Varnum Wins $5.1 Million Judgment Against Blue Cross Blue Shield Of Michigan For Hidden Fees

by Varnum LLP

Interest and Attorneys’ Fees Also Recoverable

BCBSM Charges Self-funded Customers Hidden Fees starting in 1994

Prior to 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 all together.  According to an internal BCBSM memo, BCBSM had become “its own worst enemy” because the 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 $1,000, 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 currently represents 25 self-funded companies that have brought suit against 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 v. BCBSM, went to trial on April 23, 2013 and resulted in judgment in favor of the plaintiff for the full amount of hidden fees wrongfully taken by BCBSM, plus interest and attorneys’ 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 repay all of the hidden fees taken – over $5 million.

The Court also Held that BCBSM Concealed its Wrongdoing

In addition to finding that the hidden fees were wrongful, the Court also held that BCBSM acted in bad faith by issuing false reports to the plaintiffs for more than a decade.  These reports, including monthly claims reports, quarterly and annual statements, and Form 5500 certifications, never disclosed that BCBSM was charging additional fees, and in fact, outright misrepresented that BCBSM was not charging additional fees.  According to the Court, “BCBSM knew these reports were false when it gave them to Plaintiffs, and gave them to Plaintiffs with the intent to deceive them.”  

Does Your Company Have a Claim?

Varnum has detailed information about this practice, which can help any self-funded customer of BCBSM determine whether it may have a claim and, if so, its potential amount.  BCBSM contends that hidden access fee cases are subject to a statute of limitations; waiting to investigate your company’s situation could prejudice its legal rights.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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