Main Menu

Federal Appeals Court Upholds $6.1 Million Fraud Judgment Against Blue Cross Blue Shield of Michigan

May 15, 2014

The U.S. Court of Appeals for the Sixth Circuit has affirmed a $6.1 million fraud judgment against Blue Cross Blue Shield of Michigan in their appeal on hidden fees litigation from Hi-Lex Controls, Inc. The Appeals Court agreed 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.

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 20-year period from Hi-Lex Controls, Inc. and Hi-Lex America, Inc., along with their self-insured employee health plan. Varnum 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 Blue Cross 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.

"We are very happy that the judgment was affirmed," said Varnum attorney Perrin Rynders, whose team has battled the issue for more than three years. "It's been a long time coming, but we never doubted that this would be the ultimate outcome. We applaud our client who had the courage to stand up for what's right and persevere through this lengthy legal process. Litigation was not our client's preferred approach, but BCBSM refused at every turn to accept responsibility for its actions."

The Hi-Lex matter was the first to reach judgment out of more than 35 similar ERISA cases that Varnum has filed against BCBSM on behalf of companies and their self-insured health plans.

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.

"Employers work hard to manage their health care costs. It is upsetting that an organization trusted to help keep costs in line would violate that trust and take advantage of its customers," Rynders said.  "The cases we are handling are good for companies and workers all across Michigan, because more money will be available for vital health care."

Rynders and Aaron Phelps handled the original three-week trial in federal court in May 2013 as well as the appeal in March this year.  The Sixth Circuit Court of Appeals issued its decision on May 14, 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 35 similar cases pending in the Eastern District of Michigan, filed by Varnum on behalf of other self-insured companies and their health care plans using BCBSM.

Back to Page
{ footer Image }