Winter 2025

PERSPECTIVE: THE IMPACT OF HEALTH MAINTENANCE ORGANIZATIONS ON HEALTH CARE COVERAGE

The well-established federal policy requiring employers to offer their employees health insurance has been the dominant policy for supplying health care coverage in the United States.

The Health Maintenance Organization Act of 1973 promoted the development of Health Maintenance Organizations (HMOs) to meet the demands of supplementing the health needs of those insured. The Act allowed the formation of HMOs as an alternative to traditional health care by introducing a new payment model for the delivery of health care services.

Historically speaking, managed health care plans arose with the aspiration of focusing on prevention. They incorporated more disease prevention strategies in line with payment mechanisms. However, this objective has not been fully attained. Health care providers and facilities within HMOs are contractually obligated to adhere to terms set by the HMO. These terms instruct how health care coverage is disbursed.

Generally, a managed health care plan provides a pre-determined fee for health care services in a structured delivery system with a primary care provider as the principal point of contact and any specialist to be determined by those enrolled in the plan.

In Pegram v Herdrich, the question presented was whether treatment decisions made by a HMO, acting through its physicians, are fiduciary acts within the meaning of the Employee Retirement Income Security Act (ERISA).  ERISA is a federal statute designed to protect employee and beneficiary interests in employee benefit plans.

The facts in this case determined that the patient (beneficiary) was covered by a HMO through her husband’s employer. The HMO required the patient to wait several days for an ultrasound at an HMO-contracted facility per HMO requirements. It was later determined that the patient was experiencing an inflamed abdomen that ruptured her appendix, causing peritonitis.

As a result of her injury, the patient filed a lawsuit alleging medical malpractice and two counts of fraud in state court. The HMO-contracted physician removed the case from state to federal court. The physician argued ERISA preempted the state fraud counts and requested a motion for summary judgment. The motion for summary judgment was granted as to one fraud count and a motion to leave to amend the complaint was granted to the other count.

The patient amended her complaint in federal court to allege that the HMO requirement of receiving an ultrasound at an HMO-contracted facility limited her medical care.  The complaint further alleged the care she received resulted in an inherent or anticipatory breach of an ERISA fiduciary duty because the physician is rewarded for making medical decisions in the interest of the HMO rather than in the exclusive interests of their enrollees.

The District Court dismissed the ERISA claim for failure to state a claim for which relief could be granted. It cited that the physician’s actions did not amount to a fiduciary duty under ERISA. The patient appealed the case to the Seventh Circuit Court of Appeals and the court determined a valid claim was stated; ruling in favor of the patient. The physician appealed the case to the Supreme Court.

The Supreme Court in Pegram v Hendrich noted:

“A fiduciary within the meaning of ERISA must be someone acting in the capacity of manager, administrator of financial advisor to a plan. Congress did not intend an HMO to be treated as a fiduciary to the extent that it makes mixed eligibility decisions acting through its physicians. In a fee-for-service system, a physician’s financial incentive is to supply more care, not less, so long as payment is forthcoming. The check on this incentive is a physician’s obligation to exercise reasonable medical skill and judgment in the patient’s interest [1]“.

The Supreme Court unanimously held that mixed treatment and eligibility decisions by HMO physicians are not fiduciary decisions under ERISA, ruling in favor of the physician.

This case established that managed care companies are shielded from federal liability for medical malpractice under ERISA. There is no fiduciary duty between patient and HMO because ERISA does not regulate treatment decisions made within HMOs . This precedent has strengthened the development of managed care companies into what they are today-an established way of how health care is delivered in the United States.

[1] Pegram v Hendrich, 530 U.S. 211 (2000). 

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Fall 2025

PERSPECTIVE: APPLYING ANTITRUST IMMUNITY, A LEGAL SAFEGUARD

The Sherman Antitrust Act is a commerce regulation that prohibits monopolies by market participants and promotes free and fair trade competition in the marketplace. Antitrust immunity confers legal protection and exempts antitrust actions based upon regulatory actions. An issue of antitrust competition was brought forth to the Supreme Court in the case of  North Carolina Board of Dental Examiners v. FTC.

In this case, a North Carolina Board of licensing dentists whose “principle duty is to create, administer, and enforce a licensing system for dentists” prohibited the service of teeth-whitening by non dentists even though this is not a recognized dental service per North Carolina’s Dental Practice Act [1]. The service of teeth-whitening became popular in the 1990s and many non dentists began offering this service and charging lower fees than licensed dentists.

In 2007, the Board began sending cease and desist letters to non dentists who offered this service; this ultimately resulted in the termination of the service of teeth-whitening offered by non dentists in the state of North Carolina.

The Federal Trade Commission (FTC) determined that the Board violated antitrust laws by prohibiting this service from being offered by non dentists because several of the board members are market participants of the teeth-whitening industry.

The North Carolina Board of Dental Examiners invoked antitrust immunity under Parker v. Brown. Per this case, the Court recognized immunity is conferred on the anticompetitive conduct of States acting in their sovereign capacity [2].  The Court in this case noted FTC v. Phoebe Putney when determining that immunity is found “only if ‘the challenged constraint’ is clearly articulated and affirmatively expressed as state policy, and ‘the policy is actively supervised by the state [3].”

This Court agreed that when a State delegates control over a market to a non sovereign actor the Sherman Act confers immunity only if the State accepts political accountability for the anticompetitive conduct it permits and controls [4].”

This Court ultimately held “ [t]he Board’s actions [were] not cloaked with Parker immunity. The Court concluded per Midcal’s two-part test that the anticompetitive policy was not a policy of the state because (1) there was no expressed state policy the Board was acting pursuant to nor was the Board (2) actively supervised by the State [5].

The Court reasoned “a state board on which a controlling number of decision makers are active participants in the occupation the board regulates,” the Board must “resolve the ultimate question whether an anticompetitive policy is the policy of a State [6].”

The Court referenced FTC v. Phoebe Putney when reasoning a clearly identified state policy is determined when “the displacement of competition is the inherent, logical, or ordinary result of the exercise of authority delegated by state legislature and the active participation requirement is satisfied when “state officials have and exercise power to review particular anticompetitive acts of private parties and disapprove those that fail to accord with state policy [7].”

This Court clarified the significance of Midcal’s active supervision test as being an essential prerequisite of antitrust immunity for any sovereign entity controlled by active market participants. [8]”

[1] North Carolina Board of Dental Examiners v. FTC, 574 U.S. 494 (2015). 

[2] Parker v. Brown, 317 U.S. 341 (1943). 

[3] FTC v. Phoebe Putney Health System, Inc., 568 U.S. 216 (2013).

[4] North Carolina Board of Dental Examiners v. FTC, 574 U.S. 494 (2015). 

[5] Id.

[6] Id.

[7] Id.

[8] Id.

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Summer 2025

PERSPECTIVE: THE SCOPE OF THE ENVIRONMENTAL PROTECTION AGENCY’S AUTHORITY UNDER §1311 OF THE CLEAN WATER ACT

The question presented in City and County of San Francisco v. Environmental Protection Agency (2025) is whether “the challenged limitations violate the Clean Water Act, by failing to identify specific limits to which petitioner’s pollutant discharges must conform[1].”

The Supreme Court’s ruling in this case addressed the Environmental Protection Agency’s (EPA) regulatory authority under the Clean Water Act; a comprehensive water quality statute that generally prohibits “the discharge of any pollutant by any person[2].”

The Clean Water Act states:

It is the policy of Congress to recognize, preserve, and protect the primary responsibilities and rights of States to prevent, reduce, and eliminate pollution to plan the development and use of land and water resources…[3].

The Act defines the term discharge of a pollutant to include “any addition of any pollutant to navigable waters from any point source,” and defines the term “pollutant” to mean, among other things, solid waste, sewage, garbage, chemical waste, biological materials, industrial, municipal, and agricultural waste discharged into surface waters[4].

The Clean Water Act requires cities to acquire a National Pollutant Discharge Elimination System (NPDES) for such discharges. The EPA established the National Pollutant Discharge Elimination System as a national approach to maintaining water quality standards. This permitting framework allows the discharge of pollutants as an exception to the above-mentioned prohibitions. Under this program, the EPA may issue permits for discharges of pollutants that meet certain regulatory requirements.

The facts presented in this case established that the city of San Francisco has a sewage system that when the system exceeds its capacity discharges pollutants; thus requiring a permit. In 2019, the Petitioner was issued a new NPDES permit for their Oceanside treatment plant. The Petitioner asserted that the EPA’s criteria for the new permit lacked precise definitions and quantifiable standards for the discharge of pollutants and explained that this ambiguity leads to challenges in compliance and enforcement.

The petition for writ of certiorari was filed on January 8, 2024, and granted on May 28, 2024.

The Petitioner argued the only permit conditions the EPA may impose under §1311 (b)(1)(C) of the Clean Water Act are those that fall within the Clean Water Act’s precise statutory definition of “effluent limitations” – not any other type of permit condition; however, the Court recognized that §1311 authorizes the EPA to impose limitations that do not fall within this definition[5].   The Supreme Court has previously recognized that water-quality prohibitions can supplement effluent limitations “so that numerous point sources, despite individual compliance with effluent limitations, may be further regulated to prevent water quality standards from falling below acceptable levels[6].”

The Court reasoned Congress used more extensive language, authorizing EPA to impose “any more stringent limitation, including those necessary to meet water quality standards” or “required to implement any applicable water quality standard[7].”  The Court further reasoned that the EPA exceeded its authority in imposing “end-result” requirements in NPDES permits and reaffirmed the Clean Water Act by emphasizing that the statute requires the EPA to specify clear, quantifiable effluent limitations in permits, rather than vague conditions tied to water quality outcomes.

In a joint statement by San Francisco City Attorney David Chiu and San Francisco Public Utilities Commission (SFPUC) General Manager Dennis Herrera, they indicated “[w]e are very pleased the Court issued the narrow decision San Francisco sought. This decision upholds the Clean Water Act’s critical role in protecting water quality and simply requires the EPA to fulfill its obligations under the Clean Water Act, as intended by Congress [8].”

The significance of this case is that it limits the scope of federal agency regulatory authority and shifts away from deferring to agency interpretation toward judicial review.  Although not mentioned in this case the Chevron doctrine is implicated. The Chevron doctrine’s long-standing precedent of deferring to a federal agency’s statutory interpretation in determining whether an agency has exceeded its authority was recently overturned on the grounds it conflicts with the Administrative Procedure Act [9]. Federal courts are encouraged to use their judgment in deciding a federal agency’s scope of authority.  

[1] City and County of San Francisco v. EPA, 601 U.S. 753 (2025). 

[2] Id. 

[3] 33 U.S.C. §1251 et seq. 

[4] City and County of San Francisco v. EPA, 601 U.S. 753 (2025). 

[5] Id. 

[6] Id. 

[7] Id. 

[8] City and County of San Francisco (202, March 4).  SCOTUS issues decision in San Francisco’s favor in water quality permitting case [Press release].  SCOTUS issues decision in San Francisco’s favor in water quality permitting case – City Attorney of San Francisco

[9] Loper Bright Enterprises v Raimondo, 603 U.S. 369 (2024).  

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Spring 2025

PERSPECTIVE: ENFORCING THE FALSE CLAIMS ACT TO DETER THE PRACTICE OF HEALTH CARE FRAUD

The False Claims Act (FCA) of 1863 is a federal law that penalizes individuals or entities who defraud governmental programs. It allows civil remedies when a party knowingly makes a false statement or has the intent to defraud that is material and causes the government to lose money.

The FCA enables the federal government to recover in litigation for fraud committed against the government. The statute includes a qui tam provision that allows people who are not affiliated with the government to sue an organization on behalf of the government. This is informally called “whistleblowing”.  The Supreme Court case Vermont Agency of Natural Resources v. United States ex rel. Stevens (2000) presented the question of whether states or state agencies could be held liable under the FCA. The case involved a qui tam lawsuit against the Vermont Agency of Natural Resources, alleging that false claims were sent to the Environmental Protection Agency (EPA) in exchange for federal grants.

The Court ruled that states and state agencies are not “persons” subject to liability under the FCA. This decision was based on the interpretive presumption that the term “person” does not include sovereign entities like states. The ruling also emphasized the Eleventh Amendment, which bars private individuals from suing states in federal court without their consent. In addition to a qui tam lawsuit, enforcement of the statute allows government agencies to take enforcement action against people or entities who knowingly submit false claims. For example, The Department of Justice (DOJ) has been instrumental in recovering billions lost to fraudulent claims. Within the DOJ, settlements and judgments under the False Claims Act exceeded $2.9 billion in the fiscal year ending Sept. 30, 2024 and over $1.67 billion related to matters that involved the health care industry [1]. Once recovered the money is allocated back to the defrauded federal programs, restoring the government’s objective in providing those funds.

The FCA prohibits the filing of fraudulent claims from services received for federal funding. The FCA defines a “claim” as any request or demand for money or property made directly or indirectly to the Federal Government.  The Supreme Court case Allison Engine Co. v. United States ex rel. Sander (2008) underscored the intent requirement under the FCA. The Court ruled that to establish liability under the FCA, plaintiffs must prove that the defendant intended the false statement to be material to the government’s decision to pay a claim. It was not enough to show that government funds were used; there also had to be an intent to defraud the government.  The Fraud Enforcement and Recovery Act of 2009 broadened the scope of the FCA by clarifying that the FCA applies not just to fraudulent claims submitted directly to the government but also to fraudulent claims made indirectly to the government by third parties.

The FCA is designed to protect the government from being overcharged or sold poor-quality goods or services. The Supreme Court case Universal Health Services, Inc. v. United States ex rel. Escobar (2016) explains the “implied false certification” theory under the FCA. The Court held that a defendant could be liable under the FCA if they submitted claims that made specific representations about goods or services provided but failed to disclose noncompliance with material statutory, regulatory, or contractual requirements [2].

The Court reasoned the failure to disclose noncompliance rendered the claims misleading. The decision emphasized the importance of materiality, requiring that the undisclosed violations be significant enough to influence the government’s payment decision. Under the FCA a person does not violate the False Claims Act by simply submitting a fraudulent claim to the government; to violate the FCA a person must have submitted, or caused the submission of, the false claim (or made a false statement or record) with knowledge of the falsity [3].

The basis for establishing intent under the FCA is outlined in §3729(b)(1).  This section defines “knowledge” in the context of false claims. It states that a person acts with knowledge if they have either (1) actual knowledge of the information’s falsity, (2) deliberate ignorance of the truth or falsity of the information, or (3) reckless disregard for the truth or falsity of the information [4]. This regulation ensures that liability under the FCA applies only to those who knowingly engage in fraudulent activities, even if they avoid confirming the truth of their claims. 

The case United States ex rel. Schutte v. SuperValu Inc. (2023) emphasized the knowledge requirement under the FCA. The plaintiffs accused SuperValu of defrauding federal health care programs by misreporting drug prices. SuperValu offered discounted prices through a price-matching program but reported higher retail prices as their “usual and customary” charges for reimbursement. The plaintiff insisted this discrepancy led to false claims being submitted to the government. The Supreme Court ruled that the FCA’s scienter (knowledge) requirement focuses on the defendant’s subjective knowledge and beliefs at the time of the alleged violation, rather than on an objectively reasonable interpretation of the law [5].  This decision highlights the fact that people could be held liable if they knowingly submitted false claims, even if their actions seem reasonable under an objective standard.

The FCA has been very effective in recoveries for fraud committed in the health care industry. The FCA makes it illegal to submit false or fraudulent claims to Medicare or Medicaid. Examples of health care fraud include billing for services never rendered; billing for more expensive services than rendered and billing for services that are not considered medically necessary. The FCA protects the integrity of the health care industry by preserving the capability to provide affordable quality care.

[1] “False Claims Act Settlements and Judgments Exceed $2.9 Billion in Fiscal Year 2024,” U.S. Department of Justice, Office of Public Affairs, March 8, 2025.

[2] Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016).

[3] Id.

[4] 31 U.S.C. §§ 3729–3733.

[5] United States ex rel. Schutte v. Supervalu Inc., 598 U.S. 739 (2023).

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Winter 2024

PERSPECTIVE: EMPHASIZING THE FUNCTION OF THE FEDERAL DRUG ADMINISTRATION (FDA) IN WYTHE v. DIANA LEVINE

The Food and Drug Administration (FDA), a regulatory agency within the Department of Health and Human Services, regulates the safety and effectiveness of drugs sold in the United States [1]. The FDA plays a crucial role in ensuring drug safety in the United States by issuing recalls of unsafe drugs and label changes. The Federal Food and Drug Act was enacted in 1906 and “prohibited the manufacture or interstate shipment of adulterated or misbranded drugs, supplemented the protection for consumers already provided by state regulation and common-law liability [2]. “In 1938 Congress enacted the Federal Food, Drug, and Cosmetic Act (FDCA) that included a provision requiring premarket approval of new drugs. It required every manufacturer to submit a new drug application to the FDA for review [3].”  Before 1962, the FDA had the burden of proof in proving harm to keep a drug out of the market; however, Congress amended the (FDCA) to shift the burden of proof from the FDA to the manufacturer. Now the manufacturer is required to demonstrate that its drug is “safe for use under the conditions prescribed, recommended, or suggested in the proposed labeling” before distribution of the drug [4].

The case of Wythe v. Diana Levine raised the question of whether federal preemption can be used as a defense to state regulation of drug safety. The issue presented to the Supreme Court is whether petitioner Wyeth, a drug manufacturer, should be held liable for strict product liability and/or negligence state law claims for failure to provide adequate warning labels despite FDA approval of their drug labeling. A strict product liability (failure-to-warn) cause of action governs most legal claims for injury caused by dangerous or defective products. 

Respondent, Diana Levine, was treated for a medical condition with the drug Phenergan, which is manufactured by the petitioner Wythe. According to the drug label the drug can be administered either through the (1) IV push method or (2) IV drip method.

The facts show the respondent was treated with the IV push method. The respondent received a greater dose than the label prescribed and the drug may have been inadvertently injected into an artery rather than a vein, causing gangrene which ultimately led to amputation of her forearm.

State claims were filed in Vermont state court. “Wyeth was found negligent as well as strictly liable, the jury also determined that Levine’s injury was foreseeable; the inadequate label was both a but-for and proximate cause of Levine’s injury,” awarding damages [5].

The Vermont Supreme Court affirmed the state court’s verdict rejecting Wythe’s preemption defense. Wythe appealed and the Supreme Court granted Wythe’s petition for certiorari.

Respondent argues the labeling of the drug by the drug company was defective because there was an inadequate warning of the IV push method being of higher risk than the IV drip method. The petitioner filed a motion for summary judgment as a matter of law. The Supreme Court held that federal law does not preempt the respondent’s state law claim shielding petitioner from liability and affirmed the judgment of the Vermont State Court.

The Court reasoned that drug manufacturers are always responsible for the content of their labels when new risks emerge. They reasoned “[t]here was no direct conflict between FDA regulations and respondent’s state-law claims because those regulations permit strengthened warnings before FDA approval on an interim basis so long as it later submits the revised warning for review and approval [6].” The Court’s reasoning is based on the 1962 amendments of the FDCA that added a saving clause, indicating that a provision of state law would only be invalidated upon a “direct and positive conflict” with the FDCA [7]. This amendment set a high standard for federal preemption of state law. In short, the Supreme Court concluded the respondent’s state law claims do not obstruct the federal objectives of the FDCA.

The FDA provides an essential function in ensuring the drug market is safe and effective.   Wythe v. Diane Levine reiterates that this function is done with auxiliary help from common law and state regulation to ensure optimal compliance.

[1] CRS Report R41983, How FDA Approves Drugs and Regulates Their Safety and Effectiveness, by Susan Thaul.

[2] Wythe v Levine, 555 U.S. 555 (2009).

[3] Id.

[4] Id. 

[5] Id.

[6] Id.

[7] Id.

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