In re Blue Cross Blue Shield Antitrust Litig.
In re Blue Cross Blue Shield Antitrust Litig.
2017 WL 11681948 (N.D. Ala. 2017)
August 30, 2017

Putnam, T. Michael,  United States Magistrate Judge

Proportionality
Failure to Produce
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Summary
The court ordered Blue Cross Blue Shield of Alabama to produce ESI related to its annual financial statements, Medical Loss Ratio calculations, and executive deferred compensation plans. This ESI includes documents, work papers, reports, memoranda, and other data related to the formation and value of these plans. The ESI is important to the case as it will provide insight into BCBS-AL's financial practices.
Additional Decisions
IN RE: BLUE CROSS BLUE SHIELD ANTITRUST LITIGATION This document relates to all cases
Master File No.: 2:13-CV-20000-RDP | (MDL No.: 2406)
United States District Court, N.D. Alabama, Southern Division
Filed August 30, 2017
Putnam, T. Michael, United States Magistrate Judge

DISCOVERY ORDER No. 63

*1 Since December 1, 2015, the “proportionality” of discovery has become an explicit consideration inherent in the proper scope of discovery under Rule 26(b)(1).[1] A discovery request is within the proper scope of discovery only if it relates to any party's claim or defense and is “proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties' relative access to relevant information, the parties' resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.” Fed. R. Civ. P. 26(b)(1). At issue before the court is the Provider Plaintiffs' motion to compel defendant Blue Cross Blue Shield of Alabama (“BCBS-AL”) to produce additional documents and electronically stored information (“ESI”) as follows:
(1) Certain “work papers” showing the manner in which BCBS-AL's annual financial statements have been prepared from 2007 to 2016;
(2) Medical Loss Ratio work papers and calculation reports from 2007 to 2016; and
(3) “Qualified welfare trust documents, 401K restoration plan, Rabbi Trust formation documents, and supplements to defined benefit plans, along with documents that show the valuation of these accounts throughout the class period.”
(Doc. 1426). BCBS-AL has objected to this discovery and filed an opposition to the motion to compel, arguing that the discovery now sought is disproportionate to the needs of the case and unduly burdensome to produce.
 
Having reviewed the motion and the opposition, as well as having heard the arguments of counsel, the motion will be granted in part and denied in part as discussed below.
 
I. Certain “Work Papers” Related to Annual Financial Statements
The motion to compel first seeks an order to require BCBS-AL to produce:
Certain annual statement work papers, as well as BCBS-AL manuals, formula or table resources, instructions, and any other information that would disclose the specific general ledger accounts that are included in each Annual Statement calculation. (Italics added).
(Doc. 1426). They contend they need this information as “necessary for Provider Plaintiffs to be able to recreate calculations appearing on BCBS-AL's annual statements and submitted to regulators....” They argue that “[t]hese [ ] critical documents [are] likely to drive testimony on trial issues, and the record will be incomplete without them.” (Id.) While at pages 4 and 5 of the motion to compel, the Provider Plaintiffs seem to limit their request to specific (albeit still very broad) entries appearing on BCBS-AL's annual statements,[2] the motion ultimately seeks to compel “any other information that would disclose the specific general ledger accounts that are included in each Annual Statement calculation.” (Doc. 1426, p. 6) (Italics added). In effect, the motion seeks all underlying financial and statistical data used by BCBS-AL to calculate every entry on every annual financial statement since 2007.
 
*2 It is not surprising that BCBS-AL objects, and the Provider Plaintiffs seem to acknowledge, that this request is very voluminous. It seeks virtually every bit of financial and statistical data used by BCBS-AL to calculate every entry on its annual statements. From previous motion controversies, the court has learned that such financial and statistical data are scattered across multiple databases on multiple servers. Some of it may be in hardcopy form or in individual employee computers. To find all the underlying financial transactions and information need to recalculate BCBS-AL's annual statements for multiple years would be a massive undertaking that seems disproportionate to the needs of the case.
 
Provider Plaintiffs seek to justify this massive undertaking with the argument that they need the underlying data to “recreate” the calculations for some or all of the entries appearing on BCBS-AL's annual financial statements. Implicit (if not explicit) in this argument is the Provider Plaintiffs' skepticism concerning the accuracy of the final numbers that appear in the financial statements. Other that pointing to the impressive growth of BCBS-AL's reserve, they cannot state any reason for such skepticism. They admit that the annual financial statements are audited internally and externally, and by regulators. They acknowledge that the defendant is required to use SAP accounting standards for performing their audits, but the Provider Plaintiffs want to re-examine BCBS-AL's finances using GAAP standards (doing so for each of ten years from 2007 to the present), believing they can prove that the company is undervalued by the SAP standards. The Provider Plaintiffs essentially believe that BCBS-AL is hiding income in various accounting entries (for example, by offsetting excess income with unrelated expense categories or by excessively funding deferred-compensation accounts) and that it is a much more profitable company than it wants to admit.
 
The court is not persuaded that discovery of every expense transaction, every general ledger entry, every income notation, every payment, and every assumption made in calculating BCBS-AL's annual financial statement for each of the last ten years is proportionate to the needs of this case. Although the court has stated before, and continues to believe, this case involves gigantic monetary and social stakes, there must be a limit on the expansive breadth and scope of discovery, even in a case this large. The court understands the Provider Plaintiffs' need to fully understand and test the financial data supplied by BCBS-AL, but there is little or no basis for challenging the accuracy and completeness of the audited annual financial statements already produced by the defendant. A mere suspicion that the annual statements do not fairly reflect the true financial condition of BCBS-AL, without more, is not enough to meet the proportionality factors in Rule 26(b)(1). The burden and expense of such a massive discovery request outweighs the speculative belief that the requested financial data may reveal a rosier picture of BCBS-AL than it lets on in its annual statements. The motion to compel, therefore, is DENIED with respect to underlying financial data used to calculate BCBS-AL's annual financial statements.
 
II. Medical Loss Ratio Documents
A second category of documents sought by the Provider Plaintiffs is made up of the “work papers and calculation reports” reflecting BCBS-AL's calculation of its Medical Loss Ratio (“MLR”).[3] In addition to the work papers and calculation reports, Provider Plaintiffs also seek “any memos, reports, documents, emails, or minutes related to MLR work papers and calculation reports.” (Doc. 1426, p. 7). BCBS-AL opposes the motion on the ground that such materials are “encompass and extensive volume of record and information.”
 
*3 Unlike the general financial condition of BCBS-AL, which is only indirectly probative of the antitrust claims advanced in this action, BCBS-AL's calculation of its MLR is directly probative of its practices related to reimbursement of medical providers. A clear understanding of the accuracy of BCBS-AL's calculation of its MLR sheds light on whether it suppresses reimbursements to medical providers and it contributes to the growth of the company's reserve. Moreover, BCBS-AL has a clear understanding of what data goes into determining the MLR as it has been required to calculate it under the Affordable Care Act since 2011, and that calculation is audited by the Center for Consumer Information and Insurance Oversight, an agency of the Department of Health and Human Services.
 
The motion to compel work papers and calculation reports related to the MLR is GRANTED, and BCBS-AL is DIRECTED to produce to the Provider Plaintiffs, subject to the Protective Order in this case, for each year from 2007 to 2016,[4] those documents, work papers, reports, memoranda, and other data it uses to comply with its duty under the Affordable Care Act to report its MLR and to enable the Center for Consumer Information and Insurance Oversight to conduct its audits.
 
III. Executive Deferred Compensation Plans
The third and final category of documents and information the Provider Plaintiff seek “the formation documents of the plans listed above as well as information related to the value of these plans throughout the class period.” (Doc. 1426, p. 10). The particular deferred compensation plans listed in the motion are the “qualified welfare trust,” the “401K restoration plans,” the “Rabbi Trust(s),” and the “supplements to defined benefits plans.” (Id. at 8). Again, BCBS-AL does not assert that production of these “formation documents” and regular or annual reports of the valuation of the plans is unduly burdensome, only that it has produced sufficient information related to executive compensation for the Provider Plaintiffs to determine that it has a relative small impact on the valuation of the company and provider reimbursements. The motion to compel is GRANTED, and BCBS-AL is DIRECTED to produce to the Provider Plaintiffs, subject to the Protective Order in this case, such documents as are necessary to show the formation and establishment of these plans as they relate to executive compensation, as well as annual statements or reports of the valuation of such plans for the years 2007 to 2016.
 
Documents and data required to be produced pursuant to this Order shall be produced not later than September 21, 2017.
 
The motion to compel is otherwise DENIED.
 
DONE this 30th day of August, 2017.

Footnotes
The 2015 Committee Comments, as well as various commentators, point out that the essence of the proportionality requirement has existed in the Rule 26 since at least 1983. Yet, beginning in December 2015, it was brought to center stage when it was added to Rule 26(b)(1) defining the “Scope” of discovery.
Provider Plaintiffs identify entries for “Prepaid Pension—Line 2502,” “Overfunded Pension Asset—Line 2503” asset accounting entries they wish to examine. Also, they wish to examine certain accounting entries for liabilities, including “Line 1—claims unpaid,” Line 4—Aggregate health policy reserves,” “Line 9—General expenses due or accrued,” and “Line 31—unassigned funds.” Perhaps broadest of all, Provider Plaintiffs want all financial data underlying the “Management's Discussion and Analysis” section of each Annual Financial Statement, which is essentially the entire financial condition of the company.
The Medical Loss Ratio is the ratio of pay-outs made for medical care to the premium income brought in. Thus, if a medical insurer's Medical Loss Ratio is 80%, this means that 80% of the premiums received as income are paid out to satisfy medical-care claims or other activities to improve patient care.
The court recognizes that the Affordable Care Act has required calculation of the MLR and auditing only since 2011. However, BCBS-AL should produce to the Provider Plaintiffs the same types of documents, work papers, reports, memoranda, and other data that are currently used for such audits as those materials existed for each year prior to 2011, even though no audits was then required. BCBS-AL has not argued that it does not have such materials before 2011, only that producing it is burdensome.