United States District Court, E.D. Michigan, Northern Division
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
L. LUDINGTON United States District Judge
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.
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.
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.
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.
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. 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).
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.
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.
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,
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.
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.
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.
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.
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.
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.
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.
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.
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
• 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).
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.
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
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
2007 Email, ECF No. 82, Ex. 24.
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.
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.
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.
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 ...