Modesto is moving forward with its plan to try to settle millions of dollars of city employees’ unpaid medical claims under the assumption that medical providers will accept one-third of what they are owed.
The City Council on Tuesday evening approved spending $2.6 million to settle $6.6 million in claims, reimburse employees for claims they have paid, and pay a claims administrator to negotiate and settle the claims on the city’s behalf.
Modesto officials are expected to come back to the council to ask for more money to settle what officials believe are an additional $1.7 million in outstanding claims.
This is the latest fallout from the financial failure of Riverstone Capital, the Southern California-based firm that had provided health insurance for about 700 of the city’s roughly 1,200 employees since 2017. (The other employees have city insurance through Kaiser or have opted out of city coverage.)
Modesto has replaced Riverstone and its former insurance broker, Peter C. Foy & Associates, with other health insurance and broker services. The city also is considering its legal options against the two.
The City Council voted 6-0 to approve the spending (Councilman Mani Grewal did not take part because he is a board member of one of the medical facilities that is owed money), but not before Mayor Ted Brandvold had city staff lay out Modesto’s potential financial exposure and express his skepticism.
“I just think it would be a mistake for us as a council, as a city, to assume we are going to get those discounts,” the mayor said. “... We’ve got to be prepared for the worst case here, and we don’t really know what that worse case is either.”
The City Council also heard from a city employee who expressed shock Modesto would use S&S HealthCare to negotiate and settle claims. Riverstone started using S&S as its claims administrator nearly a year ago, and the employee recounted his and his family’s frustration in dealing with S&S, including the need to make repeated phone calls and claims not being processed, a frustration he said is shared by his co-workers.
“When I hear S&S HealthCare, I think incompetent,” water department employee Ron Strobel said. “In retrospect though, I kind of think they, maybe they were in some ways complicit with Riverstone in this whole mess because if nothing else they put off payments, which is what Riverstone needed because they did not have the money.”
Deputy City Manager Caluha Barnes acknowledged Brandvold’s concerns about the ultimate cost to the city.
“Will it be more than $2.6 (million)? I expect it will,” Barnes said. “Will it be $8.3 (million)? I don’t think it will be. ... I think it’s in our best interest to give it a shot at getting the claims settled for less than 100 percent.”
City Manager Joe Lopez said if more money is needed then staff will come back to the council to discuss how to do that. He acknowledged that could be painful. “We might be in a position to have to make tough decisions,” he said, “but at this point in time we have to start trying to negotiate these claims down.”
Councilman Bill Zoslocki said there can be a huge difference between what health-care providers charge and their true costs, giving an example of a $30 charge for aspirin for a hospital patient.
“They marked it up so ... we’re hiring a company to go in and beat them down a little bit and get down to a real number that they really need to have,” he said. “That’s not easy, but at the same time if we don’t try, we are paying $8 million.”
Zoslocki also pointed to the opinion of the independent fiduciary appointed by the court to oversee Riverstone that the unpaid claims are the responsibility of the 119 employers, including Modesto, that used Riverstone to provide health insurance for their employees.
Modesto also is under a timeline. The fiduciary has a proposed liquidation plan in which claims need to be resolved by mid-July.
City officials said S&S HealthCare is independent of Riverstone, has immediate access to the unpaid claims, and has an incentive to succeed. S&S only gets paid if it settles a claim for less than its full amount. It will receive 20 percent of the amount it saves Modesto.
S&S Chief Financial Officer Brian Krause said in a Wednesday phone interview that he could not address the concerns of the Modesto employees without knowing the specifics. But he said S&S trains and monitors its call center employees.
“We don’t have these problems with our other customers,” Krause said. “We’ve had these problems with Riverstone” because they were slow or didn’t pay claims.
Krause said S&S pressured Riverstone to provide more money to pay claims but said Riverstone stonewalled S&S. He said Riverstone kept saying it was just about to line up additional financing, which never came through.
City officials have said medical providers do have incentives to settle, including getting paid now for claims that are many months old. And the independent fiduciary estimates there is about $36 million in unpaid claims among Riverstone’s former customers but only about $3.5 million in Riverstone assets to pay them, according to court records.
“I think there is definitely an opportunity to settle the claims for less than full cost,” Krause said.
City officials said they will monitor S&S and expect city employees’ problems to be resolved as claims get settled. Some city employees also have faced collection notices, and the city is looking at issuing a letter to credit bureaus explaining the Riverstone mess.
Strobel, the city water department employee, while speaking respectfully, added that he and his co-workers have little confidence that the city will reach a good resolution. He also said the city, and in particular human resources, has not been good in keeping employees informed.
Several council members apologized and encouraged city workers to contact them if necessary. Council members also praised staff members for their hard work in dealing with a problem council members said caught the city off guard.
The U.S. Department of Labor filed a lawsuit against Riverstone on Feb. 1, alleging the firm had set low premiums to attract clients and charged excessive fees. The Labor Department announced March 22 that it had obtained a consent decree that “significantly resolves” the lawsuit.
But Modesto was scrambling before the Labor Department complaint after it became aware Riverstone was not paying claims and it requested in January an 87 percent increase in premiums.