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Grand Traverse Band of Ottawa v. Blue Cross Blue Shield of Michigan

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

July 21, 2017

Grand Traverse Band of Ottawa and Chippewa Indians and its Employee Welfare Plan, Plaintiffs,
v.
Blue Cross Blue Shield of Michigan, Defendant/Third-Party Plaintiff,
v.
Munson Medical Center, Third-Party Defendant.

          Mona K. Majzoub Mag. Judge

          OPINION AND ORDER GRANTING DEFENDANT'S MOTION TO DISMISS [94]

          JUDITH E. LEVY UNITED STATES DISTRICT JUDGE

         This ERISA case has been pending for over three years, and is currently before the Court on defendant Blue Cross Blue Shield of Michigan's motion to dismiss the amended complaint filed by plaintiffs Grand Traverse Band of Ottawa and Chippewa Indians and its Employee Welfare Plan. (Dkt. 94.)

         For the reasons set forth below, the motion is granted.

         I. Background

         Plaintiffs are a federally-recognized tribe and have filed suit against Blue Cross Blue Shield of Michigan (“BCBSM”) for breach of fiduciary duty under ERISA and have also brought five state-law claims allegedly relating to a contract between the tribe, BCBSM, and Munson Medical Center.

         Plaintiffs' initial complaint was partially dismissed without prejudice to amend and clarify which actions of defendant are the subject of ERISA claims and which are the subject of state-law claims. (See Dkts. 73, 76.)[1]

         ERISA Agreement Between Plaintiffs and BCBSM

         Plaintiffs maintain a self-funded employee welfare plan (“Plan”) governed by the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001 et seq. (Dkt. 90 at 1.) The Plan covers three groups of participants:

1. Members of the Tribe who are employed by the Tribe (Group #01019);
2. Members of the Tribe who are not employed by the Tribe (Group #01020); and
3. Employees of the Tribe who are not members of the Tribe (Group #48571).

         In 2000, plaintiffs hired BCBSM to “provide administrative services for the processing and payment of claims” under the plan. (Dkt. 90-2 at 3.)

         In 2007, new federal regulations implementing section 506 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 went into effect (hereinafter “MLR regulations”). These regulations stated that “[a]ll Medicare-participating hospitals . . .must accept no more than the rates of payment under the methodology described in this section as payment in full for all terms and services authorized by IHS, Tribal, and urban Indian organization entities.” 42 C.F.R. § 136.30(a); see also Id. § 136.32. And “if an amount has been negotiated with the hospital or its agent, ” the tribe “will pay the lesser of” the amount determined by the methodology or the negotiated amount. Id. § 136.30(f). None of the parties disputes that these regulations apply to plaintiffs.

         Plaintiffs allege that defendant was “well aware of the MLR regulations” and “systematically failed to take advantage of MLR discounts available to Plaintiffs.” (Dkt. 90 at 3.) And “[a]s administrator of an ERISA plan, BCBSM owed a number of fiduciary duties” to plaintiff that were breached due to this failure to take advantage of the MLR discounts. (Id. at 2, 4-5, 18.) Plaintiffs seek restitution, statutory attorney fees, and other damages, costs, and interest permitted by law. (Id. at 23.)

         Facility Claims Processing Agreement with Plaintiffs, BCBSM, and Munson Medical Center

         After the 2007 MLR regulations went into effect, plaintiffs allege they “asked BCBSM to ensure that Plaintiffs were obtaining MedicareLike Rate discounts” for Groups #01019 and 01020. (Dkt. 90 at 14.) BCBSM said “it could not adjust its entire system to calculate MLR on those claims eligible for MLR discounts, but . . . could provide GTB a rate which . . . would be ‘close to that which would be payable under the New Regulations' by providing a discount on Plaintiffs' claims for hospital services at Munson Medical Center” to Group #01020. (Id. at 15.)

         “In reliance on this representation, ” plaintiffs and BCBSM entered into a Facility Claims Processing Agreement (“FCPA”) with Munson Medical Center, effective March 1, 2009. (Dkt. 90 at 6; Dkt. 90-4.) The recitals to the FCPA indicate the purpose of the agreement was to facilitate the following: (1) “Munson desires to afford GTB most of the pricing benefits under the New Regulations”; and (2) “BCBSM is willing to accommodate the desire of both Munson and GTB by processing claims . . . at a price they believe is close to that which would be payable under the New Regulations.” (Dkt. 90-4 at 2.) This agreement applies only to Group #01020, members of the Tribe who are not employed by the Tribe. (Id.) Under the terms of the FCPA, Munson Medical Center agreed to accept as payment in full the discounted rate set by defendant. (Dkt. 90 at 6; Dkt. 90-4 at 3.)

         The initial discount rate was eight percent, and defendant was to recalculate the rate each year in accordance with the formula set forth in the FCPA. (Dkt. 90-4 at 3.) Specifically, defendant was required to first calculate two ratios: (i) ratio of all BCBSM PPO payments to all BCBSM PPO charges for Munson claims for the prior calendar year, and (ii) ratio of all payments to all charges for all Medicare claims that Munson reported on its Medicare cost report for its prior calendar year. The new discount for the upcoming year would be the percentage difference between (i) and (ii), if positive. (Id.) The FCPA also states that the “arrangement . . . does not require BCBSM to process Munson Claims as if they were, in all other respects, actual Medicare Claims, ” and “GTB [plaintiff] acknowledges that this arrangement described in this Agreement is satisfactory to it and is in lieu of any claim that the New Regulations apply to any Claims and that Munson and BCBSM are relying on this representation by GTB.” (Id. at 4.)

         Plaintiffs claim that, in 2012, they “decided to . . . obtain a comparison of the costs of going with a different third-party administrator, ” and after an audit, discovered they were “not paying anything ‘close to MLR' on claims.” (Dkt. 90 at 16.)

         Because plaintiffs were allegedly not receiving the promised discount that would make their payments “close to MLR, ” they filed suit alleging five state-law claims: breach of Health Care False Claims Act; breach of contract, and alternatively, covenant of good faith and fair dealing; breach of common law fiduciary duty; fraud/misrepresentation; and silent fraud. (Dkt. 90 at 22.)

         II. ...


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