In May 2014, the 6th US Circuit Court of Appeals affirmed the district court’s grant of summary judgment, in the case of Hi-Lex Controls, Inc. vs. Blue Cross Blue Shield of Michigan (BCBSM), and awarded over $6 Million to Hi-Lex Controls, Inc. In affirming this, the court:
According to the court’s opinion, under BCBSM’s original Administrative Services Contract (ASC) with their client, BCBSM agreed to process healthcare claims for Hi-Lex’s employees and grant those employees access to BCBSM’s provider networks. In 1993, BCBSM implemented a new system whereby it would retain additional revenue by adding certain mark-ups to hospital claims paid by its clients. These new fees were charged in addition to the “administrative fee” that BCBSM collected from Hi-Lex under a separate portion of the ASC. 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. BCBSM retained the difference between the amount billed to the client and the amount paid to the hospital through a new system known as “Retention Reallocation.”
Hi-Lex Controls Inc. asserted that it was unaware of the existence of the Disputed Fees until BCBSM disclosed it in 2011 [18 years later].
BCBSM was charging Hi-Lex Controls Inc., twice for access to its provider network. First through the “administrative fee” as set forth in the ASC and again through the “Retention Reallocation” system.
Could you also be overpaying your vendor?
The BCBSM and other cases demonstrate that clients need to be diligent in monitoring their vendor relationships to ensure greater transparency and accountability, especially in the reporting of fees being charged. A good vendor management program not only addresses this imperative, but can also achieve significant cost savings by holding vendors accountable to their original agreements.