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On December 8, 2010, the U.S. Court of Appeals For the Sixth Circuit ruled in favor of Jones Day’s client Blue Cross Blue Shield of Michigan in an important case involving the scope of ERISA’s fiduciary conduct rules (DeLuca v. Blue Cross Blue Shield of Michigan). The case involved the question of whether Blue Cross acts as a fiduciary and is subject to ERISA’s stringent fiduciary conduct rules when it negotiates hospital reimbursement rates that apply to its self-insured book of business. The Court, in a 2-1 decision, affirmed the District Court’s grant of summary judgment. It held that the negotiation of hospital rates constitutes a business practice, and that Blue Cross did not owe ERISA fiduciary duties of care to its self-insured customers respecting the setting of such rates, notwithstanding that other services Blue Cross provided to its self-insured customers were to be treated as ERISA fiduciary conduct. The Court concluded that because ERISA fiduciary duty principles do not regulate the setting of hospital reimbursement rates, Blue Cross did not engage in ERISA violations when it took its own business interests into account, as well as those of its insured customers, in setting such rates. The majority opinion expressly adopted Jones Day’s public policy argument that application of ERISA’s stringent fiduciary duty rules to the setting of hospital reimbursement rates inevitably would lead to negotiation of health care provider rates on a benefit “plan by plan basis,” and ultimately would be harmful and “self-defeating” for corporate and individual health insurance consumers. The Court also ruled that Blue Cross did not engage in any prohibited transactions under ERISA. It rejected the appellant’s contention that a person can engage in a prohibited transaction under ERISA section 406(b)(2) even when such person is not acting in a fiduciary capacity under ERISA.

Partner Evan Miller (Washington) was counsel of record and argued the appeal, and was assisted by partner E. Michael Rossman (Columbus), and counsel Sara Pikofsky (Washington).

Read the opinion: Anthony DeLuca v. Blue Cross Blue Shield of Michigan, Appeal No. 08-1085 (December 8, 2010).

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This entry was posted by Adam V. Russo on Tuesday, December 14th, 2010 at 1:19 pm and is filed under 6th, ERISA, Michigan. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.