Guest Author Eric Nemeth: U.S. Supreme Court says $6 million fraud judgment against Blue Cross Blue Shield will stand
BCBSM changes self-funded customers hidden fees starting in 1994
Before 1994, BCBSM charged its self-funded customers various surcharges and subsidies to prop up its insured lines of business, but those surcharges and subsidies were disclosed on the bill. Over time, BCBSM’s self-funded customers started objecting to those charges and some refused to pay them altogether. According to an internal BCBSM memo, BCBSM had become “its own worst enemy” because the unpopular subsidies and surcharges were “highlighted for all to see”.
BCBSM’s solution was to stop including the surcharges and subsidies as billed items and instead collect revenue by marking up hospital claims costs. In other words, if an actual hospital claim was for $1000, BCBSM would bill the customer a higher amount, say $1,100, and retain the additional $100 for itself. According to the memo, “changes to these costs will be inherent in the system and no longer visible to the customer”.
Varnum files lawsuits alleging this practice violated federal law
Varnum has represented more than 50 self-funded companies again BCBSM for violating federal law (ERISA) by charging the hidden fees (often described as “provider network” or “access” fees). The first of these cases, Hi-lex vs. BCBSM, went to trial in April 2013 and resulted in a judgment in favor of the plaintiff for the full amount of hidden fees wrongly taken by BCBSM, plus interest and attorney fees.
In her ruling, Judge Victoria A. Roberts held that BCBSM violated ERISA by devising a secret plan to obtain additional compensation without its customers knowing about it. According to the District Court, BCBSM’s secret charging of fees, in amounts determined solely by it, violated ERISA’s prohibition against self-dealing. The Court also concluded that BCBSM “violated its fiduciary duty … to disclose information to the Plaintiffs about its compensation …” Accordingly, BCBSM was ordered to the repay all of the hidden fees taken.
Varnum successfully defeats appeals
On May 14, 2014, the Court of Appeals affirmed the District Court, holding that BCBSM was an ERISA fiduciary and that it violated ERISA by charging the hidden fees. The Court found that “BCBSM committed fraud by knowingly misrepresenting and omitting information about the Dispute Fees in contract documents” and “engaged in a course of conduct designed to conceal evidence of [its] alleged wrongdoing.” According to the Court, BCBSM’s misrepresentation “helped sustain the illusion that BCBSM was more cost-competitive than other [third-party administrators] …” The United States Supreme Court refused to review that ruling in an order issued on October 20, 2014.
Does your company have a claim?
Varnum has detailed information about this practice and can help any former or current self-funded customer of BCBSM determine whether it has a claim and, if so, its potential amount. Even if a company no longer uses BCBSM as its claims administrator, it may still have a claim if it used BCBSM at some point since 1994. BCBSM contends that hidden access fees cases are subject to a statute of limitation; so waiting to investigate your company’s situation could prejudice its legal rights.
For more information, contact:
Perrin Rynders at 616-336-6734
Aaron Phelps at 616-336-6257