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U.S. Supreme Court Refuses to Review $6 Million Fraud Judgment Against Blue Cross Blue Shield of Michigan (BCBSM); Other Cases May Now Move Forward

The U.S. Supreme Court announced Monday that it will not review a $6 million judgment against Michigan's largest health insurer, Blue Cross Blue Shield of Michigan, in the case of Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan. The decision concludes three years of litigation over the legality of Blue Cross's hidden fees. The Hi-Lex matter is the first of nearly fifty cases filed by Varnum over the fraudulent fees. With the nation's highest court refusing to review the case, all appeals are exhausted and the way is now clear for the remaining cases to move forward.

The ruling confirms last year's judgment by a federal court in Detroit, which found that BCBSM collected millions of dollars in hidden fees over a nearly 20-year period from the  employee health plan for Hi-Lex Controls, Inc. and Hi-Lex America, Inc. Attorneys representing Hi-Lex showed that BCBSM marked up employee hospital claims by as much as 22 percent and kept the markup. Reports provided to Hi-Lex did not disclose the hidden fees. Internal company e-mails showed that BCBSM's managers knew customers were unaware of the markups, and that employees were trained to "downplay" the hidden fees if any customers discovered them.

Blue Cross had previously appealed the judgment to the U.S. Court of Appeals for the Sixth Circuit in Cincinnati.  But a three-judge panel of the federal appeals court affirmed the result earlier this year, explaining that "BCBSM committed fraud by knowingly misrepresenting and omitting information about the Disputed Fees in contract documents."  Its misleading information "helped sustain the illusion that BCBSM was more cost-competitive" than its competitors.

"On behalf of our client, we are very pleased that the Supreme Court denied review and essentially agreed with the four other federal judges who reviewed this case," said Varnum attorney Perrin Rynders, whose team has battled the issue for more than three years. "Now that all appeals have been exhausted, other clients who have been awaiting the outcome can move forward with confidence. We are thankful the matter is concluded, but not surprised that BCBSM pursued it to this degree. The initial award was steep and awards from the pending cases are likely to be significant."

Rynders noted that the ultimate result is a win for more than just those clients who have filed suit. BCBSM apparently discontinued its practice of rolling fees and surcharges into "hospital claims" for its self-insured clients in 2012, shortly after Varnum filed its first group of lawsuits.

Rynders, Aaron Phelps, and Stephen MacGuidwin handled the original three-week trial in federal court in May 2013, the appeal in March 2014, and the Supreme Court proceedings in September of this year.  The U.S. Supreme Court issued its decision on October 20, 2014.

The original judgment was issued in May 2013 by U.S. District Court Judge Victoria A. Roberts. It concluded that BCBSM violated the Employee Retirement Income Security Act (ERISA) through its practice of collecting additional compensation without customers' knowledge. The Court held that BCBSM engaged in illegal self-dealing and breached its fiduciary duties under ERISA.

Judge Roberts entered judgment in favor of Hi-Lex for $6.1 million, including a return of all hidden fees taken from Hi-Lex since 1994 plus interest. The Hi-Lex case was the first to reach judgment in over 50 similar cases pending in the Eastern District of Michigan.

© 2020 Varnum LLPNational Law Review, Volume IV, Number 294


About this Author

Perrin Rynders, Varnum, litigation attorney

Perrin Rynders has successfully prosecuted and defended a wide variety of business and commercial disputes, ERISA cases, employment cases, product liability and personal injury cases, health care fraud and tax matters. He has conducted more than three dozen jury and bench trials in federal and state courts around the country, as well as contested matters before administrative tribunals and arbitrators, and has resolved disputes as a facilitative mediator.

Aaron M. Phelps, Varnum, litigation attorney

For over 15 years, Aaron's practice has been focused on complex commercial and environmental litigation - in Michigan and around the country. Aaron has represented clients in contract and corporate governance disputes, telecommunications and energy matters, health care litigation, and tort actions.

Over the last five years, Aaron has represented over 200 companies in lawsuits against Blue Cross Blue Shield of Michigan for ERISA violations. The first trial resulted in a $6 million judgment, and subsequent judgments ranged from $315,000 to over $8 million. Currently, Aaron represents Rockford area residents in lawsuits against Wolverine Worldwide related to massive groundwater contamination.

Aaron also has a strong background in the environmental area, having represented clients in a variety of matters, including air permit disputes, civil enforcement proceedings, and contested case hearings. Aaron has prosecuted appeals of permit denials and successfully challenged MDEQ rules as unconstitutional.