :FP #207193
Gary S. Reshefsky
Interim Director ENCLOSURES:
Risk Management Department
The Department of Risk Management is charged with reducing the City's total cost of risk.
Workers' Compensation ("WC") claims represent a significant percentage of the City's current
total cost of risk, and open claims represent a very significant future liability for the City. After
subtracting employee benefit costs, Workers' Compensation Claim payments currently
represent 68% of our department budget.
Given the significant WC claims costs and associated third party claim administration ("TPA")
services, it is an essential objective of the Risk Management Department to ensure that claims
are being closed timely and cost effectively. Risk Management has formulated a claims
strategy to reduce the City's sole reliance on its current TPA (Gallagher Bassett). This proposed
strategy will include the partial elimination of Managed Care related services ("Managed Care"),
utilizing our own Risk Management Information System ("RMIS"), and by developing our ability
to self administer General and Auto Liability related claims in-house pr through another vendor.
TPA Outsourcing
It is essential for the City to continue outsourcing Workers' Compensation claims to a TPA for
the following reasons:
• Excess Insurers generally require a TPA to handle Worker' Compensation
claims, or will not provide favorable policy terms for insureds that self administer.
Avoids additional cost burden associated with etc -cloying a large number of
claims professionals such as benefits, pensions, FICA and other IT and facility
related charges. (September 17, 2009 memorandum attached with cost analysis)
• Reduces the Risk of the City incurring, statutory penalties for non-compliance
with regulatory requirements and adverse judicial rulings for late responses in
petition of benefits matters.
• Avoids excessive IT costs for installing, maintaining and updating MIS technology
necessary for determining accuracy of Current Procedural Terminology medical
codes, changing fee schedules, and related medical provider information.
• Ability to transfer accountability for regulatory penalties or negligent claims
handling.
• The Insurance and Risk Management Industry, generally prohibits employers
from adjusting employee claims due to potential conflicts of interest.
• Shifts cost of on -going trainings and updating best practices in claims handling to
a professional provider.
• Allows Risk Management personnel to focus their time and energy on loss
control and Toss avoidance. This should be the most effective activity for City
personnel to engage in to reduce our costs.
RFP Recommendation
After independently evaluating the Claims TPA RFP responses and conducting discussions with
the City Attorney's Office representatives assigned to WC claims, it is our recommendation to
proceed with initiating negotiations on the TPA contract with Gallagher Bassett ("GB") for both
Claims TPA services as well as some modified managed care services. Unlike the City's
current flat monthly fee arrangement, we will negotiate an option that only charges the City for
the services we utilize. The basis for this recommendation is as follows:
• GB is one of the leading Claims TPA's in the State of Florida administering
municipal WC claims.
• GB has consistently scored at the highest level in the City's semi-annual service
audits.
• GB currently has a staff of 15 highly qualified claims professionals based in
Miami -Dade County dedicated to the City of Miami's account.
• GB's staff is very familiar with the City Attorneys' service expectations and
protocols, and has established a highly collaborative relationship with both them
and Risk Management.
• GB's staff is extremely knowledgeable about the medical community's
qualifications and treatment protocols in treating WC related injuries especially
with the presumptive claims associated with the Heart & Lung Bill.
• GB and their service providers are equipped to provide service, including
telephonic case management and triage 24 hours a day, 7 days a week.
• As a result of the RFP process, a panel of independent municipal risk and claims
professionals determined GB to be the most suitably qualified candidate that is
fully staffed to meet the City of Miami's claims servicing needs while also being
the lowest cost provider of the responsive bidders.
• GB has been a strong partner with the City Attorney's office in aggressively
pursuing the defense of alleged presumptive claims associated the Heart & Lung
bill.
• We have surveyed other TPA's nationwide and believe the GB pricing is
reasonable.
• TPA contract will contain financial performance guarantees if GB does not handle
claims to negotiated standards.
• Opting out of managed care will reduce TPA services fees while providing the
ability to benefit from savings from bill and utilization reviews. Most large
employers state wide have abandoned managed care.
Claims Overview
•
As medical costs continue to escalate, the City needs to continue to aggressively manage its
WC claims' costs and to implement effective safety programming in order to effectively control
WC claim costs. WC paid claims for the previous three fiscal years and estimated WC paid
claims for FY 2010 are as follows:
2007 $14.6 million
2008 $16.2 million
2009 $13.5 million
2010 $13.3 million (Estimated FY - $11.97 million paid as of 8/31)
These numbers reflect actual WC paid claim amounts only and do not reflect the total incurred
amount. The total incurred amount includes the future medical and indemnity costs of existing
claims.
The importance of aggressively managing WC claims is further highlighted by the fact that the
long term financial liability resulting from Heart & Lung WC cases presents a significant
exposure to the City's financial well-being. Currently the City has in excess of 560 open Heart &
Lung cases resulting in estimated total incurred losses in excess of $100 million. Approximately
$44 million has already been paid with a remaining outstanding reserve in excess of $56 million.
Our staff will be employing all tools at our disposal to reduce this figure. Going forward, it is
essential that the City is equipped with proper .Xperts to deal with this problem. Dealing with
this liability, is the most complicated challenge in the Risk. Management Department.
Addressing this problem will be a central focus of the Risk Management team over the next 12
months. Similarly, we will be convening a task force of other stakeholders in the City and other
Risk managers in South Florida to collaboratively work on this issue.
On a separate tactic the; Risk Management Department is exploring the procurement of a low
cost RMIS system to allow City staff to effectively manage Claims data and other City
exposures. Currently, the City relies on all of its outside vendors to manage our claims and
underwriting data. This reliance makes it difficult for the City to change service providers. Once
a RMIS system is in place, our staff efficiency should increase, and the City should gain greater
leverage with its service providers. The Risk Management Department does not currently have
any type of RMIS system. This is very problematic and archaic for a claims budget of our size.
The additional cost of the RMIS system should be absorbed in our proposedbudget allocation.
TPA Costs
Although Claims TPA expenses have increased during the past several years, the increases are
much less than the double digit increases in associated medical costs. The GB TPA costs,
excluding Managed Care and allocated loss adjustment expenses, for the three previous FY's,
as indicated in the RFP document, and the current FY are as follows:
2007 $1.16 million
2008 $1.55 million
2009 $1.64 million
2010 $1.80 million
The TPA cost increases for FY 2009 and FY 2010 were 6% and 10% respectively. Additionally,
the City spends approximately $223,000 with Amerisys for Manage Care services on our WC
medical administration. We are recommending the elimination of the Amerisys relationship.
As stated in the introduction, we believe we can reduce claims handling costs by scaling back
GB's service offering. GB's expertise in adjusting WC related claims is essential in controlling
the costs of WC claims. It is Risk Management's goal to reduce the City's reliance on GB for
administering its General Liability and Auto Liability claims, and to reduce TPA related
expenses. GB currently has 4 claims professionals dedicated to adjusting these claims for the
City at an annual TPA cost ranging between $550,000 - $600,000. Based on liability related
claim's frequency, it is estimated that the City could self -adjust these claims with 3 claims
professionals. After netting out salaries, benefits, facility and other related charges, this strategy
may result in a net reduction of $250,000 in TPA related charges. Alternately, the City may
decide to bid the administration of these claims separately to a local vendor that does not have
the same overhead expenses of a national firm. Additionally, Risk Management will retain the
ability to assign some more complicated liability matters to GB as the need arises and on a case
by case basis.
Another opportunity for significant cost savings, especially in light of the significant cost
increases that are being proposed by the incumbent Managed Care TPA, Amerisys, is the
elimination of or reduction in managed care TPA services. The City has lagged behind its peers
in that most of the major municipalities discontinued managed care several years ago as
savings } gan to diminish. Managed Care provides some finan:;:al benefits resulting from cost
and utilization reviews, additional fee reductions and telephonic case management. However,
the significant escalation in proposed fees from the responsive bidders for managed care
services almost results in trading dollars. The most favorable pricing submitted by the
responsive bidders for Managed Care services represented a 186% increase in TPA costs. We
cannot support this level of increase. Finally, another reason for discontinuing Managed Care
is that it adversely impacts the City's flexibility in cost containment and litigation strategies
involving the mandatory provision of a network of physicians.
The City's Amerisys contract expires October 14, 2010. Upon that contract expiration, Risk
Management intends to direct GB to charge existing claims files for Managed Care services.
Upon receiving City Commission approval to begin negotiations with GB, a new rate structure
will then be negotiated with GB for the total cost of WC claims handling
Conclusion
The Risk Management Department respectfully requests that you approve the RFP Committee
Chair's recommendation to recommend.GB for TPA services. We will closely evaluate our TPA
arrangement on annual basis, and will build into negotiations our ability to end or modify the GB
relationship as the City's needs change. We are confident that this strategy will lower the City's
total cost of risk.
This recommendation, has been discussed and reviewed by the City Attorney and legal staff.
The City Attorney co curs with our recommendations.
APPROVED:
Carlos A. Migoya
City Manager
DATE: 1 /1/ G