Feds sue Blue Cross and Blue Shield of Minnesota over health care provider tax payments

The U.S. Department of Labor has brought a lawsuit against Blue Cross and Blue Shield of Minnesota alleging the Eagan-based health insurer wrongly passed along a particular state tax to employer health plans.

The litigation deals with an assessment widely known in Minnesota as the "provider tax" — a state tax paid by hospitals and clinics. Lawmakers created the tax in 1994 to fund the MinnesotaCare health insurance program for lower-income state residents.

The Labor Department's complaint, which was filed Friday, says that for years Blue Cross had self-funded employer health plans cover the cost of the tax as an undisclosed piece of the negotiated service rates they pay to health care providers.

Blue Cross is a nonprofit health insurance company, but serves as a third-party administrator for these health plans. They are called self-funded because employers take the financial risk for the cost of medical claims.

Between 2016 and 2020, Blue Cross collected at least $66.8 million from the self-funded plans to pay the tax obligations for health care providers in the health insurer's network, the lawsuit says. The nonprofit did so "without authority to do so under the plans' governing documents," the lawsuit states.

"By exercising discretionary authority over the plans in this way, [Blue Cross] acted as a fiduciary of the plans and violated [federal] fiduciary standards and prohibited transaction rules by serving its own interests over those of the plans," says the complaint filed in the U.S. District Court of Minnesota.

In a statement, Blue Cross said it could not comment on specifics of active litigation, but said it "strongly believes the underlying claims ... are without merit and based on an unsupported interpretation of the MinnesotaCare Provider Tax law."

The insurer said its negotiated payment rates incorporate all applicable taxes and fees and reflect the insurer's commitment to ensuring access to affordable, high-quality care.

"We look forward to actively defending our position throughout the legal process," Blue Cross said.

Critics of the provider tax have dubbed it over the years as the "sick tax," since it's based on the gross patient service revenue of hospitals, surgical centers and health care providers. Supporters say it's been an effective way to generate revenue from self-funded health plans, which otherwise aren't subject to many state regulations.

The Labor Department's complaint focuses on administrative work at Blue Cross for about 370 self-funded employer health plans located or administered in Minnesota.

The lawsuit says liability for paying the provider tax is imposed on health care providers — not patients or third-party payers. These providers must specifically request a tax transfer if the sums are to be paid by health plans, the lawsuit says.

"The providers in [the Blue Cross network] did not transfer their liability of the MNCare Tax ... as would have been indicated had the providers included the MNCare Tax as a separate line item in their vouchers (which they did not)," the lawsuit says. "Rather, [Blue Cross] unilaterally volunteered to compensate network providers for their liability under the MNCare Tax and then caused the [employer health plans] to pay the tax."

Even if a health care provider did specifically request that Blue Cross cover the tax, employers would be responsible for reimbursing the health insurer — not the health plans they sponsor for workers, according to the lawsuit.

Blue Cross never sought payment from employers, according to the lawsuit, but instead used its discretionary authority over claims to cause the health plans to pay. The Labor Department also alleges the insurer employed "billing practices that obscured the taxes it collected."

Without the authority to do so or obtaining approval from independent fiduciaries, Blue Cross "exercised authority over the assets of the plans and discretionary authority over the management or administration of the plans," the lawsuit states.