Employer Sponsored Health Benefit Plans under ERISA after Pegram v. Herdrich: The Fiduciary Duty Argument and Mixed Eligibility versus Treatment Decisions
Accordingly, this Article is a rebuttal to the Supreme Court's opinion in Pegram v. Herdrich on the strength of two primary arguments. First, the Seventh Circuit's rationale was on-point and extremely sound in concluding that HMOs do stand as trustees as envisioned by the ESBP and cannot offer kickback payments to physicians simply to increase shareholder wealth at the expense of patient health and welfare. This was a textbook example of breach of fiduciary duty given the medical trust relationship between physician and patient. Had the HMO offered a hedge fund option using securities from firms other than itself, there is no question that the fiduciary issue would have been much more difficult for Herdrich to establish. But by offering cash incentive payments, Carle Company wedged the interest of shareholder wealth maximization between that of physician performance and patient health needs. This created a natural fiduciary tension that cannot be explained away by Justice Souter's comment that, "[t]he pleadings must also be parsed very carefully to understand why acts by physician owners acting on Carle's behalf are alleged to be fiduciary in nature." All such decisions are fiduciary in nature.
Jack E. Karns, Employer Sponsored Health Benefit Plans under ERISA after Pegram v. Herdrich: The Fiduciary Duty Argument and Mixed Eligibility versus Treatment Decisions, 15 J.L. & Health 1 (2000-2001)