Lawsuit Exposes Insurance Industry’s Best Kept Secret


“Blue Cross’s accountants and actuaries determined what expenses Blue Cross wanted to recoup through the Disputed (Hidden) Fees, and then determined how much the hospital claims charged to the customers had to be falsely marked up in order to reach that amount.”

PPO’s tout deep discounts and “significant savings” through their managed care provider contracts. To prove it they send out EOB’s to plan participants showing enormous billed charges, non-allowed charges (The Discount) and the remaining balance. The question many plan sponsors have had over the years revolves around what is exactly in these secretive PPO contracts and are all the “discounts” passed on to the consumer”

The following is an excerpt from a recent lawsuit, Hi-Lex vs BCBS which details an alleged scheme to defraud plan sponsors and plan participants by inflating hospital bills, applying false “discounts” and pocketing fees cloaked as claim dollars:

Exerpt from Hi-Lex vs Blue Cross:

This case involves fees (“Disputed Fees”) that Defendant-Appellant Blue Cross Blue Shield of Michigan allocated to itself as additional compensation for its administration of an ERISA health plan sponsored and administered by Plaintiff-Appellee Hi-Lex Controls Incorporated. RE 246,

Hi-Lex alleges that Blue Cross acted fraudulently by falsely stating that the Disputed Fees were charges for medical services to be paid to hospitals. In fact, Blue Cross pocketed a portion of these payments as fees to itself, not hospitals, from assets of the plan that it controlled without authorization from Hi-Lex.

As the third-party administrator of Hi-Lex’s self-insured health plan (the “Plan”) since at least 1991, Blue Cross was responsible for processing and paying employee health claims and negotiating with hospitals and health care providers.

Hi-Lex entered into Administrative Service Contracts with Blue Cross, renewing the contracts each year. I Under the contracts, HiLex paid Blue Cross a monthly per-capita administrative fee, and Blue Cross agreed to pay covered health care claims on behalf of Hi-Lex out of a Blue Cross controlled account to which Hi-Lex deposited money for this purpose. Hi-Lex sent money via weekly wire transfer, including both employee and employer contributions, to the Blue Cross bank account, with the amount based on estimates that Blue Cross provided Hi-Lex each quarter.

Blue Cross used that money to pay the plan’s claims and its own fees. Blue Cross quarterly reconciled the amounts it paid for claims; if Hi-Lex’s wire transfers failed to cover the quarter’s obligations, Blue Cross adjusted the estimate upward for the next quarter.

Blue Cross began charging various surcharges and subsidies as add-ons (“Add-On Fees”) to the bills of its self-funded customers such as Hi-Lex. Over 200,000 employee members left Blue Cross in 1989, and many other customers refused to pay the Add-On Fees.

In 1993, Blue Cross replaced the disclosed Add-On Fees with the undisclosed Disputed Fees. Unlike the Add-On Fees, which were transparent on the bills to customers like Hi-Lex, these administrative fees were concealed in marked-up hospital claims and “no longer visible” to its customers because they falsely appeared to be money owed to hospitals.

Blue Cross’s accountants and actuaries determined what expenses Blue Cross wanted to recoup through the Disputed Fees, and then determined how much the hospital claims charged to the customers had to be falsely marked up in order to reach that amount.

Blue Cross told customers that with the new pricing arrangement, the fixed administrative fee would decrease, but deliberately omitted the Disputed Fees from the statement of the total administrative fees to be paid, making it seem to customers that they were paying less in fees than they in fact paid. Instead, the amount of Disputed Fees added to the facility or hospital charges were misleadingly included in the “Total Claims Expense” which were reported as such in monthly, quarterly, and annual claims reports to Hi-Lex.

Blue Cross misrepresented to Hi-Lex that Hi-Lex’s funds were only being used to pay actual claims, disclosed administrative fees, and stop-loss premiums. In the annual renewals, Blue Cross stated that its “Administrative Fee is all-inclusive,” omitting the fact that Blue Cross also secretly retained the Disputed Fees from assets of the plan as another form of administrative compensation.

Hi-Lex filed suit against Blue Cross in June 2011, alleging self-dealing and breach of fiduciary duty in (a) charging hidden fees, (b) failing to disclose hidden fees, and (c) making false or intentionally misleading statements concerning the fees, including fraudulently concealing them.

See Complete Pleadings Here:

Additional Reading:

Court Case Shows How Health Insurers Rip Off you And Your Employer