SUBJECT: EXTENSION OF CONTRACT FOR WORKERS’ COMPENSATION COST CONTAINMENT SERVICES – MEDICAL BILL REVIEW AND PREFERRED PROVIDER ORGANIZATION

Council District: Citywide

RECOMMENDATION

Adoption of a resolution authorizing the City Manager, or his designee to execute an amendment to an agreement with Diversified HealthCare Services to extend services for a period of six-months in providing workers’ compensation medical bill review services and administer the preferred provider organization medical network at an additional cost not to exceed $ 250,000 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. The three components of this program are the medical bill review services, medical preferred provider organization, and a diagnostic testing preferred provider organization.

On December 14, 1999, the Council adopted Item 9g - 1 authorizing the City Manager to negotiate and execute an agreement with Diversified HealthCare Services as a workers’ compensation cost containment provider. This agreement was written for a one-year term during the period January 1, 2000 through December 31, 2000 along with a one-year option from January 1, 2001 through December 31, 2001. This memo requests continuation of services for an additional six-month term.

Diversified HealthCare Services performs the function of medical bill review, which ensures that the City is not being charged in excess of the State mandated fee schedule. In addition, Diversified HealthCare Services administers the medical preferred provider organization (PPO) network which allows the City to receive substantial discounts below the State mandated fee level for medical bills.

ANALYSIS

Cost savings are generated when employees seek treatment from member medical service providers. The compensation paid to Diversified HealthCare Services is based on a charge of $5.50 per bill and 18% of PPO savings. The fee for both services in the current year is expected to be approximately $400,000, while providing net savings of $4.5 million. Before the end of this recommended term, the City will enter into a competitive Request for Proposals to solicit new proposals for this service.

Continuing the relationship with Diversified HealthCare Services as a partner in the City’s cost containment program provides employees a large medical network from which to seek quality treatment and, at the same time, ensures that benefits are delivered in a cost efficient manner.

COST IMPLICATIONS

This agreement is funded through savings incurred by the workers’ compensation program. The charges for medical bill review and medical PPO are considered claim adjustment expenses and will be charged to the claim file 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