PREFERRED PROVIDER ORGANIZATION (PPO) DISCOUNTS FOR WORKERS' COMPENSATION MEDICAL SERVICES

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1 @ Metm 15 Metropolitan Tansportation Authority One Gateway Plaza Tel ~os Angefes, CA metro.net FINANCE AND BUDGET COMMITTEE April 14, SUBJECT: ACTION: PREFERRED PROVIDER ORGANIZATION (PPO) DISCOUNTS FOR WORKERS' COMPENSATION MEDICAL SERVICES AWARD CONTRACT TO ANTHEM BLUE CROSS (PS ) RECOMMENDATION Authorize the Chief Executive Officer to award a ten-year incentive based contract, Contract No. PS , to Anthem Blue Cross (Blue Cross) for a workers' compensation Preferred Provider Organization (PPO) and Medical Provider Network (MPN) services inclusive of three, two-year options, effective July 1, RATIONALE We resumed self-administration of workers' compensation benefits for our injured employees in fall of We have used EOS, First Health, Coventry and, since July 2008, Corvel Corporation (Corvel) as our PPO provider. PPO vendors give clients a network of contracted doctors, hospitals and other medical service providers at rates below California's approved fee schedules for their services. The highest quality PPO vendors have deeper discounts, broader networks and better quality assurance by constantly reviewing their panel of physicians and terminate contracts when physicians fail to meet specific clinical or legal criteria. PPO vendors have extensive networks (in Southern California in the tens of thousands of medical providers) with many medical specialties and locations represented, allowing a greater degree of access and penetration than smaller networks can provide. PPO vendors must also be able to support the creation of a customized MPN consistent with the regulations in the California Labor Code. Discussion A competitive procurement for PPO services occurred in the spring of 2008 in which Corvel was selected on the basis of proving the highest net (medical savings below fee schedule less incentive payments) saving to us. Since that time, our discounts received from the population of medical service providers used by our universe of workers' compensation claimants has fallen below 5%, a relatively low rate. We canvassed bill review companies as well as other self-insured employers for recommendations regarding another PPO that could provide a broad network with deeper discounts below fee schedule other than Corvel.

2 Blue Cross was suggested as having a very broad workers' compensation network because of their extensive group health network. Blue Cross did not propose in 2008 when we issued an RFP, because, according to Blue Cross executives, they do not like to compete against bill review companies that frequently bundle their services into a package for sale to end users like the Los Angeles County Metropolitan Transportation Authority (LACMTA). Blue Cross was, however, open to a negotiated procurement. We asked our bill review company, Stratacare, to run a simulation of the impact of using Blue Cross' PPO (BCC) instead of our current PPO Corvel over the period January 1, 2009 through November 30, The results of this simulation are below. Comparison of Proposed Workers' Compensation PPO Mosaics LA Metro - 01 /01/09 to 1 1/30/09 - Provider and Hospital I3 B 1 [~alifornia Current Charges $ 30,913,164 $ 30,913,164 Current Bill Review Reductions Charges Less BR Estimated Charges Subject to PPO $ 9,410,729 $ 9,563,703 Estimated PPO Savings Estimated PPO Fees Estimated Net Savings for PPQ Estimated Annualized Net Savings from PPO $ 738,328 $ 474,681 Estimated PPQ Penetration O/O 69.19O/ % Estimated Gross PPO Savings % of Charges Subject to PPO 9.34% 5.91 % Estimated Net PPO Savings % of Charges Subject to PPO 7.19% 4.55% In summary, we expect approximately $260,000 more in net savings by utilizing Blue Cross' PPO rather than Cowel's PPO even though we will be paying a higher fee to Blue Cross in percentage terms. Blue Cross will be making an incentive only amount of savings below fee schedule of 23% while the incentive fee we pay to Corvel is only 20%. Therefore, our costs for this service are expected to increase by at least $80,000, which will be more than offset by the decreases in our medical spending by more than $300,000.

3 FINANCIAL IMPACT The funding of approximately $220,000 for this action is included in the proposed FY 1 1 budget in cost center 0531, Risk Management - Non Departmental Costs, under project RM - Workers' Compensation, in account (Serv Prof and Tech Service). In FYIO, an estimated $140,000 will be expensed on Workers' Compensation ancillary PPO services. Risk Management will be responsible for budgeting for this expense in future years. Impact to Bus and Rail Operating and Capital Budcret The FYI 1 funding for this action will largely come from the Enterprise Fund. These charges, along with other workers' compensation costs are allocated to individual cost centers and projects based on where injured employees are working at the time of their industrial injury. The vast majority of injured employees' costs arise out of bus and rail operations. The increased net savings from this action will reduce ongoing operating costs. ALTERNATIVES CONSIDERED The first alternative is continued use of the incumbent, Corvel. If we do not change providers for this service, the additional medical cost savings will not be realized. The second alternative would be to utilize a competitive procurement process to try and obtain higher discounts. This option is not recommended because the competitive procurement process we engaged in two years ago did not yield medical costs savings we estimate could be realized by switching to BlueCross. In a subsequent competitive procurement, Blue Cross would not submit a proposal and it is unlikely that we would be able to obtain the same medical costs savings from any other vendor that Blue Cross is offering. ATTACHMENT A. Procurement Summary Prepared by: Gregory Kildare, Executive Officer, Risk Management AWARD CONTRACT TO BLUE CROSS (PS )

4 chief kaancial Services Officer and Treasurer Arthur T. Leahy Chief Executive Off'icer U AWARD CONTRACT TO BLUE CROSS (PS )

5 ATTACHMENT A PROCUREIMENT SUMMARY PREFERRED PROVIDER ORGANIZATION (PPO) DISCOUNTS FOR WORKERS' COMPENSATION IVIEDICAL SERVICES Contract Number: PS Recommended Vendor: Anthem Blue Cross CostPrice Analysis Information: A. BidIProposed Price: Recommended Price: $ $ B. Details of Significant Variances are in Attachment A-I.D 5. ( Procurement Dates: ( A. Issued: N/A ( B. Advertised: N/A I C. Pre-proposal Conference: N/A ( D. Proposals Due: N/A I E. Pre-Qualification Completed: pending Contract Type: Incentive Based Contract ( F. Conflict of Interest Form Submitted to Ethics: pending Small Business Participation: A. Bid/Proposal Goal: 0% I Date Small Business Evaluation Completed: No DALP recommended /10 B. Srnalf Business Commitment: 0 % Details are in Attachment A-2 No DBE Anticipated Level of Participation (DALP) was recommended. Invitation for BidlRequest for Proposal Data: Notifications Sent: Bids/Proposals Picked up: N/ A N/A Evaluation Information: A. BiddersIProposers Names: BidlProposaf Amount: Bids/Proposals Received: N/A Best and Final Offer Amount: I I I Anthem Blue Cross $ $ t B. Evaluation Methodology: - Details are in Attachment A-E.C Protest Information: A. Protest Period End Date: N/A B, Protest Receipt Date: N/A C. Disposition of Protest Date: NIA - Contract Administrator: Telephone Number: Maria V, Lechuga Project Manager: Telephone Number: Greg Kildare I

6 ATTACHMENT A-I PROCUREMENT HISTORY PREFERRED PROVIDER ORGANlZATlON (PPO) DISCOUNTS FOR WORKERS' COMPENSATION MEDICAL SERVICES A. Background on Contractor Anthem Blue Cross is a subsidiary of WellPoint, Inc. (formerly Anthem, Inc.). It was formed when WellPoint Health Networks Inc. and Anthem, Inc. merged in 2004 to become the nation's leading health benefits company. Headquartered in Indianapolis, Indiana, WellPoint is an independent licensee of the Blue Cross and Blue Shield Association serving members in California, Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, Nevada, New Hampshire, New York, Ohio, Virginia and Wisconsin; and in all 50 states through UniCare. WellPoint's Blue-licensed subsidiaries and their affiliates provide a comprehensive range of group and invidual health benefit, life and disability products. Anthem Blue Cross, of Wellpoint's subsidiaries has been serving the health care needs of Californians since Anthem Blue Cross, together with its branded affiliates, provides health care services to more than 6.8 million members. Anthem Blue Cross has been assigned a rating of " A (Excellent) from the A.M. Best Company, an independent insurance rating organization. Anthem Blue Cross is currently one of the health care providers offered to all of LACMTA's employees. B. Procurement Background On October AS, 2007, a solicitation was released for Workers' Compensation Ancillary Services. LACMTA Risk Management's intent was to contract with a vendor or team of vendors that would work closely with LACMTA's in-house Claims staff and deliver the various services required, including the Preferred Provicfer Network: As a result of that procurement, four contracts were awarded, one to Corvel Corporation that was selected on the basis of proving the highest net (medical savings below fee schedule less incentive payments) savings to LACMTA. Since that time, the savings to LACMTA has fallen short of what had been anticipated. Risk Management researched other bill review companies as well as other selfinsured employers for recommendations for another PPO that could provide deeper discounts and therefore greater savings to LACMTA. Anthem Blue Cross was recommended as the one PPO that could offer the greater savings LACMTA is hoping to achieve. Authorizing the execution of a sole source contract with Blue Cross will allow Risk Management to utilize the extensive PPO network only available through Blue Cross realize higher savings for LACMTA that were not obtainable through the competitive procurement process in 2007.

7 C. Evaluation of Proposals The price proposal submitted by Blue Cross was found to be in compliance with Risk Management's technical specifications and requirements and offers higher potential savings not available through any other provider. D. CostlPrice Analvsis See Comparison of Proposed Workers' Compensation PPO Mosaics table on page 2.

8 ATTACHMENT A-2 LIST OF SUBCONTRACTORS PREFERRED PROVIDER ORGANIZATION (PPO) DlSCOUNTS FOR WORKERS' COMPENSATION MEDICAL SERVICES PRIME CONTRACTOR -Anthem Blue Cross Small Business Commitment DBE Anticipated Level of Participation: 0% Other Subcontractors None Total Commitment 0%