IWIF vows purchase will save money

Agency paying $6.5 million for health firm serving it

June 30, 1999|By Laura Sullivan | Laura Sullivan,SUN STAFF

Officials at the state agency that sells workers' compensation insurance say its purchase of a small managed health care firm will bring big savings, even though the acquisition will require 25 new employees and a building renovation that could cost as much as $2 million.

The promise came yesterday as board members of the Injured Workers' Insurance Fund finalized the $6.5 million contract for Statutory Benefits Management Corp., a fledgling company with just three years in the business.

IWIF officials told board members they expect to save $1 million a year by taking over the company.

Paul Rose, IWIF president, said despite the high ancillary costs, the purchase will give the agency more control over injured workers' health care.

"We tried to make a prudent business decision to benefit our policy holders," Rose said, "and I think it was. I'm all for shining the spotlight on any of our company decisions."

The acquisition and IWIF's earlier dealings with the firm have been controversial. In 1996, the agency hired SBMC without considering the bids of a dozen other managed care companies. An auditor later described IWIF's justification for hiring SBMC as "deficient, nonexistent."

For the past three years, IWIF has paid the 60-person SBMC staff $6.7 million a year for their services, Rose said.

IWIF officials told the board they expect that running SBMC themselves will cost about $5.7 million a year, excluding the renovation and repair work to its Loch Raven Boulevard office, which Rose said they likely will postpone for at least a year.

For the $6.5 million purchase price, company reports show that IWIF will get SBMC's injured worker hot line, a payment processing system and a case management program -- much of which IWIF helped SBMC create.

The reports show IWIF also will get SBMC's telephone system, which needs a $100,000 overhaul, its lease on its offices and a computer system in need of a $402,600 upgrade.

The $5.7 million that IWIF plans to spend operating SBMC does not include $550,000 in salaries for seven people included in this year's IWIF payroll. IWIF's vice president of finance, Tom Phelan, said the seven had acted as liaisons between IWIF and SBMC.

"They know more than anyone else and can bridge the gap between the two companies," IWIF Board Chairman Daniel McKew said. "Eventually, they will be absorbed into the new company."

McKew said the high number of new employees and expensive renovation costs did not seem unreasonable to the board.

The relationship between IWIF and SBMC, owned by Louis J. Nicholas, has always been close.

Rose said the original three-year contract with SBMC "wasn't a typical contract. It was like if we asked them to build a bridge for us and we supplied the contractors and trucks," he said.

Because of that relationship, Rose said it seemed only logical to make the arrangement permanent.

One result of the acquisition is that IWIF will have no need to contract out services.

Pub Date: 6/30/99

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