SUBJECT: EXTENSION OF CONTRACT FOR WORKERS’ COMPENSATION DIAGNOSTIC TESTING SERVICES – PREFERRED PROVIDER ORGANIZATION (PPO)

Council District: Citywide

RECOMMENDATION

Adoption of a resolution authorizing the City Manager, or his designee to negotiate and execute an amendment to an agreement with PHM Diagnostics, Inc., to extend services in providing workers’ compensation diagnostic testing organization services at an additional cost not to exceed $115,000 during the period January 1, 2002 to June 30, 2002.

BACKGROUND

The City spends $14 million annually for workers’ compensation benefits with medical expenditures comprising 50% of the total program costs. The Finance Department is achieving a Risk Management objective by continuing to reduce costs with its medical cost containment program. A diagnostic testing preferred provider organization is a component of the program.

On May 25, 1999, Council adopted Item 6e – 10 authorizing the City Manager to negotiate and execute an agreement with PHM Diagnostics to provide workers’ compensation diagnostic testing organization services. This agreement was written for a seven-month term during the period June 1, 1999 through December 31, 1999 with two-one year options from January 1, 2000 to December 31, 2001. This memo requests the continuation of services for an additional six-month term.

PHM Diagnostics provides a network of diagnostic services that offers the City reduced charges when our employees receive treatment at their facilities. This network includes diagnostic services for magnetic resonance imaging, computed tomography scan, x-ray, mammography, and ultrasonography. For example, the City is charged $490 for an MRI when the marketplace rate is $700. These tests are used as diagnostic tools to identify the source and recommended treatment for injured employees.

ANALYSIS

With these PPO services, the City will receive approximately $70,000 of net savings during the period January 1, 2001 through December 31, 2001. PHM has provided timely and quality medical services to our employees. During the current contract term, PHM met the performance objectives to the satisfaction of staff. Staff will continue to monitor and improve methods to ensure that the vendor’s performance is acceptable. Based on the results during the current agreement, an additional six-month term is recommended. Before the end of this term, the City will enter into a competitive Request for Proposal process to solicit new proposals for this service.

The City will benefit from reduced rates by continuing the relationship with PHM. In conclusion, including this cost containment service as part of the benefit delivery system for workers’ compensation reduces the expense for the overall program.

COST IMPLICATIONS

Fees for diagnostic testing PPO are considered as claim adjusting expenses and are charged to the files from which the bill originates; therefore a separate appropriation is not required.

PUBLIC OUTREACH

Not Applicable

COORDINATION

This memo was coordinated with the City Attorney’s Office, and the City Manager’s Budget Office.

SCOTT P. JOHNSON

Director, Finance Department