Honorable Mayor and Members of the City Council. Submitted by: David W. Hodgkins, Director, Human Resources

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1 Office of the City Manager November 9, 2010 To: From: Honorable Mayor and Members of the City Council Phil Kamlarz, City Manager Submitted by: David W. Hodgkins, Director, Human Resources Subject: Audit Response: Workers Compensation Costs Can Be Reduced by Improved In-House Processing and Adherence to Contract Terms SUMMARY This information report is submitted in response to the City Auditor s June 2, 2009 City Council Consent Calendar report entitled Audit Report: Workers Compensation Costs Can Be Reduced by Improved In-House Processing and Adherence to Contract Terms. The purpose of the audit was to identify opportunities to further reduce the City s workers compensation benefits costs. The audit report contained 25 recommendations, and asked that the status report on these recommendations be made to Council. At this time, 19 of the recommendations have been implemented, three (3) are partially implemented, and three (3) are not implemented. CURRENT SITUATION AND ITS EFFECTS The June 2, 2009 audit reported that while Human Resources has been successful in reducing the number of workers compensation claims filed and their costs in recent years, further costs can be reduced by addressing the concerns identified in the audit report. Primary recommendations centered around internal Human Resources claim handling protocols; monitoring the Workers Compensation Third Party Administrator s performance; tightening the City s safety investigation and reporting; and implementing the corrective actions recommended in a 2004 review of the City s workers compensation program by Bickmore Risk Services. Human Resources has implemented all the primary recommendations identified in the audit report. Furthermore, on May 18, 2010, Council approved a new three (3) year contract (July 1, 2010 to June 30, 2013) with Innovative Claim Solutions, Inc. (ICS) to provide third party administrative services. The new contract incorporates performance standards and agreed-upon protocols that were raised as an issue in the audit report. Furthermore, in early January 2011, the City and ICS will be meeting to review the performance effectiveness and make appropriate changes to the program, if needed. After the January 2011 meeting with ICS, Human Resources will provide Council with a status of partially implemented recommendations. Finding 1: Implement Corrective Actions Recommended in the 2004 Consultant Study to Reduce Workers Compensation Costs 2180 Milvia Street, Berkeley, CA Tel: (510) TDD: (510) Fax: (510) manager@cityofberkeley.info Website:

2 1.1 Develop standard written operating procedures to cover all aspects of in-house workers compensation claims processing. The procedures should cover interaction between HR personnel and the third party administrator, as well as monitoring the administrator s performance under the contract. Status: Implemented. Written policies and procedures have been updated and additional in-house written operating procedures have been developed that cover overall claims processing. In addition, on February 4, 2010, the City issued a Request for Proposal (RFP) for workers compensation third party administrative services and received eight (8) responses from prospective bidders to the RFP. A committee from the Human Resources Department, Police Department, Department of Public Works, Health Department, Public Library, and Auditor Department evaluated the responses and was unanimous in recommending ICS as the Workers Compensation Third Party Administrator for the City s program. Incorporated into the new contract are specific performance standards that the City will measure on a bi-annual basis. 1.2 Ensure that written procedures are consistent with agreed-upon protocols. Status: Implemented. New contract with ICS and City written procedures comport with the agreed upon protocols. 1.3 Ensure that written procedures discourage HR personnel from making unnecessary or redundant contacts with claims examiners and attorneys. Status: Implemented. Human Resources and ICS Procedures incorporated streamline of communication procedures. ICS and Human Resources hold weekly check in telephone meetings to review any outstanding issues or concerns. 1.4 Arrange for ICS to notify HR management of situations in which HR personnel deviate from the agreed-on protocols, unless in ICS s judgment deviation was appropriate under the circumstances. Status: Implemented. ICS protocols incorporates procedure to report to HR management when HR personnel deviate from agreed-on protocols. 1.5 Ensure that HR is in compliance with agreed on protocols prior to ICS contract renewal date, to increase the City chances of negotiating favorable contract fees. Status: Implemented. HR was in compliance with protocols prior to establishment of new contract with ICS. The new 3-year contract resulted in decreased annual administrative cost of approximately $140, Consider implementing the Bickmore recommendation to decentralize workers compensation information distribution to include department heads. Page 2

3 Status: Implemented. Each City department has a Workers Compensation departmental contact that works directly with the Workers Compensation Analyst. The departmental contact is provided with a list of all of their respective open claims. The departmental contact shares this information with the department head. Finding 2: Systematically Monitor ICS s Performance under the Contract 2.1 Ensure that procedures developed in response to recommendation 1.1 include specific criteria and directions to systematically monitor ICS s performance under the contract. Status: Implemented. As noted in 1.1, Incorporated into the new contract with ICS are specific performance standards that the City is monitoring. The City and ICS will review the contract performance on a bi-annual basis. 2.2 Consider establishing performance measures tied to workers compensation operations for City staff and the contractor. Status: Implemented. ICS and Human Resources agreed to explore and identify specific performance measures during the term of the current contract. Finding 3: Improve Timeliness of the Internal Claims Process by Developing Performance Measures and Reporting the Departments Results Semi-Annually 3.1 Include measures for timeliness of internal claims processing in HR s performance measures (see recommendation 1.5). Status: Implemented. Human Resources continually stresses the importance of timely reporting of claims. New controls have been implemented in Human Resources to reduce the lag time in reporting. This has resulted in a significant reduction in the timely reporting of claims. In FY 2008, the average delay was 9.2 days. In FY 2010, the average delay was 3.8 days. The state guidelines is 5 days. 3.2 Consider rating all supervisors on compliance with AR 2.7 in their performance evaluations. Status: Implemented. The new controls implemented by Human Resources staff on reporting of claims includes the tracking of supervisor compliance with AR 2.7. When a supervisor fails to comply with the requirements, the supervisor is provided with notice. If the matter becomes an issue a second time, the supervisor s manager is notified to take appropriate action. If the matter is raised a third time, a recommendation is made Page 3

4 by Human Resources staff to take appropriate disciplinary action against a supervisor who fails to comply with requirements under AR The Director of Human Resources should provide a semi-annual report to the City Manager and department heads, that lists injuries and claims where the employees supervisor failed to report the injury, or to submit all required documentation within the time required by the AR. This report should be broken out by department. Status: Partially implemented. Human Resources will be providing the City Manager with the report the first week in January 2011 for the period covering July 1, 2010 to December 31, The Director of Human Resources should include in the semi-annual report to the City Manager (per recommendation 3.3) all incidents where: a) HR did not notify ICS of a potential claim within one work-day of receipt of injury notification from the employee s supervisor, and b) HR failed to provide ICS with a dated copy of a claim within one work-day of receipt by HR. The report should include explanations for all deviations. Status: Partially implemented. Human Resources will include this information in the report to the City Manager scheduled for January Finding 4: Improve the City s Early Return to Work Program 4.1 Develop formal policies, criteria, and procedures for monitoring the success of the light duty program. Such monitoring should provide sufficient information to modify and update the program as needed. Status: Implemented. Human Resources developed and implemented formal policy and procedures on modified duty. The procedures incorporate monitoring provision that will be done on an ongoing basis and that also allow for modifications of the program on an as-needed basis. 4.2 In consultation with the City Manager, consider modifying AR 2.7 to require that the cost of a modified duty assignment be borne by the employee s regular department. Status: Not Implemented. Amendment to AR 2.7 is scheduled for May 20, This recommendation will be considered when AR 2.7 is updated and reissued. 4.3 Consider coordinating with the City Manager to establish a Citywide policy that would require each department to establish a departmental employee diplomat to maintain contact with injured workers. HR should be responsible for providing guidance to the various employee diplomats. Page 4

5 Status: Implemented. Employees are required to provide the supervisor with a work status slip after each and every medical appointment. However, Human Resources has teamed with ICS to create a targeted Nurse Case Management Program that encourages return to work and communication between the employee, physician, and the City. The departmental workers compensation contacts are also encouraged to maintain ongoing contact with the injured employee. Finding 5: Eliminate Workers Compensation Benefits that Exceed Statutory Mandates Recommendation for City Manager and Human Resources 5.1 Evaluate the possibility of having discussions with the various employee unions, with the objective of eliminating salary continuation benefits that exceed the limit of benefits mandated by statute. Status: Not Implemented. The current Memoranda of Understanding/Agreements with Non-Safety bargaining units expire June 23, When the City begins contract negotiations, this item will be considered as a management proposal. Finding 6: Ensure That ICS Contacts Physicians Within Industry Standard of 48 hours 6.1 Request ICS to contact the claimant s health care provider within 48 hours of receipt of claim. 6.2 Modify the contract with ICS if necessary to require physician contact within 48 hours. Status: Implemented. ICS formally agreed on May 4, 2009 to contact the claimant s physician within 48 hours of receipt of the claim in all lost time cases. The new contract with ICS includes a provision requiring physician contact within 48 hours. Finding 7: Require Department Directors to Ensure Cause of Injury and How to Prevent Similar Injuries is Included in the Supervisors Investigation Reports Recommendation for Human Resources 7.1 Require department directors to ensure that supervisors describe the cause of the incident, as well as suggestions for future avoidance, in the Supervisor s Investigation Report. Status: Implemented. Occupational Health and Safety has always reviewed each injury claim. Effective January 1, 2009 through the first quarter of FY-2011, the division returned any supervisor s report that did not adequately address cause or causes and Page 5

6 corrective action for review and corrections. This period was used to develop a baseline for evaluation effectiveness of the follow ups. Effective the second quarter of 2011, a report will be sent to each affected department director identifying any report that does not effectively follow the injury from its cause to all corrective actions. Recommendation for City Manager 7.2 Consider requiring the Director of Human Resources to include in the semiannual injury and claim report (see Recommendation 3.3 above), all injuries where the supervisors failed to adequately complete all fields in the supervisor s investigation report. Status: Implemented. Information will be incorporated into the Employee Safety and Workers Compensation report. Finding 8: Provide Accounting With the Information and Authority Needed to Reconcile and Monitor the Workers Compensation Checking Account 8.1 Arrange for ICS to provide Accounting with a complete check register. Status: Implemented. Human Resources authorized ICS to provide Accounting with a complete check register in January Work with ICS and the successor bank as needed to ensure that the bank is responsive to Accounting request for information. Status: Implemented. Human Resources staff worked closely with Accounting and ICS to make the transition to the new bank seamless. The transition was complete effective July 1, Banking controls and protocols have been established and incorporated into the new contract with ICS. Recommendation for Human Resources and Finance 8.3 Require ICS to obtain authorization from Finance to reissue a payment. Status: Implemented. As referenced in 8.2 above, the banking controls and protocols incorporated into the new contract with ICS requires ICS to obtain prior authorization from Finance before reissuing a payment. Recommendation for the City Manager 8.4 Reevaluate whether it is in the City s best interest for ICS to have signatory authority over a City owned depository account. If ICS signatory authority is not considered in the City s best interest, close the successor bank account and arrange for all workers compensation disability payments to be disbursed Page 6

7 through the payroll system, and for all other workers compensation costs to be disbursed by Finance. A factor to consider is the impact on the operating budgets and staffing requirements of Finance and Payroll Audit from making all payments in-house. Status: Implemented. The Director of Human Resources believes that it is in the City s best interest for ICS to retain signatory over the new checking account due to the large volume of workers compensation payments. 8.5 Implement a policy that, in a situation where executing a contract would result in delegating signatory authority held by the City Manager and the City Auditor, a separate instrument must be used to explicitly delegate that authority. Status: Partially implemented. Working with the City Attorney to establish a mechanism to delegate signatory authority. Finding 9: Report the Status of the Recommendations From the 2002 and 2004 Bickmore Risk Services Consultant Studies Recommendation for Human Resources 9.1 Report on the implementation status of recommendation in the two Bickmore reports by the promised dates. Status: Not Implemented. An Injury and Illness Plan has been implemented in 2003 and revised in 2009 to address the issues raised in the summary and all the safety recommendations in Appendix D of the reports have been corrected. The status of the consultant s recommendations will be reported to Council by February 8, 2011 BACKGROUND The Auditor conducted an audit of the City s workers compensation and safety program. The objective of the audit was to identify opportunities to further reduce the City s workers compensation benefits costs. POSSIBLE FUTURE ACTION The Human Resources department continues to work with ICS, supervisors, managers, and department heads to identify areas of possible improvement to the workers compensation program. The next report to Council on the status of partially implemented recommendations will be by March 1, FISCAL IMPACTS OF POSSIBLE FUTURE ACTION None at this time. CONTACT PERSON Margarita Zamora, Senior Human Resources Analyst, Human Resources Department (510) Page 7

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