Monthly Archives: August 2014

The Case of the Hidden Fees

In self-funded plans under ERISA, corporations pay health care benefits themselves and, in addition often contract with a health insurer to administer the plan.  The health care insurer operates as a third-party administrator, or TPA, and is paid a fee for these administrative services.

In the case of Hi-Lex Controls, Inc. v. Blue Cross Blue Shield, 751 F.3d 740 (6th Cir. 2014), all was well and good until Blue Cross Blue Shield of Michigan (BCBSM) got greedy.  It was already receiving its administrative fee on a contractual per-employee-per-month basis.  Apparently, that wasn’t good enough.  BCBSM started to add mark ups to hospital claims, and it invented a remarkable phrase to capture the difference between the higher amount it billed to its self-funded client and the lower amount it paid to the hospital: “Retention Reallocation.”

BCBSM took these mark up fees from its self-funded client every year from 1993 until 2011 when it finally disclosed their existence for the first time.  Its client, to say the least, was not amused.  It sued BCBSM for breach of fiduciary duty and self-dealing – both violations of ERISA.  After a nine-day bench trial (there is no right to a jury trial under ERISA), the federal district court awarded more than $5 million to Hi-Lex Controls and an additional $900,000 in prejudgment interest.

But was BCBSM a fiduciary to Hi-Lex Controls?  After all, the relationship arguably was contractual in nature and BCBSM could be said to have breached its contract by charging more than the contracted-for amount.

This is the issue that is almost always at the heart of litigation under ERISA and so it is worth talking about.  A breach of contract claim would normally be preempted, meaning that ERISA would apply and not state law.  So Hi-Lex Controls could not bring a breach of contract claim here.

Since ERISA governs, there could be a claim if there were a fiduciary relationship.  This, in turn, hinges on the exercise of discretionary control.  Hi-Lex Controls proved at trial that BCBSM sometimes waived the mark up fees for some clients, meaning it exercised discretion.  As a result (and there were other technical aspects I need not describe here) the appellate court held that BCBSM was a fiduciary.

ERISA requires a duty of loyalty on the part of fiduciaries, and bars self dealing.  Affirming the lower court’s trial decision in its entirety, the Sixth Circuit’s decision is instructive for the following reasons:

First, because the case arises under an employee benefits plan, the claims must be brought under ERISA, not state law.

Second, self-funded plans should be investigating how their TPAs are administering their plans in order to take effective action against miscreants.  One option is a regular audit of fees.  A thorough review of prior conduct before hiring a TPA is also a must.

Third, even after the critical discovery of the overcharge, it took a trial to establish the necessary findings of discretion (in the ultimate irony, BCBSM sometimes did not collect the hidden fees; if it always did arguably there would not be discretion) in order to prove that BCBSM was a fiduciary and therefore that its actions were in violation of ERISA.  Plans should be prepared to move forward in this way to protect their plan assets.


A Personal Remembrance of Robin Williams

It is fitting that a health care blog should take on the subject of Robin Williams’ suicide head on.  I was not aware, and I suspect most people were not aware until after his death, that Robin Williams suffered from depression of apparent long standing.  Depression is one of the last diseases that some people are still “ashamed” to have.  But clinical depression is just as organically based, that is, chemically and biologically based, as having an enlarged heart or an amputated right arm.  No one would think of keeping those conditions secret from friends and family.  But depression not only hurts. It is, needless to say, dangerous when untreated.  Maybe it’s time we understood the conduct of comics like Robin Williams and the behavior of many other people as the symptoms they may well have turned out to be – masking deep and fundamental emptiness.

I want to turn, though to a more positive personal remembrance of Robin Williams.  Many people shared their favorite Robin Williams movies.  My favorite movie of his was Awakenings, which came out in 1990.  Based on the book of the same name by one of my favorite authors, the neurologist Oliver Sacks (who later went on to write the bestseller The Man Who Mistook His Wife for a Hat) the movie was set in a Bronx hospital in 1969 where a group of patients were unable to make any voluntary movements at all.  They had been admitted as a result of the 1917-1928 encephalitis epidemic.  So there they sat, for decades, without effective treatment.  One such patient, who had apparently contracted encephalitis as a very young child, was played in the movie Robert De Niro. His mother faithfully visited her son every day.

Robin Williams played Dr. Malcom Sayer (Oliver Sacks) who realized that the absence of all voluntary movement was the result of Parkinson’s Disease – not the symptoms we’re used to seeing but Parkinson’s Disease so severe that it demonstrated that the encephalitis had likely destroyed all or a substantial portion of the neurons in the substantia nigra, the brain region where dopaminergic neurons are located. So he came up with the idea of treating his patients with L-Dopa, which had just been the subject of a 1969 article in the New England Journal of Medicine.  His patients “awoke” – thus the title of the movie.

Of course, all was not well forever.  In 1969 L-Dopa was not entirely understood. Because it is converted into dopamine not only in the central nervous system but within the peripheral nervous system it caused a host of adverse side effects (the movie featured dyskinesia) and dose resistance (what later became understood as dopamine dysregulation syndrome).

But as played by Robin Williams, Dr. Sayer was both humble in the face of victory over the hospital establishment that had initially doubted his patients could be treated, and deeply sympathetic to their individual spiritual needs when it became obvious that this treatment was not a cure after all.  They had their own unique physical and emotional needs when “awake”: to dance, to sing, to play an instrument (one of the patients was played by the famous jazz saxophonist Dexter Gordon), and to rebel and to educate in turn (De Niro’s character).  In the end, the rest of the hospital staff learn to treat the patients with equal compassion as they relapse.  Dr. Sayer continues to treat his patients who are all “frozen” and the mother of the patient played by De Niro (who never left his side) is there still, taking care of her boy.

Now, in the most tragic irony, we learn that Robin Williams had been diagnosed with Parkinson’s Disease himself and had kept it secret.  It may have been the catalyst for his suicide.  Maybe if Dr. Sayer had been at his side.

A “Manifesto”

This is my first blog for my firm, Axelrod & Dean LLP, and I thought it might make some sense to begin with what we will be trying to do here.  This is a healthcare litigation blog but I intend it to be different from the litigation blogs by healthcare law firms – at least that I’ve seen – and I read at least a dozen.

What strikes me most about these litigation blogs are two things: they seem to be aimed at lawyers, and they don’t seem to be all that interactive.

They all contain summaries of court opinions.  And that’s great.  But I’m a lawyer and frankly if an opinion is really important to me I’m not going to rely on someone else’s summary; I’m going to get the decision and read it myself.  But more importantly, if you’re not a lawyer – if you’re a doctor or head of a provider practice group or a hospital executive – I don’t think a lawyer summarizing some court opinion and leaving you to your own devices as to what it all means to your business is all that helpful to you.  What is more helpful in a blog is to get a timely understanding of how a court decision may impact your practice, and then hopefully review posts from others with similar issues.  Isn’t that what a blog is?

And that brings up the second issue I have: interactivity.  Some so-called blogs aren’t interactive at all, so readers can’t post responses and, of course, the blogger can’t interact.  A non-interactive blog is a book report.

So now that I’ve said what this blog isn’t, what is this blog specifically?

First, I intend to provide timely information about health care decisions and litigation strategy and most importantly describe how they may affect your practice.

Second, this blog is not some device simply to advertise my firm or its cases.

Third, I will encourage you to respond and I will reply.  The best outcome is for us to have a dialogue together.  You may disagree with me and, if you do I will learn from you.

Finally, on occasion and in true blog tradition, I may forgo describing cases every once in a while and just rant.

So, let us begin.