REPORT ON RFP AND ACTIONS RELATED TO WORKERS' COMPENSATION COMPREHENSIVE SERVICES

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1 COUNCIL AGENDA: 11/29/16 ITEM: 3.8 CITY OF C *3 SAN JOSE CAPITAL OF SILICON VALLEY TO: HONORABLE MAYOR AND CITY COUNCIL Memorandum FROM: Joe Angelo SUBJECT: SEE BELOW DATE: Approved _L»-OS n ( Date // //<?//& SUBJECT: REPORT ON RFP AND ACTIONS RELATED TO WORKERS' COMPENSATION COMPREHENSIVE SERVICES RECOMMENDATION Adopt a resolution authorizing the City Manager to negotiate and execute an agreement with Intercare (Rocklin, CA) to administer Workers Compensation claims processing including bill review, utilization review, medical case management and the use of a Medical Provider Network, with an initial term beginning November 29, 2016 through June 30,2018, with an option to extend annually through June 30, 2021, for a not to exceed total compensation amount of $16,264,409 based on an estimated caseload of claims, and subject to annual appropriation of funds. OUTCOME Authorizing the City Manager to negotiate and execute an agreement with Intercare will enable the continued use of the hybrid sourcing model with Intercare to process a portion of the Workers' Compensation claims administration including bill review, utilization review, and medical case management, including the use of a Medical Provider Network. The City will continue to evaluate the use of a third party administrator (Intercare) throughout the term of the proposed agreement. BACKGROUND The Office of the City Auditor produced a report in April 2009 titled, "An Audit of the City of San Jose's Workers' Compensation Program." At a Council meeting on March 8, 2011, the City Council directed the City Administration to develop a comprehensive program to address the total cost of the workers' compensation program and to assist injured employees with receiving appropriate and timely medical care so that they are able to return to work. This direction was the result of the discussion of Council Agenda Item 3.3, "Status Report on the Alternative

2 Page 2 Service Delivery Evaluation for Workers' Compensation Administration and Employee Health Services." On December 15, 2011, the PSFSS Committee accepted staffs report regarding the Workers' Compensation Reform Plan (Plan) and recommended the same to the City Council. This Plan included exploring an alternative service delivery model that was different than the City's then current in-house administration service delivery model. The plan stated that the City Administration, would be conducting a Request for Proposals (RFP) for alternative service delivery options in the workers' compensation program services. The plan, as approved by the PSFSS committee, stated that once the RFP process was completed, a determination would be made on outsourcing all or parts of the workers' compensation process and that this would be brought back to City Council for consideration. Pursuant to this direction, the City Administration developed a RFP for comprehensive workers' compensation services including: claims administration; bill review; utilization review; and medical case management. The City conducted a competitive Request for Proposal (RFP) in 2012 that resulted in an award of contract to Athens Administrators. The agreement commenced in May, Athens Administrators handled a portion of claims administration and all City bill review, utilization review, medical case management and provide an option to use a Medical Provider Network. The agreement has been extended through December 31, 2016 to allow staff additional time to evaluate the program, the performance of the vendor, and conduct another RFP, if required. Given challenges associated with managing the program and gather performance data, it is recommended that the hybrid model continue with an initial term through June 30, 2018, and with an option to extend annually through June 30, 2021, to allow additional time to fully analyze the various service delivery models, and ensure state compliance, as described in City Council Agenda Item 3.7 on November 29, ANALYSIS The Request for Proposals was released on July 12, 2016 with a revised due date of August 15, In the RFP process, the City team evaluated and rated the proposals and conducted interviews with the finalists. There were six (6) proposals submitted and evaluated from the following vendors: Athens Intercare JT2 AIMS Arissa EK Health

3 November 18,2016 Page 3 The following top two (2) vendors were finalists and participated in interviews: Intercare JT2 The areas evaluated were management proposal, cost, local business enterprise and small business enterprise. FINAL SCORING Max Percentage Athens Intercare JT2 AIMS Arissa EK Health Management Proposal 60% Cost 30% Local Business Enterprise 5% Small Business Enterprise 5% Total 100% As detailed in RFP Number # WC RFP 2017, section 12, the evaluation criteria consisted of 60% for the management proposal, 30% cost, 5% local business enterprise, and 5% small business enterprise. The management proposal considered factors such as: responsiveness, strategy, subject matter expertise, comparable municipal clients, references, customer service philosophy, standard reporting quality, staffing levels/management structure, ability to track and report customer satisfaction levels. The RFP process included a ten day protest period that commenced when the proposers received the City's Notice of Intended Award. JT2 submitted a protest on October 24, 2016 alleging the following: 1) JT2 did not properly prepare for an oral interview because it was misrepresented by City Staff as a "meeting" and not an "interview." Therefore, JT2 was unprepared and unable to supplement its proposal submission; 2) The RFP process is tainted by flawed scoring or assessments; and 3) The City's administrative team's bias limited the ability of JT2 to present aggressive solutions. The City's Chief Purchasing Officer reviewed the protest and determined that JT2's contentions were unsupported. JT2 was sent notice that its protest was denied on November 3, 2016 and was advised of its right to appeal the decision of the Chief Purchasing Officer to the City Council. JT2 filed an appeal by the deadline and therefore follow-up information will be provided in a supplemental memorandum.

4 Page 4 Staff recommends Intercare as the Third-Party Administrator for the outsourced portion of the Workers' Compensation program. Intercare handles numerous public agencies and has a demonstrated proficiency in large and complex public agency Workers' Compensation procedures. Intercare received the highest overall score at the conclusion of the RFP process. Reference verifications also revealed that Intercare's service levels are well-received by current clients. As reflected in the Annual Report, Council approved additional funding in the amount of $540,000 to provide for this new contract through June Additional funding of approximately $1.1 million for this contract will be added to the Base Budget with Council approval of this agreement. EVALUATION AND FOLLOW-UP After the initial agreement term of 18 months, with an option to extend annually through June 30, 2021, the Administration will bring forward a final recommendation on the service delivery model for this program as part of the Proposed Budget process. The contract costs will be incorporated into the annual budget. PUBLIC OUTREACH This item will be posted on the City's website for the November 29, 2016 City Council Agenda. COORDINATION This memo has been coordinated with the City Attorney's Office, City Manager's Budget Office, and the Finance Department. COMMISSION RECOMMENDATION/INPUT No commission recommendations or input is associated with the action.

5 Page 5 COST SUMMARY/IMPLICATIONS 1. COST ELEMENTS OF AGREEMENT/CONTRACT: Year 1: Jan 1, June 30, (a) Initial Six Months (Jan Jun 2017) Claims claims Utilization Review/ Medical Case Mgmt.** Bill Review MPN claims) Data Cleanup (One Time Fee) Total Contract $1,036,800* $237,500 $411,000 $35,240* $0 $1,720,540 *$1,072,040, paid from Human Resources General Fund. Other items are paid from workers' compensation funds. **The Utilization Review and Medical Case mgmt. not to exceed this amount and will be combined for contract purposes. Year 1: July 1, 2017-June 30, (b) First Year (July June 2018) Claims claims Utilization Review/ Medical Case Mgmt.** Bill Review MPN new claims) Data Cleanup (One Time Fee) Total Contract $2,135,808* $475,000 $822,000 $27,500* $0 $3,460,308 *Paid from Human Resources General Fund. Other items are paid from workers' compensation funds. ** The Utilization Review and Medical Case mgmt. not to exceed this amount and will be combined for contract purposes. Pricing Notes 1. Pricing contemplates Intercare providing claims administration; bill review: utilization review; medical case management, and medical provider network (MPN) services for the City of San Jose. The Claims Administration, MPN, and any data clean-up costs will be funded out of the Human Resources' Non-Personal/Equipment appropriation, as discussed below in the budget reference section. The other elements of the contract, including utilization review/medical case management, and bill review, will be billed to the specific City-Wide Expenses Workers' Compensation Claims appropriation that a particular claim is charged against. As part of the Annual Report actions approved by the City Council on October 18, 2016 additional General Fund funding of $540,000 was added to cover claims admin and MPN services under this new contract.

6 Page 6 BUDGET REFERENCE The table below identifies the fund and appropriations proposed to fund the contract extension recommended by this memo. As discussed above in the Cost Summary/Implications section, the costs for the utilization review and bill review will borne by the same City-Wide Expenses Workers' Compensation Claims appropriation that would pay for a particular claim. Only the amount for Claims Administration, Medical Provider Network, and the Data clean-up is detailed below. Fund # Appn# Appn. Name Non- Personal/ Equipment Amt. for Contract (thru 6/30/2017) Adopted Budget (Page) Last Budget Action (Date, Ord. No.) Total Appn $3,472,725 $1,072,040 VIII /18/2016 #29803 CEOA Not a Project. File No (e), Services that involve no physical changes to the environment. /s/ JOE ANGELO Director, Human Resources For questions, please contact Joe Angelo, Director, Human Resources, at (408)