Holland awarded nearly 16M in BCBSM suit

March 3, 2012
| By Pete Daly |
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The city of Holland was awarded $1,593,610 in damages Feb. 21 in the culmination of a suit it filed against Blue Cross Blue Shield of Michigan for charging hidden fees over a span of years — and other self-insured government and business entities have sued or are suing for the same reason.

Tim Vagle, director of finance for Holland, said Holland went to self-funded health insurance for its employees around 1991 and hired BCBSM to administer the plan and process claims. The suit revolved around what BCBSM called “access fees,” which it began charging in 1993 or 1994, after Holland city officials refused to agree to the fees.

Vagle said BCBSM began adding a percentage to hospital bills turned in by Holland employees and did not inform the city of that. At first it was about 6 percent, according to Vagle, but “the next year it went up to 10 percent, and a couple of years later it went all the way up to 18 percent, and we didn’t know this was happening.”

The point of contention in court was whether that was disclosed to the city or not, said Vagle.

“We’re disappointed in the decision because the city of Holland itself produced evidence that they were aware of the access fees,” said Helen Stojic, a spokesperson for BCBSM, in a written statement to the Business Journal. “As this lawsuit proceeds to appellate courts, we are confident that the legal process will result in finding that our hospital network access fees were known to our customers. Not only were these fees known, the city of Holland received substantial discounts in hospital services which resulted in millions of dollars in savings in hospital costs for Holland taxpayers.”

Vagle said Holland officials were aware that BCBSM had wanted to charge “access fees” over the years, but it didn’t think it was actually paying the fees. He said it wasn’t until he was talking to the city of Sterling Heights’ risk manager in September 2009 on an unrelated insurance issue when he learned that that city had been unknowingly paying access fees and subsequently took legal action. BCBSM settled with cash payments to Sterling Heights, plus a longer term agreement at a reduced cost, according to Vagle.

At the time, said Vagle, “we didn’t think that was true for us, but after we looked a little more carefully, we discovered that we had also been paying these fees unknowingly.”

Vagle learned in 2009 that there had been “a number of these cases across the state” involving BCBSM. Attorney Bill Horton of the Troy firm Giamarco, Mullins and Horton had represented some of those plaintiffs, said Vagle, so Holland hired that firm and filed suit in Ottawa County District Court in late 2010.

Vagle said the jury’s verdict in February showed they “agreed that we did not know, nor should we have known, that these fees were being charged.” He said Holland’s attorneys were able to prove, “and the jury agreed, there was something called ‘fraudulent concealment’ by the Blues.

“Therefore, the payment went all the way back to ’93 or ’94,” added Vagle.

He said that during the course of the trial, various exhibits were presented including internal memos sent within BCBSM, which “pretty much spelled out their strategy and how they would put the fees into these costs, and the fact that they wouldn’t disclose them. So I think that certainly played in the jury’s decision.”

Varnum Law, which was not involved in the Holland lawsuit, released a statement that it is “pursuing” Blue Cross Blue Shield of Michigan “to recover millions in hidden fees.” The firm says it has filed 10 federal court lawsuits against BCBSM on behalf of clients who used BCBSM to administer their self-insured health benefit programs. The suits collectively seek recovery of more than $10 million in “improper charges made by BCBSM,” according to Varnum.

In one of the first suits against BCBSM, filed by Oakland County, Horton entered as evidence an internal memo from BCBSM files, found in the discovery process, in which a BCBSM executive stated that adding a percentage to the actual hospital bills “will be inherent in the system and no longer visible to the customer.”

The Varnum statement claims that in many cases, the BCBSM network access fee “is nearly as much as the disclosed administrative fee, almost doubling the cost of the self-insured program.”

Aaron Phelps, an attorney at Varnum in Grand Rapids, said he is representing several clients in similar suits against BCBSM. He said he is aware of “four or five” other trials in which judgments were entered against BCBSM, “some of them well over $1 million dollars.”

Phelps said the litigation against BCBSM “has been going on for a few years now with what have come to be fairly predictable results.” He added that “at the end of the day, I think this memo is a key part of that.”

When asked about the other cases in addition to Holland, Stojic said BCBSM believes “there have been improvident decisions, and we have appealed those cases. No financial awards have been made as the matter moves through the courts.

“The fact of the matter is that a jury in another county (Calhoun) decided in our favor on an access fee case, although the plaintiff attorneys like to downplay it.”

Vagle said that “there have been cases where the jury did not rule in favor of local government” against BCBSM.

“In Holland’s case, we had very specific documentation from the early 1990s that was very useful,” he added. “What’s difficult in many of these situations is, there isn’t very much good documentation left. The Blues were unable to provide documentation, so all the documentation pretty much came from the city’s files.”

Vagle said Holland used BCBSM to administer its self-insurance in 2010, after the city learned about the access fee problem. But that year, BCBSM included other language in the contract that was clearer, so Holland did not ask for reimbursement for that year.

For 2011, the city went out to bid for an administrator and asked BCBSM to provide all the administrative costs in a “fully loaded proposal. We found out that they were quite a bit higher than Priority Health for the same service,” so the city hired Priority Health, said Vagle.

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