Government, Health Care, and Law

Law firm wins US Supreme Court ruling

October 21, 2014
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Law firm wins US Supreme Court ruling
The design of the U.S. Supreme Court in Washington, D.C. is based on the classic Roman temple. Photo via of the Capitol

The nation’s highest court has ruled in favor a local law firm’s client and announced that it will not review a $6.1-million fraud judgment against Michigan's largest health insurer for years of hidden fees.

The Varnum law firm in Grand Rapids said today that yesterday’s decision by the U.S. Supreme Court in the case — Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Michigan, or BCBSM — concludes three years of litigation over the legality of Blue Cross's hidden fees.

The Hi-Lex case was the first to reach judgment in more than 50 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.

Varnum said that 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.”

In response to the Supreme Court’s decision not to review the case, BCBSM spokesperson Helen Stojic said, “We are disappointed in the decision. The access fees in dispute enabled Hi-Lex to receive substantial discounts in hospital services, which resulted in millions of dollars of savings in hospital costs.”

The case

Hi-Lex Controls manufactures electromechanical devices and control cables for the automotive and recreational vehicle industries. Its North American operations are based in Rochester Hills.

Varnum brought the case against BCBSM, alleging the insurer had 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.

U.S. District Court Judge Victoria Roberts issued the original judgment in May 2013. It concluded that BCBSM violated the Employee Retirement Income Security Act, or 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 a 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 Varnum litigation team of Perrin 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 U.S. Supreme Court proceedings in September.

“Committed fraud”

Varnum said that its attorneys 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 emails showed that BCBSM's managers knew customers were unaware of the markups, and employees were trained to "downplay" the hidden fees if any customers discovered them, according to Varnum.

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.

Pending litigation

"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," Rynders said. "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.

He said 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.

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