Richard “Dickie” Scruggs, a leading mass tort lawyer, devised a scheme to extract substantial contingency fees from health maintenance organizations (HMOs). Had his scheme fully succeeded, it would have forced the industry to abandon its business model, if not cease operation. He filed a class action against the country's HMOs, alleging a “‘nationwide fraudulent scheme’ to enroll members by promising quality health care and then denying needed services – all in the name of corporate profit.” As in the tobacco litigation, Scruggs had no intention to take the case to trial. Rather, he sought to shake down the HMOs for a substantial payment.

In these suits, Scruggs alleged that HMOs subjected managed care subscribers to a pattern of racketeering activity and breach of fiduciary duty under ERISA. Further, he alleged that the subscribers had been defrauded into purchasing health care of lower value than promised because the HMOs had policies to reduce the amount of coverage – policies that were more restrictive than the disclosed “Medical Necessity Definition.” Although subscribers were told that treatment decisions would be determined by “medical necessity,” he charged that the HMOs had “established a set of financial incentives for claims reviewers – including direct cash bonus payments – designed to encourage denial of claims without regard to the medical needs of patients.”