In DeLuca v. Blue Cross Blue Shield Of Michigan, No. 08-1085 (6th Cir. 2010), the defendant, Blue Cross Blue Shield of Michigan (“BCBSM”) was a fiduciary of a self-funded health care plan (the “Plan”), which was maintained by Flagstar Bank for its employees and their families. BCBSM is a non-profit health care corporation. It offers three forms of health-care coverage: a traditional open-access plan (a “traditional plan”), a preferred provider (PPO) plan, and a health maintenance organization (HMO). For each of these plans, BCBSM negotiates rates of health care service with Michigan health-care providers, such as doctors and hospitals. BCBSM could be the insurer of an insured plan, or the administrator of a self-insured plan.
In January 1996, Flagstar Bank entered into a contract with BCBSM, under which BCBSM agreed to provide claims-processing and other administrative functions for the Plan-presumably a traditional plan-in return for a fee. Prior to 2004, in general, the rates of health care service paid by BCBSM’s traditional and PPO plans were lower than the rates of health care service paid by BCBSM’s HMO plans. Beginning around 2004, in an effort to increase the HMO’s competitiveness and to simplify pricing structures, BCBSM negotiated a series of letters of understanding with various hospitals that altered its existing rate agreements, so as to equalize the rates for health care services paid by the HMO plans with those paid by the PPO plans. BCBSM agreed to make the rate adjustments budget-neutral for the health-care providers by increasing the PPO and traditional plan rates to make up for the decrease in the HMO rates. The plaintiff, a Plan beneficiary through his wife’s employment with Flagstar and her own participation in the Plan, filed this suit in 2006 under ERISA. He claimed that BCBSM violated its fiduciary duties to the Plan, by agreeing to increase its traditional and PPO plan rates in exchange for decreases in the HMO rates, therefore increasing the Plan’s costs of obtaining health care services.
However, the Court found that BCBSM did not violate its fiduciary duties to the Plan , because it was not acting as a fiduciary when negotiating the rate changes at issue. Those negotiations were not directly associated with the Plan-the employee benefits plan at issue here- but were generally applicable to a broad range of health-care consumers. This conduct does not constitute “management” or “administration”‘ of the Plan, and relates to business concerns that merely affects the Plan among other consumers. Since BCBSM was not acting as a fiduciary of the Plan when engaging in the rate negotiations, the Court ruled that the plaintiff’s claim against BCBSM fails.