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AUTHORIZE THE CITY MANAGER TO APPROVE A CONTRACT RENEWAL WITH ATHENS ADMINISTRATORS TO PROVIDE SERVICES AS THE THIRD-PARTY ADMINISTRATOR (TPA) FOR THE CITY’S SELF-INSURED WORKERS’ COMPENSATION PROGRAM
recommended action
RECOMMENDATION
It is recommended that the City Council adopt and authorize a motion to:
1. Approve entering into the service agreement with Athens Insurance Services, Inc for provide services as the Third-Party Administrator (TPA) for the City’s Self-funded Workers’ Compensation Program:
2. Authorize the City manager to execute a three-year service agreement with the option of two (2), one (1) year extensions, for TPA services.
3. Approve findings for an exception to the competitive bidding process; and
4. Authorize the City Manager to take all necessary and appropriate action to carry out the purpose and intent of this motion.
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Summary
The City currently contracts with Athens to provide TPA services for the City’s self-funded workers’ compensation program. Services include administration of workers’ compensation claims in accordance with State law and regulations, City policies and procedures, and provision of workers’ compensation benefits such as medical treatment and indemnity payments to injured workers. The TPA also administers cost containment programs such as utilization review, bill review, and nurse case management.
The current agreement for TPA Services expires on September 30, 2023. On March 9, 2023, the City Manager approved the use of a Request for Proposal (RFP) process to solicit proposals for services for the City’s self-insured Workers’ Compensation Program. On July 10, 2023, the RFP Evaluation Committee (Committee) interviewed the four responding proponents. After calculating the Committee’s scoring of the proponents, Athens achieved the highest ranking. If approved, the agreement will commence on October 1, 2023, and continue for five (5) years through September 30, 2028 (Attachment A).
Athens will bill the City for services rendered based on the fee schedule noted in the contract and as set forth below, with an additional annual administration fee of $7,500:
|
Renewal Pricing |
Flat Annual Fee |
|
Program Year 1 10/1/23-9/30/24 |
$825,445 |
|
Program Year 2 10/1/24-9/30/25 |
$858,875 |
|
Program Year 3 10/1/25-9/30/26 |
$893,660 |
|
Program Year 4 10/1/26-9/30/27 |
$929,853 |
|
Program Year 5 10/1/27-9/30/28 |
$967,512 |
DISCUSSION
Background
The City of Stockton has been self-insured for workers’ compensation since January 1, 1979. The City’s claims experience is approximately $1.84 million per year. This includes 561 existing claims with an average increase of 450 new claims per year. The City’s current claim reserves are set at $38.6 million.
The City has historically contracted with a Third-Party Claims Administrator for claims management due to the amount of activity, expertise, and available resources to handle the daily requirements of claims administration.
Present Situation
An RFP for Workers’ Compensation TPA services was issued on April 6, 2023. The RFP outlined the scope of work and requested proposals addressing vendor’s experience, organizational structure, commitment to quality-of-service delivery and pricing. The TPA will be required to administer open and closed claims in accordance with State law and regulations, City policies and procedures. The TPA will oversee stop loss reporting, subrogation recovery, utilization review and medical billing.
The City received a total of four (4) proposals from the following proponents:
• Pegasus Risk Management
• Sedgwick Claims Management
• Athens Insurance Services
• Innovative Claim Strategies
A committee was established to evaluate the proposals submitted and select the best qualified TPA. The Committee was comprised of staff from Human Resources/Risk Services, Fire, Police, and Public Works. Based upon the Committee’s evaluation, Athens was selected.
Findings
SMC section 3.68.070 provides an exception to the competitive bidding process in cases where the City Council has approved findings which support and justify this action.
Findings to justify an exception to the competitive bidding process are as follows:
1. The RFP process was utilized as an exception to the competitive bidding process, as selection based on cost alone does not necessarily guarantee the most appropriate vendor choice for specialty services such as Third-Party Workers’ Compensation claim administration. A strict competitive basis for selection would likely lower the quality of the services provided.
2. Selection based on cost alone does not take into account public sector experience or the ability to provide consistent quality claims administration.
3. These types of services such as workers’ compensation claims administration, medical cost containment and return to work programs require experienced professionals who have handled such services for other public entities and can work closely with City staff, which is in the public interest.
4. The RFP process allows the vendors to specify what services they can provide to the City rather than the City bidding specific services.
It is necessary for the City to contract out to handle these services as City staff does not have the full expertise or capacity to perform such services.
FINANCIAL SUMMARY
The following costs are based on the specific needs of the City for TPA services, and the response received from Athens. The expected cost over the next five years equates to $4,512,845 consisting of annual flat fees totaling $4,475,345 and an annual administration fee of $7,500:
|
Renewal Pricing |
Flat Annual Fee |
|
Program Year 1 10/1/23-9/30/24 |
$825,445 |
|
Program Year 2 10/1/24-9/30/25 |
$858,875 |
|
Program Year 3 10/1/25-9/30/26 |
$893,660 |
|
Optional Year 1 10/1/26-9/30/27 |
$929,853 |
|
Optional Year 2 10/1/27-9/30/28 |
$967,512 |
The FY 2023-24 Annual Budget includes sufficient appropriation in the Special Services account (2510-000-630006-530-000-00-25-000-000- ) within the Workers’ Compensation fund to cover the first year of the third-party administration service agreement. Costs based on the anticipated scope of work for the subsequent years will be budgeted in the same account and subject to Council approval during the annual budget development process.
Attachment A - Athens Contract 2023