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Saginaw Chippewa Indian Tribe of Michigan v. Blue Cross Blue Shield of Michigan

United States District Court, E.D. Michigan, Northern Division

July 14, 2017

SAGINAW CHIPPEWA INDIAN TRIBE OF MICHIGAN, el al., Plaintiffs,
v.
BLUE CROSS BLUE SHIELD OF MICHIGAN, Defendant.

          OPINION AND ORDER GRANTING IN PART DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT, GRANTING IN PART PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING AS MOOT MOTIONS IN LIMINE

          THOMAS L. LUDINGTON United States District Judge

         On January 29, 2016, Plaintiffs Saginaw Chippewa Indian Tribe of Michigan and the Welfare Benefit Plan (“Plaintiffs” or “the Tribe”) brought suit against Blue Cross Blue Shield of Michigan (“BCBSM”). Plaintiffs' suit takes issue with BCBSM's management of Plaintiffs' “self-insured employee benefit Plan.” Am. Compl. at 1, ECF No. 7. The Counts which remain involve allegations that BCBSM charged Plaintiffs hidden fees. See ECF No. 22. On April 10, 2017, the parties filed cross motions for partial summary judgment on the remaining Counts. See ECF No. 79, 81. The motions frame two issues: whether both of the Tribe's two benefit plans are subject to the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001(b), et seq., and whether the fees collected for BCBSM's Physician Group Incentive Program (“PGIP”) violated BCBSM's fiduciary duties. For the reasons stated below, both motions for partial summary judgment will be granted in part.

         The Tribe “is a federally recognized Indian tribe, pursuant to 25 U.S.C. [§] 1300k, with its Tribal Government headquarters in Mt. Pleasant, Michigan.” Am. Compl. ¶ 3, ECF No. 7. BCBSM is a large health insurance provider. BCBSM has provided insurance for the Tribe since the 1990s. Sprague Decl. at 2, ECF No. 81, Ex. 12.

         A.

         This action is one of many that has been brought against BCBSM alleging that BCBSM breached its fiduciary duty by charging its clients “hidden fees.” In Hi-Lex Controls Inc. et. al v. BCBSM, 2013 WL 2285453, No. 11-12557 (E.D. Mich. May 23, 2013), Plaintiff Hi-Lex Inc. brought suit on a “hidden fees” theory. After a bench trial, Judge Roberts entered judgment for Hi-Lex. In the findings of fact, Judge Roberts explained that, to regain financial stability, BCBSM started charging various fees to self-funded customers in the early 1990s. After receiving extensive complaints from customers, the fees were replaced with a “‘hidden' administrative fee buried in marked-up hospital claims.” Id. at 8. These charges were invisible to the consumer and were never disclosed. BCBSM had “complete discretion to determine the amount of the Disputed Fees, as well as which of its customers paid them.” Id. at 11. As a result of the hidden nature of the fees, the savings from using BCBSM as an administrator appeared greater to customers than they truly were. Judge Roberts found that BCBSM was an ERISA fiduciary and that BCBSM violated its fiduciary duties through fraudulent concealment and self-dealing. On appeal, Judge Robert's decision was affirmed. Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, 751 F.3d 740 (6th Cir. 2014).The Hi-Lex decision has been treated as conclusively establishing BCBSM's liability as an ERISA fiduciary for charging the hidden fees.

         B.

         The Tribe has two separate health insurance group policies associated with BCBSM. In the 1990s, the Tribe purchased a comprehensive health care benefits plan from BCBSM for its employees. Sprague Decl. at 2. This arrangement was fully-insured, meaning the Tribe paid a premium to BCBSM for coverage and BCBSM in return had sole responsibility for paying claims from the plan's participants. That Group was identified as Group No. 52885. Id. When first created, Group No. 52885 was limited to Tribal employees, and the members of the group included individuals who were not members of the Tribe. Id.

         In 2002, the Tribe decided to provide health insurance coverage for all members of the Tribe. Sprague Decl. at 2. Rather than purchasing a fully-insured plan, like the plan for Tribe employees, the Tribe chose a self-funded plan. This meant that instead of paying insurance to BCBSM in return for coverage, the Tribe directly paid the cost of health care benefits and paid BCBSM a fee for administering the program.[1] To initiate the program, the Tribe and BCBSM entered into an Administrative Services Contract (“ASC”). See Employee Plan Sch. A, ECF No. 81, Ex. 16. The ASC identified the group for tribal members as Group No. 61672. BCBSM asserts that, during the timeframe in question, the Member Plan contained between 91% and 95% non-employee members. See Anal. Mem. Plan Part., ECF No. 91, Ex. 2 (finding that the number of non-employee members in the member plan ranged from 1858 to 2152 and the number of employee member participants ranged from 100 to 218).

         In 2004, the Tribe's contract with BCBSM for the fully-insured employee plan expired. Sprague Decl. at 3. Instead of renewing the fully-insured plan, the Tribe opted to convert the Employee Plan to a self-funded arrangement by signing an ASC. Id. The group continued to be identified as Group No. 52885. See Member Plan Sch. A, ECF No. 79, Ex. 6.

         Both the Employee Plan and the Member Plan have existed during the entire timeframe in question. Besides having different group numbers, both plans were assigned different BCBSM customer numbers. See Plan Profiles, ECF Nos. 79, Ex. 11, 12. The two plans were created by different ASCs, have their own Enrollment and Coverage Agreements, and issue separate Quarterly and Annual Settlements. See Member Plan Enrollment Agreement, ECF No. 79, Ex. 15; Employee Plan Enrollment Agreement, ECF No. 79, Ex. 16; Sample Quarterly and Annual Settlements, ECF No. 79, Ex. 17-20. The Tribe purchased different levels of stop-loss insurance for each plan. See Employee Plan Sch. A at 3 & Member Plan Sch. A at 3. Both plans had different eligibility requirements, benefits, co-pays, and deductibles. See Sprague Dep. at 12, 17- 18, ECF No. 79, Ex. 4; Rangi Dep. at 118-19, ECF No. 79, Ex. 13; Pelcher Dep. at 11, ECF No. 79, Ex. 14. The two plans were negotiated, reviewed, and renewed separately by the Tribe. See Sprague Dep. at 19, 86, 151, Luke Dep. at 114, ECF No. 79, Ex. 4, Harvey Dep. at 105, ECF No. 79, Ex. 10.

         The two groups are also funded from different sources. The Member Plan was originally funded by the Tribe's Government Trust and is currently funded by the Gaming Trust. Reger Dep. at 11, ECF No. 79, Ex. 21. When in use, the Government Trust funded all government programs aimed at tribal members and was financed by revenues from the Tribe's casino. Id. at 12. The Gaming Trust is also “generated from the revenue from the resort.” Id. at 16. As explained by a tribe employer, “[i]t's the cash excess of flow in regards to depreciation.” Id. Interest on that money is used, among other things, to pay for the Member Plan expenses. Id. The Employee Plan, by contrast, is funded by the Fringe Trust, which is used for employee expenses. Id. at 9, 17.[2] The two plans are funded from different trusts expressly because one is for employees of the Tribe and the other is for members of the Tribe. Id. at 17.

         Despite these differences between the plans, both the Tribe and BCBSM treated the plans identically in a number of ways. Both groups were primarily administered for the Tribe by the same person: Connie Sprague. Sprague Dep. at 9. Sprague treated the two plans as one for most administrative purposes. See Id. at 12-16, 151. When the Tribe sought bids for medical coverage, it solicited bids for the two groups simultaneously. Id. at 42-43. BCBSM's account representatives and managers always conducted meetings with the Tribe and executed documents regarding the groups at the same time. Cronkright Dep. at 26-27, 55-57, ECF No. 81, Ex. 13; Luke Dep. at 43-44; Harvey Dep. at 94. Cameron Cronkright, BCBSM's account representative for the Tribe, testified that he never remembered a meeting where only one of the plans was discussed. Cronkright Dep. at 57-58.

         It is undisputed that, like in the multitude of other similar cases that have been brought against BCBSM, the company included hidden administrative fees in its charges to the Tribe. BCBSM agrees that, between 2004 and 2012, the Tribe paid approximately $13 million in hidden administrative fees: $5, 035, 145 for Group 61672 and $8, 426, 278 for Group 52885. Def. Am. Resp. Inter. at 4, ECF No. 81, Ex. 5.

         B.

         The Tribe also argues that BCBSM breached its fiduciary duty through its operation of the Physician Group Incentive Program (PGIP). BCBSM negotiates reimbursement arrangements with healthcare providers, thus creating a “network” of providers. As a large-scale purchaser of health-care coverage, BCBSM has leverage to negotiate favorable rates with providers. See DeLuca v. Blue Cross Blue Shield of Michigan, 628 F.3d 743, 747 (6th Cir. 2010). BCBSM customers that purchase self-funded plans are thus purchasing, among other things, the right to access the network of reimbursement arrangements that BCBSM has negotiated. Physician reimbursement arrangements are governed by the Participating Provider Agreement, which contains a Fee Schedule. Simmer 30(b)(6) Dep. at 49, ECF No. 79, Ex. 23.

         BCBSM reviews the fees that in-network physicians receive every year and issues a fee update to the Fee Schedule. Id. at 14-15. The fee update process starts with “analyzing information relevant to the decision as to how much that update should be.” Id. at 16. Factors assessed include the market rate for physician payments, inflation, and performance. Id. Historically, the fee update applied to all physicians equally. But, in the years prior to 2005, BCBSM began receiving significant customer feedback challenging the “across-the-board fee increases to providers [that were] not delivering as much value to customers as they needed.” Id. at 13-14. BCBSM's solution, in 2005, was to create PGIP.

         As BCBSM describes PGIP, the program was meant to create performance incentives for physicians. Rather than applying the fee update across the board, PGIP diverted a portion of the money collected via the fee update into a separate fund. Id. at 18. That fund was then distributed to participating providers based on their performance in meeting certain objectives and benchmarks promulgated by BCBSM. See PGIP Manual 2007 at 2, ECF No. 79, Ex. 33. Initiatives which BCBSM and participating providers have collaborated on include: increasing use of less-expensive generic drugs, reducing unnecessary use of radiology services, improving communication with and access for patients, and more. See Id. at App. A, i-ii. Providers who opt into the program receive a participation reward “intended to support infrastructure development and catalyze system transformation” as the provider seeks to implement certain PGIP initiatives. Id. at 13. They are also eligible to receive a “performance reward” which rewards success for “achieving measurable goals.” Id. at 14. Payment distributions typically occur several times per year. Id. at 15.

         According to BCBSM's employees and records, PGIP is funded through a portion of the yearly fee update. Simmer 30(b)(6) Dep. at 15-16. When first initiated, .5% of the funds collected as a result of the yearly fee update were allocated to the PGIP pool. Over the years, that percentage has grown. Today, 5% of the fee update is allocated for PGIP. Id. Essentially, this means providers who do not receive PGIP payments receive a lower fee schedule update than providers who receive PGIP rewards for effective and efficient healthcare. BCBSM asserts that neither the manner in which the fee update is calculated nor the approximate level of the yearly fee increase has changed since PGIP's advent. Id. at 16. Thus, PGIP, as explained by BCBSM, does not represent an increase in the fees paid by BCBSM customers to providers (other than the yearly fee update which BCBSM customers have always been subject to). Rather, PGIP simply involves a performance-based reallocation of existing provider payments.

         BCBSM pays all the money collected for PGIP to participating providers; no money is retained by BCBSM for administrative purposes. Id. at 22. See also Julian Decl., ECF No. 79, Ex. 32. “Payment for performance” programs, like PGIP, have received praise by public policy analysts. See Barnes Article, ECF No. 79, Ex. 29. And PGIP has been singled out as a successful and effective initiative. See J. Healthcare Mgmt. Art., ECF No. 79, Ex. 36. Successful PGIP programs typically produce generalized savings and efficiencies that cannot be easily calculated. Simmer Dep. at 26, ECF No. 79, Ex. 37. But estimates have placed the customer savings realized solely from the PGIP generic prescription drug initiative at over $800 million. Id. See also PGIP 2007 Manual at 4.

         When PGIP was first created, BCBSM circulated a letter internally discussing the newly implemented program. See Jan. 3, 2005, Letter, ECF No. 81, Ex. 26. The letter explained that another letter would be sent to self-funded customers describing PGIP. The internal letter described the program's operation and discussed how it was being funded. BCBSM explained that “[a] small portion (0.5%) of the 2004 physician fee update will be used to fund the pilot program. BCBSM will direct that 0.5 percent of the update to a fund which will be used to pay the incentive.” Id. at 2. The letter further provided an example of the funding process:

• Services rendered - Approved amount with fee update is $100[;] - Approved amount with the added incentive is $100.50.
• Provider will be paid $100 . 50 cents will be put in the incentive pool
• Member copay and EOB will only show the $100.

Id. (formatting changed slightly for clarity).

         The letter explained that the process would be streamlined in the future by automatically setting aside the incentive amount. Id. But for 2005, the incentive amount would be taken out of the annual professional claims costs of the customer, not directly through payments to the providers. Id. BCBSM explains that this workaround was necessary because, in 2005, the BCBSM claims system was not yet capable of automatically processing the PGIP allocation. Nieman 30(b)(6) Dep. at 30, ECF No. 81, Ex. 28. Thus, for 2005 only, the PGIP incentive payments were collected at the end of the year from customers, instead of automatically during the year. Id. at 30, 32, 34.[3]

         In their motion for summary judgment, Plaintiffs make much of the following email sent by Cindy Garofali, a Senior Underwriter for BCBSM, in response to a question regarding whether self-funded customers were required to pay the PGIP incentive fee:

PGIP is an amount for physician incentive added into the amount due on the claim and as such should be charged to the group. These monies are pooled and are ultimately paid out only to those providers who participate in the program and meet certain requirements. Thus the PGIP amount on an individual claim would not be included in the amount paid to the provider (just like ASC access fee on the Local side is not part of the amount paid to the provider, but is still the group's liability).

         Garofali 2007 Email, ECF No. 82, Ex. 24.

         Plaintiffs did not depose Ms. Garofali or otherwise investigate the claims in her email. Ms. Garofali has submitted a declaration asserting that her job duties never included working on or with PGIP. Garofali Dep. at 2, ECF No. 91, Ex. 38. She denies that she is an authority of PGIP or even that she has personal knowledge of its operation. Id.

         II.

         Both parties have moved for summary judgment. A motion for summary judgment should be granted if the “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party has the initial burden of identifying where to look in the record for evidence “which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the opposing party who must set out specific facts showing “a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (citation omitted). The Court must view the evidence and draw all reasonable inferences in favor of the non-movant and determine “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 251-52.

         III.

         The motions for summary judgment primarily contest two issues: whether the Tribe's two plans are governed by ERISA and whether BCBSM's PGIP program violates BCBSM's fiduciary duty to the Tribe. The issues will be addressed in turn, beginning with the threshold question of whether ERISA is applicable to the healthcare plans at issue.

         A.

         If BCBSM is an ERISA fiduciary for the Tribe, then BCBSM's liability for the hidden fees is uncontested. But BCBSM argues that the Member Plan, unlike the Employee Plan, is not covered by ERISA. For its part, the Tribe argues that the Employee Plan and Member Plan are simply two benefit groups within a single ERISA plan. The question of whether the Employee Plan and Member Plan should be construed as a single plan is a ...


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