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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

April 26, 2019




         On January 29, 2016, Plaintiffs Saginaw Chippewa Indian Tribe of Michigan and the Welfare Benefit Plan (“Plaintiffs” or “the Tribe” or “SCIT”) brought suit against Blue Cross Blue Shield of Michigan (“BCBSM”). The next month, Plaintiffs filed an amended complaint. ECF No. 7. Plaintiffs' allegations arose from BCBSM's administration of group health plans for employees of the Tribe and members of the Tribe. Plaintiffs alleged that BCBSM was charging hidden fees, overstating the cost of medical services, and failing to apply Medicare Like Rates (“MLR”) for medical services performed. See generally ECF No. 7.

         On April 25, 2016, BCBSM filed a motion to dismiss Plaintiffs' first amended complaint. ECF No. 14. The Court granted the motion and dismissed all counts except those allegations within Counts I and II claiming that BCBSM utilized hidden access fees. ECF No. 22. The Court concluded that because the MLR was a responsibility imposed by law extrinsic to the text of ERISA, BCBSM's failure to charge MLR was not a violation of its fiduciary duty under ERISA. Id.

         On April 10, 2017, Plaintiffs and BCBSM each filed separate motions for partial summary judgment. ECF No. 79, 81. The Court granted both motions in part, finding that two plans existed: a Member Plan and an Employee Plan. ECF No. 112. Counts I and II were dismissed to the extent they alleged claims related to payment of hidden access fees for the Member Plan or the Physicians Group Incentive Program. Id. at 32. Counts I and II were granted in favor of Plaintiffs to the extent they alleged claims related to payment of hidden access fees for the Employee Plan. Id.

         Plaintiffs appealed the order to the Sixth Circuit. ECF No. 114. The Sixth Circuit affirmed the Court's judgment with the exception of the dismissal of Plaintiffs' MLR claims. The Sixth Circuit found that

[T]he Tribe does not assert that the MLR regulations impose an additional duty on fiduciaries beyond what ERISA itself requires. Instead, the Tribe bases its claim on the text of ERISA itself, which requires fiduciaries to act prudently and solely in the interest of the plan's participants and beneficiaries. See 29 U.S.C. § 1104(a)(1). The Tribe alleges that BCBSM violated these duties by paying more than necessary for the Tribe's medical claims by failing to take advantage of the MLR regulations. That is enough to state a claim under ERISA.
BCBSM presents an alternative reason for affirming the district court's dismissal, arguing that its administration of the Tribe's plan simply is not subject to the MLR regulations. These regulations, BCBSM contends, apply only to the expenditure of IHS funds and do not limit the payment that hospitals must accept from a third-party payor, such as BCBSM, which is not expending IHS funds. Although BCBSM asserts that the Tribe's MLR claim therefore fails as a matter of law, BCBSM's argument is better understood as contending that the Tribe cannot show, as a factual matter, that the regulations apply to its ERISA plan. But since the Tribe has alleged that the BCBSM was aware of the MLR regulations, that BCBSM failed to ensure that the Tribe paid no more than MLR for MLR-eligible services, and that all other conditions precedent to the MLR claim were met, the Tribe has sufficiently pleaded that the MLR regulations are applicable to BCBSM's administration of the Tribe's ERISA plan. We emphasize that we express no opinion on the ultimate merits of the Tribe's MLR claim, and we hold only that it would be premature to dismiss the Tribe's claim at this stage of the proceedings.

         ECF No. 135 at 14-13 (emphasis in original).

         On January 4, 2019, a stipulated order was filed reinstating Counts I, IV, and VI of Plaintiffs' Amended Complaint “insofar as those Counts assert[ed] claims related to MedicareLike Rates (‘MLR').” ECF No. 141. Specifically, Plaintiffs acknowledge that the federal law requiring MLR intended to regulate “Medicare-participating hospitals” in order to benefit “Tribe[s] or Tribal organization[s] carrying out a CHS program of the IHS.” ECF No. 7 at 29. Plaintiffs imply, but do not allege, that “Medicare-participating hospitals” charged Plaintiffs' groups more than MLRs and that BCBSM did not enforce the MLR pricing requirement imposed on the hospitals.

         Count I alleges that BCBSM was a fiduciary pursuant to ERISA because “it exercised discretionary authority and control over management” of the Employee Plan and its assets as well as responsibility over its administration. ECF No. 7 at 31 (citations omitted). Plaintiffs contend that BCBSM breached its fiduciary duty by “[p]aying excess claim amounts to Medicare-participating hospitals for services authorized by a tribe or tribal organization carrying out a CHS program.” Id. at 30.

         Count IV alleges that Plaintiffs are “health care insurers” as defined by the Michigan Health Care False Claims Act (“HCFCA”). Id. at 35. Plaintiffs contend that BCBSM violated this act by not applying the MLR discount rate for medical services received by Plaintiffs under the Member Plan. Id. Plaintiffs reason that BCBSM's presentation of the illegal claim for services by the Medicare-participating hospital also constitutes BCBSM's presentation of a false claim.

         Count VI alleges that BCBSM was in a fiduciary relationship with Plaintiffs as defined by common law. Id. at 38. Plaintiffs contend that BCBSM violated its fiduciary duty by charging rates in excess of MLR. Plaintiffs reason that doing so was not in the best interest of Plaintiffs under the Member Plan. Id. at 38-39.


         BCBSM has now filed a motion to dismiss Plaintiffs' Amended Complaint. ECF No. 142. It contends that Count I should be dismissed because the statute of limitations for a claim of breach of fiduciary duty under ERISA is six years. Id. at 1-2. BCBSM asserts that any alleged fiduciary duty would have arisen on the date the MLR regulations were enacted, July 5, 2007. It reasons that the claims under Count I (which it does not identify factually) are time-barred because Plaintiffs did not file their complaint until 2016. BCBSM next argues that Count IV should be dismissed because Plaintiffs are not health care insurers as defined by the Michigan Health Care False Claims Act. Id. at 2. It also contends that BCBSM did not “present or cause to be presented” any claims regulated by the HCFCA. Id. It further argues that holding BCBSM liable would be contrary to the intent of the HCFCA because “the Legislature enacted the HCFCA to protect BCBSM (a health care corporation) from unscrupulous providers, not to impose liability upon BCBSM.” Id. at 14 (emphasis in original). Lastly, BCBSM argues that Count VI should be dismissed because the Parties' Administrative Services Contract expressly authorized BCBSM to charge Plaintiffs health care rates “in accordance with BCBSM's standard operating procedures” and does not address MLR. Id. at 2-3.

         To address the Tribe's MLR claim and BCBSM's immediate motion requires a more focused review of “…the ultimate merits of the Tribe's MLR claim.” Saginaw Chippewa Indian Tribe of Mich. v. Blue Cross Blue Shield of Mich., 748 Fed.Appx. 12, 22 (6th Cir. 2018). An overview of the Federal Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and Michigan's Health Care False Claims Act is also necessary.


         The Tribe “is a federally recognized Indian tribe, pursuant to 25 U.S.C. [§] 1300k, with its Tribal Government headquarters located 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.



         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 who are not all members of the Tribe and the other is solely 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.

         Each plan is memorialized in its own ASC. The ASCs are nearly identical. The ASCs explain the Parties' general responsibilities and provide:

BCBSM shall administer Enrollees' health care Coverage(s) in accordance with BCBSM's standard operating procedures for comparable coverage(s) offered under a BCBSM underwritten program, any operating manual provided to the Group, and this Contract. In the event of any conflict between this Contract and such standard operating procedures, this Contract controls.
The responsibilities of BCBSM pursuant to this Contract are limited to providing administrative services for the processing and payment of claims. BCBSM shall have no responsibility for: the failure of the Group to meet its financial obligations: to advise Enrollees of the benefits provided; and to advise Enrollees that Coverage has been terminated for any reason, including the failure to make any payments when due.
If the Group's health care program is subject to the Employee Retirement Income Security Act of 1974 (ERISA), it is understood and agreed that BCBSM is neither the Plan Administrator, the Plan Sponsor, nor a named fiduciary of the Group's health care program under ERISA. The provisions of this paragraph, however, shall not release BCBSM from any other responsibilities it may have under ERISA.

         Administrative Services Contract at 2-3, ECF No. 79-2, 79-3.

The ASCs also address resolution of the disputes between the Parties.
The Group will, within sixty (60) days of receipt of a claims listing, notify BCBSM in writing with appropriate documentation of any Disputed Claim(s) and will, upon request, execute any documents required for collection of amounts that third parties owe. BCBSM will investigate and within a reasonable time, respond to such Claim(s).

         Additionally, BCBSM will,

1. following the recovery of an amount from a third party, due to Worker's Compensation or other provider/program/party responsibility or
2. following BCBSM's determination that any other disputed amount is not the Group's liability or that an amount shown on a claims listing and invoice is incorrect,
credit the recovered or corrected amount, reduced by any Stop Loss payments relating to such Claim(s) or any amounts currently overdue, on a subsequent monthly invoice.
BCBSM, as administrator under this Contract, is subrogated to all rights of the Group/Enrollees relating to Disputed Claim(s) but is not obligated to institute or become involved in any litigation concerning such Claim(s).

Id. at 3-4.

         The ASCs also contain a section entitled “Group Audits” which granted the Tribe the option to conduct an audit once every twelve months of the expenses charged by BCBSM. Id. The ASCs specifically state that “[b]oth parties acknowledge that claims with incurred dates over two (2) years old may be more costly to retrieve and that it may not be possible to recover overpayments for these claims.” Id. It later states that “BCBSM shall have no obligation to make any payments to the Group unless there has been a recovery from the provider, Enrollee, or third-party carrier as applicable.” Id.



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