The Health Plan Scam


November 19, 2014

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On October 20, Blue Cross Blue Shield of Michigan lost in the U.S. Supreme Court. The justices dismissed their case without review. The charges of fraud, as well as the court-ordered $6 million penalty, are now a matter of record.

Blue Cross is guilty of “self-dealing,” or looking after its own self-interests.

Blue Cross stole money for years. Since 1993, it inflated hospital bills and charged hidden administrative fees to Michigan-based Hi-Lex Controls Inc.  Hi-Lex is not the only one. At least 50 other lawsuits have been filed.

Hi-Lex Controls is a self-insured auto parts dealer. Thus, it uses its cash to pay medical bills of 1,300 employees. It signed a third-party administrative services contract (ASC) with Blue Cross, which gave Hi-Lex employees access to the Blue Cross network of doctors and hospitals and required Blue Cross to process employee medical claims with Hi-Lex dollars. For these services, Blue Cross received a per employee/per month “administrative fee.”

But BCBSM wanted more. As the 6th Circuit Court ruling notes:

In 1993, BCBSM implemented a new system whereby it would retain additional revenue by adding markups to hospital claims paid by its ASC clients. These fees were charged in addition to the “administrative fee” that BCBSM collected for Hi-Lex under a separate portion of the [contract].

Thus, regardless of the amount BCBSM was required to pay a hospital for a given service, it reported a higher amount that was then paid by the self-insured client. The difference between the amount billed to the client and the amount paid to the hospital was retained by BCBSM. This new system was termed “Retention Reallocation.”

Blue Cross added four hidden fees, called “Disputed Fees” in the lawsuit. The fees were so hidden that Blue Cross staff didn’t know, according to the court ruling:

BCBSM’s own account manager, Sandy Hams…testified that she did not understand anything about the Disputed Fees, including their existence.

Are States being scammed? Likely. States pay health plans in bulk for administering Medicaid. As Hi-Lex did, they typically pay a set amount to the Health Plan per Medicaid enrollee per month no matter how much care is or is not given. Like employers, states have no idea what the charges actually are or where taxpayer dollars are going.

Zero accountability is profitable. Health plans hide costs, payments, prices, and care provided. Last year, Minnesota’s health plans testified against having their government contracts made public. The legislature gave them a one-year pass. This session, we will work to make sure their taxpayer-funded contracts become public.

In 2001, I wrote, “Blame Congress for HMOs” regarding the HMO Act of 1973. Obamacare further empowers health plans to control dollars and limit care by outlawing traditional indemnity insurance and sending 98% of all new spending into health plan coffers through the government exchanges. Yesterday, The New York Times finally reported on the cozy Government-HealthPlan partnership solidified in Obamacare.

The health plan scam can be stopped. Doctors and hospitals should refuse signing health plan contracts that turn them into corporate cash cows. States should stop using health plans and return to fee-for-service payments. Congress should repeal the HMO Act and Obamacare. And Americans should return to cash, catastrophic coverage and charity.

Stopping the health plan scam,

Twila Brase

President and Co-founder