US v. Blue Cross and Blue Shield of Michigan

• Decision Date: 12 December 1989
• Docket Number: No. 89-CV-70756-DT.,89-CV-70756-DT.
• Citation: 726 F. Supp. 1517
• Parties: UNITED STATES of America, Plaintiff, v. BLUE CROSS AND BLUE SHIELD OF MICHIGAN, Defendant.
• Court: U.S. District Court — Western District of Michigan

726 F. Supp. 1517

UNITED STATES of America, Plaintiff, v. BLUE CROSS AND BLUE SHIELD OF MICHIGAN, Defendant.

No. 89-CV-70756-DT.

United States District Court, E.D. Michigan, S.D.

December 12, 1989.

Ellen E. Christensen, Asst. U.S. Atty., Detroit, Mich., J. Christopher Kohn, U.S. Dept. of Justice, Sandra P. Spooner, Washington, D.C., for plaintiff.

Joseph W. Murray, Blue Cross and Blue Shield, James A. Smith, Charles N. Raimi, Bodman, Longley & Dahling, Detroit, Mich., for defendant.

MEMORANDUM OPINION AND ORDER

WOODS, District Judge.

I. Introduction.

This matter involves the attempts of the United States to recover alleged overpayments of "millions of dollars" in Medicare benefits which allegedly should have been paid by Blue Cross and Blue Shield of Michigan ("Blue Cross" or "BCBS"), while acting as an insurer, underwriter or administrator of various employer group health plans. In its complaint the United States also seeks injunctive and declaratory relief.

This memorandum opinion concerns itself with the various motions for partial summary judgment filed by the parties. These include Blue Cross's motions for partial summary judgment as to the United States' claim for declaratory and injunctive relief and as to the United States' claim for money damages, and the United States' motion for summary judgment as to the liability of Blue Cross. Each of these motions will be addressed accordingly. First, however, a brief description of the background and facts involved in this litigation is necessary.

II. Background and Facts.

Blue Cross and Blue Shield of Michigan is one of 75 BCBS plans operating in the United States, all of which are members of a national association. Blue Cross of Michigan is a nonprofit corporation established by a special act of the Michigan legislature. MCLA § 550.1101 et seq. Blue Cross provides health care insurance to individuals and groups, and also acts as an administrator of health care plans for employers who are self-insured, i.e. employers who pay for their own medical costs and buy no insurance from Blue Cross, but rather contract with Blue Cross to administer and process claims filed under the employer's group health plan.

Blue Cross also contracts with the Health Care Financing Administration (HCFA), an agency of the Department of Health and Human Services, whereby Blue Cross agrees to administer the Medicare program in Michigan. In this hat, Blue Cross acts as a fiscal "intermediary" and "carrier" between hospitals and physicians and the HCFA (referred to as "fiscal agents"). As such, Blue Cross basically processes Medicare claims for the government.

Since 1965, the federal Medicare program has provided health care benefits for persons aged 65 and older. The program was later extended to cover persons who were disabled but not yet age 65, and persons who suffer from end stage renal disease. It was customary for employer group health plans to pay benefits in these areas only when Medicare benefits were not available (the health plan contracts thus explicitly made coverage "secondary" to Medicare). As the "primary payer" of benefits, the Medicare program soon became very expensive to operate, and in the early 1980's Congress sought for ways to reduce expenditures.

The Omnibus Budget Reconciliation Act of 1981 ("OBRA 81") amended the Medicare Act to provide that, subject to certain restrictions, payments by Medicare for expenses incurred in the care of end stage renal disease ("ESRD") would be "conditioned on reimbursement" by an employer group health plan to the extent such payments "are made or reasonably can be expected to be made" under the group health plan. See 42 U.S.C. § 1395y(b)(2). Thus, Medicare was now deemed the "secondary payer" and the employer group health plan the "primary payer." OBRA 81 also amended the Internal Revenue Code to offer incentives to employers with group health plans to provide for employees with end stage renal disease.

The Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA") also amended the Medicare Act to make Medicare the secondary payer for employed individuals and their spouses aged 65 to 69 who would also be covered under an employer group health plan on or after January 1, 1983. TEFRA also amended the Age Discrimination in Employment Act to provide that medical coverage for these persons should be offered on the same terms and conditions as any other employee. 29 U.S.C. § 623(g).

The Deficit Reduction Act of 1984 ("DEFRA") made employer group health plans the primary payer and Medicare the secondary payer for spouses aged 65 to 69 of employed individuals covered under an employer group health plan. See 42 U.S.C. § 1395y(b)(3).

The Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") also made Medicare the secondary payer and the employee group health plan the primary payer for those individuals age 70 and over who are covered under the group health plan. Those individuals affected by TEFRA, DEFRA and COBRA are collectively referred to as the "working aged."

The most recent effort to reduce Medicare spending is the Omnibus Budget Reconciliation Act of 1986 ("OBRA 86"). Here, Medicare was once again made the secondary payer to "large" group health plans which covered individuals who are considered disabled but who nevertheless continue to work (the "active disabled"). OBRA 86 also amended the Internal Revenue Code to encourage private health care coverage for the active disabled.

In 1984 DEFRA explicitly gave the United States the right to recover Medicare overpayments from "any entity which would be responsible for payment ... under a group health plan." 42 U.S.C. §§ 1395y(b)(2)(B) and (b)(3)(A)(ii). Furthermore, in certain cases, double the amounts of payments are recoverable from a primary payer who fails to provide coverage under an employee group health plan or a large group health plan. 42 U.S.C. § 1395y(b)(5).

The above statutes are collectively referred to as the Medicare secondary payer laws ("MSP") and are codified at 42 U.S.C. § 1395y(b). The statutory construction of the MSP statutes is a large part of this litigation.

This litigation largely evolved out of an investigation by the HCFA in 1984 to discover those working aged who had received Medicare benefits but who were also covered under an employee health plan (referred to as the "Datamatch Project"). Through the use of questionnaires Blue Cross was found to have allegedly wrongfully withheld payment in 1984-85 of $23-25 million in benefits which were instead paid by Medicare. About $10 million has already been paid back by Blue Cross. The remaining amounts, however, are disputed and the subject of this litigation.

III. Blue Cross's Motion for Partial Summary Judgment as to Declaratory and Injunctive Relief.

In its complaint, the United States requests an order declaring that the United States is entitled to recover from Blue Cross all Medicare overpayments made to beneficiaries under plans insured, underwritten or administered by Blue Cross (the declaratory relief), as well as an order compelling Blue Cross to identify such beneficiaries on a continuing basis (the injunctive relief).

Blue Cross argues that the request for injunctive relief is, in essence, asking the Court to perform a legislative function due to the failure of Congress to enact proper legislation, or of the Secretary to promulgate appropriate regulations, regarding the proper identification and reporting of those working aged who are primarily covered under an employer group health plan. See Marshall v. Western Union Tel. Co., 621 F.2d 1246 (3d Cir.1980) (district court erred in entering an injunction essentially legislative in nature; government's proper remedy was to proceed with appropriate rule making).

As to the declaratory relief, Blue Cross argues that it is inappropriate in an action for damages to also grant declaratory relief where the action for damages would necessarily resolve the same issues presented in the declaratory judgment action. See Fireman's Fund Ins. Co. v. Hanley, 140 F.Supp. 206 (W.D.Mich.1956).

The United States argues that without an injunctive order it will be unable to ensure present and future compliance with the federal MSP laws. The United States further argues that this motion is premature, and that the need for the injunction will become evident once Blue Cross complies with the discovery requests. As to the declaratory relief, the government argues that under Fed.R.Civ.P. 57 and 28 U.S.C. § 2201 (the Declaratory Judgment Act) this remedy is cumulative in nature and not exclusive, and thus may be appropriate along with an award of damages in a proper case.

The arguments of Blue Cross may very well turn out to be compelling. However, at this stage of the litigation the Court finds that this motion is premature. Due to the incomplete discovery there are insufficient facts available for the Court to determine whether or not Blue Cross has undertaken an informed course of action to defraud the government through an abuse of the Medicare system, thus warranting the additional requested relief. Thus, the Court finds that Blue Cross's motion for summary judgment as to injunctive and declaratory relief should be DENIED without prejudice.

IV. Blue Cross's Motion for Partial Summary Judgment as to the United States' Claim for Money Damages.

Blue Cross seeks partial summary judgment or dismissal under Fed.R.Civ.P. 56 or 12(b)(6) based on basically four arguments:

(1) the United States has no cause of action to recover Medicare payments made prior to July 18, 1984, the effective date of DEFRA—which legislation explicitly granted the United States the statutory right to sue third parties for Medicare overpayments;

(2) the United States has no cause of action against Blue Cross under the MSP laws when Blue Cross is acting as an administrator to a self-insured employer group health plan;

(3) the United States' claims against Blue Cross...