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Varnum Recoups Millions in Hidden Access Fees for Clients

BCBSM Litigation Update
May 4, 2015

Varnum has prosecuted over 60 claims against Blue Cross Blue Shield of Michigan to recoup millions in hidden fees charged to many of its self-funded customers. Our team of five lawyers and additional support staff has brought over 95% of all federal claims filed to recover these illegal fees, and every one of those claims has been successfully resolved or is still pending.

Varnum's Access Fee Recovery Program can help any former or current self-funded customer of BCBSM determine whether it has a claim and, if so, its potential amount. Even if a company no longer uses BCBSM as its claims administrator, it may still have a claim if it used BCBSM at some point since 1994. BCBSM contends that hidden access fee cases are subject to a statute of limitations; so waiting to investigate your company’s situation could prejudice its legal rights. Varnum handles these cases on a contingent fee basis so the company pays no fees unless we are successful.

BCBSM Charges Self-funded Customers Hidden Fees Starting in 1994
Before 1994, BCBSM charged its self-funded customers various surcharges and subsidies to prop up its insured lines of business, but those surcharges and subsidies were disclosed on the bill. Over time, BCBSM’s self-funded customers started objecting to those charges and some refused to pay them all together. According to an internal BCBSM memo, BCBSM had become “its own worst enemy” because the unpopular subsidies and surcharges were “highlighted for all to see.”

BCBSM’s solution was to stop including the surcharges and subsidies as billed items, and instead collect revenue by marking up hospital claims costs. In other words, if an actual hospital claim was for $1,000, BCBSM would bill the customer a higher amount, say $1,100, and retain the additional $100 for itself. According to the memo, “changes to these costs will be inherent in the system and no longer visible to the customer.”

Files Lawsuits Alleging This Practice Violated Federal Law
Varnum has represented more than 60 self-funded companies against BCBSM for violating law (ERISA) by charging the hidden fees (often described as “provider network” or “access” fees). The first of these cases, Hi-lex v. BCBSM, went to trial in April 2013 and resulted in a judgment in favor of the plaintiff for the full amount of hidden fees wrongfully taken by BCBSM, plus interest and attorneys’ fees.

In her ruling, Judge Victoria A. Roberts held that BCBSM violated ERISA by devising a secret plan to obtain additional compensation without its customers knowing about it. According to the District Court, BCBSM’s secret charging of fees, in amounts determined solely by it, violated ERISA’s prohibition against self-dealing. The Court also concluded that BCBSM “violated its fiduciary duty … to disclose information to the Plaintiffs about its compensation….” Accordingly, BCBSM was ordered to repay all of the hidden fees taken.

Varnum Successfully Defends Appeals
On May 14, 2014, the Court of Appeals affirmed the District Court, holding that BCBSM was an ERISA fiduciary and that it violated ERISA by charging the hidden fees. The Court found that “BCBSM committed fraud by knowingly misrepresenting and omitting information about the Dispute Fees in contract documents” and “engaged in a course of conduct designed to conceal evidence of [its] alleged wrongdoing.” According to the Court, BCBSM’s misrepresentations “helped sustain the illusion that BCBSM was more cost-competitive than other [third-party administrators]….” The United States Supreme Court refused to review that ruling in an order issued on October 20, 2014.

For more information, or to determine if your company has a claim, please contact Aaron Phelps, Perrin Rynders, or your Varnum attorney.

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