Sixth Circuit upholds decision finding that Blue Cross Blue Shield violated federal law by charging improper administrative fee

Hi-Lex Controls, Inc., sued Blue Cross Blue Shield of Michigan, arguing that the insurer defrauded it by charging a misleading and exorbitant administrative fee for managing health care costs.  BCBS was contracted to manage Hi-Lex's self-insured ERISA health care plan (as a "third-party adminstrator") and in 1993, BCBS began adding a mark-up to provider billings, charging the higher amount to Hi-Lex, and keeping the difference.  BCBS called this "Retention Reallocation," and when Hi-Lex learned of the practice it sued and recovered a judgment in excess of $5 million dollars for breach of BCBS's fiduciary duty.

Blue Cross appealed. It argued that the claims should be time-barred and that it was not really guilty of "self-dealing" as the TPA.  The Sixth Circuit affirmed the lower court, pointing out that Hi-Lex did not learn of the character of the disputed fees until 2007.  It also rejected the Blue Cross claim that the action should be time-barred because if the company had acted with "due diligence" it would have discovered the Blues' misconduct earlier.  Since the forms filed by BCBS, purporting to show actual administrative fees witheld, were false, BCBS could not reasonably argue that Hi-Lex should have discovered BCBS's inappropriate fees earlier.

The Court noted that since Hi-Lex did not sue within three years of discovering the existence of the "disputed fees," the 2011 legal action must still be barred if there was no evidence of fraud or concealment.  Addressing this issue, the Sixth Circuit judges ruled that based on the evidence, "BCBSM committed fraud by knowingly mis-representing and omitting information about the Disputed Fees in contract documents."  It also "engaged in a course of conduct designed to conceal evidence of [its] alleged wrong-doing." Its Form 5500s were simply false and it attempted to cover-up its mis-deeds when rumors of hidden fees became the subject of gossip.  For all these reasons, the higher court affirmed the judgment of the lower court.