A recent appeals court ruling held that Blue Cross Blue Shield of Michigan, in its capacity as a third-party administrator (“BCBSM”), may be acting as a plan fiduciary when it engages in administrative practices that involve an exercise of discretion over plan assets. In Tiara Yachts v. Blue Cross Blue Shield of Michigan, the Sixth Circuit ruled that the plaintiff could plausibly allege that BCBSM acted as a fiduciary to a self-insured health plan in the context of allegations that BCBSM caused the plan to overpay provider claims and then received a percentage of amounts recouped from the same providers under a savings program.
Under the Employee Retirement Income Security Act (“ERISA”), a “fiduciary” is broadly defined to include any person who exercises discretionary authority or control over the management or disposition of plan assets. A fiduciary also includes any person who has discretionary authority or responsibility for plan administration or plan management. The test for whether an individual or entity is an ERISA fiduciary is a functional one, so a provider may be a fiduciary to the extent they are found in practice to exercise discretion over plan assets.
In Tiara Yachts, the plan sponsor alleged that BCBSM systematically overpaid out-of-state provider claims by paying the provider’s billed charges rather than the rate negotiated by the Blue Cross Blue Shield provider in that state, and then compensated itself through an internal bill review program. BCBSM then worked with third parties to recover provider overpayments and retained 30% of the recovered amount. The plan sponsor alleged that these practices constituted a fiduciary breach and prohibited self-dealing under ERISA. BCBSM argued that these policies were widely used among BCBSM clients and administered according to contractual terms agreed to by the plan sponsor and therefore were not discretionary actions.
The district court agreed with BCBSM, holding that the actions alleged to be fiduciary breaches were matters of contract, and did not give rise to claims under ERISA. The Sixth Circuit disagreed and held that a dispute arising from contractual terms may still give rise to claims for breach of fiduciary duties under ERISA, and BCBSM is not shielded from liability merely because its overall business practices affect many plans. In the court’s view, BCBSM’s ability to issue payments from plan assets, as well as controlling the location and timing of deposits and payments, provided a basis to conclude that it acted as a fiduciary, and the alleged waste of assets and BCBSM’s ability to receive additional compensation for the recovery of overpayments it caused through its bill review program could rise to the level of a breach of fiduciary duty. Reviewing the plan’s potential claims for relief under ERISA, the court also held that, in addition to relief for a fiduciary breach under Section 502(a)(2), the plan also could seek equitable relief under Section 502(a)(3), at least with respect to amounts clawed back from overpaid providers, since those amounts are traceable and within BCBSM’s control.
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