Petition for Writ of Certiorari — Blue Cross Blue Shield of Michigan v. Genord (No. 06-324)
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No. 06-324 SEP EG - 2006
OFFICE OF
Hn the THE CLERK
Supreme Court of the United States
Bive Cross & BLUE SHIELD OF MICHIGAN,
- Petitioner,
V.
MIcHAEL A. GeNorD, M.D.; JoHN R. SANBORN, M.D.;
PAuLa M. FisHpauGH, M.D.; ANDREA L. SCHILLER, M.D.,;
Mark D. Dyxowsk1, M.D.; Joun E. Eckxete, M.D.;
Betty S. Cuu, M.D., .
Respondents.
On Petition for a Writ of Certiorari to the United
States Court of Appeals fer the Sixth Circuit
PETITION FOR WRIT OF CERTIORARI
JosePH A. Fink JosePpH W. Murray
Counsel of Record Biue Cross BLue SHIELD
KATHLEEN A. LANG OF MICHIGAN
PuiLuip J. DeRosiER 600 E. Lafayette Blvd.
Dickinson Wricut PLLC Suite 1925
500 WooDWARD AVENUE Detroit, MI 48226
Suite 4000 (313) 225-7830
Detroit, MI 48226-3425
(313) 223-3500
Counsel for Petitioner
Becker Gallagher Legal Publishing, Inc. 800.890.5001
i
QUESTION PRESENTED
In United States Department of Treasury v. Fabe, this
Court confirmed that Congress’ intent in enacting § 2(b) of
the McCarran-Ferguson Act was to establish the states’
“broad regulatory authority over the business of insurance.”
Did the Sixth Circuit depart from this Court’s decision in
Fabe when it held that Michigan’s law mandating and
regulating reimbursement arrangements between Petitioner
Blue Cross & Blue Shield of Michigan and medical providers
for the express statutory purpose of ensuring policyholders
reasonable access to quality health care at a reasonable cost
was not protected from preemption under the McCarran-
Ferguson Act as a state law “enacted . . . for the purpose of
regulating the business of insurance”?
il
RULE 29.6 STATEMENT
Petitioner has no parent corporation, and no publicly held
company owns 10% or more of its stock.
ill
TABLE OF CONTENTS
CIES TM TUe PRETEEN 2 ccc w sc cwees i
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TABLE OF CONTENTS .... Fete teen ees ill
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PE NE 6 Oe 0s ees i oo 4 ewe ES ]
STATUTORY AND REGULATORY
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RE os nian ao sac hid Soe ee Z
EA RGEEUS GE SPEER CAAG 6 cc eee haces 7
ee ee ee 7
B. Proceedings in the District Court .......... 8
C. Proceedings in the Sixth Circuit ........... 9
REASONS FOR GRANTING THE PETITION... ... 11
I. THE SIXTH CIRCUIT’S DECISION
CONFLICTS WITH THIS COURT’S DECISION
WOE oe Ge aaah + Cheek es 1]
I.
Il.
IV.
CONCLUSION
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THE - SIXTH CIRCUIT’S DECISION
CONFLICTS WITH A DECISION FROM THE
FOURTH CIRCUIT ADDRESSING THE SAME
IMPORTANT FEDERAL QUESTION
ENVOLVED EIN Trio CASE .«. cece ens
THERE IS A CONFLICT AMONG THE
CIRCUITS AS TO THE ANALYSIS REQUIRED
SEE NE kk od ie rer
EVEN UNDER THE NARROW ANALYSIS
EMPLOYED IN PIRENO AND ROYAL DRUG,
THE SIXTH CIRCUIT ERRED IN FINDING
THAT MICHIGAN’S REGULATION OF
PROVIDER REIMBURSEMENT
ARRANGEMENTS DOES NOT BENEFIT
POLICYHOLDERS
“Ce oe we ley ae oe ee oe at oe oe ar a Re es ye ee
ae ee Oe Ger Me ay ee oe ee ie ek ee ee ee ee Ok ee Pe ie ee ee A Ba
APPENDIX
ORDER DENYING REHEARING (06/09/06) . .
CIRCUIT COURT OPINION (03/14/06) .......
CIRCUIT COURT JUDGMENT (03/14/06)
DISTRICT COURT OPINION AND
eo Es. | a rae are
TRANSCRIPT OF PROCEEDING - MOTION
Tad OE CAO cece eee ene es
Vv
CIRCUIT COURT ORDER GRANTING
PETITION FOR PERMISSION TO APPEAL
ES Ss a6 Sk <5 6 Wa ae a oe i ee 82a
DISTRICT COURT ORDER GRANTING
CERTIFICATION OF ISSUE FOR
INTERLOCUTORY APPEAL (09/07/04) ...... 85a
TRANSCRIPT OF PROCEEDING -
MOTION FOR CERTIFICATION FOR
INTERLOCUTORY APPEAL (09/01/2004) .... 87a
CIRCUIT COURT MANDATE (06/26/06) .... 100a
CIRCUIT COURT ORDER DENYING MOTION
TO STAY ISSUANCE OF MANDATE
a ie aN WOR bo ale ba aes ee 102a
STIPULATION FOR ENTRY OF
ORDER GRANTING STAY OF
gp Se rt | +) 104a
FIRST AMENDED CLASS ACTION
COMPLAINT AND JURY DEMAND
CO ea a eng eS Fike wo ee ak 107a
PERTINENT PORTICNS OF STATUTORY
AND REGULATORY PROVISIONS
INVOLVED
vi
TABLE OF AUTHORITIES
Cases
Ambrose v Blue Cross & Blue Shield of Virginia,
891 F. Supp. 1153 (E.D. Va. 1995),
aff'd 95 F.3d 41 (4th Cir. 1996) ............. 21
American Chiropractic Association v. Trigon
Healthcare, Inc.,
367 F.3d 212 (4th Cir. 2004) ........ 6, 19, 20, 23
AmSouth Bank v. Dale,
386 F.3d 763 (6th Cir. 2004) ............ 18, 19
Autry v. Northwest Premium Services, Inc..,
144 F.3d 1037 (7th Cir. 1998)
Blackfeet National Bank v. Nelson,
171 F356 12357 Gi ieh Ce. F999) 2. wc ce wes 24
Davister Corp. v. United Republic Life Ins. Co.,
152 F.38 1277 CGC. TSGS) ow we ewes 23
Doe v. Norwest Bank Minnesota, N.A..,
107 F.3d 1297 (Oth Cir. T9997)... ww ee eee 22
Everson v. Blue Cross & Blue Shield of Ohio,
898 F. Supp. 532 (N.D. Ohio 1994) ........ 21, 28
Greene v. United States,
440 F.3d 1304 (Fed. Cir. 2006).............. 23
Group Life & Health Insurance Co. v. Royal Drug,
ee Sas SUNT ie eek Caen tes Os passim
Vil
In re Mai.uged Care Litigation,
298 F. Supp.2d 1259 (S.D. Fla. 2003) ...... 20-21
International Insurance Co. v. Duryee,
96 F.3d 837 (6th Cir. 1996) .......... 17, 18, 19
Kenty v. Bank One, Columbus, N.A.,
Fa F206 oe GC. Re 6 oc oR eee Shee 19
Merchants Home Delivery Service, Inc. v. Frank B.
Hall & Co., Inc.,
we Foe 160 CO. TIP oe eee ee 24
Owensboro National Bank v. Stephens,
44 F.3d SOS (GM Cur. 1968) . ww cc ees 18, 19
Ruthardt v. United States,
ae Bk STR es BD © 00 0 4 ee ee 23
Sabo v. Metropolitan Life Ins. Co.,
US? F.3e POS Cee. TO oe es ec eee ee 7, ae
SEC v. National Securities, Inc.,
SPF a MIP 6 eee kee eee 1]
Stephens v. American International Co..,
OP Fae S020 Ce WP) 6 he eee 24
Union Labor Life Insurance Co. v. Pireno,
SOWA. 309 COME 6 tN S44 ee passim
United States Department of Treasury v. Fabe,
ee SE. Pe COP 6 eae eee passim
Vili
Statutes
EE ttt ee eee re eecere passim
re l
Mich. Comp. Laws § 550.1101 et seqg.. ........... 2
Mich. Comp. Laws § 550.1102(1) ............ 2, 14
Mich. Comp. Laws § 550.1401(7) ............ 413
Mich. Comp. Laws § 550.1404 .............. a a0
Mich. Comp. Laws § 550.1502(1) ............ 2, 14
Mich. Comp. Laws § 550.1502(1)(a)........... 2, 14
Mich. Comp. Laws § 550.1502a.............. 2,14
Mich. Comp. Laws § 550.1504(1) .......... 2,9, 14
Sees SA. ROWE BS SOU.SHE) 0... ee es 2, 14
Regulations
Mich. Admin. Code R. 550.101 ef seg. ......... 2,15
l
PETITION FOR WRIT OF CERTIORARI
Petitioner Blue Cross & Blue Shield of Michigan
(“BCBSM”) respectfully petitions for 4 writ of certiorari to
review the judgment of the United States Court of Appeals for
the Sixth Circuit.
OPINIONS BELOW — ‘
The Sixth Circuit’s published opinion (App. at 3a-16a) is
reported at 440 F.3d 802. The district court’s unpublished
opinion is attached at App. at 19a-38a.
JURISDICTION
The judgment of the United States Court of Appeals for
the Sixth Circuit was entered on March 14, 2006. App. at
17a-18a. The court’s denial of BCBSM’s petition for
rehearing en banc was entered on June 9, 2006. App. at La-
2a. This Court has jurisdiction under 28 U.S.C. § 1254(1).
STATUTORY AND REGULATORY
PROVISIONS INVOLVED
Section 2(b) of the McCarran-Ferguson Act, 15 U.S.C.
§ 1011, states:
No Act of Congress shall be construed to
invalidate, impair, or supersede any law
enacted by any State for the purpose of
regulating the business of insurance, or which
imposes a fee or tax upon such business,
unless such Act specifically relates to the
business of insurance: Provided, That after
2
June 30, 1948, the Act of July 2, 1890, as
amended, known as the Sherman Act, and the
Act of October 15, 1914, as amended, known
as the Clayton Act, and the Act of September
26, 1914, known as the Federal Trade
Commission Act, as amended, shall be
applicable to the business of insurance to the
extent that sucht business is not regulated by
State Law.
15 U.S.C. § 1012(b).
Various provisions of Michigan’s statutory regulation of
health insurance, including the Nonprofit Health Care
Corporation Reform Act, Mich. Comp. Laws § 550.1101 et
seq., and related administrative rules, are also involved in this
case:
Mich. Comp. Laws § 550.53
Mich. Comp. Laws § 550.1102(1)
Mich. Comp. Laws § 550.1401(7)
Mich. Comp. Laws § 550.1404
Mich. Comp. Laws § 550.1502
Mich. Comp. Laws § 550.1502a
Mich. Comp. Laws § 550.1504(1)
Mich. Admin. Code R. 550.101 et seq.
The pertinent text of these provisions is set out in the
Appendix at 123a-143a.
INTRODUCTION
This case involves the Sixth Circuit’s failure to follow the
controlling standard established by this Court in United States
Department of Treasury v. Fabe, 508 U.S. 491 (1993), for
3
determining whether a state law was “enacted . . .for the
purpose of regulating the business of insurance” within the
meaning of the first clause of § 2(b) of the McCarran-
~ Ferguson Act, 15 U.S.C. § 1011, which prohibits application
of a general federal law that would “invalidate, impair, or
supersede any law enacted by any State for the purpose of
regulating the business of insurance.” Fabe explained that the
purpose of this provision was to “further Congress’ primary
objective of granting the States broad regulatory authority
over the business of insurance.” Fabe, 508 U.S. at 505.
Fabe further emphasized that the first clause of § 2(b) must be
distinguished from the second clause, which narrowly
exempts only certain activities from antitrust scrutiny.
The Sixth Circuit fundamentally departed from this
Court’s decision in Fabe when it held that Michigan’s
comprehensive statutory health insurance scheme regulating,
among other things, agreements between Petitioner Blue
Cross Blue Shield of Michigan (“BCBSM”) and medical
providers, and reimbursement issues arising the:eunder, was
not “enacted . . . for the purpose of regulating the business of
insurance,” and that the McCarran-Ferguson Act did not
prohibit Respondents’ claims against BCBSM under the
Racketeer Influenced and Corrupt Organizations Act (RICO),
18 U.S.C. § 1964(c), for BCBSM’s allegedly improper
denials of Respondents’ claims for reimbursement and delays
in processing those claims. As discussed below, the Sixth
Circuit’s decision creates a conflict with the Fourth Circuit as
to whether state laws regulating provider reimbursement
issues are protected from federal preemption under the
McCarran-Ferguson Act, and furthers an existing conflict
among the circuits as to the analysis required under Fabe.
In recognition of Congress’ goal of protecting state
regulation of insurance from interference by federal laws not
4
dealing with the regulation of insurance, Fabe adopted an
expansive definition of the statutory phrase “enacted . . . for
the purpose of regulating the business of insurance”:
The broad category of laws enacted “for the
purpose of regulating the business of
insurance” consists of laws that possess the
“end, intention, or aim” of adjusting,
managing, or controlling the business of
insurance.
Fabe, 508 U.S. at 505 (citation omitted). The Court further
observed that “‘{s]tatutes aimed at protecting or regulating
this relationship [between insurer and insured], directly or
indirectly, are laws regulating the “business of insurance,”’
within the meaning of the phrase.” Fabe, 508 U.S. at 501
(citation omitted; emphasis added).
In determining that the statutory provisions regulating
BCBSM’s reimbursement arrangements with medical
providers were not “enacted . . . for the purpose of regulating
the business of insurance,” the Sixth Circuit did not apply the
standard established by Fabe because it failed to broadly
examine the purposes of Michigan’s statutory scheme
governing health insurance, and its regulation of provider
reimbursement issues, to determine whether it is “‘aimed at
protecting or regulating [the] relationship [between insurer
and insured], directly or indirectly.’” Fabe, 508 U.S. at 501.
Instead, the Sixth Circuit improperly applied a narrow
analysis that focused on whether the provider reimbursement
arrangements themselves, in isolation, met the criteria set
forth in Union Labor Life Insurance Co. v. Pireno, 458 U.S.
119 (1982), for determining whether certain activities are
exempt from federal antitrust laws under the second clause of
§ 2(b). App. at 10a-15a.
5
In Fabe, the Court explained that an analysis such as the
Sixth Circuit’s is improper in cases arising, as here, under the
first clause of § 2(b). According to the Court, the first and
second clauses have to be distinguished because they serve
different purposes:
The first clause commits laws “enacted. . .
for the purpose of regulating the business of
insurance” “to the States, while the second
clause exempts only “the business of
insurance” itself from the antitrust laws. To
equate laws “enacted . . . for the purpose of
regulating the business of insurance” with the
“business of insurance” itself . . . would be to
read words out of the statute.
Fabe, 508 U.S. at 504. As Fabe emphasized, the objective
of the first clause of § 2(b) - protecting state regulation of the
insurance industry — can only be fulfilled by viewing the
purpose of the state law at issue broadly to determine if it
possesses the “‘end, intention, or aim,’ of adjusting,
managing, or controlling the business of insurance,” Fabe,
508 U.S. at 505, and is “‘aimed at protecting or regulating
{the} relationship [between insurer and insured], directly or
indirectly.’” Id. at 501 (emphasis added).
In this case, the Sixth Circuit did not follow the mandated
distinction between the first and second clauses of § 2(b), and
instead applied a narrow, antitrust-based analysis that has no
place in determining whether a state insurance law should be
protected from preemption. Although, as discussed more
fully below, BCBSM’s provider reimbursement arrangements
nonetheless also satisfy the Pireno antitrust criteria, the Sixth
Circuit’s error is far more fundamental than a misapplication
of those criteria. The Sixth Circuit never should have applied
6
the Pireno criteria in the first place. This 1s because, contrary
to Fabe, the Sixth Circuit focused on the reimbursement
arrangements themselves as opposed to the purpose of
Michigan's comprehensive statutory regulation of the insurer-
provider relationship. Applying the controlling standard set
out in Fabe, those provisions are “‘aimed at protecting or
regulating’” the relationship between BCBSM and _ its
policyholders.
The Sixth Circuit’s decision is also in direct conflict with
the Fourth Circuit’s decision in American Chiropractic
Association v. Trigon Healthcare, Inc., 367 F.3d 212 (4th
Cir. 2004). Properly applying Fabe, and contrary to the
Sixth Circuit’s decision in this case, the Fourth Circuit stated
that it had “little difficulty” finding a Virginia statute
mandating reimbursement of all providers of covered medical
services to have been “enacted . . . for the purpose of
regulating the business of insurance” within the meaning of
the first clause of § 2(b).
The Court should be concerned about this conflict because
the issue of whether laws regulating reimbursement issues
between insurers and medical providers fall within the
protective ambit of the McCarran-Ferguson Act is one of
critical importance to the health insurance industry. Allowing
medical providers to pursue RICO claims against health
insurers over reimbursement disputes that are already
comprehensively regulated under state law seriously
undermines the ability of the states to regulate those issues for
the protection of policyholders.
The Court should also be concerned about the conflict
between Trigon and the Sixth Circuit’s decision in this case
because it reflects an existing, and widespread conflict among
the circuits as to whether application of the first clause of
7
§ 2(b) requires, under Fabe, a broad analysis focusing on
whether a state law at issue is “‘aimed at protecting or
regulating [the] relationship [between insurer and insured],
directly or indirectly,’” Fabe, 508 U.S. at 505, instead of
whether a specific activity being regulated meets the Pireno
antitrust criteria. As the Third Circuit observed in Sabo vy.
Metropolitan Life Ins. Co., 137 F.3d 185, 189 n. 2 (3rd Cir.
1998): “[FJjederal courts have seemingly disagreed as to the
proper analytic inquiry into McCarran-Ferguson Act
preclusion.”
This Court should take jurisdiction of this case to affirm
the central holding in Fabe and to clarify the most important
principle in connection with the McCarran-Ferguson Act -
that states should be the primary source of regulation of the
business of insurance. Such clarification will not only correct
the Sixth Circuit’s manifest error, but it will also eliminate
uncertainty and conflict among other federal courts that have
reached different conclusions about how to apply the first
clause of § 2(b) under Fabe.
STATEMENT OF THE CASE
A. Factual Background
Respondents are Michigan doctors (sometimes referred to
as “providers”) who claim that they provided gynecological
services to BCBSM’s policyholders and that their claims for
reimbursement were improperly denied, underpaid, or
delayed as a result of a change in the billing codes utilized by
BCBSM. Respondents allege that BCBSM’s conduct violated
RICO. App. at 107a-122a. Respondents’ RICO claims are
the sole basis for federal jurisdiction in this case.
Respondents also alleged state law claims for breach of
contract, unjust enrichment, and violation of the Michigan
8
Uniform Trade Practices Act, Mich. Comp. Laws
§ 500.2006.
B. Proceedings in the District Court
BCBSM filed a motion to dismiss under Fed. R. Civ. P.
12(b)(1) and (6) on the primary ground that Respondents’
RICO claims are barred by the McCarran-Ferguson Act, and
that the district court therefore lacked subject matter
jurisdiction over the case. BCBSM argued that its
reimbursement arrangements with contracting medical
providers are governed by Michigan law, which, as discussed
infra, mandates the use of such arrangements and establishes
a detailed regulatory framework governing reimbursement
between BCBSM and medical providers. BCBSM further
argued that allowing Respondents’ RICO claims to proceed
would “invalidate, impair or supersede” Michigan’s
comprehensive regulation of BCBSM’s activities.
The district court initially took the matter under
advisement and requested supplemental briefing. App. at
78a-79a. The district court subsequently denied BCBSM’s
request that the RICO claims be dismissed. App. at 19a-38a.
The court concluded, in relevant part, that BCBSM’s
reimbursement arrangements with medical providers are not
part of the “business of insurance because the contracts are
not between an insurance company and its policyholders.”
Id. at 32a. In light of that determination, the district court did
not address whether application of RICO would “invalidate,
impair, or supersede” Michigan’s regulation of provider
reimbursement issues.
9
C. Proceedings in the Sixth Circuit
After the district court certified the McCarran-Ferguson
Act issue for interlocutory appeal (App. at 85a-86a), the Sixth
Circuit granted BCBSM’s petition for permission to appeal
and agreed to decide the issue. (App. at 82a-84a).
In a published opinion, the Sixth Court affirmed the
district court’s decision. App. at 3a-l6a. The Sixth Circuit
recognized that BCBSM is “regulated extensively” under
Michigan law, and that Michigan requires it to “enter into
reimbursement agreements with various medical providers”
in order to “‘assure subscribers reasonable access to, and
reasonable cost and quality of, health care services.’” /d. at
4a-Sa (quoting Mich. Comp. Laws § 550.1504(1)).
Contrary to Fabe, however, the Sixth Circuit did not
examine the purpose of Michigan’s regulation of provider
reimbursement and whether that regulation is for the
protection of policyholders. The Sixth Circuit instead
analyzed whether the reimbursement arrangements themselves
met the narrow antitrust exemption contained in the second
clause of § 2(b), using criteria developed in the antitrust
context for determining what activities constitute the
“business of insurance”:
(1) “whether the practice has the effect of
transferring or spreading a policyholder’s
risk,” (2) “whether the practice is an integral
part of the policy relationship between the
insurer and the insured,” ©» (3) “whether the
practice is limited to ex ties within the
insurance industry.”
App. at 9a-10a, quoting Pireno, 458 U.S. at 129.
10
The Sixth Circuit first found that BCBSM’s provider
reimbursement arrangements are not part of a legislative
scheme to “transfer or spread policyholder risk” since they
relate solely to how BCBSM “goes about making health care
services available to its policyholders.” App. at lla. The
Sixth Circuit thus reasoned that these arrangements are the
same as the “ancillary” pharmacy discount agreements that
this Court held not to be exempt from antitrust scrutiny under
the Pireno criteria in Group Life & Health Insurance Co. v.
Royal Drug, 440 U.S. 205 (1979). Id. at 11a-12a.
Turning to the second Pireno criterion, the Sixth Circuit
found that BCBSM’s provider reimbursement arrangements
do not further the interests of its policyholders, who the Sixth
Circuit found to be “unconcerned with the reimbursement
arrangements between Blue Cross and doctors so long as they
receive medical treatment as contemplated by their agreement
with Blue Cross.” App. at 14a. According to the Sixth
Circuit, the reimbursement arrangements are therefore not an
integral part of BCBSM’s relationship with its policyholders.
Id.
As to the third Pireno criterion, the Sixth Circuit
concluded that “because the doctors are not entities within the
insurance industry,” Michigan’s statutory provisions
governing their reimbursement “do not ‘lie at the center . . .
of legislative concern’ of the McCarran-Ferguson Act.” Jd.
at 15a, quoting Pireno, 458 U.S. at 133.
11
REASONS FOR GRANTING THE PETITION
I. THE SIXTH CIRCUIT’S DECISION CONFLICTS
WITH THIS COURT’S DECISION IN FABE
In Fabe, 508 U.S. at 505, this Court emphasized the
important distinction between the first and second clauses of
§ 2(b):
[T]he first clause of § 2(b) was intended to
further Congress’ primary objective of
granting the States broad regulatory authority
over the business of insurance. The second
clause accomplishes Congress’ secondary goal,
which was to carve out only a narrow
exemption for “the business of insurance”
from the federal antitrust laws.
Addressing the first clause of § 2(b) and its broad goal of
protecting state regulation of the “business of insurance,”
Fabe explained that “‘[s]tatutes aimed at protecting or
regulating th[e] relationship [between insurer and insured},
directly or indirectly, are laws regulating the ‘business of
insurance.’” /d. at 501, citing SEC v. National Securities,
Inc. , 393 U.S. 453, 460 (1969). According to the Court, this
“broad category of laws . . . consists of laws that possess the
‘end, intention, or aim’ of adjusting, managing, or controlling
the business of insurance,” id. at 505, and it “necessarily
encompasses more than just the ‘business of insurance.’” /d.
The distinction drawn in Fabe between the first and
second clauses of § 2(b) is entirely consistent with both the
text and the underlying purpose of those provisions. As Fabe
explained, the first clause is designed to ensure that states
have the primary authority in regulating the business of
12
insurance. Thus, in determining whether a state law should
be protected from preemption, it is necessary to examine the
“purpose” of the state law and whether it is intended to
regulate “the business of insurance” by protecting the
interests of policyholders. It is only by broadly examining the
state law’s purpose that effect can be given to the first
clause’s goal of protecting state regulation of the business of
insurance. On the other hand, the second clause of § 2(b)
creates a narrow exception to the antitrust laws only for
certain activities in which insurance companies may engage.
Because the antitrust laws are concerned with whether certain
specific conduct should or should not be permitted, it is
logical that only a narrow, activity-specific exemption be
embodied in the second clause of § 2(b).
By applying the Pireno antitrust criteria as controlling the
determination of whether a state law was enacted “for the
purpose of regulating the business of insurance,” the Sixth
Circuit disregarded Fabe by taking a restrictive view of the
first clause of § 2(b) that nullifies Congress’ objective of
preserving the states’ regulatory authority over insurance.
Fabe, 508 U.S. at 505. Contrary to the Sixth Circuit’s
analysis, Fabe expressly distinguished Pireno and Royal Drug
because those cases involved only whether particular activities
were exempt from federal antitrust laws under the second
clause of § 2(b). Fabe explained that the first clause of § 2(b)
is “not so narrowly circumscribed”:
Both Royal Drug and Pireno . . . involved the
scope of the antitrust immunity located in the
second clause of § 2(b). We deal here with
the first clause, which is not so narrowly
circumscribed. The language of § 2(b) is
unambiguous: The first clause commits laws
“enacted . . . for the purpose of regulating the
13
business of insurance” to the States, while the
second clause exempts only “the business of
insurance” itself from the antitrust laws. To
equate laws “enacted ... for the purpose of
regulating the business of insurance” with the
“business of insurance” itself, as petitioner
urges us to do, would be to read words out of
the statute. This we refuse to do.
Id. at 504. Here, the Sixth Circuit erred by applying the
narrow Pireno antitrust criteria developed under the second
clause of § 2(b), which deals with whether particular activity
is exempt from the antitrust laws, when the pertinent inquiry
here is whether, under the first clause of § 2(b), Michigan’s
comprehensive regulation of BCBSM’s provider
reimbursement arrangements is “‘aimed at protecting or
regulating th{e] relationship [between insurer and insured},
directly or indirectly.” Jd. at 501.
Under Fabe, it is apparent that the regulation of provider
reimbursement under Michigan law is “aimed at protecting or
regulating” the relationship between BCBSM and _ its
policyholders. Indeed, the express purpose of that regulation
is to assure BCBSM’s subscribers access to affordable and
quality health care services:
(1) A health care corporation shall, with
respect to providers, contract with or enter
into a reimbursement arrangement fo assure
subscribers reasonable access to, and
reasonable cost and quality of, health care
services, in accordance with the following
goals:
14
(a) There will be an appropriate number of
providers throughout this state to assure the
availability of certificate-covered health care
services to each subscriber.
(b) Providers will meet and-abide by
reasonable standards of health care quality.
(c) Providers will be subject to
reimbursement arrangements that will assure a
rate of change in the total corporation payment
per member to each provider class that is not
higher than the compound rate of inflation and
real economic growth.
Mich. Comp. Laws § 550.1504(1) (emphasis added); see also
Mich. Comp. Laws § 550.1102(1) (“It is the purpose and
intent of this act, and the policy of the legislature, to. . .
assure . . . reasonable access to, and reasonable cost and
quality of, health care services... .”); Mich. Comp. Laws
§ 550.1502a and Mich. Comp. Laws § 550.53(1) (mandating
agreements which “control health care costs, assure
appropriate utilization of health care services, and maintain
quality of health care.”)
In order to accomplish these goals, the Michigan
Legislature crafted its statutory scheme of health insurance so
that provider reimbursement issues were comprehensively
regulated for the benefit of policyholders. For example,
Michigan law details requirements for all “contracts for
reimbursement with professional health care providers.”
Mich. Comp. Laws § 550.1502(1). It also requires that
medical providers accept payment at regulated rates in full for
services covered under BCBSM’s certificates. Mich. Comp.
Laws § 550.1502(1)(a). BCBSM is even prohibited from
15
directly reimbursing providers who have not entered into a
regulated reimbursement contract with BCBSM. Mich.
Comp. Laws § 550.1401(7).
Finally, Michigan law provides a specific procedure for
bringing reimbursement disputes before the Insurance
Commissioner. Mich. Comp. Laws § 550.1404. See also
Mich. Admin. Code R. 550.101 et seq. (setting forth the
administrative procedure by which a “person who believes
that a health care corporation has wrongfully refused his or
her claim” can seek review before the Commissioner; a
“claim” includes a “request for payment by a provider under
his or her agreement with a health care corporation”).
In light of these provisions, the Sixth Circuit’s conclusion
that policyholders are “largely unconcerned” about
Michigan’s regulation of provider reimbursement (App. at
15a; see also App. at 14a) cannot withstand serious scrutiny.
To the contrary, the regulation of provider reimbursement
arrangements is, under Fabe, “aimed at protecting or
regulating” the relationship between BCBSM and _ its
policyholders because it assures policyholders access to health
care services under a statutory scheme controlling their costs
of such coverage. BCBSM’s provider reimbursement
arrangements affect not only the premiums paid by
policyholders, but the number of doctors and hospitals
available to them and the quality of care provided.
Michigan’s statutorily-mandated provider reimbursement
arrangements do this by establishing a comprehensive network
of providers who have agreed to provide medical services to
BCBSM’s policyholders under regulated contract provisions.
In concluding that Michigan’s statutory regulation of
BCBSM’s_ reimbursement arrangements with medical
providers does not affect policyholders, the Sixth Circuit
16
applied a test under the McCarran-Ferguson Act that conflicts
with this Court’s decision in Fabe. Even though the Sixth
Circuit acknowledged that this case arises under the first
clause of § 2(b) (App. at 8a-9a), thus requiring a broad focus
on Michigan’s legislative purposes in mandating and
regulating provider reimbursement arrangements, the Sixth
Circuit nevertheless analyzed the reimbursement arrangements
narrowly to determine whether they met the Pireno criteria
developed in cases addressing antitrust immunity for certain
conduct under the second clause of § 2(b). Although, as
discussed below, the provider reimbursement arrangements do
meet the Pireno antitrust criteria, the Sixth Circuit
fundamentally erred in applying them at all. Instead, the
Sixth Circuit should have applied the broad analysis mandated
by Fabe, which is whether Michigan’s statutory scheme of
regulation of those arrangements is “‘aimed at protectingsor-—————
regulating th[{e] relationship [between insurer and insured].’”
Fabe, 508 U.S. at 501.
As the Seventh Circuit observed in Autry v. Northwest
Premium Services, Inc., 144 F.3d 1037, 1042 (7th Cir.
1998):
The Supreme Court [in Fabe] did not
simply look to the activity being regulated to
determine whether it qualified as the “business
of insurance.” Instead, it dissected the statute
and looked to an ultimate effect of the statute:
increased probability of the enforcement of the
insurance contract. Thus, a statute that
regulates bankruptcy proceedings may still be
a statute “enacted . . . for the purpose of
regulating the business of insurance” even
though bankruptcy proceedings themselves are
not the “business of insurance.”
17
The problem with focusing solely on the activity at issue
without regard to the purpose of the state law that regulates
the activity is that, contrary to Fabe:
{I]t casts too small a net to capture all of the
Statutes that were “enacted . . . for the purpose
of regulating the business of insurance.”
There will be cases where the regulated
activity does not constitute the “business of
insurance” as that term is defined in Pireno,
yet the statute that regulates the activity may
have been enacted “for the purpose of
regulating the business of insurance.”
Id.
The Sixth Circuit in this case made the precise error
identified in Autry - it focused on BCBSM’s provider
reimbursement arrangements (i.e., the activity) and whether
they themselves constitute the “business of insurance,”
without any regard for the purpose of the state’s regulation of
those arrangements — to assure reasonable access to quality
health care and to control health care costs.
The Sixth Circuit’s failure in this regard is especially
remarkable because the Sixth Circuit has previously
demonstrated its understanding of the distinction drawn in
Fabe between the first and second clauses of § 2(b). In
International Insurance Co. v. Duryee, 96 F.3d 837 (6th Cir.
1996), the Sixth Circuit explained that Fabe distinguished
Royal Drug and Pireno because those cases involved “a
related but distinct phrase of the McCarran-Ferguson Act,”
i.e., its antitrust immunity provision:
18
While confirming that Pireno provides the
three-factor test for determining whether
certain practices are part of the “business of
insurance,” the Fabe Court found that the
“broad category of laws enacted ‘for the
purpose of regulating the business of
insurance’ . . . necessarily encompasses more
than just the ‘business of insurance.’”
Id. at 839. In AmSouth Bank v. Dale, 386 F.3d 763, 781 (6th
Cir. 2004), the Sixth Circuit similarly observed that, under
Fabe, “McCarran-Ferguson reverse preemption depends upon
the policies that undergird state law.”
Rather than follow Duryee and AmSouth, the Sixth Circuit
inexplicably disregarded them and instead cited Owensboro
National Bank v. Stephens, 44 F.3d 388 (6th Cir. 1994),
which was decided two years before Duryee and ten years
before AmSouth. In Owensboro, the Sixth Circuit held that
“to have been ‘enacted . . . for the purpose of regulating the
business of insurance,’ [the state law] must possess the aim of
regulating activities that meet the Pireno criteria.” /d. at 392.
Although Owensboro found such an analysis to be consistent
with Fabe, it actually disregards Fabe’s instruction that the
first clause of § 2(b) covers a “broad category of laws. . .
[that] necessarily encompasses more than just the ‘business of
insurance.”” Fabe, 508 U.S. at 505. The dissent in
Owensboro properly recognized that fact in arguing that the
Pireno criteria were inapplicable and that “the Supreme
Court’s recent opinion in [Fabe] sets the controlling criteria
in this case.” /d. at 394 (Batchelder, J. dissenting).
The Sixth Circuit’s decision here to apply the outmoded,
Pireno-based analysis from Owensboro insiead of the broader
analysis required under Fabe, which the Sixth Circuit did
19
follow in Duryee and AmSouth (neither of which even
mentioned Owensboro), is beyond troubling and further
demonstrates the need for clarification from this Court. See
also Kenty v. Bank One, Columbus, N.A., 92 F.3d 384 (6th
Cir. 1996) (relying on the Pireno criteria even though the first
clause of § 2(b) was at issue).
Contrary to both Fabe and its own prior decisions in
Duryee and AmSouth, the Sixth Circuit in this case failed to
heed Fabe’s mandate that the narrow focus on the activity
being regulated under the Pireno criteria is only appropriate
when that activity is claimed to be in violation of the antitrust
laws. Fabe, 508 U.S. at 505. In disregarding Fabe’s holding
that a broader analysis applies when the first clause of § 2(b)
is at issue, the Sixth Circuit has sanctioned a wholesale
interference with the ability of states to oversee the
framework within which health insurers operate. The Court
should grant certiorari in order to correct the Sixth Circuit’s
error and to clarify the proper analysis under Fabe.
Il. THE SIXTH CIRCUIT’S DECISION CONFLICTS
WITHA DECISION FROM THE FOURTH CIRCUIT
ADDRESSING THE SAME IMPORTANT FEDERAL
QUESTION INVOLVED IN THIS CASE
The Sixth Circuit’s decision in this case is also in direct
conflict with the Fourth Circuit’s decision in American
Chiropractic Association v. Trigon Healthcare, Inc. , 367 F.3d
212, 230-231 (4th Cir. 2004). Trigon involved a claim by
chiropractors that a health insurer, in violation of RICO, had
used its “reimbursement policies and treatment guidelines to
limit severely the flow of insurance dollars to chiropractors
and steer those monies toward medical doctors.” 367 F.3d at
217-218. Properly recognizing that, under Fabe, the first
clause of § 2(b) broadly encompasses all “‘laws that possess
20
the “end, intention, or aim” of adjusting, managing, or
controlling the business of insurance,’” the Fourth Circuit
stated that it had “little difficulty” concluding that the Virginia
laws at issue were “enacted for the purpose of regulating the
business of insurance”:
[T]he McCarran-Ferguson Act encompasses
“laws that possess the ‘end, intention, or aim’
of adjusting, managing, or controlling the
business of insurance.” Applying these
standards, Title 38.2 of the Code of Virginia,
specifically §§ 38.2-200, 38.2-221 and 38.2-
3408 at issue here, is a set of laws enacted for
the purpose of regulating the business of
insurance. Title 38.2 is limited to insurance
companies and creates a comprehensive
network of statutory provisions aimed at
controlling and managing the business of
insurance. For insfance, § 38.2-3408, by
requiring insurers to provide reimbursement
for all providers of covered services, helps to
manage. the relationship between the
policyholder and the insurance company by
ensuring that if a particular service is covered
by an insurance company, the policyholder can
seek treatment from any provider able to
perform that service.
Id, at 231.
The Sixth Circuit’s decision here is in direct conflict with
the Fourth Circuit’s decision in Trigon, which the Sixth
Circuit did not even acknowledge, much less address, in its
opinion. The conflict on this issue also extends to the district
court level. See In re Managed Care Litigation, 298 F.
21
Supp.2d 1259, 1283-1285 (S.D. Fla. 2003) (finding provider
reimbursement agreements to “fall[] outside the ‘business of
insurance’”); Everson v. Blue Cross & Blue Shield of Ohio,
898 F. Supp. 532, 543 (N.D. Ohio 1994) (holding that
negotiations of discounts with medical providers constituted
the “business of insurance” regulated by Ohio law).
This conflict is significant because the use of
reimbursement arrangements such as those regulated under
Michigan law is widespread in an effort to control escalating
health care costs and to regulate the provision of health care
services to insureds. States, health insurers, and insureds all
have a direct, continuing and abiding interest in knowing that
state insurance laws and regulations will continue to be
respected. By granting certiorari and resoiving this conflict,
the Court can ensure a uniform, national approach to
determining whether state laws regulating the relationship
between health insurers and medical providers are laws
“aimed at protecting or regulating’ {the} relationship
[between insurer and insured], directly or indirectly.’” Fabe,
508 U.S. at 501.
Ill. THERE IS A CONFLICT AMONG THE
CIRCUITS AS TO THE ANALYSIS REQUIRED
UNDER FABE
The conflict between the Sixth and Fourth Circuits is also
significant because it exemplifies the broader conflict that
exists among the circuits as to the analysis required under the
first clause of § 2(b). Indeed, ever since Fabe, lower federal
courts have struggled to determine the analysis required under
Fabe for such cases. As the district court observed in
Ambrose v Blue Cross & Blue Shield of Virginia, 891 F.
Supp. 1153, 1161 n. 5 (E.D. Va. 1995), aff'd 95 F.3d 41 (4"
Cir. 1996), “[s]ome post-Fabe decisions have continued to
22
analyze whether the practice that is the subject of the federal
law constitutes ‘the business of insurance’” even though Fabe
adopted a “broader analysis where the first clause of Section
2(b) is at issue.” See also Sabo v. Metropolitan Life Ins. Co..,
137 F.3d 185, 189 n. 2 (3rd Cir. 1998) (noting that “federal
courts have seemingly disagreed as to the proper analytic
inquiry into McCarran-Ferguson Act preclusion.”).
The First, Fourth, Seventh, Eighth, Tenth, and Federal
circuits all apply an analysis in cases arising under the first
clause of § 2(b) that, as directed by Fabe, properly focuses on
the purpose of the state law at issue as opposed to a narrow
application of the Pireno antitrust criteria to the practice being
regulated. In Doe v. Norwest Bank Minnesota, N.A., 107
F.3d 1297 (8th Cir. 1997), for example, the Eighth Circuit
observed that “Fabe recognizes that the [Pireno analysis] for
determining whether a particular practice constitutes the
business of insurance is relevant only in cases involving a
conflict between state law and federal antitrust law.” /d. at
1305 n. 8. As the Seventh Circuit explained in Autry, the
distinction between the analyses required under the first and
second clauses of § 2(b) “is far from inconsequential,” as
demonstrated by an analysis of the statute at issue in Fabe:
Take, for example, the statute at issue in
Fabe. The state statute at issue regulated
creditor priority in a bankruptcy dissolution”
and gave policyholders a higher preference
than they received under the federal statute. If
we asked only whether the activity in question,
bankruptcy dissolution, was the “business of
insurance” as defined in Pireno, the answer
would be “no.” If the activity in question is
not the “business of insurance,” it would
follow . . . that the statute enacted to regulate
23
it cannot be a statute “enacted ... for the
purpose of regulating the business of
insurance.” Yet, as the Supreme Court noted,
the preferencing of policyholders “serves to
ensure that, if possible, policyholders
ultimately will receive payment on their -
claims.” [Fabe, 508 U.S. at 506]. “Because
the [state] statute is ‘aimed at protecting or
regulating’ the performance of an insurance
contract ... it follows that it is a law ‘enacted
for the purpose of regulating the business of
insurance’ within the meaning of the first
clause of § 2(b).” [/d. at 505] (citation
omitted).
Autry, 144 F.3d at 1042. The First, Fourth, Tenth, and
Federal Circuits have, relying on Fabe, likewise given broad
effect to the first clause of § 2(b) and the purpose of the state
law at issue without regard to whether the conduct regulated
by the state law is itself within the “business of insurance”
under the Pireno antitrust criteria. See Ruthardt v. United
States, 303 F.3d 375, 380-384 (1st Cir. 2002) (applying Fabe
broadly to provisions of Massachusetts statute governing
priority of claims against insolvent insurers); Trigon, 367
F.3d at 230-231 (finding Virginia insurance laws requiring
reimbursement to all providers willing to provide covered
services were enacted “to manage the relationship between the
policyholder and the insurance company”); Davister Corp. v.
United Republic Life Ins. Co., 152 F.3d 1277, 1279-1282
(10th Cir. 1998) (finding Utah statute consolidating and
staying all proceedings against an insolvent insurance
company to have been enacted “to protect policyholders”
within the meaning of the first clause of § 2(b)); Greene v.
United States, 440 F.3d 1304, 1309-1317 (Fed. Cir. 2006)
(observing that Fabe “rejected the notion that ‘regulation of -
24
insurance’ was restricted to the ‘business of insurance,’”
making clear that the touchstone of regulation is instead the
extent to which it protects policyholders”) (citation omitted)
(emphasis in original).
Notwithstanding Fabe’s instruction that the focus under
the first clause of § 2(b) is on the purpose of the state law as
opposed to the specific activity being regulated, the Second,
Ninth and Eleventh - and apparently the Sixth — circuits
continue to apply the Pireno antitrust factors narrowly to
determine whether the practice at issue falls within the
“business of insurance” even in cases that do not involve the
McCarran-Ferguson Act’s antitrust exemption. See, e.g.,
Stephens v. American International Co. , 66 F.3d 41, 44 (2nd
Cir. 1995); Merchants Home Delivery Service, Inc. v. Frank
B. Hall & Co., Inc., 50 F.3d 1486, 1490 (9th Cir. 1995);
Blackfeet National Bank v. Nelson, 171 F.3d 1237, 1246
(11th Cir. 1999).
As demonstrated by these divergent decisions, there has
been substantial confusion and conflict among the circuits in
the post-Fabe era as to Fabe’s instruction that the analysis
under the first clause of § 2(b) should broadly focus on the
purpose of the state law and whether it is “‘aimed at
protecting or regulating [the] relationship [between insurer
and insured], directly or indirectly.’” Fabe, 508 U.S. at 501.
By issuing a writ of certiorari in this case and clarifying that
the narrow Pireno criteria apply only in antitrust cases under
the second clause of § 2(b), this Court can provide much-
needed guidance to the lower courts.
25
IV. EVEN UNDER THE NARROW ANALYSIS
EMPLOYED IN PIRENO AND ROYAL DRUG,
THE SIXTH CIRCUIT ERRED IN FINDING
THAT MICHIGAN’S REGULATION OF
PROVIDER REIMBURSEMENT
ARRANGEMENTS DOES NOT BENEFIT
POLICYHOLDERS
In further support of its decision in this case, the Sixth
Circuit relied heavily on this Court’s decision in Royal Drug,
which, like Pireno, involved a narrow application of § 2(b)’s
antitrust exemption provision. Not only is Royal Drug
inapposite for that reason, but even under the analysis
employed in Royal Drug, there can be no dispute that
BCBSM’s _ statutorily-mandated and _heavily-regulated
reimbursement arrangements with medical providers satisfy
the Pireno criteria.
In Royal Drug, this Court was faced with whether
pharmacy discount agreements between the defendant insurer
and participating pharmacies were exempt from federal
antitrust laws pursuant to the second clause of § 2(b). Royal
Drug explained the operation of those agreements as follows:
If the »harmacy selected by the insured has entered
into a Pharmacy Agreement” with Blue Shield, and
is therefore a participating pharmacy, the insured is
required to pay only $2 for every prescription drug.
The remainder of the cost is paid directly by Blue
Shield to the participating pharmacy. If, on the other
hand, the insured selects a pharmacy which has not
entered into a Pharmacy Agreement, and is therefore
a non-participating pharmacy, he is required to pay
26
the full price charged by the pharmacy. The insured
may then obtain reimbursement from Blue Shield for
75% of the difference between that price and $2.
440 U.S. at 209.
The Court in Royal Drug held that because the pharmacy
agreements served only to minimize the insurer’s costs and
did not affect its policyholders, those agreements did not
“involve any underwriting or spreading of risk, but are
merely arrangements for the purchase of goods and services.”
Id. at 214. This was because “[t]he benefit promised to Blue
Shield policyholders is that their premiums will cover the cost
of prescription drugs except for a $2 charge for each
prescription. So long as that promise is kept, policyholders
are basically unconcerned with arrangements made between
Blue Shield and _ participating pharmacies.” Id.
Consequently, Royal Drug held that the agreements were not
part of the “business of insurance” that is immune from
antitrust scrutiny.
There are two fundamental problems with the Sixth
Circuit’s instant reliance on Royal Drug. First, pursuant to
Fabe, the issue in this case is not whether reimbursement
arrangements between an insurer and a medical provider are,
themselves, part of the “business of insurance.” The issue,
instead, is whether Michigan’s comprehensive regulation of
provider agreements and reimbursement of claims is “‘aimed
at protecting or regulating’ the performance of an insurance
contract.” Fabe, 508 U.S. at 50S. Michigan’s regulatory
scheme controlling provider plans and reimbursement
arrangements in order to limit costs is, under Fabe, “‘aimed
at protecting or regulating’ the performance of an insurance
contract” because it protects BCBSM’s policyholders and
27
assures them reasonable access to quality health care, the cost
of which is closely regulated.
Second, even under the more narrow analysis employed
in Royal Drug, the same result would obtain because the
“discount” pharmacy agreements at issue in Royal Drug are
not like Michigan’s statutorily mandated reimbursement
arrangements. In Royal Drug, the Court observed that the
discount pharmacy agreements were “ancillary” to the
contracts between the insurer and its policyhoiders because
they had no effect on policyholders, who were entitled to
obtain prescription drugs from participating pharmacies for
$2. The Court held that whatever arrangements the insurer
made on its own to fulfill that obligation were no different
than any other business decision. 440 U.S. at 214-216.
Here, in contrast, Michigan has established a comprehensive
statutory health care insurance system whereby its provisions
regulating reimbursement of providers make that process an
integral part of the relationship between BCBSM,, its insureds,
and its providers. Michigan law requires the use of
BCBSM’s provider reimbursement arrangements for all
providers, and does so for the express statutory purposes of
controlling health care costs and ensuring affordable and
quality health care to the citizens of Michigan.
In support of its conclusion that provider reimbursement
arrangements do not affect policyholder risk, and are not-
integrally related to BCBSM’s relationship with its
policyholders, the Sixth Circuit reasoned that policyholders
are “largely unconcerned” with provider reimbursement
arrangements “so long as the policyholders are provided with
gynecological services.” App. at 15a. Such a view
disregards the manner in which BCBSM’s regulated provider
reimbursement arrangements impact the availability, quality,
and cost of a myriad of health care services, and not just the
28
“gynecological services” that happen to be at issue in this
case. To limit policyholders’ interests to whether or not
“gynecological services” are provided disregards today’s
insurance reality, with copayments, deductibles, participating
providers, and regulated costs for services, all of which have
an impact on the cost of insurance to the policyholder, as well
as the availability of quality providers across the state of
Michigan and elsewhere in this country.
Contrary to the Sixth Circuit’s decision, the district court
in Everson, 898 F. Supp. at 543, properly recognized the
relationship between reimbursement arrangements and
policyholders’ cost of insurance and distinguished Royal Drug
on that basis, finding it inapplicable to the court’s review of
the provider agreements at issue in that case:
The [Royal Drug| Court determined that the
pharmacy agreements served only to minimize
the cost the insurer incurred fulfilling its
underwriting obligations. The benefit to
policyholders, however, was not
affected ... . The Court determined that the
agreements did not affect the risk that the
insured may suffer a financial loss arising from
the purchase of prescription drugs, nor did it
affect the relationship between the insurer and
insured... .
As plaintiffs argue in the instant case, under
the terms of the insurance policies, the
provider’s discount agreements must be taken
into account in calculating the policyholder’s
copayments. This directly affects the amount
of the copayment, and, as such, the
policyholder’s risk of suffering financial loss.
29
Michigan’s statutory regulation of provider reimbursement
arrangements is likewise no mere cost-cutting measure. To
the contrary, it directly affects the number of hospitals and
doctors available to BCBSM’s policyholders by establishing
a network of providers who have agreed to provide health
care services meeting statutorily-mandated standards of
reasonable cost and quality of health care services. BCBSM’s
policyholders therefore have the option of obtaining services
through participating providers or, alternatively, seeking
medical services from a non-participating provider at a higher
cost, i.e., at the risk of being required to pay more for such
services than for services from a provider who has agreed to
a statutorily-regulated reimbursement arrangement. Thus, the
Sixth Circuit’s assertion that BCBSM’s policyholders are
“largely unconcerned” with Michigan’s regulation of
BCBSM’s provider reimbursement arrangements lacks merit
even under Pireno and Royal Drug.
The Sixth Circuit’s fundamental misunderstanding of the
Pireno factors as applied to Michigan’s comprehensive
regulation of BCBSM’s provider reimbursement arrangements
provides yet another basis for granting certiorari in this case.
30
CONCLUSION
For all of the reasons stated, BCBSM respectfully requests
that this Court grant its petition for a writ of certiorari.
Respectfully Submitted
JOSEPH A. FINK
Counsel of Record
KATHLEEN A. LANG
PHILLIP J. DEROSIER
DICKINSON WRIGHT PLLC
500 Woodward Avenue, Suite 4000
Detroit, Michigan 48226-3425
(313) 223-3500
JOSEPH W. MURRAY
Blue Cross Blue Shield of Michigan
600 E. Lafayette Boulevard, Suite 1925
Detroit, Michigan 48226
(313) 225-7830
Counsel for Petitioner
la
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
No. 04-2486
[Filed June 9, 2006]
MICHAEL A. GENORD, M_D.,
ET AL.,
Plaintiffs-Appellees,
V.
BLUE CROSS & BLUE SHIELD OF
MICHIGAN,
Defendant-Appellant.
Nee eee ee eee ee”
BEFORE: RYAN, CLAY, and GILMAN, Circuit Judges.
ORDER
The court having received a petition for rehearing en
banc, and the petition having been circulated not only to the
original panel members but also to all other active judges of
this court, and no judge of this court having requested a vote
on the suggestion for rehearing en banc, the petition for
rehearing has been referred to the original panel.
2a
The panel has further reviewed the petition for rehearing
and con¢ludes that the issues raised in the petition were fully
considered upon the original submission and decision of the
ease. Accordingly, the petition is denied.
3a
APPENDIX B
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
No. 04-2486
[Filed March 14, 2006]
MICHAEL A. GENORD, M.D., JOHN _)
R. SANBORN, M.D., PAULA M. )
FISHBAUGH, M.D., ANDREA L. )
SCHILLER, M.D., MARK D. )
DYKOWSKI, M.D., JOHN E. ECKELE, )
M.D., and BETTY S. CHU, M.D., )
Plaintiffs-Appellees, )
)
)
)
)
)
)
)
Ve
BLUE CROSS & BLUE SHIELD OF
MICHIGAN,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit
BEFORE: RYAN, CLAY, and GILMAN, Circuit Judges.
4a
OPINION
RONALD LEE GILMAN, Circuit Judge. The named
gynecologists sued Blue Cross & Blue Shield of Michigan,
alleging that Blue Cross had fraudulently denied their claims
in violation of both the Racketeer Influenced and Corrupt
Organizations Act (RICO), 18 U.S.C. § 1964°®, and various
state laws. Blue Cross moved for dismissal on the ground
that the district court lacked subject matter jurisdiction
because the civil RIO action was “reverse preempted” by.
Michigan law in accordance with a provision of a federal
statute commonly known as the McCarran-Ferguson Act, 15
U.S.C. § 1012. The district court denied Blue Cross’s
motion, thus allowing the civil RICO claim to proceed. After
ihe district court certified the issue for interlocutory appeal,
a panel of this court exercised its discretion to grant Blue
Cross’s petition to have the jurisdictional issue decided on an
interlocutory basis. For the reasons set forth below, we
AFFIRM the judgment of the district court.
I. BACKGROUND
A. Michigan’s Nonprofit Health Care Corporation
Reform Act
Blue Cross is a “health care corporation” that is regulated
extensively by the Michigan Commissioner of Insurance
~ under the Nonprofit Health Care Corporation Reform Act,
Michigan Compiled Laws §§ 550.1101-1704 (Health Care
Act). Under the Health Care Act, Blue Cross is required to
enter into reimbursement agreements with various medical
providers. Mich. Comp. Laws § 550.1504(1) (“A health care
corporation shall, with respect to providers, contract with or
enter into a reimbursement arrangement to assure subscribers
reasonable access to, and reasonable cost and quality of,
Sa
health care services....”). Several provisions of the Health
Care Act regulate the content of the reimbursement
agreements. See, e.g., Mich. Comp. Laws § 550.1502
(setting forth licensing requirements that must be met before
providers are eligible to participate).
Under the Act, Blue Cross can also. structure
reimbursement plans for an entire class of providers, such as
“medical doctors” or “pharmacies.” See Mich. Comp. Laws
§§ 550.1505-1509. Such a provider-class plan requires the
approval of the Michigan Commissioner of Insurance to
ensure that the plan advances the goals set forth in the Health
Care Act. Mich. Comp. Laws §§ 550.1504, 550.1506
(including goals such as assuring the availability and quality
of medical services). Individual provider agreements in turn
contain provisions implementing such provider-class plans.
The reimbursement agreements require that the providers
request payment for services rendered to Blue Cross’s
individual policyholders by submitting to Blue Cross a claim |
form containing standardized billing codes. Participating
providers must agree to accept payment at the regulated rate
as payment in full for their services covered under the plan.
Mich. Comp. Laws §§ 550.1107(2), 550.1502(1).
B. The doctors
The doctors sued on their own behalf and on behalf of a
“statewide class of persons defined as all physicians
performing gynecological medical services who, from
November 1, 2002, to the date of certification, provided any
services to any patient insured by or who was a member or
beneficiary of any plan administered by Detendant.”
November 1, 2002 is the date on which the doctors allege that
Blue Cross changed its billing codes for gynecological
6a
services and started systematically denying payment. At the
time the district court ruled on Blue Cross’s motion to
dismiss, the class had not yet been certified.
C. The claims asserted by the doctors
In their amended complaint, the doctors allege four counts
against Blue Cross: a civil RICO claim, an alleged violation
of Michigan Compiled Laws § 500.2006 for failing to remit
payment to the doctors within 45 days, and common-law
Clairss of breach of contract and unjust enrichment. The
district court had supplemental jurisdiction over the state-law
claims.
In order to make out a civil RICO claim, the doctors must
establish that they were “injured in [their] business or
property by reason of a violation” of the criminal RICO
provisions contained in 18 U.S.C. § 1962. See 18 U.S.C.
Section 1964©. If such a claim is successful, they are entitled
to treble damages and attorney fees. /d.
The doctors in this case claimed that, after Blue Cross
changed its gynecological billing codes, it and other affiliated
entities constituted an “enterprise” that, through a “common
scheme, systematically denied and delayed payments due to
physicians..., improperly paid reduced amounts, or made the
claims process so daunting that some claims were simply
abandoned or otherwise lost.” According to the doctors, this
scheme was perpetuated by Blue Cross falsely rejecting claims
for payment through mailings and transmittals by wire
(violations of 18 U.S.C. § 1341 for mail fraud and of 18
U.S.C. § 1343 for wire fraud).
Ta
D. Blue Cross's motion to dismiss
Blue Cross filed a motion under Rules 12(b)(1) and
12(b)(6) of the Federal Rules of Civil Procedure to dismiss
the civil RICO claim and the Michigan Compiled Laws
Section 500.2006 claim for failure to timely remit payment.
The district court granted Blue Cross's motion as to the
Section 500.2006 claim because the Michigan statute does
not provide for a private right of action.
In its motion to dismiss the civil RICO claim, Blue Cross
argued that the district court lacked subject matter jurisdiction
because the McCarran-Ferguson Act prevents the invocation
of a private right of action under RICO. The district court
denied Blue Cross’s motion, thus allowing this part of the
case to proceed. On appeal, Blue Cross is challenging the
district court’s ruling only as to the civil RICO count and not
as to the § 500.2006 count.
If. ANALYSIS
A. Standard of review
Blue Cross argues that the district court lacked subject
matter jurisdiction over the doctors’ civil RICO claim. We
review the district court’s decision on this issue de novo.
Simon v. Pfizer Inc., 398 F.3d 765, 772 (6th Cir. 2005)
(“District Court decisions on motions to dismiss under
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) are
generally subject to a de novo standard of review.”).
8a
B. The McCarran-Ferguson Act and “reverse
preemption”
The McCarran-Ferguson Act declares that “the business
of insurance, and every person engaged therein, shall be
subject to the laws of the several States which relate to the
regulation or taxation of such business.” 15 U.S.C. Section
1012(a). In the section specifically relied upon by Blue
Cross, the Act provides that “no Act of Congress shall be
construed to invalidate, impair, or supersede any law enacted
by any State for the purpose of regulating the business of
insurance, ...unless such Act specifically relates to the
business of insurance....” 15 U.S.C. § 1012(b). Federal law
thus provides for “reverse preemption” in the realm of
regulating the insurance business. AmSouth Bank v. Dale,
386 F.3d 763, 780-83 (6th Cir. 2004) (discussing the concept
of reverse preemption under the McCarran-Ferguson Act).
A general federal law that does not specifically relate to the
business of insurance, therefore, cannot be construed to
“invalidate, impair, or supersede” a state law enacted to
regulate the insurance business. 15 U.S.C. § 1012(b).
The McCarran-Ferguson Act, however, provides an
“antitrust exception” to the reverse-preemption rule. After
setting forth the above rule, the Act goes on to say that the
Sherman Act, the Clayton Act, and the Federal Trade
Commission Act “shall be applicable to the business of
insurance to the extent that such business is not regulated by
State law.” /d.
In its motion to dismiss the civil RICO claim, Blue Cross
argued that Michigan’s Health Care Act was enacted to
regulate the business of insurance, and that the doctors’
claims would “invalidate, impair, or impede” the state’s law.
9a
This claim must be analyzed under the McCarran-Ferguson
Act.
Pursuant to the Act, we are required to answer three
questions. The threshold question is whether the federal
Statute at issue “specifically relates to the business of
insurance.” If it does, then the McCarran-Ferguson Act by
its own terms does not allow for reverse preemption. See 15
U.S.C. § 1012(b) (setting forth as an exception to the reverse-
preemption rule a case in which the federal law in question
“specifically relates to the business of insurance”). If not,
then there are two remaining questions that both must be
answered in the affirmative in order to conclude that
application of a federal law is reverse preempted by the
existence of a state law. Once is whether the state statute at
issue was “enacted... for the purpose of regulating the
business of insurance.” The other is whether the application
of the federal statute would “invalidate, impair, or supersede”
the state statute. Kenty v. Bank One, Columbus, N.A., 92
F.3d 384, 392 (6th Cir. 1996) (setting forth the McCarran-
Ferguson Act analysis).
Both parties agree that the civil RICO statute does not
specifically relate to the business of insurance. See also id.
at 391 (holding as a preliminary matter that “RICO does not
‘specifically relate to the business of insurance’”). The other
two questions required to be answered by the Act remain.
C. Whether the Health Care Act was “enacted for the
purpose of regulating the business of insurance”
The Supreme Court in United Labor Life Insurance Co. v.
Pireno, 458 U.S. 119, 129, 102 S- Ct. 3002, 73 L. Ed. 2d
647 (1982), addressed the antitrust exception of the
McCarran-Ferguson Act and set forth three criteria for what
10a
\
constitutes the “business of insurance”: (1) “whether the
practice has the effect of transferring or spreading a
policyholder’s risk,” (2) “whether the practice is an integral
part of the policy relationship between the insurer and the
insured,” and (3) “whether the practice is limited to entities
within the insurance industry.” Affirmative responses to
these criteria indicate that the practice is the “business of
insurance,” but “none of these criteria is necessarily
determinative in itself.” /d.
Eleven years later, in United States Department of
Treasury v. Fabe, 508 U.S. 491, 501-05, 113 S. Ct. 2202,
124 L. Ed. 2d 449 (1993), the Supreme Court discussed the
general rule of the McCarran-Ferguson Act, asking whether
a state’s insolvency-priority statute could be classified as a
law “enacted... for the purpose of regulating the business of
insurance.” The Court held that the Act’s gencral rule covers
a “broad category of laws... [that] necessarily encompasses
more than just the ‘business of insurance.’” Jd. at 505.
In Owensboro National Bank v. Stephens, 44 F.3d 388
(6th Cir. 1994), this court explained the interaction between
Pireno and Fabe. The court stated that “whether a particular
activity is part of the ‘business of insurance’ is, of course, a
separate question from whether a state law was ‘enacted... for
the purpose of regulating the business of insurance.’” /d. at
392. The Pireno inquiry concerning whether an activity is
part of the “business of insurance,” however, can inform the
Fabe inquiry of whether a law was “enacted... for the
purpose of regulating the business of insurance.” (emphasis
added). Stephens thus held that “to have been ‘enacted... for
the purpose of regulating the business of insurance,’ [the state
law] must possess the aim of regulating activities that meet the
Pireno criteria” set forth above. /d. Each Pireno criteria will
therefore be addressed in turn.
lla
Il. Does the Health Care Act have the aim of regulating
a practice that has the effect of transferring or
spreading policyholder risk?
In Group Life & Health Insurance Co. v. Royal Drug Co.,
440 U.S. 205, 211, 99S. Ct. 1067, 59 L. Ed. 2d 261 (1979),
the Supreme Court was faced with the question of whether
certain agreements between Blue Shield (operated by Group
Life) and various pharmacies constituted the “business of
insurance.” If someone insured by Blue Shield purchased a
prescription drug from a pharmacy that had signed a
“pharmacy agreement” with Blue Shield, the insured was
required to pay only $2.00 for each prescription. /d. at 209.
Blue Shield would then pay the balance of the prescription
cost to the pharmacy. Jd. Pharmacies without “pharmacy
agreements” brought an antitrust action, alleging violations of
the Sherman Act. /d. at 207. The Court held that the
pharmacy agreements were not part of the “business of
insurance” because they did not transfer or spread
policyholder risk, but “served only to minimize the costs Blue
Shield incurred in fulfilling its underwriting obligations.” /d.
at 213-14. “Such cost-savings arrangements may well be
sound business practice, and may well inure ultimately to the
benefit of policyholders in the form of lower premiums, but
they are not the ‘business of insurance.’” /d. at 214.
Turning to the present case, the doctors’ allegations deal
with the denial and delay of reimbursement payments due
them for services rendered. Their claims, as in Royal Drug,
relate to how a company like Blue Cross goes about making
health care services available to its policyholders. In Royal
Drug, Blue Shield provided $2.00 prescriptions to its
policyholders by way of pharmacy agreements. Here, the
Health Care Act allows Blue Cross to make gynecological
services available to its policyholders by way of
}2a
reimbursement agreements with doctors that require the
doctors to send their invoices to Blue Cross containing the
disputed billing codes. Neither type of agreement (the
pharmacy agreement or the billing-code-reimbursement
agreement) can be said to transfer or spread policyholder risk.
Royal Drug, 440 U.S. at 213. The first Pireno criterion is
therefore unsatisfied on the facts of this case.
2. Does the Health Care Act have the aim of regulating
a practice that is an integral part of the policy
relationship between the insurer and the insured?
Fabe is instructive with respect to this second Pireno
criterion. In Fabe, the Supreme Court addressed the
application of the McCarran-Ferguson Act to the clash
between a state bankruptcy statute and the federal Bankruptcy
Code over the priority of payments when an insurance
company is liquidated. Fabe, 508 U.S. at 493, 502. First
priority is to the United States Government under the federal
bankruptcy provision, whereas the state statute prioritizes
administrative expenses, certain wage claims, policyholders’
claims, and claims of general creditors above claims of the
federal government. /d. at 495-96. The Court focused on the
provisions of the state bankruptcy statute that go to the “actual
performance of an insurance contract” because those
provisions are an “essential part of the ‘business of
insurance.’” /d. at 505, 509 n.8. According to the Court,
the preference for the policyholders’ claims was enacted “‘for
the purpose of regulating the business of insurance’ to the
extent that it serves to ensure that, if possible, policyholders
ultimately will receive payment on their claims.” /d. at 506.
The administrative-expenses priority also falls into that
category because “the expenses of administering the
insolvency proceeding [are] reasonably necessary to further
the goal of protecting policyholders.” /d. at 509. As to “the
13a
preferences conferred upon employees and other general
creditors, nowever, [they] do not escape pre-emption because
their connection to the ultimate aim of insurance is too
tenuous.” /d.
Fabe thus stands for the proposition that, in determining
what is integral to the policy relationship, the focus ts on the
extent to which the state law furthers the interests of the
policyholders. Royal Drug also supports that conclusion,
noting that Blue Shield had promised its policyholders to
provide them with prescription drugs at a cost of $2.00 per
prescription, and “so long as that promise is kept,
policyholders are basically unconcerned with arrangements
made between Blue Shield and participating pharmacies.”
Royal Drug, 440 U.S. at 214. What constitutes an “integral
part of the policy relationship” is therefore determined by
reference to the interests of the policyholders.
Recognizing that the focus is on the interests of the
policyholders, Blue Cross argues that, because the billing
arrangements between it and the doctors may result in a lower
health care cost to the public, the arrangements are an integral
part of the policy relations’.ip. But this is an argument that
the Royal Drug Court corsidered and rejected:
At the most, the petitioners have demonstrated that the
Pharmacy Agreements result in cost savings to Blue
Shield which may be reflected in lower premiums if
the cost savings are passed on to policyholders. But,
in that sense, every business decision made by an
insurance company has some impact on its reliability,
its rate making, and its status as a reliable insure....
Such a result would be plainly contrary to the
statutory language, which exempts “the business of
l4a
insurance” and not the “business of insurance
companies.”
Id. at 216-17.
In this case, Blue Cross fails to explain how the Health
Care Act’s regulation of the billing-code invoicing
arrangement with health care providers furthers the interests
of the policyholders. Contrary to Blue Cross’s argument, this
is not a case like Fabe where the state law requires the
insurance company to pay the claims of the policyholders (a
true case of “actual performance” of an insurance contract).
The claims in dispute here are those of the medical providers,
not the policyholders. This case is therefore more like Royal
Drug because the policyholders are unconcerned with the
reimbursement arrangements between Blue Cross and the
doctors so long as they receive medical treatment as
contemplated by their agreement with Blue Cross. See Royal
Drug, 440 U.S. at 214. Because the provider-agreement and
resmbursement provisions of the Health Care Act do not have
the aim of regulating a practice that is an integral part of the
policy relationship between the insurer and the insured,
Pireno’s second criterion is unsatisfied on the facts of this
case.
3. Does the Health Care Act have the aim of regulating
a practice that is limited to entities within the
insurance industry?
In Pireno, the Supreme Court noted that this inquiry is not
dispositive, but nonetheless is “mandated by the Royal Drug
analysis.” Pireno, 458 U.S. at 133. The Court held that
there is not a per se rule that practices involving
noninsurance-industry entities always fall outside of the
“business of insurance.” /d. Rather, courts should take this
15a
factor into account because “arrangements between insurance
companies and parties outside the insurance industry can
hardly be said to lie at the center of [the] legislative concern”
of “protecting intra-industry cooperation in the underwriting
of risks.” /d. (citation and quotation marks omitted).
Blue Cross does not argue that the doctors involved in this
litigation are “entities within the insurance industry.” And,
as set forth in Part II.C.1. above, the billing arrangements
between Blue Cross and the doctors do not involve the
spreading of risk. The provisions of the Health Care Act
relating to those billing arrangements therefore “can hardly be
said to lie at the center of... legislative concern.” /d. Asa
result, the third Pireno criterion is also unsatisfied.
In sum, none of the three Pireno criteria are met in this
case. The billing arrangements do not transfer or spread
policyholder risk, but instead allow Blue Cross to furnish
gynecological services to its policyholders by way of third-
party providers. The parts of the Health Care Act at issue are
also not an integral part of the policy relationship because the
policyholders are largely unconcerned with how the doctors
get paid, so long as the policyholders are provided with
gynecological services. And finally, because the doctors are
not entities within the insurance industry, the Health Care Act
provisions relating to their billing arrangements do not “lie at
‘the center of... legislative concern” of the McCarran-
Ferguson Act. /d.
D. Whether the civil RICO claim would “invalidate,
impair, or supersede” Michigan’s Health Care Act
The provisions of the Health Care Act that are at issue
simply do not “possess the aim of regulating activities that
meet the Pireno criteria.” Stephens, 44 F.3d at 392. Because
l6a
the reimbursement provisions were not “enacted... for the
purpose of regulating the business of insurance,” we need not
reach the remaining McCarran-Ferguson-Act issue of whether
the application of the civil RICO «ite “invalidates, impairs,
or supersedes” the Health Care Act. See 15 U.S.C. Section
1012(b). Blue Cross’s claim of reverse preemption therefore
fails and the doctors’ civil RICO claim should be allowed to
proceed.
Il. CONCLUSION
For all of the reasons set forth above, we AFFIRM the
judgment of the district court.
17a
APPENDIX C
_—_—___
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
No. 04-2486
[Filed March 14, 2006]
MICHAEL A. GENORD, M.D., JOHN _ )
R. SANBORN, M.D., PAULA M. )
FISHBAUGH, M.D., ANDREA L. )
SCHILLER, M.D., MARK D. )
DYKOWSKI, M.D., JOHN E. ECKELE, )
M.D., and BETTY S. CHU, M.D., )
Plaintiffs-Appellees, )
)
)
)
)
)
)
)
¥.
BLUE CROSS & BLUE SHIELD OF
MICHIGAN,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit
BEFORE: RYAN, CLAY, and GILMAN, Circuit Judges.
18a
JUDGMENT
THIS CAUSE was heard on the record from the district
court and was argued by counsel.
IN CONSIDERATION WHEREOF, it is ORDERED that
the judgment of the district court is AFFIRMED.
ENTERED BY ORDER OF THE COURT
/s/
Leonard Green, Clerk
19a
APPENDIX D
UNITED STATES COURT DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
No. 03-CV-72950-DT
[Filed July 29, 2004]
MICHAEL A. GENORD, M.D.,
ET AL.,
Plaintiffs ,
Vv.
BLUE CROSS & BLUE SHIELD OF
MICHIGAN,
Defendant.
ee i i i i a
OPINION AND ORDER GRANTING IN PART
AND DENYING IN PART DEFENDANT’S
MOTION TO DISMISS
This matter is presently before the court on defendant’s
motion to dismiss the first amended complaint pursuant to
Fed. R. Cir. P. 12(b)(1) and 12(b)(6). The issues have been
fully briefed and the court has heard oral argument. For the
reasons stated below, the court shall grant the motion in part
and deny it in part.
20a
Plaintiff Michael Genord, M.D., and six other
gynecologists allege that defendant Blue Cross and Blue
Shield of Michigan (“BCBSM”) has failed to pay their
legitimate claims -for gynecological services. Plaintiffs
indicate they are bringing the case on their own behalf, as
well as on behalf of more than 5,000 other similarly situated
Michigan gynecologists. Although they have not yet moved
for class certification, plaintiffs allege in { 12 of the amended
complaint that the class should be defined as “all physicians
performing gynecological medical services who, from
November 1, 2002, to the date of certification, provided
services to any patient insured by or who was a member or
beneficiary of any plan administered by Defendant.”
Plaintiffs allege that in the spring of 2002 defendant
changed its billing codes for gynecological services. Plaintiffs
allege that although they complied with defendant’s
instructions regarding the use of the new codes, defendant has
routinely denied legitimate claims on the grounds that the
incorrect codes were being used, or delayed payment
unjustifiably, or “made the claims process so daunting that
some claims were simply abandoned.” Plaintiffs indicate that
they verified the correct codes were being used and then
resubmitted the claims, which were denied again. Plaintiffs
do not quantify the amount of the allegedly unpaid claims.
They seek unspecified damages for the amount of unpaid
claims, plus the costs associated with tracking and
resubmitting claims.
Federal subject matter jurisdiction is based on Count I of
the amended complaint in which plaintiffs assert a claim under
the Racketeer Influenced and Corrupt Organizations Act
21a
(“RICO”), 18 U.S.C. §§ 1961, et seq.’ Plaintiffs allege that
the denial and underpayment of their claims is being —
perpetuated by “the BCBSM Enterprise,” consisting of
BCBSM and the companies which are involved in processing
claims.’ Plaintiffs allege that defendant uses this enterprise to
systematically deny or delay or underpay claims, and that
RICO is violated because defendant has engaged in many
instances of mail and wire fraud, which plaintiffs argue come
within RICO’s definition of racketeering activity.
Paragraph 25 of the amended complaint makes the
following allegations regarding the manner in which the
BCBSM Enterprise operates:
' Plaintiffs also assert claims for breach of contract (Count II),~
violation of M.C.L. § 500.2006 (Count III), and unjust enrichment
(Count IV).
* Para. 23 of the amended complaint alleges that the following
entities constitute the BCBSM Enterprise:
(1) Defendant and its subsidiaries that provide healthcare
services to tens of thousands of enrollees in various
healthcare plans statewide; (2) other health insurance
companies not named as defendants; (3) HBOC McKesson
and other third-party entities which develop claims
processing systems or components for BCBSM; (4)
BCBSM Claims Support and all other third-patty entities
utilized by Defendant to facilitate claims processing; and
(5) Electronic Data Interchange (“EDI”). These entities are
associated in fact as part ofa healthcare network with the
common purpose of facilitating medical services, through
coding procedures and claims processing, and earning
profits from providing those services.
22a
25.In order to retain monies and interest owed
physicians in the manner set forth above,
Defendant needs a system that allows it to
manipulate and control reimbursements to
physicians and conceal the manner m which it is
done. The BCBSM Enterprise provides Defendant
with that system and ability, and their control of
and participation in it is necessary for the
successful operation of the scheme. Defendant
controls and operates the BCBSM Enterprise and
conducts and participates in the Enterprise’s affairs
as follows:
A. By designing, developing, and implementing
new computer systems to process new coding
guidelines and claims processing procedures to
be used in order to reimburse provider claims;
B. By disseminating and distributing those new
coding guidelines and claims processing
information through meetings,
correspondence, and publications, including
The Record, at which attendees and recipients
share and receive billing information;
C. By approving, engaging, and requiring coding
guidelines, standards and forms to be used by
its subsidiaries, third-party entities, claims
support, EDI, and others, instructions, such as
through The Record and _ other
correspondence, to systematically and
routinely deny clean claims;
D. By dictating the use of those coding guidelines,
stavdards and instructions within the new
23a
computer system to systematically mad
routinely deny and delay payment of clean
claims.
E. By directing, engaging and paying HBOC
McKesson and other third-party entities to
develop the automated systems for editing and
manipulating the claims information which
systematically and routinely deny clean claims;
and
F. By dictating and supporting BCBSM Claims
Support, EDI and other third-party entities as
a common entry point for physician claim data
to assist Defendant in processing claims in a
coordinated fashion in which they axe
systematically and routinely denied.
Plaintiffs further allege that BCBSM committed wire and
mail fraud by making faise representations in “agreements,
manuals, guidelines, instructions, newsletters, correspondence
and similar information related to the new coding scheme.”
Amended Complaint § 26. Specifically, plaintiffs allege:
27.The false and _ fraudulent mater and
misrepresentations sent by Defendant via the
Postal Service or wire and on which Plaintiffs
relied, include:
A. The April 2002 Issue Of The Record
(Defendant's Physician Publication).
BCBSM notified its providers of changes in
coding procedure that had gone into effect on
November 27, 2001, for annual gynecological
exams, requiring providers to begin using an
B.
24a
S code combined with an E&M code,
otherwise, providers would not be reimbursed;
despite these representations to providers that
BCBSM’s new system was ready to accept the
new codes and therefore pay provider claims,
clean claims submitted under these codes were
systematically and routinely rejected by
BCBSM;
The January 2003 Issue Of The Record.
BCBSM notified providers that it would start
accepting the Q code for payment beginning
September 2002; however, despite these
representations that BCBSM’s system would
accept this code and pay provider claims,
BCBSM’s system did not accept this code and
clean claims submitted under this code were
systematically and routinely rejected by
BCBSM;
. Correspondence From BCBSM. Sonia A.
Parks, M.D., a BCBSM employee in the
Physician’s Ombudsman Department, sent a
letter to Plaintiff Genord dated February 7,
2003, again representing that if the physicians
followed BCBSM billing codes and
instructions, they would be timely paid.
Relying on these further representations and
requirements to be followed in order to have
claims reimbursed, Plaintiffs continued to
submit claims accordingly. These clean
claims, however, were still systematically and
routinely rejected by BCBSM.
25a
D. Additional Correspondence. Additional
correspondence from BCBSM which concealed
or failed to disclose that BCBSM would and
did use techniques, procedures, systems and
software that deprived or delayed Plaintiffs
and class members of payment on clean claims
submitted in accordance with BCBSM
instructions, representations, and
requirements;
A Letter From BCBSM Vice President Of
Medical Affairs. Chief Medical Officer
Thomas L. Simmer, M.D. of BCBSM sent a
letter to Plaintiff Genord dated March 2003
stating that Defendant has worked diligently in
correcting processing problems which were
allegedly causing the rejections. However,
Defendant failed to rectify the problem
represented [sic], and Defendant continued for
several months to systematically and routinely
reject clean claims submitted and resubmitted
by Plaintiffs in accordance with Defendaiut’s
continued instructions to follow the new
coding procedures; and
Provider Vouchers. Provider vouchers
received by mail and wire from BCBSM and
its third-party entities that facilitated the claims
process, systematically and routinely contained
false rejections of clean claims when BCBSM
was well aware after all of the complaints by
physicians that the rejections created
systematically and routinely by the computer
system were false rejections.
26a
28. Defendant specifically intended to deceive
Plaintiffs mad the class members when it
knowingly transmitted, and continued to transmit,
these misrepresentations, acts of concealment and
failures to disclose through the mail and wires for
the purpose of obtaining or retaining for a period
of time their property for Defendant’s gain.
30. Defendant knew, particularly after months of
correspondence, telephone calls and other forms of
complaints by physicians, that its processing
system would not properly identify, approve and
pay clean claims. Yet, Defendant proceeded to
implement and operate the system and continued
to require Plaintiffs to submit claims and resubmit
rejected claims in accordance with the faulty
system’s coding guidelines despite its knowledge
and the misrepresentations to Plaintiffs that the
system problems were being diligently corrected.
Defendant's Motion to Dismiss
Defendant seeks dismissal for lack of subject matter
jurisdiction and for failure to state a claim. Defendant’s main
argument is that subject matter jurisdiction is lacking because
the RICO claim is barred by the McCarran-Ferguson Act, 15
U.S.C. § 1012, which states:
(a) State regulation
The business of insurance, and every person
engaged therein, shall be subject to the laws of the
several States which relate to the regulation or
taxation of such business.
27a
(b) Federal regulation
No Act of Congress shall be construed to
invalidate, impair, or supersede any law enacted by
any State for the purpose of regulating, the business of
insurance, or which imposes a fee or tax upon such
business, unless such Act specifically relates to the
business of insurance: Provided, That after June 30,
1948, the Act of July 2, 1890, as amended, known as
the Sherman Act, and the Act of October 15, 1914, as
amended, known as the Clayton Act, and the Act of
September 26, 1914, known as the Federal Trade
Commission Act, as amended [15 U.S.C.A. 41 et
seq.], shall be applicable to the business of insurance
to the extent that such business is not regulated by
State law.
(Emphasis added.) Defendant argues that the highlighted
clauses bar plaintiffs’ RICO claim because (1) RICO does not
“specifically relate{] to the business of insurance”; and (2) if
RICO is construed in the manner proposed by plaintiffs, then
the Michigan statutory scheme that regulates BCBSM? will,
in effect, be invalidated, superseded or impaired because that
scheme specifies procedures by which claims are to be paid
and payment disputes are to resolved. Plaintiffs agree that
RICO does not specifically relate to the business of insurance.
However, they argue that the McCarran-Ferguson Act does
not apply, and does not bar their RICO claim, because the
Michigan statute was not “enacted... for the purpose of
regulating the business of insurance.”
> This is the Michigan Nonprofit Health Care Corporation
Reform Act (the “'Nonprofit Act”), M.C.L. §§ 550.1101, et seq.,
passed in 1980.
28a —
Having reviewed the cases and considered the parties :
arguments, the court believes that plaintiffs’ RICO claim is
not barred by the McCarran-Ferguson Act because (1) the
Michigan Nonprofit Health Care Corporation Reform Act (the
“Nonprofit Act”), which regulates BCBSM, was not
“enacted... for the purpose of regulating the business of
insurance,” and (2) the provider contracts at issue in this case
are not part of the “business of insurance.”
Regarding the first point, the Nonprofit Act itself does not
indicate that it has anything to do with regulating the business
of insurance. According to M.C.L. § 550.1102:
(1) It is the purpose of and intent of this act, and
the policy of the legislature, to promote an appropriate
distribution of health care services for all residents of
this state, to promote the progress of the science and
art of health care in this state, and to assure for
nongroup and group subscribers, reasonable access to,
and reasonable cost and quality of, health care
services, in recognition that the health care financing
system is an essential part of the general health,
safety, and welfare of the people of this state. Each
corporation subject to this act is declared to be a
charitable and benevolent institution and its funds and
property shall be exempt from taxation by this state or
any political subdivision of this state.
(2) It is the intention of the legislature that this act
shall be construed to provide for the regulation and
supervision of nonprofit health care corporations by
the commissioner of insurance so as to secure for all
of the people of this state who apply for a certificate,
the opportunity for access to health care services at a
fair and reasonable price.
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(3) It is the public policy of this state that, in the
interest of facilitating access to health care services at
a fair and reasonable price, an alternate, expeditious,
and effective procedure for the resolution of issues
and the maintenance of administrative appeals relative
to provider class plans be established and utilized, and
to that end, the provisions of this act regarding
administrative review of those provider class plans
shall be construed so as to minimize uncertainty and
delays.
Thus, the stated legislative purpose of the Nonprofit Act has
nothing to do with regulating the business of insurance. To
the contrary, the purpose is to “facilitat{e] access to health
care services.”
Further, the Nonprofit Act specifically states that “[a]
health care corporation shall not be subject to the laws of this
State with respect to insurance corporations, except as
provided in this act.” M.C.L. § 550.1201(4). A healthcare
corporation under this statute “is declared to be a charitable
and benevolent institution,” the funds and property of which
are exempt from state and local] taxation. See M.C.L. Section
550.1201(5). The Nonprofit Act also states that “[a] health
care corporation shall not market or transact... any type of
insurance described in... sections 500.600 to 500.644 of the
Michigan Compiled Laws.’
* These sections cover life insurance, disability insurance,
property insurance, marine insurance, inland navigation and
transportation insurance, legal expense insurance, automobile
insurance, casualty insurance, automobile passenger and liability
coverage, surety and fidelity insurance, and reinsurance.
30a
The Michigan Insurance Code defines “insurer” as “any
individual, corporation, association... and any other legal
entity, engaged or attempting to engage in the business of
making insurance or surety contracts.” M.C.L. § 500.106.
Clearly, defendant does not fall within this definition. The
Nonprofit Act states that a healthcare corporation’s name
“shall not include the words insurance, casualty, surety,
health and accident, mutual or other words descriptive of the
insurance or surety business,” M.C.L. § 50.1202(1)®, and
that the purpose of a health care corporation, which must be
indicated in its articles of incorporation, ts to provide “access
to coverage for health care services at a fair and reasonable
price.” M.C.L. § 50.1202(1)(d)(ii). See also M.C.L.
Section 550.1 102(1).
Michigan courts have noted the distinction between an
insurance company and a healthcare corporation under the
Nonprofit Act. The Michigan Supreme Court has held that-
“BCBSM is a unique statutory creation, distinct from a
private insurance company in that it is not carried on as an
insurance business for profit but rather it provides a method
for promoting the public health and welfare in assisting
persons to budget health care costs.” e Cross Blue Shi
of Mich. v. Governor, 422 Mich. 1, 14 (1985) (citations,
internal quotation marks and ellipses omitted).. The Michigan
Court of Appeals has stated that “BCBSM is not an insurance
company, but is a health care corporation.” Blue Cross Blue
Shield of Mich. v. Comm'r of Ins., 179 Mich. App. 246, 252
(1989). See also Opinion of the Michigan Attorney General,
No. 7115, July 30, 2002, p. 2 (“The [Nonprofit] Act’s
provisions clearly demonstrate the Legislature’s intent to
distinguish BCBSM from an insurance business and to
eliminate any confusion in identity with that of an insurance
company .”).
3la
The Nonprofit Act itself, and the cases which have
considered it, make clear that the Nonprofit Act does not
constitute a “law enacted by a[] State for the purpose of
regulating the business of insurance.” The Michigan
legislature has specifically indicated that the Nonprofit Act is
meant “to provide for the regulation and supervision of
nonprofit health care corporations,” not to reguiate or
supervise insurance companies or the business of insurance.
Furthermore, the specific conduct at issue in this ease
cannot be considered part of the “business of insurance”
within the meaning of the McCarran-Ferguson Act. As noted
above, plaintiffs are providers of medical services who allege
that defendant has repeatedly rejected their legitimate claims
seeking payment for services provided to BCBSM
subscribers. The Supreme Court has held that the McCarran-
Ferguson Act, in referring to the “business of insurance,”
intended to focus on “the relationship between the insurance
company and the policyholder.” United States Dept. of
Treasury v. Fabe, 113 S. Ct 2202, 2208, quoting SEC v.
Nat'l Sec., Inc., 393 U.S. 453,460 (1969). In Eabe, the
plaintiff was the state’s superintendent of insurance who was
acting as the liquidator to wind up the affairs of an insolvent
insurance company. The liquidator brought a declaratory
judgment action to establish the priority of various claims.
One of the creditors was the United States. A federal statute
gave top priority to the United States, whereas the Ohio
liquidation statute, which applied only to insolvent insurance
companies, gave the United States and other government
claimants a lower priority. The issue was whether the federal
statute applied, or whether its application was barred by the
McCarran-Ferguson Act. The Court held that the Ohio
statute was a law “enacted for the purpose of regulating the
business of insurance” insofar as it regulated the relationship
between the insurance company and its policyholders, which
32a
the Court had previdusty characterized as the “clear... focus”
of the phrase “business of insurance.” Id. at 2208. The Ohio
priority statute had this effect “to the extent that it serves to
ensure that, if possible, policyholders ultimately will receive
payment on their claims.” Id. at 2210. However, the Court
also held that the Ohio statute was not enacted for the purpose
of regulating the business of insurance “{t]o the extent that it
is designed to further the interests of other creditors,” as
opposed to policyholders. Id. at 2212. Likewise, the
Nonprofit Act’s regulation of the contracts in the present case
is not regulation of the business of insurance because the
contracts are not between an insurance company and its
policyholders.
Further support for the court’s conclusion is found in
Group Life & Health Ins. Co. v. Royal Drug Co., 440 U.S.
205 (1979). In that case, an insurance company entered into
contracts with pharmacies whereby the pharmacies would sell
prescription drugs to policyholders for $2 and obtain the
balance of the drugs’ cost from the insurance company.
Competing pharmacics who were not included in this
arrangement brought an antitrust action against the insurance
company and the participating pharmacies. The issue was
whether these “pharmacy agreements” were included within
the business of insurance and therefore subject to the
exception set forth in the second clause of §2(b) of the
McCarran-Ferguson Act. In concluding that the agreements
did not constitute the business of insurance, the Court stated:
The Pharmacy Agreements thus do not involve any
underwriting or spreading of risk, but are merely
arrangements for the purchase of goods and services
by Blue Shield. By agreeing with pharmacies on the
maximum prices it;will pay for drugs, Blue Shield
effectively reduces the total amount it must pay to its
33a
policyholders. The Agreements thus enable Blue
Shield to minimize costs and maximize profits. Such
cost-saving arrangements may well be sound business
practice, and may well inure ultimately to the benefit
of policyholders in the form of lower premiums, but
they are not the “business of insurance.”
* * *
Another commonly understood aspect of the
business of insurance relates to the contract between
the insurer and the insured. In enacting the
McCarran-Ferguson Act Congress was concerned
with: “The relationship between insurer and insured,
the type of policy which could be issued, its
reliability, interpretation, and enforcement - these
were the core of the ‘business of insurance.’
Undoubtedly, other activities of insurance companies
relate to closely to their status as reliable insurers that
they too must be placed in the same class. But
whatever the exact scope of the statutory term, it is
clear where the focus was - it was on the relationship
between the insurance ~company and _ the
policyholder.” SEC v. National Securities, Inc.,
supra, at 460, 21 L Ed 2d 668, 89 S Ct 564.
The Pharmacy Agreements are not “between
insurer and insured.” They are separate contractual
arrangements between Blue Shield and pharmacies
engaged in the sate and distribution of goods and
services other than insurance ....
At most, the petitioners have demonstrated that the
Pharmacy Agreements result in cost savings to Blue
Shield which may be reflected in lower premiums if
34a
the cost savings are passed on to policyholders. But,
in that sense, every business decision made by an
insurance company has some impact on its reliability,
its ratemaking, and its status as a reliable insurer.
Id. at 214-17.
The court is also persuaded by Judge Moreno’s thoughtful
analysis of this issue in In re Managed Care Litigation, 298
F.Supp.2d 1259 (S.D. Fla. 2003). In that multidistrict
litigation, the plaintiffs are physicians “who allege that the
managed care company defendants... engaged in a pattern of
failing to pay claims in full and in a timely manner,” in
violation of RICO and other statutes. Id. at 1271. The court
denied defendants’ motion to dismiss the RICO claim under
McCarran-Ferguson because the provider contracts are not
the business of insurance:
Moreover, the [second amended complaint] alleges
practices which clearly do not deal with the transfer or
spreading of a policy-holder’s risk. The provider
contracts are simply business contracts that allow
Defendants: to carry out their obligations to their
insureds. ‘While some type of provider agreement
may be necessary for the Defendants’ plans to exist,
“it does not follow that because an agreement is
necessary to provide insurance, it is also the “business
of insurance.’” Group Life & Health Insurance Co.
v. Royal Drug Co., 440 U.S. 205,214, n. 9, 99 S.Ct.
1067, 59 L.Ed.2d 261 (1979). Even though the
provider contracts might inure to the benefit of
policyholders, they are still not part of the core
insurance policy. )
35a
Defendants also encourage the Court to adopt a
more expansive interpretation of the “business of
insurance.” Citing United Staies Dep't of the
Treasury v. Fabe, 508 U.S. 491,506, 113 S.Ct. 2202,
124 L.Ed.2d 449 (1993), the Defendants contend that
the reach of the Act is not confined to the business of
insurance; rather, the inquiry is focused on whether
application of federal law impairs, interferes or
conflicts with a State’s broad regulatory authority over
the business of insurance. Fabe, 508 U.S. at 505, 113
S.Ct. 2202. Defendants point to Febe’s language
which interprets the Act to preclude any suit that seeks
to supplant state efforts directly or indirectly “aimed
at protecting or regulating” the performance of an
insurer's obligations or ensuring that policyholders
“ultimately will receive payment.” /d. at 506, 113
S.Ct. 2202.
Nothing in Fabe, however, suggests that the Act
sweeps within its scope all laws that affect insurance
companies. Indeed, the Supreme Court in Fabe
supported the interpretation of the “business of
insurance” as focusing on the relationship between the
insurance company and the policyholder. Here,
Plaintiffs’ relationship to the insurer is ancillary to the
actual insurance contract itself. See Royal Drug, 440
U.S. at 216, 99 S.Ct. 1067. The contracts of
insurance were between Defendants and the insureds,
not between Defendants and the individual providers
(service agreements). Accordingly, the Court finds
36a
that the relationship between insurers and providers
falls outside the “business of insurance” and thus the
Act does not pose a preemption issue.
298 F.Supp.2d at 1284-85 (some citations and footnotes
omitted).
For these reasons, the court concludes that the Nonprofit
Act is not a “law enacted... for the purpose of regulating the
business of insurance,” and that the service provider contracts
at issue in this case are not part of the “business of
insurance,” within the meaning of the McCarran-Ferguson
Act. Accordingly, plaintiffs’ RICO claim is not “reverse
preempted,” and defendants’ motion to dismiss this claim on
this basis is denied.
The court shall also deny defendant’s motion insofar as it
seeks dismissal of the RICO claim based on various alleged
pleading defects. For example, defendant argues that
plaintiffs have not adequately alleged injury, that they have
not alleged mail mad wire fraud with sufficiently particularity ,
and that the RICO enterprise and defendant’s control thereof
are not adequately pled.
While defendant correctly argues that “courts should
eliminate frivolous RICO claims at the earliest state of
litigation, Durant v. ServiceMaster Co., 159 F.Supp.2d 977,
981 (E.D. Mich. 2001),” the present case does not fall into
this catege:y. The court is satisfied that the amended
complaint puts defendant on fair notice as to the nature of the
alleged fraud, injury, and composition and control of the
RICO enterprise. Whether plaintiff can prove the allegations
is a matter to be tested on summary judgment after full
discovery. Defendant’s motion to nip the RICO claim at the
pleading stage is denied.
37a
Finally, defendant argues that plaintiffs’ claim under
M.C.L. § 500.2006 (Count ILI of the amended complaint)
should be dismissed because that statute does not create a
private right of action for health professionals. Section
500.2006, which requires timely payment of claims, states:
(12) A health professional, health facility, or
health plan alleging that a timely processing or
payment procedure under subsections (7) to (11) has
been violated may file a complaint with the
commissioner on a form approved by the
commissioner and has a right to a determination of the
matter by the commissioner or his or her designee.
This subsection does not prohibit a_ health
professional, health facility, or health plan from
seeking court action. A health plan described in
subsection (14)(c){iv) is subject only to the procedures
and penalties provided for in subsection (13) and
section 402 of the nonprofit health care corporation
reform act, 1980 PA 350, MCL 550.1402, for a
violation of a timely processing or payment procedure
under subsections (7) to (11).
Subsection 14(c)(iv), in turn, defines health plan as including
“[a] health care corporation for benefits provided under a
certificate issued under the nonprofit health care corporation
reform act...” Therefore, if defendant as failed to timely pay
claims, it “is subject only to the procedures and penalties
provided for in subsection (13) and section 402 of the
nonprofit health care corporation reform act.” Subsection 13
states: “In addition to any other penalty provided for by law,
the commissioner may impose a civil fine of not more than
$1,000.00 for each violation of subsections (7) to (11) not to
exceed $10,000.00 in the aggregate for multiple violations.”
And § 402 of the Nonprofit Act, which prohibits a health care
38a
corporation from doing various things, including delaying
payment of claims, creates a private right of action only for
“an aggrieved member,” not an aggrieved provider. M.C.L.
§ 1402(11).
Clearly, plaintiffs’ remedy under § 500.2006 is limited to
filing a complaint with the insurance commissioner. The
statute creates no private fight of action for healthcare
professionals. Accordingly, the court shall grant defendant’s
motion to dismiss Count III.
For these reasons,
IT IS ORDERED that defendant’s motion to dismiss is
granted in part and denied in part. The motion is granted as
to Count III, but otherwise denied.
If IS FURTHER ORDERED that defendant’s motion for
protective order shall be heard on Wednesday, August 25,
2004, at 2:00 p.m. At that time, the court shall also conduct
a Rule 16(b) scheduling conference.
/s/ Bernard A. Friedman
BERNARD A. FRIEDMAN
CHIEF U.S. DISTRICT JUDGE
Dated: 7/29/04
Detroit, Michigan
39a
APPENDIX E
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN (Detroit)
No. 02-70769
[Filed March 23, 2004]
MICHAEL A. GENORD, M.D.,
ET AL.,
Plaintiffs,
V.
BLUE CROSS & BLUE SHIELD OF
MICHIGAN,
Defendant.
ee
TRANSCRIPT OF PROCEEDING
MOTION TO DISMISS
[p.2}
THE CLERK: Calling Case No. 72950 Genesd v. Blue
Cross and Blue Shield of Michigan.
THE COURT: Appearances for the record.
40a
MR. FINK: Yes. Joe Fink with Blue Cross, and with me
today is John Gross.
MR. GROSS: Good afternoon.
MR. HORTON:. William Horton on behalf of the
Plaintiff, and with me is Mr. Watson.
THE COURT: Does somebody want to use the Elmo
projector? I set up the screen; you’re more than welcome.
MR. HORTON: Biggest screen I’ve seen. It might take
a second. When I have an opportunity --
THE COURT: I can move to see it.
MR. HORTON: Thank you, your Honor.
THE COURT: Okay. This is the Defendant’s motion and
it’s a motion to dismiss. You may proceed.
MR. FINK: Your Honor, | would not normally give any
factual cases for 12(d) --
Ip. 3]
THE COURT : Just make it quick.
MR. FINK: I'll give a short statement.
THE COURT : I appreciate it, and I’m sorry to keep
everyone waiting. Somebody has to be first and somebody
has to be last, so | apologize. You may proceed.
4la
MR. FINK: Thank you, your Honor. This is an action
filed by physicians against Blue Cross as a class action. It
asserts that, among other things, the claim under the
Racketeer Influenced and Corrupt Organizations Act,
commonly known as RICO, which is a federal statute
affording what some courts have termed the incredible
advantage of remedy.
The Plaintiffs have alleged, and this is clearly summary,
your Honor, and I take it now verbatim from paragraph 21 of
THE COURT : | appreciate it.
MR. FINK: -- Plaintiffs’ Amended Complaint, which is
a fair summary, I believe, and that paragraph reads in full,
“In addition to breaching the contractual and statutory duties,
Defendant, on its own and as part of a common scheme to
systematically deny and delay payments to the physicians so
they were not paid in a timely manner for the covered
services and properly paid reduced amounts to make the
claims process so daunting [p. 4] that some claims were
simply abandoned or otherwise lost. This is done through an
enterprise that denies payments to physicians based on
processing bills using an automated program which
manipulates standard coding practices to artificially deny and
delay payment.”
Blue Cross here has moved to dismiss the amended
complaint, initially under Rule 12(b) 1, due to the fact that the
claim is outside this Court’s jurisdiction, and that under the
doctrine of reverse preemptive -- the McCarran-Ferguson
Act, which provides no acts of Congress shall be construed to
invalidate, impair or supercede any law enacted by any state
for the purpose of regulating the business of insurance unless
42a
such act specifically relates to the business of insurance. In
~ other words, your Honor, this complaint, based upon reason,
is outside of the jurisdiction of this Court based upon the
reverse preemptive doctrine, based on the McCarran-
Ferguson Act. There are a myriad of cases under the 12(b)6
basis, only two of which I will discuss in oral arguments
today.
With that preface, your Honor, I would like to move
slightly not outside of our papers, but rather to shift emphasis
a bit from our papers, because I believe the value of oral
argument of anything is to go beyond that which I’ve offered
to you.
THE COURT: I appreciate that, because I believe [p. 5]
you are correct. I can read everything. It’s the feel that I
need from those things that I can’t read, and you’ re absolutely
right. That’s why | hold oral arguments as often as I possibly
can. And I have read everything, and the truth of the matter
is, when we reach the appropriate point, I have a substantial
different perspective of this case than either one of you have
argued and we’ll talk about that in a minute. Maybe you'll
cover that area.
MR. FINK: I hope I do. If you’d like to give me a
minute before | begin, I'll make sure I do.
THE COURT: I'd like to hear what you have to say
because I’ve been in discussion with my law clerk concerning
this particular issue, but | want to hear what you say and |
want to share it with both of you. It’s something that I have
to share with you in a second. Let me hear what you have to
say that is not necessarily articulated in your papers.
43a
MR. FINK: The matters that I raised are touched upon in
our papers. It’s a matter of emphasis, I believe, your Honor.
I have in my hand here a 196-page statute. This is a
regulatory context of the business of insurance for health care
in the State of Michigan. This is, I warn to the Court, with
one exception, to my knowledge, perhaps in the State of
Massachusetts, the [p. 6] most detailed, comprehensive
delineation and control of the business of insurance in the
United States.
THE COURT: And that’s the Michigan --
MR. FINK: State law. This is the Michigan Act.
THE COURT: Let me tell you where I’m coming from,
both of you, so you understand. The way I read the statute
that we’re talking about here -- first of all, I agree
wholeheartedly with this rule. An insurance company, or
whatever that says in the Ferguson Act -- I have it right here,
how they define it, “Purpose of regulating business for
insurance.” My question to both of you is that the act that’s
in question here, which is the Michigan Nonprofit Health
Care Corporation Act, which is 550.1101, specifically says
that it’s not an insurance company -- it’s not insurance --
paragraph -- | had my clerk type it up. In my own notes, I
had it perfect. Hold on one second. I’m reading from section
-- | thought it was four. There it is. Four. Here it is.
"Nonprofit Act itself does not" -- it says, “Health care” --
MR. FINK: Cite your number.
THE COURT: [msorry. 511.
MR. FINK: 511.
44a
THE COURT: I have to go back to the MCL -- hold on.
I want to pass this out to you.
[p. 7)
MR. FINK: 500 is a separate code.
THE COURT: It’s 550. Getting back to the Nonprofit
Health Care Corporation Act, it’s 550.126, Subsection 4, “A
health care corporation shall not market or transact as defined
in Section 402,” and so forth. That’s not it, either. Hold on.
One more time. Where is my original bench note? Here it is.
MR. FINK: Section 1206, your Honor.
THE COURT: There we go. Okay. Here we go.
There’s two seetions. I’m sorry, I had it all down. Okay.
Start over. 550.1201, do you have that? Do you have that?
MR. FINK: 1201?
THE COURT: 1201, Section 201, Subsection 4. It says,
“The health care corporation shall not be subject to the laws
of this state with respect to insurance corporations except as
provided in this act. A health care corporation shall not be
subject to the laws of the state with respect to corporations
generally,” so we don’t have an insurance here. The only
thing in this act that talks about acceptance acts is that the
commissioner regulates it. That's number one.
Number two is the act itself prohibits a nonprofit health
care corporation from engaging in insurance transactions. It
says in the act that -- [p. 8] again, my personal notes are
gone, somewhere in here that they can’t engage -- they can’t
sell insurance. They can’t do those kinds of things.
45a
And third and perhaps the most important is that the
purpose of the act was not for insurance. It says, “And acts
to provide a corporation of -- a nonprofit health care
corporation, to provide their rights and so forth.” The
defined relationship of a health care provider to nonprofit
health care corporations, it was basically to provide health
care. It wasn’t intended in any sense to be an insurance
company. And that’s my first question to you. Both sides
have just assumed it’s insurance, but what the law says is
specifically it is not.
MR. FINK: I don’t agree with the Court, and let me tell
you why.
THE COURT: I don’t want you to agree with me -
MR. FINK: If I agreed, I would discharge my duty to the
Court. First of all, McCarran-Ferguson doesn’t require by its
expressed terms there to be an insurance company.
THE COURT: I agree with you.
MR. FINK: Okay. Now, let’s step back one step further
and look at the comprehensive numbers of codes in Michigan
dealing with insurance. There are at least [p. 9] countless --
besides the 1956 insurance code which regulates numerous
types of insurers, four or five other acts that are encompassed
in the insurance codes of the State of Michigan, including
Health Care Code S, the fact that is a statute and in this
context says, “You shall not sell insurance under the
insurance code of 1956,” is no different than many of the
other specific acts that are in the books in Michigan relating
to insurance.
46a
For instance, a surety company, if it has a surety license,
cannot sell life insurance and the statute will specifically state
that. So the first point is that ts a statutory prohibition from
a corporation born under this act from engaging in other
activities is not evidence that it is not involved in the business
of insurance, which the Supreme Court has defined, among
other criteria, as the exchange of risk.
THE COURT: Okay. Let me just ask you for a second --
please hold yquethought. It’s important.
The Court of Appeals will Jet us know, won’t they? But
even assuming that’s correct in the one for instance, a liability
insurance carrier can’t write other kinds of insurance, but
they are still defined as insurance, in this statute, in addition
to prohibiting them from writing almost every kind of
insurance that’s known in the book, it also says, “Shall not be
subject to {[p. 10] the laws with respect to insurance
corporations.”
MR. FINK: Right, except as may be provided in_this
code.
THE COURT: Yeah. The only -
MR. FINK: It’s a different type of insurance entity. You
do not draft specific statutes covering specific types of risk for
specific state purposes and then say all the other code
provisions on unrelated types of risk transfers shall be poured
into this.
THE COURT: Except it doesn’t quite say that.
x
47a
MR. FINK: What it says is that the other provisions do
not apply to this corporation and its activities unless this code
specifically states.
THE COURT: Right.
MR. FINK: That’s what it says. And that is absolutely
consistent with the creation of a corporate entity or insurance
program because Blue Cross or anybody could form a number
of companies besides Blue Cross and use this code, but it is
formed under-law for a very specific tvpe of insurance.
THE COURT: It doesn’t say that. It says --
MR. FINK: It says “health care,” Judge. You
understand that it doesn’t use a mantra. It says the other
provisions of the insurance code shall not apply here unless
it’s specifically incorporated. The [p. 11] legislature put
together a scheme for insuring individuals for health care
under this Act and it said in that context, you don’t look to
other insurance company provisions; you look to this Act
unless we tell you otherwise. And that is a consistent
approach in the legislative composition in Michigan.
THE COURT: But in every other act that I’ve seen that
they talk about insurance, they talk about insurance, they say
this is an insurance act.
MR. FINK: What if --
THE COURT: This is to provide the risk, and they talk
about all those things here. They say, “It is the purpose and
intent of this Act and the policy of the legislature to promote
an appropriate distribution of health care services for all
residents of the state; to promote the progress of science and
48a
art of health care in the state, and to assure for non-group and
group subscribers reasonable access and reasonable costs and
quality of health care services,” and so on and so forth.
There is no -- I looked at all the other insurance issues.
There’s nothing that talks about that. They all talk about risk
and all that. This was a public kealth act.
MR. FINK: Wait a minute. This is the public health
code for nonprofit health care providers. This [p. 12] same
type of coverage, in general, is provided by, quote, classic
insurance companies under other sections of the code.
Blue Cross, in this instance, under this statute, is the
insurer of last resort. This was an insurance program that the
legislature put in place to assure all persons access to health
insurance. That’s the purpose of this act. That’s the function
of this act. The fact that it did not use the mantra “nonprofit
insurance company” is -
THE COURT: It went further. It says this is a charitable
and benevolent entity.
MR. FINK: The entity that created it -- Blue Cross is a
nonprofit corporation. It may not be a profit corporation.
THE COURT: I understand, but there are a lot of
nonprofit corporations. This even went further and said, “A
charitable and benevolent institution, and funds and property
be exempt from taxation,” and so on and so forth.
MR. FINK: Right, because the State of Michigan
legislatively created a speciai purpose insurer to afford the
people of the State of Michigan health care coverage in a very
controlled circumstance. There is transfer of risk. Without
any doubt that is the talisman insurance. [p. 13] Per contract,
49a
there is the transfer of risk for premiums. Were you to go to
General Motors and ask whether or not it was paying
premiums to Blue Cross for coverage for 100,000 employees,
it would look at you with fuzzy eyes and say, “Millions upon
millions.”
Now, what do they get for it? They entered into a group
policy or contract. Certificates are issued to the employees
and those employees are entitled to the risk transfer with
regard to health care.
Ferguson doesn’t say you have to use magic words.
McCarran-Ferguson says it must be a state law which relates
to regulating the business of insurance, and in fact, in the 6th
Circuit, and I'll get to that later, goes, in terms-of that
standard, beyond the narrow. If it were an -- if magic words
made determinations over function, then the legislature, by
mediocrity, could change magic words, but it would not in
this case change function, and that is the transfer of risk under
a very complex regulatory statutory system that regulates
relationships with various health care providers, which is
used, in turn, to determine rates. And if you look at the rate
provisions in this statute -- and I'll get to those in a minute --
they talk about risk factors, experience, all the indicia that
any insurer looks at, considers, and then makes a decision in
setting [p. 14] the rate for the coverage afforded. This is not
a talisman type of analysis; it is, rather, a function analysis.
When McCarran-Ferguson states it’s a function analysis,
it doesn’t say it must be an insurance company. It says it’s
the business of insurance. You could call insurance anything
you wanted to.
THE COURT: [ agree ‘ith you in terms of --
50a
MR. FINK: And this statute -- there is nothing in the
health care statute which is antithetical to the analysis that I’m
offering. The fact that it says, “Do not go to the other
portions of the imsurance code for provisions, which,
considering whether or not there is compliance with this act,
is absolutely consistent with a legislative process of isolating
‘this type of insurance in this iype of legislatively-mandated
context. The state has the right to define it the way it desires
to put it in place, and I believe that that is what has been done
here in 196 pages of carefully-crafted regulation, and I would
like, if may, your Honor, to go through a bit of that.
THE COURT: Please.
MR. FINK: So that you have a little more context. I’m
flustered. You took me totally out of my sequence.
{p. 15}
THE COURT: Maybe I'll soon be on a computer. I’m
learning to be on Westlaw. Go on.
MR. FINK: As the Court has already noted, this statute
has explicit purposes. One is to promote health care services
to all Michigan residents, appropriate social and appropriate.
insurance-related objectives. [t is to assure subscribers,
which are insurers, same thing, different name, same
meaning, reasonable access to reasonable quality and costing
of care services. To effectuate these purposes, the
commissioner of insurance has mandated to regulate and
supervise nonprofit health care carriers, such as Blue Cross,
to secure for those seeking coverage the opportunity to access
health care services at a fair and reasonable price. And here
the statutory purposes explicitly provide, “To facilitate access
Sla
at a fair and reasonable price,” and that there be certain
limited appeal rights and reviews.
Now, let’s discuss the interrelationship of some of these
provisions, and I will try to, as I go through this, to focus.
They will object to some of the questions that you’ ve asked.
Blue Cross’s board is statutorily-imposed. I acknowledge to
the Court no other board in the State of Michigan is subject
to that regulation’ other than one under this act. The
government appoints four members to this board, not more
than 25 [p. 16] percent cf the providers may be providers on
the board. If they have a board of 16, no more than four
could be providers, and by that mean of care providers, one
of whom must be a registered nurse, one of whom must be
from the provider group that had the largest number of
insurance claims in 1984.
Now, I'll talk more about providers and how they are
regulated and how the relationship is statutorily-imposed
between Blue Cross and providers later.
One of the board of directors may be an officer or a
director of Blue Cross -- I’m sorry, one of the directors may
be un officer or employee of Blue Cross. The remainder of
the directors must be from groups of subscribers. In other
words, the insurers, they will have half of the representation
on this board. Plaintiffs in this case are all providers that, in
this particular instance, are licensed physicians who can
provide health care services under the act.
There are 23 provider groups in the Blue Cross system.
They are professionals of various types, all of which are
focused on health care: Chiropractors, nurses, personnel, this
sort of thing. None of the providers are other types of service
providers that you might think of in the general sense, such as
52a
computer suppliers, general [p. 17] employees, janitorial
services, like providers with very specific defined terms under
the statute.
The class plans here are also presumably participating
providers; that is, under law they have met the standards set
by Blue Cross for their class of providers and have signed a
contract. Blue Cross reimbursement arrangements with
participating providers effectuate the provider class plans
under this statute. Provider class plans are done for each one
of the 23 types of providers. Welfare providers that
participate in the Blue Cross system, those plans -- and I'll get
into them -- are very detailed arrangements and are proposed
annually -- or somewhat less than annually, no more than
annually, and are reviewed and approved by the State of
Michigan.
THE COURT: Let me stop you for one second. Is there
any other entity -- rather than using the word “insurance
company,” any other entity in the business, quote, of
insurance, that operates in the same way other than those
under the Nonprofit Health Care Corporation Act?
MR. FINK: In Michigan?
THE COURT: In Michigan.
MR. FINK: Not to my knowledge. In terms of the
degree of regulation, and I am -
[p. 18]
THE COURT: I'm not talking about the degree of the
regulation. I’m talking -- up to that point, we’re talking about
how the board has composed a statute. Is there any other
§3a
entity, quote. in the business of insurance that operated on
that basis?
MR. FINK: There is another -- there is another nonprofit
health care act as to which one large insurer is incorporated
under that is separate from this, Delta Dental, which provides
your dental insurance, which is incorporated under an earlier
and separate nonprofit health care corporation act, so I guess
THE COURT: But not under this act?
MR. FINK: No. They could have been, but they had
been previously incorporated and chose not to put themselves
under this regulatory conduct.
THE COURT: Other than Delta that may have a similar
situation, is there any other that you’re aware of?
MR. FINK: Your Honor, not off the top of my head.
THE COURT: That’s fine.
MR. FINK: There may be some smaller ones, but - -
THE COURT: Okay.
MR. FINK: In terms of health care and in terms [p. 19]
of dental care, if you look at the total market, this would be
a very significant percentage of those markets. And Blue
Cross also provides dental care in the context separate from
but very similar to that which is the insurance of Delta
Dental.
54a
The definition of a provider contract under the code is,
quote, “An agreement between a provider and a health care
corporation that contains provisions to implement the provider
class plan. The plan, which is put together by Blue Cross and
approved by the insurance commission, is the basis for the
provider contracts.”
The code further defines reimbursement arrangements as,
“A policy, practice and method by which a health care
corporation makes payments to a provider to implement the
provider class plan.” The participating provider contracts are
frankly a creation of statutes. Sections 502, 518 define the
limits, mandate the relationship between these Plaintiffs and
Blue Cross, including, one, that the Plaintiffs must accept
from Blue Cross as participating providers’ payment in full
for their services. Blue Cross may not even pay a health care
provider who is not entered -- may pay directly to the health
care provider who has not entered into a provider contract.
THE COURT: Any other entity that is in the [p. 20]
business of insurance that has the same provisions that you're
aware of other than Delta, maybe?
MR. FINK: There are in other states. There are in other
States.
THE COURT: We're talking about in Michigan. There’s
Aetna. There is Postal Employee Insurance Carrier.
MR. FINK: They probably have something under the
federal plan, which is probably Blue Cross.
THE COURT: Do you know of any other, you know,
quote, insurance business for a company or -
5Sa
MR. FINK: I think it’s done in a different way, your
Honor.
THE COURT: Here it’s done statutorily. The state has
given this Nonprofit Health Care Corporation Act the ability
to do that; not only the ability, but statutorily there is no
company if there is no other “insurance business.”
MR. FINK: That is regulated to this extent.
THE COURT: That’s given the privilege to this extent.
Regulated is one thing, the privilege -
MR. FINK: I don’t understand your question about the
privilege.
THE COURT: It’s a privilege. You’re saying before they
can pay a provider, that provider has to sign [p. 21] an
agreement and all that, by statute.
MR. FINK: Right, and the provider either does or
doesn’t want to.
THE COURT: Exactly.
MR. FINK: Understood. It’s not different than if you
have a private insurer who says, “Here’s is my -- here’s the
benefit levels that we will pay.” They either accept the
insurance or don’t.
THE COURT: Here it’s a little bit different.
MR. FINK: No.
56a
THE COURT: Because the statute provides that they can’t
do anything about that. The private company can do
whatever they want.
MR. FINK: I understand that. But the fact that that --
well, it can’t do anything it wants. There are other regulatory
restraints, but it could very clearly state that it will pay
amount B and C for certain functions and enter into contracts
with providers -- care providers and only pay those amounts.
All this says, Judge, is that Blue Cross will pay what is under
the provider plan and the provider will accept that payment
and that is a direct issue with regard to the risk of the insurer.
THE COURT: Could we look at that? But also when
they talk about another paragraph at a cost-plus, it [p. 22]
could be because they are not an insured, but they were more
of a health care provider. They have a scheme. As they talk
about in the introduction, the purpose and intent is to prornote
health care services for all residents, so forth, as opposed to
insured. So i’m off base?
MR. FINK: I think so.
THE COURT: Tell me why.
MR. FINK: You're off base because any person in this.
state can become an insured under the Blue Cross plan.
THE COURT: Right.
MR. FINK: It is more inclusive by far than private
insurance. Private insurers may reject persons from
coverage. That’s why when I said the state legislature here
has created an insurer of last resort, a public policy which
was looked at and adopted by the State of Michigan to assure
57a
the circumstances under which all its residents -- and the
statute talks about residents -- have the ability to get health
care insurance under a statutorily-regulated scheme. It
doesn’t --
THE COURT: They talk about health care services.
They never talk about insurance. They never talk about
anything. They talk about it’s to provide for [p. 23] health
care services.
MR. FINK: Let me ask the Court, if I may, the question.
THE COURT: Sure. I’m trying to understand this.
MR. FINK: What is the difference? Let’s assume that I’m
not Blue Cross. Today I’m Aetna and I say -- and you’re the
insurer and I say maybe you have an employer, maybe you
have a direct contract, but -- it’s a direct contract. Here’s the
benefits package. We will pay $42.62 for whatever the
function is. You go out and have the function done. That’s
what we’ll pay, $42.62.
Now I’m Blue Cross and i say under our regulatory
context, we will pay $42.10, whatever, and you have a
certificate and you go out and do it, get whatever the service
is, and we pay that. Is there a difference between health care
service and insurance in that context?
THE COURT: Blue Cross is some few cents Jess than the
others?
MR. FINK: Make it the same.
THE COURT: Their purpose is to provide health care
services; it isn’t to generate income. It isn’t to do any of
58a
those other kinds of things because they are, according to the
legislative intent, a benevolent, [p. 24] charitable, non-
profitable company, so therefore, they have the ability to go
out there. If that person, the uninsured person, the people that
can’t get insurance and so forth, it seeks to provide for those
persons, really, the coverage, to provide health services to
those persons. I’m just reading the intent of the law.
MR. FINK: The law is to provide health care
accessibility to the residents of this state. I have Blue Cross.
THE COURT: I have Blue Cross, too.
MR. FINK: And I’m not indigent.
THE COURT: And that may be Castleman?
_ MR. FINK: I doubt that. I understand, and it is regulated
by the federal government.
THE COURT: I’m just being sarcastic. The purpose is
different, at least as I’m reading the statute.
MR. FINK: The purpose of the State of Michigan is not
inconsistent or antithetical to this being insurance. I mean,
they have -- they have specified a social objective and they
have created a statutory insurer. You can call it a health care
corporation, but I’m telling you, if you look at this, the risk
changes.
Let me give you another example. I’m insured by Blue
Cross. I go in, I had lapro surgery on my right [p. 25] wrist
a number of years ago. When I went to the insurer -- I mean,
to the doctor, I signed a little note and that little note says I’ve
been advised that my doctor is not a participating physician,
59a
okay? Well, when I went in for a $60 office visit -- I signed
that a year later. When 1 went back for surgery, since this
fellow was the surgeon I wanted, I didn’t even question it.
He wasn’t a participating physician. Blue Cross reimbursed
me at its participating physician plan level $900 for his
surgery. His bill was $3800. Blue Cross sent it to me. |
paid the 38. Now, that’s insurance.
Under certain circumstances, the insurer pays me X, and
if I wanted to go to a participating physician, that
participating physician would have accepted the $900. There
is an exchange of risk under both of those circumstances, the
same as if you have an insurance policy and there are private
insurers. They have panels that you go to, a panel physician.
If you don’t go to a panel physician, they will pay a certain
amount and that’s it, and if your physician is more, that’s
your obligation. That’s still insurance.
The business of insurance is transferring risk for a
consideration. That happens every time a certificate is issued.
That transfer of risk and that business of insurance is
designed, in this context, to [p. 26] also meet ® social
objective determined by the legislature. It’s still the business
of insurance.
THE COURT: You probably have Blue Cross versus
commissions back in ‘89 when the Court of Appeals said it
wasn’t insurance.
MR. FINK: Which Court of Appeals?
THE COURT: Pardon? Michigan Court of Appeals, 179
Michigan 246, they said Blue Cross/Blue Shield of Michigan
is not an insurance company, but it is a health care provider,
analyzed it in relation --
60a
MR. FINK: Do you have a case?
THE COURT: I don’t have it.
MR. FINK: I’m sure we do. I can’t drag it up.
THE COURT: It’s way before his time.
MR. FINK: That’s true.
THE COURT: Anyhow -
MR. FINK: 179? What were the names?
THE-COURT: Blue Cross versus Michigan.
MR. FINK: I don’t have that case right at hand, your
Honor.
THE COURT: We'll get back there. You can take a look
at it and you may have to -- — Sis
- MR. FINK: But in context. I have to look at the context.
THE COURT: Ido, too. As I said, I’m on the [p. 27]
computer at home at night. I can get to Westlaw and look at
it. Ill give you a couple cases.
MR. FINK: Certain risk context, these issues will vary.
THE COURT: I'll give you a couple other sentences and
do a quick supplement. Let’s move on to what you really
want to tell me and we’ll supplement this.
6la
MR. FINK: Well, what I really want you to -- what I
want to get across to you, besides the fact that we’re
obviously --
THE COURT: You may be --
MR. FINK: The provider agreements and reimbursement
agreements are strictly regulated by statutes in Michigan; an
unusual context, true, but nonetheless, not one at all
inconsistent with the business of insurance. In fact, it goes
further. The statute says that Blue Cross reimbursement
arrangements with providers are subject to express regulatory
laws, which include insuring subscribers reasonable access,
cost and quality of these services.
THE COURT: Any other insurance businesses that have
that same requirement that you’re aware of other than Delta?
MR. FINK: Not in terms of the next step.
[p. 28]
THE COURT: Okay.
MR. FINK: For instance, there are many provisions in
the insurance code that require fair and reasonable premiums
and fair and reasonable other context. There are many other
areas where the regulators have to look, when they were
determining whether or not rates are going to be permitted, as
to whether or not there is adequate cornpetition.
THE COURT: That’s different than this.
MR. FINK: No, I don’t think so. It is a regulatory
overview that directly affects the transfer of risk because you
62a
cannot set your premiums. And if you cannot be exempt
from coverage, that is a regulation of the transfer of risk,
which is, in kind, not different than that which is in this code.
THE COURT: Let’s move on. What else do you have?
MR. FINK: In point of fact, Blue Cross has regulated to
assure a rate of change in total corporate payments per
member, which is, insurers to each provider class is not
higher than the compound rate of inflation and real economic
growth in the State of Michigan. In other words, rate
reimbursements are all driven -- all driven by the regulatory
oversight of the insurance commissioner applying statutory
formulas, Judge, and I [p. 29] would go through about eight
or ten more of these connections, but I sense you would like
me to move on.
THE COURT: 1 would like that. 1 understand what
you’re saying, and the truth of the matter is, I probably have
to analyze it and since -- | understand what you’re saying. [
probably have to go through each one and will do so, so why
don’t you move on to the next item. And I suspect you will
include Judge Marino’s (ph) opinion in your argument.
MR. FINK: Am I going to?
THE COURT: I suspect you hopefully will. What do
you think it’s -
MR. FINK: It’s not the same regulatory conflict.
THE COURT: Do it in your own time.
MR. FINK: No, that’s fine.
63a
THE COURT: I was so anxious ‘to talk about that first
issue. Go on, do whatever you want.
MR. FINK: Your Honor, as we set out in the brief, the
Nonprofit Act also provides cert.in appeal processes for
providers who don’t agree with the provider plans within the
context of a code, and those are, in our opinion, exclusive.
The case law in Michigan is really pretty straightforward
in that regard. There is no private [p. 30] claim to contest
provider plans by providers in the State of Michigan. Case
law in the State of Michigan is absolu‘ely without exception
on that regard that affects this type of case. That is part of
the regulatory-based context of this statute, and the
relationship between the provider to carry it and the insurer,
they are, unlike the case before Judge Rayner (ph),
interrelated and connected by express statute.
The rates that Blue Cross charges are fully approved,
reviewed, beaten up on, long proceedings, sometimes for a
couple, three years to increase rates in proceedings before the
Insurance Commission, and among many of the other factors,
the provided plan goals and meeting those goals are fully part
and parcel of the setting of the rates for this insurance.
Specifically, the statute requires consideration of an additional
rate benefit cost. Anticipated benefit costs are driven, in
material and substantial part, by the provider plan goals and
zero sum statute for provisions.
In addition, this legislative package states after overriding
attempts to promote uniformity of rates among all subscribers
to the greatest extent practicable, it regulates all contracts --
all insurance or health care service contracts, if you wish to
use that language. All the provisions have to be approved by
the insurance [p. 31] commission. All the rates for which the
«64a
benefits are charged have to be approved by the Insurance
Commission. All the relationships with 23 provider groups
are part of a plan approved by the Insurance Commission.
THE COURT: Does the insurance commissioner have to
approve it for other companies?
MR. FINK: Approves part of that.
THE COURT: But again, not that total package?
MR. FINK: Exactly right, but the degree of regulation is
governed by the sovereign --
THE COURT: Absolutely. It differentiates it from
insurance.
MR. FINK: No, it doesn’t. No, it doesn’t.
THE COURT: Than those who are engaged in the
insurance business —
MR. FINK: Let me ask you this: State of Michigan had
a company called the Accident Fund --
THE COURT: I’m very familiar with that case. I know
Blue Cross bought it and some entity -- I don’t think they
bought it on this entity, but under an entity.
MR. FINK: Well, it created -- there was statutory --
THE COURT: They were set up by the state, run by the
state, for the state and so forth.
65a
MR. FINK: No, really, it wasn’t, your Honor. [p. 32]
It was created by the state. It was part of a series of state
actions throughout the United States before the turn of the
century when they could not get traditional insurance
companies to go into the business and provide workers’
compensation at a reasonable -- at least legislative point of
view -- cost. Oklahoma, Ohio, a number of them had it. This
was an entity that was created. Did it sell insurance?
THE COURT: You’re asking me’ I haven’t studied it.
MR. FINK: Of course it didn’t. The fact that it was
wholly regulated and all its rates and everything were set by
the State of Michigan to the insurer didn’t matter. The
insurer got a policy; he or she or it got benefits, paid a
premium.
THE COURT: I haven’t read the act, but I would suspect
where in the act it says that the purpose is not to promote
health in the state, whatever it is.
MR. FINK: Isn’t it inconsistent for a legislature to
undertake an objective of promoting health for its citizens by
formulating a special purpose type of insurance?
THE COURT: I don’t mean to suggest it ought to give it
an absolute right. I think they should have it. It is part of a
governmental function. That’s not an [p. 33] issue here. The
issue here is whether or not I have jurisdiction.
MR. FINK: Absolutely. Exactly.
THE COURT: There is an exclusion for me having
jurisdiction, and the Ferguson Act, I have to make a
determination on whether or not what we’re talking about
66a
here is insurance business and | don’t know if I necessarily
agree with you. The mere fact that it says or does not say
insurance is not a factor. What is the key factor is whether or
not, you know, it’s in the insurance business, and that’s my
question.
MR. FINK: Actually, there are three parts. Move
beyond just the insurance business. My view -- and let me
shift to that very briefly, if we can find the context.
THE COURT: Couple minutes. We have to go. Give
me what you have.
MR. FINK: Fabe (ph) was a case that Defendant, with
the priority of claims on the liquidation of an insurer -- and by
the way, if we failed, we would be liquidated the same way
as other insurers. But beyond that, your Honor, Fabe looked
at the situation and determined in the context of the federal
tax statute as to the priority between tax claims, policy claims
and administrative expenses, and found as follows. [p. 34]
When looking at the McCarran-Ferguson Act, Fabe held
that the broad categories of laws enacted, quote, for the
purpose of regulating the business of insurance, close quote,
consist of laws. It doesn’t say insurance that possesses, “The
intention or aim of adjusting, managing or controlling the
business of insurance.” This category necessarily
encompasses more than just the business of insurance. This
statutory scheme wherein there is no doubt that there is
repeated transfer of risk, there are positions -- there are
insurers in the word of Fabe, a statutory program which
possesses, “The intention of aim of just additional managing
or controlling the business of insurance.” It may not be
typical. It is, however, the function of -the business of
67a
insurance. And under Fabe, that is not as limited a term as it
had been perhaps previously.
Provider agreements are so intricately related to the
certificates and the insurance issues here that it would be
impossible for Blue Cross to fulfill contractual obligations
without such agreements because the statute mandates the
content, nature of the relationship between the insurer, Blue
Cross, and the providers of health care under this statute.
That is why their intricate statutory scheme is subject to
McCarran-Ferguson’s reverse preemptive, briefly touched
upon in RICO.
[p. 35]
THE COURT: You say RICO. You mean substantively
as may apply to -- you don’t have to touch on it. I have to get
over the first hurdle, whether or not I even have jurisdiction,
but you can touch on it if you think --
MR. FINK: No, it’s 4:20. I have no problem. Can I
have a few minutes to respond?
THE COURT: Absolutely. The reason I’m telling you
that is that I’ve been pretty focused on the jurisdiction issue
and the RICO issue is a whole other issue and it’s an issue
that I’m going to have to take a hard look at. Even if I got
over jurisdiction, I think it may be even harder than
jurisdiction in terms of --
MR. FINK: We believe the investigations of jurisdiction
of RICO allegations can’t be true. I would be willing to give
further comments if the Court is going to look -- if the Court
were to determine it has jurisdiction.
68a
THE COURT: I will give you an opportunity. We'll be
talking about RICO. If I determine I have jurisdiction, we
have a lot of discussion. I’m looking not only at you, but at
the Plaintiffs as an issue. I’m trying to get over the
jurisdiction.
MR. HORTON: Judge, just for an issue, you just want
to talk about this, leave the RICO -
[p. 36]
THE COURT: Leave that for another day.
MR. HORTON: I have some displays. I’Il save those.
THE COURT: I haven’t gotten past the jurisdiction issue
and I need some insight on your part.
MR. HORTON: Absolutely. A couple things. First I'd
like to mention that Dr. Sanborn, Dr. Genord (ph), other
physicians that we brought, as well as some of their
colleagues that took this afternoon off and are present in this
room, and I wanted to acknowledge it because they believe
this is an extremely important case, not only for them, but
their colleagues on whom they brought this case.
THE COURT: I love when clients come to court. Then
they can see what we do in court and see what the lawyers do,
what they get billed for and what they are billed for, and
sometimes they get billed for waiting around. I'd like to
address some of the initial questions that you asked, Counsel.
MR-HORTON: First, on the issue as to -- you know,
quite frankly, Judge, this is a good issue that neither of us
69a
have raised, so obviously both Mr. Fink and myself are doing
it on the fly. :
THE COURT: I’m not going to spend a lot of time and
money, but give you both time simultaneous on that [p. 37]
issue. I would like to address a couple things and give you _
both a couple cases. I] haven’t had a lot of time on the
computer at home.
MR. HORTON: First of all, I think this Nonprofit Health
Care Corporation Act in Michigan is known as Blue
Cross/Blue Shield of Michigan Act. There has only been one
corporation act in it since it was initiated, which I believe is
in 1950. I certainly don’t pretend to be an expert on the
history, but there’s certainly nobody else incorporated under
that act, at least at any time that I looked at it. I’m unaware
of any corporatioa that’s been enacted under it.
The second thing, Judge, and I use my authority for this
proposition. Dr. Suez (ph) -- and this relates to the Michigan
legislature. He meant what he said and he said what he
meant: The legislature is certain 100 percent, at least what I
understand, is that when the legislature speaks and speaks
unambiguously, it is not our right or do we have the authority
to second-guess what a legislature’s intent was. The
legislature in this case, at least the Michigan legislature that --
at least in this case, it says it’s not an insurance company and
it has repeated it, “it’s not an insurance company.” It is not
in our -- it is not in our realm to say the legislature is
mistaken and that it really is an [p. 38} insurance company or
otherwise in the business of insurance.
And I would challenge and take issue with the definition
that was provided to you that the exchange of risk is what
defines an insurance company or an insurance contract, and
70a
I can give you a couple examples that | thought of that
Counsel mentioned, something about General Motors. |
bought a car recently and I bought an extended warranty from
General Motors. General Motors said I have to pay them a
fixed amount of money. If certain things go wrong with my
car during a certain period of time, they will fix it at no
charge to me. That is not an insurance policy, even though
it involves the transfer of risk.
A couple others that occur to me. I may meet with clients
to be retained by a client and J may agree to perform a certain
task for that client for a fixed fee, and I may have misjudged
it. It may take me an awful lot longer than I anticipated, or
it may occur much quicker than | had anticipated, but
nonetheless, there is a transfer of risk with an unknown
outcome and that is not an insurance policy that I entered into
at the request of my client.
The other item that I think is important --
THE COURT: He’s arguing it’s more the insurance [p.
39} business, and I think he’s right. He’s saying that there’s
more to it than just risk; there’s a regulatory aspect of it and
so forth. 1 think that’s what he’s saying.
MR. HORTON. I think that’s what he’s saying, too.
THE COURT: Go on.
MR. HORTON: But I think that the elements of what --
the creator that created Blue Cross and Blue Shield is the most
important statement of what is Blue Cross/Blue Shield of
Michigan, and that’s the Michigan legislature. Moreover, the
issue, Judge, that I think Counsel repeatedly talked about, the
contact with a place -- and I realize this goes more to RICO’s
Tila
allegation that we made in the complaint and that we can save
for another day, but our claim is not one under RICO, under
a breach of contract or breach of a provider plan or somehow
the provider plan is unfair or something of that nature. It is
simply that of a defrauded vendor to a company, a nonprofit
health care corporation, and I can give you another example
in that regard.
Presuming that Blue Cross and Blue Shield of Michigan
has a number of lawyers throughout the State of Michigan,
God forbid they won’t pay their lawyers, but nonetheless,
those lawyers are nothing more than vendors [p. 40] to Blue
Cross and Blue Shield of Michigan. Let’s assume for a
minute that you conclude it is in the business of insurance, the
issue that the cases go to from the Supreme Court on down.
They attempted to define it in gereral terms to courts
throughout the country that have applied it in ery specific
situations such as these; have said that, first and foremost,
you look at who the relationship is between, whether it’s
between the insurance company and an insurer or a patient,
or whether it’s someone on the other side, a creditor side of
things. And I think that’s what is interesting about Fabe, and
the Supreme Court basically says -- it doesn’t basically say;
it does say it. It says it right after the punch word “reload.”
It says basically if you have to enforce the insurance contract,
then that’s on a risk-sharing side of a relationship and that
comes within the McCarran-Ferguson Act.
THE COURT: Why do you think Ferguson cashed out on
the insurance policy?
MR. HORTON: | can only tell you basically what the
Supreme Court said in some of these cases in the late ‘30s or
thereabouts. It looks like it validated various insurance
schemes as being in violation of the antitrust laws. In
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response to that, Congress enacted the McCarran-Ferguson
Act to exempt it from the antitrust [p. 41] laws and to allow
the insurance -- or I’m sorry, to allow state legislatures to
regulate the relationship between the Company and the
insurers.
1 think one of the things, Judge, when you’re -- you say
you’re a user of Westlaw and Lexis and you like to do some
of this research. You might want to plug into that computer
base, lawsuits brought for or against Blue Cross and Blue
Shield of Michigan. You'll see a lot of them. They are all
over; Blue Cross suing providers, Blue Cross suing insurers,
providers suing Blue Cross. Nobody says that that has
anything to do with the business of insurance. It has to do
with vendors to an insurance company, if you conclude that
Blue Cross is an insurance company.
I'll give you an example, Judge. Let’s take Allstate -- or
let’s take AAA or State Farm Insurance Company, whatever
you may have your car insured with, and you get -in an
accident, obviously not your fault, and you have your car at
a repair shop. Your car is shipped back to you and there is
a dispute between your insurance company and the car repair
facility. I’ve never seen a case and [ don’t think Defendant
contends that the dispute related to that relationship has
anything to do with the business of insurance. It has
something to do with the business of an insurance company.
There is a [p. 42] contractual dispute or a fraud claim or
overbilling or some charges between Allstate and Joe’s Repair
Shop.
Another example is that let’s say you have a fire insurance
company. You can have a fire in your house and you have to
have your house repaired. When the construction company
comes in and does the repairs in your kitchen, wherever your
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fire might be, and you're taken care of as the insured, but a
dispute develops between your fire insurance company and
the construction company that repairs your kitchen, no one --
and I’ve been unable to find any cases and I don’t think the
Defendant can find any cases ‘hat says -- that qualifies under
McCarran-Ferguson of the business of insurance. That is
simply in dispute between an insurance company and a
construction company, nothing more.
And that is exactly what the situation is in this case,
Judge. Blue Cross and Blue Shield of Michigan is to provide
for people -- to provide health care to their insurers. They do
that. This dispute involves a dispute -- this lawsuit involves
a dispute between the vendors to Blue Cross and Blue Shield,
nothing more. It does -- it has nothing to do with the
provision of an exchange of risk. It doesn’t have anything to
do with what would otherwise be defined as business of
insurance. It is simply nothing more than a dispute regarding
a [p. 43] company that happens to be in the business of
insurance, unrelated to the transfer of risk between the parties
in this case.
I think -- I can’t recall the name of the case off the top of
my head. It’s in our brief. There are a number of cases that
say, first you don’t look at the entire regulatory scheme or
framework. What you need to do is look at the specific
schedule or a section that is alleged to have regulated the
behavior at issue and to see whether the claimant; in this case,
RICO, impairs that provision of it. And what you see is there
is no section out of the Nonprofit Health Care Corporation
Act that we allege is at issue here or that they allege is
somehow impaired because this is nothing more than
defrauding vendors.
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And Judge, this would be some of the information that I
would show you. We've pled it in the complaint. Here’s
basically what if -- you know, obviously you have to fill out
claim forms.
THE COURT: [understand what the problem is.
MR. HORTON: Well, repeatedly they provide us with
representation that these codes, if they are used to pay
promptly, reliance on those codes and reliance on those
representations, repeated representations, by the way, that in
fact did not occur, and in fact when [p. 44] inquiries were
made, specific inquiries, specific representations in writing
were made. “Well, we’re having a processing problem.
Now we think it’s fixed, so go ahead and submit the claim
and you’ll be credited i “a
| have two more things and we can address these at a later
date. Where the claims are made and paid after 9, 11, 12,
13, 15, 16 months after they gave representations to us t
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