City will Pay Consulting Firm Another $660,000
Friday, May 11, 2012
The city of Providence will pay the global consulting company partially blamed for not helping the city secure a federal reimbursement another $660,000 over the next two years, including $155,000 annually simply so it can buy out of a 2009 agreement, according to the internal auditor.
Mercer, a company that first began working with the city in 2008 when it was the second lowest bidder for a healthcare consulting contract, was paid $30,000 to help the city apply for a $1.6 million payout through the Early Retirement Reimbursement Program (ERRP).
But after four applications were turned away by the government due to errors or invalid data, the city now sits more than 1000th on the waiting list and the majority of the $5 billion in available funds have dried up.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe program, which was included in the Affordable Care Act, helps governments, unions, schools and for-profit companies offset some of the costs associated with providing health coverage for retirees between the ages of 55 and 64. While Providence came up short, the towns of East Providence, Bristol, Portsmouth and Smithfield were among 17 Rhode Island recipients who received nearly $11.6 million from the program.
“We feel we did everything to the best of our ability,” Mercer principal Scott Pollack told members of the City Council finance committee last week.
No matter the final outcome of the reimbursement saga, Mercer is slated to be paid above and beyond the $175,000 it receives annually for its consulting services over the next several years thanks to a buyout of a 2009 agreement, according to internal auditor Matt Clarkin. That contract called for the company to be paid $1,016,980 for "Health and Welfare and Absence Management Administration Consulting Services.”
But last July, the Taveras administration agreed to pay the company an additional $155,000 per year between fiscal years 2012 and 2014 to sever the agreement and is now set to pay out $330,000 in both FY2013 and FY2014.
When all is said and done, Mercer will have made nearly $4 million over the course of its six years working with the city.
The Taveras administration refused to comment for this story.
Council Members Concerned
The company’s performance has several City Council members concerned about the amount the city is shelling out in consulting fees.
“There seems to be a consistent pattern that whatever work Mercer is supposed to provide the city of Providence to achieve savings in healthcare has not [come to fruition] and therefore maybe it’s time for the city to reevaluate the relationship,” Council finance committee chairman John Igliozzi said.
The city was counting on the $1.6 million to help cover the current year’s budget deficit. The Taveras administration has worked to close a $22 million hole by reaching payment in lieu of taxes agreements with Brown University, Lifespan and Johnson & Wales. The recently passed pension reform ordinance that freezes cost-of-living adjustments (COLAs) for retirees is also expected to close the bulk of the budget gap.
Still, the city needs to continue watching every penny it spends, according to Councilman David Salvatore. He said he is still looking into what Mercer is providing the city.
“In effect, considering what the city is going through, all revenue and expenditure areas are being looked at carefully,” Salvatore said. “As you’re aware, costs associated with—and surrounding health care—remain a concern not just for Providence and other municipalities, but all businesses. Right now I’m looking into what Providence is being provided through the Mercer arrangement along with searching for viable strategies to help mitigate overall expenses associated with Providence's healthcare; paying particular attention to preserving the plan’s integrity.”
Concerns over the status of the reimbursement were first raised by Clarkin in a memo sent to the Council in April. Councilman Sam Zurier, another member of the finance committee, said Mercer has more explaining to do.
“I share the internal auditor’s concerns, and we need to hear more than the explanation we have received to date,” Zurier said.
Not the Government’s Best Day
During the finance committee last week, Mercer representatives suggested flaws on the government side of the reimbursement program were to blame for the city not receiving its funds. Pollack described how various policies have been altered in the program that forced the city to end up needing five applications before it was finally approved for a reimbursement.
“This will not go down in annals of our federal government as its best shining day,” another representative told the finance committee. “It was a moving target all through the process.”
Dan McGowan can be reached at [email protected]
