Su v. BCBSM, Inc.

Background

BCBSM, Inc. administered approximately 370 self-funded employee health plans in Minnesota. It provided access to a provider network, negotiated provider rates, and administered employee claims. When BCBSM approved a claim, it paid the provider from its own funds, and the plan later reimbursed BCBSM.

Minnesota imposes a tax on providers’ gross revenues from patient services. BCBSM agreed to reimburse network providers for their MinnesotaCare tax liabilities and included those amounts in payments or reimbursement charges to the plans. The Secretary of Labor alleged that the plans did not agree to pay those tax reimbursements and that BCBSM, rather than the plans, was responsible for the obligations. She sought recovery of nearly $67 million allegedly billed to the plans from 2016 through 2020 and an injunction against resuming the practice.

BCBSM moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), arguing that the Secretary lacked standing, and under Rule 12(b)(6), arguing that the Secretary failed to state a claim. The court reviewed the complaint’s factual allegations as true for purposes of the motion to dismiss.

Standing

The court held that the Secretary plausibly alleged standing at the pleading stage. She alleged that BCBSM charged the plans nearly $67 million for MinnesotaCare tax liabilities that the plans neither owed nor agreed to pay. The court found that this alleged monetary injury was concrete, caused by BCBSM’s billing practices, and potentially redressable through damages.

The court rejected BCBSM’s argument that the alleged injury was too speculative because providers might have negotiated higher base rates if tax reimbursements had not been separately identified. Whether the plans would ultimately have paid the same total amount was a factual question that could not be resolved on the pleadings.

Fiduciary status

The court concluded that the Secretary plausibly alleged that BCBSM was a functional fiduciary under the Employee Retirement Income Security Act (ERISA). BCBSM was a named fiduciary only for specified functions involving claims decisions, not for deciding the amount paid to providers or whether to include MinnesotaCare tax reimbursements.

The court also found that BCBSM plausibly exercised authority or control over plan assets. Although BCBSM initially used its own funds and then obtained reimbursement from the plans, the court reasoned that BCBSM’s unilateral decision to make the payments automatically encumbered plan funds. The court therefore treated the alleged authority to require reimbursement as potentially equivalent, for ERISA purposes, to directly spending plan assets.

The court did not find that BCBSM exercised discretionary authority over plan management merely by negotiating provider rates. It nevertheless held that the allegations plausibly supported fiduciary status based on BCBSM’s authority or control over the plans’ funds.

Alleged breaches and prohibited transactions

ERISA requires fiduciaries to act for the exclusive purpose of providing benefits to participants and beneficiaries and paying reasonable plan-administration expenses. The Secretary alleged that using plan assets to pay MinnesotaCare taxes that the plans did not owe did not benefit the plans or their participants. The court found that the complaint plausibly alleged a breach of fiduciary duties.

The court also found a plausible prohibited-transaction claim. ERISA prohibits a fiduciary from using plan assets for its own interests or for the benefit of a party whose interests are adverse to the plan. The Secretary alleged that BCBSM agreed to cover providers’ MinnesotaCare tax liabilities and then used plan funds to reimburse itself for those payments. Whether the plans were legally or contractually liable for the taxes remained a factual issue.

Remedies

The court declined to rule at the pleading stage that damages or restitution were unavailable. The possibility that the plans might have paid the same total amount through higher negotiated service rates presented a factual dispute. The court also declined to hold that injunctive relief was unavailable because the record did not establish whether BCBSM had stopped the challenged practice or might resume it.

Disposition

The court denied BCBSM’s Motion to Dismiss [Docket No. 9]. The ruling allowed the Secretary’s action to proceed; it did not determine whether BCBSM ultimately violated ERISA or whether the Secretary will recover the requested relief.