Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Mich. (Summary)

ERISA

Hi-Lex Controls, Inc. v. Blue Cross Blue Shield of Mich., Nos. 13-1773, 13-1859 (6th Cir. May 14, 2014)

The United States Court of Appeals for the Sixth Circuit affirmed a grant of summary judgment and award in favor of Hi-Lex Controls, Inc. (“Hi-Lex”) in its lawsuit against Blue Cross Blue Shield of Michigan (“Blue Cross”).  The Sixth Circuit held that Blue Cross had breached its fiduciary duty to Hi-Lex under the Employee Retirement Income Security Act of 1974 (“ERISA”) by falsely inflating hospital claims with hidden surcharges, an act constituting “self-dealing.”

This dispute arose out of an arrangement between Blue Cross and Hi-Lex in which Blue Cross served as third-party administrator for Hi-Lex’s self-funded Health and Welfare Benefit Plan.  Under the terms of their contract, Blue Cross agreed to process healthcare claims for Hi-Lex’s employees and to grant those employees access to its provider networks.  Hi-Lex paid monthly “administrative fees” to Blue Cross in exchange for these services.  Two years after entering this agreement, Blue Cross decided to increase its revenue by adding hidden surcharges to the hospital claims paid by clients.  In 2011 (18 years after implementing this billing method), Blue Cross disclosed the existence of the fees to Hi-Lex in a letter, describing them as “administrative compensation.”

Hi-Lex sued Blue Cross, alleging violations of ERISA.  The trial court, in a bench trial, awarded Hi-Lex over $6 million in damages and prejudgment interest.  Blue Cross appealed.  The Sixth Circuit affirmed the lower court’s judgment, concluding, among other things, that Blue Cross was a fiduciary for ERISA purposes because Blue Cross held plan assets of the Hi-Lex Plan and that Hi-Lex’s suit was not barred by the statute of limitations.