A Chicago federal appellate court has stripped class-action status from a suit, which alleges Blue Cross Blue Shield affiliates overcharged beneficiaries, then passed the profits back to Blue Cross, saying a Springfield federal judge overlooked “glaring problems” when allowing the suit to proceed as a class action.
The ruling was delivered Aug. 31 by Chief Judge Diane Wood, of the U.S. Seventh Circuit Court of Appeals, with concurrence from Seventh Circuit Judge Diane Sykes and Judge Sharon Coleman, of the U.S. District for Northern Illinois, who sat in with the court of appeals.
The ruling upended the decision by 88-year-old Judge Richard Mills, of U.S. District Court for Central Illinois in Springfield, that gave class-action status to a 2014 suit brought by a group of plaintiffs against Chicago-based Health Care Service Corporation (HCSC). The company sells and administers Blue Cross Blue Shield insurance plans in Illinois, Texas, Montana, Oklahoma and New Mexico. HCSC is one of the largest health insurance carriers in the country.
Plaintiffs consisted of Blue Cross plan owners and plan participants and their beneficiaries, who alleged HCSC violated the U.S. Employee Retirement Income Security Act (ERISA) and Illinois law.
According to plaintiffs, HCSC contracts with affiliates to take care of prescription drug services, claim payments and other administrative work. These affiliates overcharge beneficiaries then return the proceeds to HCSC via rebates, plaintiffs alleged. As a consequence, HCSC allegedly breached its fiduciary duty to plan owners and participants through these excessive charges.
Plaintiffs asked Judge Mills to allow the suit to proceed as a class action, potentially including about 10 million people. HCSC objected, but Mills granted the request. HCSC then appealed.
Mills’ decision left Judge Wood scratching her head, observing Mills overlooked “glaring problems” in plaintiffs’ request, and did not explain his ruling.
“The failure to provide a reasoned explanation on a string of important points compels reversal. Explanations are necessary; complex certification decisions cannot be made by judicial fiat,” Wood said.
Plaintiffs’ push for class-action status rested in part on the contention HCSC was uniformly obliged to safeguard class members’ financial interests, concerning the insurance, as required by ERISA. Wood pointed out ERISA only protects plans run by employers or employee organizations. In this light, HCSC would not have a fiduciary duty for class members who secured their insurance directly from HCSC.
As another example, Wood noted HCSC has no duty to those class members for whom it merely administers health benefits, but does not insure.
Wood was particularly puzzled by Mills’ inclusion of members who, as Mills wrote, “obtained health care coverage from a benefit plan underwritten, administered, or otherwise provided by Defendant, HCSC, but not subject to ERISA.”
According to Wood, ERISA recognizes a party might be acting in a fiduciary capacity at some points and in an ordinary capacity at other points, allowing a fiduciary to have “financial interests adverse to beneficiaries” provided the fiduciary “wears the fiduciary hat when making fiduciary decisions.”
Wood determined the question was not whether HCSC acted to its beneficiaries’ detriment, but whether it did so while “wearing a fiduciary hat.” A decision may be fiduciary in nature for HCSC’s directly insured customers, while not so if the company’s only connection to a class member is that it administered their benefits, Wood said.
Plaintiffs have been represented by: DeBofsky & Associates, and Cray, Huber, Horstman, Heil & Vanausdal, both Chicago; Novoselsky Law Office, of Waukegan; and Londrigan, Potter & Randle, of Springfield.
Health Care Service Corporation has been defended by Kirkland & Ellis, of Chicago.