Saginaw Chippewa Indian Tribe of Michigan et al v. Blue Cross Blue Shield of Michigan

Filing 197

OPINION and ORDER Granting 173 Motion for Summary Judgment, Denying as Moot 193 Motion for Reconsideration of Order Denying Motion to Compel, and Dismissing 7 Amended Complaint. Signed by District Judge Thomas L. Ludington. (KWin)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
NORTHERN DIVISION
SAGINAW CHIPPEWA INDIAN TRIBE
OF MICHIGAN, et al.,
Plaintiffs,
v.

Case No. 16-cv-10317
Honorable Thomas L. Ludington

BLUE CROSS BLUE SHIELD OF MICHIGAN,
Defendant.
_______________________________________/
OPINION AND ORDER GRANTING MOTION FOR SUMMARY JUDGMENT,
DENYING AS MOOT MOTION FOR RECONSIDERATION OF ORDER DENYING
MOTION TO COMPEL, AND DISMISSING AMENDED COMPLAINT
On January 29, 2016, Plaintiffs Saginaw Chippewa Indian Tribe of Michigan and the
Welfare Benefit Plan (“Plaintiffs” or “the Tribe” or “SCIT”) brought suit against Blue Cross Blue
Shield of Michigan (“BCBSM”). The next month, Plaintiffs filed an amended complaint. ECF No.
7. Plaintiffs’ allegations arose from BCBSM’s administration of group health plans for employees
of the Tribe and members of the Tribe. Plaintiffs alleged that BCBSM was charging hidden fees,
overstating the cost of medical services, and violated its ERISA fiduciary duties by failing to
demand Medicare Like Rates (“MLR”) from medical service providers. See generally ECF No. 7.
On April 25, 2016, BCBSM filed a motion to dismiss Plaintiffs’ first amended complaint.
ECF No. 14. The Court granted the motion and dismissed all counts except those allegations within
Counts I and II claiming that BCBSM utilized hidden access fees. ECF No. 22. On April 10, 2017,
Plaintiffs and BCBSM each filed separate motions for partial summary judgment. ECF No. 79, 81.
The Court granted both motions in part. In its order, the Court determined that Plaintiffs had two
separate health care plans with BCBSM. ECF No. 112 at PageID.6210–6214. One plan was for

members of the Tribe and the other was for employees of the Tribe. The Court determined that
only the plan for the employees was governed by ERISA.
Plaintiffs appealed the order to the Sixth Circuit. ECF No. 114. The Sixth Circuit affirmed
the Court’s judgment with the exception of the dismissal of Plaintiffs’ MLR claims. The Sixth
Circuit found that
[T]he Tribe does not assert that the MLR regulations impose an additional duty on
fiduciaries beyond what ERISA itself requires. Instead, the Tribe bases its claim on
the text of ERISA itself, which requires fiduciaries to act prudently and solely in
the interest of the plan’s participants and beneficiaries. See 29 U.S.C. § 1104(a)(1).
The Tribe alleges that BCBSM violated these duties by paying more than necessary
for the Tribe’s medical claims by failing to take advantage of the MLR regulations.
That is enough to state a claim under ERISA.
BCBSM presents an alternative reason for affirming the district court’s dismissal,
arguing that its administration of the Tribe’s plan simply is not subject to the MLR
regulations. These regulations, BCBSM contends, apply only to the expenditure of
IHS funds and do not limit the payment that hospitals must accept from a thirdparty payor, such as BCBSM, which is not expending IHS funds. Although
BCBSM asserts that the Tribe’s MLR claim therefore fails as a matter of law,
BCBSM’s argument is better understood as contending that the Tribe cannot show,
as a factual matter, that the regulations apply to its ERISA plan. But since the Tribe
has alleged that the BCBSM was aware of the MLR regulations, that BCBSM failed
to ensure that the Tribe paid no more than MLR for MLR-eligible services, and that
all other conditions precedent to the MLR claim were met, the Tribe has sufficiently
pleaded that the MLR regulations are applicable to BCBSM’s administration of the
Tribe’s ERISA plan. We emphasize that we express no opinion on the ultimate
merits of the Tribe’s MLR claim, and we hold only that it would be premature to
dismiss the Tribe’s claim at this stage of the proceedings.
ECF No. 135 at 14–15 (emphasis in original). The Sixth Circuit affirmed the Court’s determination
that there were two separate insurance plans and that only the plan for employees (some of whom
are not members of the tribe) was governed by ERISA. Id. at 8–15.
On January 4, 2019, a stipulated order was filed reinstating Counts I, IV, and VI of
Plaintiffs’ Amended Complaint “insofar as those Counts assert[ed] claims related to MedicareLike Rates (‘MLR’).” ECF No. 141. Specifically, Plaintiffs acknowledge that the federal law

-2 

requiring MLR intended to regulate “Medicare-participating hospitals” in order to benefit
“Tribe[s] or Tribal organization[s] carrying out a CHS program of the IHS.” ECF No. 7 at 29.
Plaintiffs imply, but do not allege, that “Medicare-participating hospitals” charged Plaintiffs’
groups more than MLRs and that BCBSM did not enforce the MLR pricing requirement imposed
on the hospitals.
Count I alleges that BCBSM was a fiduciary pursuant to ERISA because “it exercised
discretionary authority and control over management” of the Employee Plan and its assets as well
as responsibility over its administration. ECF No. 7 at 31 (citations omitted). Plaintiffs contend
that BCBSM breached its fiduciary duty by “[p]aying excess claim amounts to Medicareparticipating hospitals for services authorized by a tribe or tribal organization carrying out a CHS
program.” Id. at 30.
Count IV alleges that Plaintiffs are “health care insurers” as defined by the Michigan
Health Care False Claims Act (“HCFCA”). Id. at 35. Plaintiffs contend that BCBSM violated this
act by not applying the MLR discount rate for medical services received by Plaintiffs under the
Member Plan. Id. Plaintiffs reason that BCBSM’s presentation of the allegedly illegal claim for
services by the Medicare-participating hospital also constitutes BCBSM’s presentation of a false
claim.
Count VI alleges that BCBSM was in a fiduciary relationship with Plaintiffs as defined by
common law. Id. at 38. Plaintiffs contend that BCBSM violated its fiduciary duty by charging rates
in excess of MLR. Plaintiffs reason that doing so was not in the best interest of Plaintiffs under the
Plan. Id. at 38–39.

-3 

BCBSM filed a motion to dismiss Plaintiffs’ Amended Complaint. ECF No. 142. The
motion was denied without prejudice and the parties were directed to complete discovery. ECF
No. 146.
BCBSM has now filed a motion for summary judgment. ECF No. 142. It argues that it did
not owe Plaintiffs a fiduciary duty under ERISA to verify that Medicare-participating hospitals
that were delivering services to Plaintiffs’ employees at MLR. It contends that MLR is only
available when services are sought out and paid for by a tribe’s Contract Health Service. Because
BCBSM paid for the services for the employees from an entirely different source, not Plaintiffs’
Contract Health Services, the services were not eligible for MLR. In the alternative, BCBSM
alleges that Plaintiffs’ ERISA claims are time-barred by the statute of limitations. It further argues
that it did not violate the HCFCA or breach a common law fiduciary duty because the services
paid for by BCBSM from a different source were not eligible for MLR.
I.
A motion for summary judgment should be granted if the “movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). The moving party has the initial burden of identifying where to look in the
record for evidence “which it believes demonstrate the absence of a genuine issue of material fact.”
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the opposing party
who must set out specific facts showing “a genuine issue for trial.” Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 250 (1986) (citation omitted). The Court must view the evidence and draw all
reasonable inferences in favor of the non-movant and determine “whether the evidence presents a
sufficient disagreement to require submission to a jury or whether it is so one-sided that one party
must prevail as a matter of law.” Id. at 251–52.

-4 

II.
The Tribe “is a federally recognized Indian tribe, pursuant to 25 U.S.C. [§] 1300k, with its
Tribal Government headquarters located in Mt. Pleasant, Michigan.” Am. Compl. ¶ 3, ECF No. 7.
BCBSM is a large health insurance provider. BCBSM has provided insurance for the Tribe since
the 1990s. Sprague Decl. at 2, ECF No. 81, Ex. 12.
A.
In the 1990s, the Tribe purchased a comprehensive health care benefits plan from BCBSM
for its employees. Sprague Decl. at 2. This arrangement was fully-insured, meaning the Tribe paid
a premium to BCBSM for coverage and BCBSM in return had sole responsibility for paying claims
from the plan’s participants. In 2004, the Tribe’s contract with BCBSM for the fully-insured
employee plan expired. Id. at 3. Instead of renewing the fully-insured plan, the Tribe opted to
convert the Employee Plan to a self-funded arrangement by signing an ASC. Id. This meant that
instead of paying insurance to BCBSM in return for coverage, the Tribe directly paid the cost of
health care benefits and paid BCBSM a fee for administering the program.1
The health insurance plan is memorialized in an Administrative Services Contract (“ASC”)
and explains the Parties’ general responsibilities. It provides:
BCBSM shall administer Enrollees’ health care Coverage(s) in accordance with
BCBSM’s standard operating procedures for comparable coverage(s) offered under
a BCBSM underwritten program, any operating manual provided to the Group, and
this Contract. In the event of any conflict between this Contract and such standard
operating procedures, this Contract controls.
The responsibilities of BCBSM pursuant to this Contract are limited to providing
administrative services for the processing and payment of claims. BCBSM shall
have no responsibility for: the failure of the Group to meet its financial obligations:
to advise Enrollees of the benefits provided; and to advise Enrollees that Coverage
has been terminated for any reason, including the failure to make any payments
when due.

1

Self-funded programs allow for employers to customize benefits and often lower costs. But because the employer
also assumes direct liability for claims, the employer bears the financial risk of an extraordinarily high claim.

-5 

If the Group’s health care program is subject to the Employee Retirement Income
Security Act of 1974 (ERISA), it is understood and agreed that BCBSM is neither
the Plan Administrator, the Plan Sponsor, nor a named fiduciary of the Group’s
health care program under ERISA. The provisions of this paragraph, however, shall
not release BCBSM from any other responsibilities it may have under ERISA.
Administrative Services Contract at 2–3, ECF No. 79–4.
The ASC also addresses resolution of the disputes between the Parties.
The Group will, within sixty (60) days of receipt of a claims listing, notify BCBSM
in writing with appropriate documentation of any Disputed Claim(s) and will, upon
request, execute any documents required for collection of amounts that third parties
owe. BCBSM will investigate and within a reasonable time, respond to such
Claim(s).
Additionally, BCBSM will,
1. following the recovery of an amount from a third party, due to Worker’s
Compensation or other provider/program/party responsibility or
2. following BCBSM’s determination that any other disputed amount is not
the Group’s liability or that an amount shown on a claims listing and invoice
is incorrect,
credit the recovered or corrected amount, reduced by any Stop Loss payments
relating to such Claim(s) or any amounts currently overdue, on a subsequent
monthly invoice.
BCBSM, as administrator under this Contract, is subrogated to all rights of the
Group/Enrollees relating to Disputed Claim(s) but is not obligated to institute or
become involved in any litigation concerning such Claim(s).
Id. at 3–4.
The ASC also contains a section entitled “Group Audits” which granted the Tribe the
option to conduct an audit once every twelve months of the expenses charged by BCBSM. Id. The
ASC specifically stated that “[b]oth parties acknowledge that claims with incurred dates over two
(2) years old may be more costly to retrieve and that it may not be possible to recover overpayments for these claims.” Id. It later states that “BCBSM shall have no obligation to make any

-6 

payments to the Group unless there has been a recovery from the provider, Enrollee, or third-party
carrier as applicable.” Id.
B.
1.
In 1975, Congress passed the Indian Self-Determination and Education Assistance Act
(“ISDEAA”) because it “recognize[d] the obligation of the United States to respond to the strong
expression of the Indian people for self-determination by assuring maximum Indian participation
in the direction of…Federal services to Indian communities.” 25 U.S.C.A. § 5302(a). It committed
to the “orderly transition from the Federal domination of programs for, and services to, Indians to
effective and meaningful participation by the Indian people in the planning, conduct, and
administration of those programs and services.” 25 U.S.C.A. § 5302(b). Part of this transition
included allowing tribal organizations to create self-determination contracts.
The Secretary is directed, upon the request of any Indian tribe by tribal resolution,
to enter into a self-determination contract or contracts with a tribal organization to
plan, conduct, and administer programs or portions thereof…
25 U.S.C.A. § 5321(a)(1). As explained by the 8th Circuit, “Under a self-determination contract,
the federal government supplies funding to a tribal organization, allowing the tribal organization
to plan, conduct and administer a program or service that the federal government otherwise would
have provided directly.” FGS Constructors, Inc. v. Carlow, 64 F.3d 1230, 1234 (8th Cir. 1995).
One way this has been accomplished is through CHSs. CHSs are “health services provided
at the expense of the Indian Health Service from public or private medical or hospital facilities
other than those of the Service.” 42 C.F.R. § 136.21. CHS services are provided “when necessary
health services by an Indian Health Service facility are not reasonably accessible or available.” 42
C.F.R. § 136.23(a). According to federal regulation, these CHS services are services of “last

-7 

resort.” 42 C.F.R. § 136.61 (“The Indian Health Service is the payor of last resort for persons
defined as eligible for contract health services.”).
In order to receive CHS services, an individual must first gain approval from the Tribe’s
CHS program. Federal regulation provides:
In nonemergency cases, a sick or disabled Indian, an individual or agency acting
on behalf of the Indian, or the medical care provider shall, prior to the provision of
medical care and services notify the appropriate ordering official of the need for
services and supply information that the ordering official deems necessary to
determine the relative medical need for the services and the individual's eligibility.
42 C.F.R. § 136.24(b). Upon receiving approval from the ordering official, a purchase order is
issued from the ordering official to the medical care provider. 42 C.F.R. § 136.24(a).
2.
At issue in this case is whether a medical service is eligible for Medicare-Like Rates when
an employee health care plan engaged by the tribe uses a source of funding other than CHS funds
to pay for the service. The Tribe’s entitlement to Medicare-Like Rates originates from the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”). PL 108173 (HR 1). The MMA was intended to provide a program for prescription drug coverage under
the Medicare Program, to amend the Internal Revenue Code to permit certain deductions, and to
make other changes to the Social Security Act. See id.
Specifically, Section 506(a) of the MMA amended 42 U.S.C. §1395cc to include a new
provision granting the Secretary of Health and Human Services (the “Secretary”) the authority to
require Medicare payments to hospitals providing services on behalf of the Indian Health Service,
an Indian tribe, or a tribal organization. As the bill was being debated, one of its cosponsors, House
Representative William M. Thomas of California District 22, furnished a report which explained
the amendment as follows:

-8 

The amendment would prohibit hospitals that participate in Medicare and that
provide Medicare covered inpatient hospital services under the contract health
services program funded by the Indian Health Services from charging more than
the Medicare established rates for these services. This provision would apply to
contract health services programs operated by the Indian Health Service, an Indian
tribe or tribal organization or an urban Indian organization.
Conference Report on H.R. 1, Medicare Prescription Drug, Improvement, and Modernization Act
of 2003, p. H11877 at 579 (2003).
The MMA became law on December 8, 2003. Among other amendments to the Social
Security Act, the MMA amended 42 U.S.C. §1395cc by inserting subparagraph (U) as follows:
(a) Filing of agreements; eligibility for payment; charges with respect to items and
services
(1) Any provider of services…shall be qualified to participate under this subchapter
and shall be eligible for payments under this subchapter if it files with the Secretary
an agreement-(U) in the case of hospitals which furnish inpatient hospital services for
which payment may be made under this title, to be a participating provider
of medical care both—
(i) under the contract health services program funded by the Indian
Health Service and operated by the Indian Health Service, an Indian
tribe, or tribal organization…with respect to items and services that
are covered under such program and furnished to an individual
eligible for such items and services under such program; and
(ii) under any program funded by the Indian Health Service and
operated by an urban Indian organization with respect to the
purchase of items and services for an eligible urban Indian…
in accordance with regulations promulgated by the Secretary regarding
admission practices, payment methodology, and rates of payment
(including the acceptance of no more than such payment rate as payment in
full for such items and services [sic],
42 U.S.C. §1395cc.
3.
Section 506(c) of the MMA required the Secretary to publish rules implementing section
506(a) of the MMA. PL 108-173 (HR 1) (“The Secretary shall promulgate regulations to carry out

-9 

the amendments made by subsection (a).”). Accordingly, on April 28, 2006, the Indian Health
Service (“IHS”) and the Contract Health Services program published proposed rules in the Federal
Register. 71 FR 25124-02. Interested persons were given until June 27, 2006 to submit written
comments concerning the proposed regulation. Id.
On June 4, 2007, the IHS issued a final rule implementing the regulations. It summarized
the final rule as follows:
The Secretary of the Department of Health and Human Services (HHS) hereby
issues this final rule establishing regulations required by section 506 of the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA), (Pub. L. 108-173). Section 506 of the MMA amended section 1866 (a)(1)
of the Social Security Act to add subparagraph (U) which requires hospitals that
furnish inpatient hospital services payable under Medicare to participate in the
contract health services program (CHS) of the Indian Health Service (IHS) operated
by the IHS, Tribes, and Tribal organizations, and to participate in programs
operated by urban Indian organizations that are funded by IHS (collectively referred
to as I/T/Us) for any medical care purchased by those programs. Section 506 also
requires such participation to be in accordance with the admission practices,
payment methodology, and payment rates set forth in regulations established by the
Secretary, including acceptance of no more than such payment rates as payment in
full.
Rules and Regulations, Department of Health and Human Services, 72 FR 30706-01. Specifically,
the proposed rule would
amend the IHS regulations at 42 CFR part 136, by adding a new subpart D to
describe the payment methodology and other requirements for Medicareparticipating hospitals and critical access hospitals (CAHs) that furnish inpatient
services, either directly or under arrangement, to individuals who are authorized to
receive services from such hospitals under a CHS program of the IHS, Tribes, and
Tribal organizations, and IHS-funded programs operated by urban Indian
organizations (collectively, I/T/U programs). As provided in the statute, we also
proposed to amend CMS regulations at 42 CFR part 489 to require Medicareparticipating hospitals and critical access hospitals (CAHs) that furnish inpatient
hospital services to individuals who are eligible for and authorized to receive items
and services covered by such I/T/U programs to accept no more than the payment
methodology under 42 CFR part 136, subpart D as payment in full for such items
and services.

- 10  

Id. In response, the IHS received 35 comments and furnished responses to them. Id. One of these
provided:
Comment: One commenter expressed concern that the proposed rule places an
additional burden on hospitals by capping rates paid to public and private non-IHS
funded hospitals, with no additional responsibility or accountability placed on
I/T/U programs regarding payments to such hospitals.
Response: This rule would provide for rates that hospitals accept under the
Medicare program. We do not believe these rates place an additional burden on
hospitals.
Id. In a later response, the IHS emphasized that “Medicare-participating hospitals that furnish
inpatient services must accept the rate methodology established under this regulation as a condition
of participation in the Medicare program.” Id.
The day after publishing the final rule, the HHS implemented the regulations. Consistent
with the final rule, a new subpart D was added which provides in part:
(a) Scope. All Medicare-participating hospitals…that furnish inpatient services
must accept no more than the rates of payment under the methodology described in
this section as payment in full for all items and services authorized by IHS, Tribal,
and urban Indian organization entities.
(b) Applicability. The payment methodology under this section applies to all levels
of care furnished by a Medicare-participating hospital, whether provided as
inpatient, outpatient, skilled nursing facility care, as other services of a department,
subunit, distinct part, or other component of a hospital (including services furnished
directly by the hospital or under arrangements) that is authorized under part 136,
subpart C by a contract health service (CHS) program of the Indian Health Service
(IHS); or authorized by a Tribe or Tribal organization carrying out a CHS program
of the IHS under the Indian Self–Determination and Education Assistance Act…or
authorized for purchase under § 136.31 by an urban Indian organization.
42 C.F.R. §136.30(a)–(b).2

2

The regulation cites to 25 U.S.C. §13 as statutory authority which provides:
The Bureau of Indian Affairs, under the supervision of the Secretary of the Interior, shall direct, supervise,
and expend such moneys as Congress may from time to time appropriate, for the benefit, care, and assistance
of the Indians throughout the United States for the following purposes:…
For relief of distress and conservation of health.
25 U.S.C. §13. The regulations also cite to 42 U.S.C. §2001 for statutory authority which provides:
(a) All functions, responsibilities, authorities, and duties of the Department of the Interior, the Bureau of
Indian Affairs, Secretary of the Interior, and the Commissioner of Indian Affairs relating to the maintenance

- 11  

The regulation also provided a mechanism for Indian organizations to recover from
hospitals that did not apply the required MLR rates. 42 C.F.R. §136.32 provides:
a) If it is determined that a hospital has submitted inaccurate information for
payment, such as admission, discharge or billing data, an I/T/U may as
appropriate—
(1) Deny payment (in whole or in part) with respect to any such services,
and;
(2) Disallow costs previously paid, including any payments made under any
methodology authorized under this subpart. The recovery of payments made
in error may be taken by any method authorized by law.
(b) For cost based payments previously issued under this subpart, if it is determined
that actual costs fall significantly below the computed rate actually paid, the
computed rate may be retrospectively adjusted. The recovery of overpayments
made as a result of the adjusted rate may be taken by any method authorized by
law.
42 C.F.R. §136.32. It is not apparent that BCBSM could utilize this provision to recover
erroneously-billed claims. Furthermore, the parties’ papers do not reflect whether the Plaintiffs
ever utilized this right of action to recover erroneously-billed claims.
4.
On July 19, 2007, the Acting Director of the Assistant Surgeon General, Charles W. Grim,
published a letter to Tribal Leaders and Urban Program Directors. It provided:
Dear Tribal Leader/Urban Program Director:
I am pleased to announce that on June 4 the Indian Health Service (IHS) and the
Centers for Medicare & Medicaid Services (CMS) published the much anticipated
final rule implementing “Medicare-like” payment rates. The “Medicare-like”
payment rate will constitute payment in full to Medicare-participating hospitals that

and operation of hospital and health facilities for Indians, and the conservation of the health of Indians, are
transferred to, and shall be administered by, the Surgeon General of the United States Public Health Service,
under the supervision and direction of the Secretary of Health and Human Services…
(b) In carrying out his functions, responsibilities, authorities, and duties under this subchapter, the Secretary
is authorized, with the consent of the Indian people served, to contract with private or other non-Federal
health agencies or organizations for the provision of health services to such people on a fee-for-service basis
or on a prepayment or other similar basis.
42 U.S.C. §2001. §2003 of the same subchapter provides that “[t]he Secretary of Health and Human Services is also
authorized to make such other regulations as he deems desirable to carry out the provisions of this subchapter.” 42
U.S.C. §2003.

- 12  

deliver services to American Indians and Alaska Natives referred through IRSfunded programs. The final rule, entitled “Section 506 of the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003-Limitation on Charges for
Services Furnished by Medicare Participating Inpatient Hospitals to Individuals
Eligible for Care Purchased by Indian Health Programs” (72 FR 30706), includes
all IHS-funded health care programs, whether operated by the IHS, Tribes, Tribal
organizations, or Urban Indian organizations. The effective date for the final rule
was July 5. I have enclosed a copy of the rulemaking and a related press release for
your review.
The June 4 final rule amends the regulations at Title 42, Code of Federal
Regulations (CFR), Part 136, by adding a new Subpart D to describe the “Medicarelike” rate payment methodology. The payment methodology applies to all levels of
care furnished by a Medicare-participating hospital, whether provided as inpatient,
outpatient, skilled nursing facility care, as other services of a department, subunit,
distinct part, or other component of a hospital (including services furnished directly
by the hospital or under arrangements) that is authorized under Part 136, Subpart C
by a contract health service (CHS) program of the IHS or authorized by a Tribe or
Tribal organization carrying out a CHS program of the IHS under the Indian SelfDetermination and Education Assistance Act, as amended, (Public Law 93-638) or
authorized for purchase under Section 136.31 by an Urban Indian organization.
The “Medicare-like” rates regulations will reduce contract health expenses for
hospital services and enable Indian health programs to use the resulting savings to
increase services to their beneficiaries. To ensure that Tribal and Urban programs
get the information needed to make the most of the new regulations, IHS
Headquarters CHS staff have developed a Web site to explain the regulations and
provide notices about training opportunities. The Web site is located at
www.ihs.gov/nonmedicalprograms/mlri/. Training will also be available on “CMS
Day” at the Annual National Indian Health Board Consumer Conference, scheduled
for September 27, in Portland, Oregon.
Letter

to

Tribal

Leaders

and

Urban

Program

Directors,

(July

19,

2007),

https://www.ihs.gov/prc/includes/themes/responsive2017/display_objects/documents/mlri/Tribal
%20Leader%20Letter.pdf.
III.
According to Plaintiffs, “SCIT is a self-determined Indian tribe and has carried out a CHS
program since 1997.” ECF No. 177 at PageID.10828. In executing their CHS program, Plaintiffs
require a requesting individual to 1) demonstrate that they are a member of a U.S. federally
recognized Indian tribe or a direct descendant of the Saginaw Chippewa Indian Tribe and 2)
- 13  

provide proof of residency in one of the five counties covered by SCIT (Clare, Isabella, Midland,
Arenac, Missaukee). ECF No. 176-2. Plaintiffs explain that:
If the patient met the above criteria and the CHS program determined that the
medical services being sought were deemed necessary, the Tribe’s CHS program
(as the “ordering official”) issued a “purchase order” or “referral,” authorizing the
service in accordance with 42 C.F.R. 136.24(a). The patient was then required to
present the purchase order/referral from the CHS program to the provider at the
time of service. SCIT’s CHS program issued a purchase order/referral authorizing
all of the claims at issue in this lawsuit.
ECF No. 176 at PageID.9520 (citations omitted). Plaintiffs note that “[n]ot all medical services
were deemed necessary. In accordance with 42 C.F.R. 136.23(e), the Tribe prioritized care based
on relative medical need to cover all authorized services.” Id.
Plaintiffs funds its CHS program with money from the IHS and money from the Tribe. See
ECF No. 173-4 at PageID.8986-87; ECF No. 173-10 at PageID.9065-66. As directed in 42 C.F.R.
§ 136.61, the Tribe’s CHS program was a payor of last resort for medical services. BCBSM
explains that:
The Tribe ensured that the Plans would always pay first, before the Tribe expended
any CHS Funds through its CHS program, thereby stretching its CHS Funds as far
as possible. In fact, if a CHS-eligible patient obtained a referral but then failed to
present his or her BCBSM insurance card to the provider, the Tribe would take the
corresponding medical bill and “send that to [BCBSM] to ensure that [BCBSM]
paid first.
ECF No. 173 at PageID.8901 (citations omitted). Plaintiffs required that payment through the Plan
“first be exhausted before the CHS program paid for anything.” Id. at PageID.8893. CHS would
only pay for a service’s remaining balance after BCBSM had made the initial payment.
Payment from BCBSM and payment from CHS were separate. BCBSM did not have the
authority to distribute CHS funds. As explained by BCBSM:
The Tribe contracted with BCBSM not to administer a CHS program, but to simply
process and pay medical claims of the Tribe’s two welfare benefit plans…at

- 14  

BCBSM’s discounted network rates. By the Tribe’s own design, and as the Tribe
knowingly intended, the Plans were completely separate from its CHS program.
Id. at PageID.8893 (emphasis in original). Plaintiffs reimbursed BCBSM from its Fringe Internal
Service Fund, a “fund that is created and established for the sole purpose of taking care of
employee benefits.” ECF No. 173-4 at PageID.8984. This fund was completely separate from the
IHS funds used for the CHS program. Id. at PageID.8985.
BCBSM was not aware of which employees would be eligible for MLR because Plaintiffs
did not inform BCBSM which of its employees were enrolled in the CHS program. See ECF No.
173 at PageID.8902–03. However, by contracting with BCBSM, Plaintiffs’ employees had access
to BCBSM network rates and network providers. See ECF No. 173-3 at PageID.8953.
IV.
BCBSM argues that it had no fiduciary duty to ensure that Plaintiffs received MLR because
MLR only applies to services funded by a CHS program. ECF No. 173 at PageID.8910. Because
BCBSM always paid for medical services first and had no authority to disburse CHS funds,
BCBSM could not have applied MLR to the medical services. The responsibility for ensuring the
MLR was applied would fall solely with Plaintiffs because they controlled disbursement of the
CHS funds.
Plaintiffs disagree, reasoning that only approval from a tribe’s CHS program is necessary
to access MLR. Their response brief provides:
Authorization of the hospital services by the Tribe’s CHS program – not payment
from CHS funds – is the regulatory predicate for services provided by a Medicareparticipating hospital to be eligible for MLR pricing under the plain language of 42
C.F.R. 136.30(b).
ECF No. 173 at PageID.8901. They rely upon 42 C.F.R. 136.30(b) which provides:
The payment methodology under this section applies to all levels of care furnished
by a Medicare-participating hospital, whether provided as inpatient, outpatient,
- 15  

skilled nursing facility care, as other services of a department, subunit, distinct part,
or other component of a hospital (including services furnished directly by the
hospital or under arrangements) that is authorized under part 136, subpart C by a
contract health service (CHS) program of the Indian Health Service (IHS); or
authorized by a Tribe or Tribal organization carrying out a CHS program of the
IHS under the Indian Self–Determination and Education Assistance Act, as
amended, Pub.L. 93–638, 25 U.S.C. 450 et seq.; or authorized for purchase under
§ 136.31 by an urban Indian organization (as that term is defined in 25 U.S.C.
1603(h)) (hereafter “I/T/U”).
42 C.F.R. § 136.30(b) (emphasis added). According to Plaintiffs, a plain reading of the regulation
demonstrates that it is irrelevant whether the funds for the service come from the Tribe’s CHS fund
or from the Tribe’s insurance policy. The only requirement is that the service was approved by the
Tribe’s CHS program, though Plaintiffs do not dispute BCBSM’s assertion that none of the claims
paid by BCBSM were paid by or through the Tribe’s CHS program.
Plaintiffs further cite to Judge Lawson’s opinion in Little River Band of Ottawa Indians v.
Blue Cross Blue Shield of Michigan, 183 F. Supp. 3d 835 (E.D. Mich. 2016). Judge Lawson held
that MLR applied to a service irrespective of the fund sources as long as a CHS program approved
the service. He quotes an IHS document entitled “Medicare-Like Rates for CHS Services
(Consolidated) FAQ” (“FAQ Document”) which presents 62 questions and answers about the
relationship between MLR and CHS. Though the FAQ Document is not binding, it is worthy of
“some deference.” Bank of New York v. Janowick, 470 F.3d 264, 269 (6th Cir. 2006) (“Interpretive
guidance from administrative agencies that is not the product of formal, notice-and-comment
rulemaking is entitled to respect to the extent that th[e] interpretations have the power to
persuade.”) (quotations omitted).
Judge Lawson’s opinion provides:
[T]he governing regulations plainly require that payments be capped at “MedicareLike Rates” for all qualifying services, regardless of the source of funds, as long as
the services were authorized by the rules of the federally-funded Indian Health
Services “Direct Care” or “Contract Health Services” programs. See Plf.’s Resp.,
- 16  

Ex. 3, Medicare-Like Rates for CHS Services FAQ ¶¶ 17, 28 (Pg ID 300-02) (“If a
Tribe pays for services [ ] with Tribal funds can they pay using Medicare-like
Rates? Yes, as long as they meet CHS eligibility requirements within the
regulations and services are authorized by the CHS program.”; “Does my local
hospital have to accept these rates? Yes, if the local hospital is a Medicare
participating hospital and if your CHS program has authorized payment for the
services.”).
Id. at 843–44 (emphasis in original).
BCBSM contends that Judge Lawson did not consider the entire FAQ Document when he
determined that CHS funds were not a prerequisite for MLR. It argues that the references to “CHS
programs” contemplated payment by the CHS programs, not solely claims that could be payable
under the CHS programs. BCBSM cites to three of the FAQ Document questions to further support
their proposition: Question 10, Question 11, and Question 29.
10. We use Third Party funds to pay costs for certain members who do not qualify
for CHS funding. Do the Medicare-like rates apply for these services?
No. Medicare-like rates only apply for services payable through the CHS
program, for individuals who are eligible for CHS coverage, as defined by 42
CFR Part 136.
***
11. We use Third Party funds to add to our CHS funds. Do Medicare-like rates
apply for these services?
Yes, as long as the CHS pays for the services and follows the regulations that apply
to CHS and client eligibility (42 CFR Part 136).
***
29. What services are payable at Medicare-like rates?
…[T]he service or supply must be provided to a CHS eligible individual and paid
by an IHS or tribal CHS program or by an Urban Indian program.
ECF No. 173-27 at PageID.9276, 9278 (emphasis added). Judge Lawson makes no mention of
these other FAQ Document passages nor do Plaintiffs address them in their response brief.

- 17  

It is unclear why neither Judge Lawson nor Plaintiff addressed these passages. The specific
guidance of these three passages clarify the more general propositions presented in the two
passages quoted by Judge Lawson. They explicitly state that CHS payment is necessary for the
application of MLR. Claiming that CHS payment is not necessary for the application of MLR
directly contradicts these passages. Though the FAQ Document is not federal regulation, it was
promulgated by the IHS and accordingly provides guidance to the Court in interpreting 42 C.F.R.
§ 136.30(b). Specifically, it demonstrates that references to “CHS program” in 42 C.F.R. §
136.30(b) do not signify solely CHS program authorization, but additionally, CHS payment.
This is further supported by a case identified by BCBSM, Rancheria v. Hargan, 296 F.
Supp. 3d 256 (D.D.C. 2017). In Rancheria, a Native American tribe had a self-insured policy just
as Plaintiffs have a self-insured policy. However, unlike Plaintiffs, the tribe distinguished between
services that it would pay for with its self-insured policy and services that it would pay for with its
CHS funds. Certain services would be less expensive using its self-insured policy because it would
receive lower rates from providers associated with the tribe’s insurer, Anthem Blue Cross. Other
services would be less expensive using the tribe’s CHS funds because MLR applied to these other
services. The court summarized the plan as follows:
[T]he Tribe established its own Tribal Self–Insurance Program (referred to in the
record as TSIP) to increase the availability of monies for health care for Tribal
members. The Tribal Self–Insurance Program provides access to care at discounted
rates through an arrangement with Anthem Blue Cross. In comparison, CHS
reimburses health care providers at Medicare-like rates. For certain care needs, the
Tribal Self–Insurance Program can purchase coverage at lower rates while for other
needs, CHS is able to obtain a lower rate. To conserve resources so the Tribe pays
the lowest possible rate, the Tribal Self–Insurance Program contains an
exclusionary clause that excludes from coverage those services that are eligible for
Medicare-like rates and those services eligible for CHEF reimbursements. The
TSIP Coordination Policy further provides that the Tribal Self–Insurance Policy
“will not be treated as an alternate resource” for purposes of the payor of last resort
rule.

- 18  

While the Tribe was sometimes able to secure the best rate by paying for care
through the CHS program, for other care more favorable rates could be secured if
the Tribe paid directly. To take advantage of the optimal rate, the Tribe also
developed a Coordination of Benefits (referred to in the record as COB) program
between the Tribal Self–Insurance Program and CHS, allowing the former to “pay
any claim otherwise covered by the express terms of [TSIP] on a provisional basis
pending a final determination under the COB.” In the event that the Tribal Self–
Insurance Program makes a provisional payment and “it is confirmed that IHS or
CHS should have been primary under this COB…[TSIP] shall be entitled to
reimbursement for the IHS or CHS program.” id. If the provisional payment turns
out to be for care eligible for Medicare-like rates under CHS, the Tribal Self–
Insurance Program makes an immediate payment “on behalf of and as a distribution
agent for the CHS program” in order to maintain eligibility for the Medicare-like
rates. id. By having its self-insurance program make immediate, but provisional,
payments on behalf of CHS, the Tribe increases the fiscal efficiency of its payment
process and conserves resources by ensuring that it will always pay the lowest
available rate.
Id. at 261–62.
As explained above, the tribe in Rancheria structured its plan so that it paid for medical
services through whichever source of funds could obtain the lowest rate, either CHS or TSIP. This
is consistent with federal regulation which provides that a tribe “will pay the lesser of the payment
amount determined under [the MLR regulations] or the amount negotiated with the hospital or its
agent.” 42 C.F.R. 136.30(f) (emphasis added). For some services, CHS would could secure the
lowest rate. For other services, TSIP could secure the lowest rate. It is presumed that this was also
true for services eligible for MLR since the TSIP would make provisional payments for MLReligible services. For some MLR-eligible services, CHS may have been able to access the lowest
rate by using MLR. However, TSIP may have been able to access a rate even lower than MLR.
This possibility would account for why TSIP only made a provisional payment for MLR-eligible
services. A provisional payment would allow for a later determination as to whether funding from
CHS or TSIP would be the most cost effective.

- 19  

In this case, it is unclear whether MLR was always lower than the rates obtained by
BCBSM for MLR-eligible services. Plaintiffs claim that “MLR prices were significantly lower
than BCBSM’s network prices.” ECF No. 176 at PageID.9518 (emphasis in original). They also
provide an internal email from BCBSM in which an employee represented that MLR was
“anywhere from 10 to 18% under [BCBSM] negotiated rates depending on the region etc.” ECF
No. 177-47. However, Plaintiffs furnish no specific or quantitative evidence demonstrating the
instances in which BCBSM rates were higher than MLR. In fact, Plaintiffs indirectly acknowledge
that BCBSM rates may have been lower than MLR rates for certain services. Plaintiffs’ response
brief provides:
Because Medicare-participating hospitals are legally required to accept MLR
pricing as “payment in full” for services authorized by a tribal CHS program under
42 C.F.R. § 136.31(j), in circumstances where the MLR price was lower than
BCBSM’s network price negotiated with the hospital, the hospital would be paid
less than for the same services than other BCBSM insureds.
ECF No. 176 at PageID.9524, n. 7 (emphasis added). Such a statement would be unnecessary if
BCBSM rates were always higher than MLR. Accordingly, it is possible that during the time in
question, BCBSM paid for certain services at rates lower than those of MLR.
As explained by the court in Rancheria, the parties understood that MLR would only apply
to CHS services that were funded by CHS, not services that were separately funded by the tribe’s
self-insurance plan. If the source of funds had been irrelevant, it would have made little sense for
the tribe to have differentiated between the two sources as it did. The specific structuring of the
self-insurance plan in relation to the CHS indicates that only services paid for by the CHS, not a
self-insurance plan, are eligible for MLR.3 The tribe’s insurance policy in Rancheria is not legal
authority, but the Rancheria court did not note anything unusual about it and presumed that it was

3

Plaintiffs do not address this portion of the Rancheria opinion in their response brief.

- 20  

structured specifically to comply with the laws governing MLR. This supports a finding that the
use of CHS funds are necessary to obtain MLR.
BCBSM further argues that adopting the interpretation proposed by Plaintiffs (that CHS
payment is not required for MLR to apply) would not always further the intent of the legislation,
specifically to conserve IHS funds. ECF No. 178 at PageID.12130. For example, a policy may
require a tribe to pay a premium and in return, the insurance company pays for any covered medical
services. This is similar to the policy that Plaintiffs initially had with BCBSM. See supra Section
II.A. In such a situation, the insurance company would benefit from the MLR because it would be
paying less for the service than its estimate in setting the premium. The tribe would not benefit
from the MLR because it would not be paying for the actual service. Such a result would be
contrary to the intent of the statute.
Accordingly, MLR is only applicable for those services funded by CHS. BCBSM was not
authorized nor did it pay for services using funds from CHS. Accordingly, MLR was not applicable
to BCBSM’s payments to medical providers.
V.
BCBSM did not have a fiduciary duty under ERISA to pay for Plaintiffs’ medical services
at MLR as alleged in Count I of Plaintiffs’ amended complaint because only services funded by
the Tribe’s CHS program qualified for MLR. For that same reason, BCBSM could not have
violated the Health Care False Claims Act as alleged in Count IV or breached a common law
fiduciary duty as alleged in Count VI. For these reasons, BCBSM’s Motion for Summary
Judgment will be granted.
Additionally, BCBSM’s Motion for Reconsideration of Order Denying Motion to Compel
will be denied as moot. ECF No. 193. BCBSM’s original Motion to Compel sought additional

- 21  

emails related to the time at which Plaintiffs learned of MLR legislation. Magistrate Judge Morris
denied the motion after concluding that BCBSM had been furnished sufficient emails. Because the
case will be dismissed on the purely legal question of the applicability of MLR, resolving
BCBSM’s motion to reconsider Judge Morris’ order will be denied as moot.
VI.
Accordingly, it is ORDERED that Defendant’s Motion for Summary Judgement, ECF No.
173, is GRANTED.
It is further ORDERED that Defendant’s Motion for Reconsideration of Order Denying
Motion to Compel, ECF No. 193, is DENIED AS MOOT.
It is further ORDERED that Plaintiffs’ Amended Complaint, ECF No. 7, is DISMISSED
WITH PREJUDICE.

Dated: August 7, 2020

s/Thomas L. Ludington
THOMAS L. LUDINGTON
United States District Judge

- 22