In one of the first lawsuits of its kind, an employee-participant of Johnson & Johnson’s (“J&J’s”) health plan alleges that J&J (as plan sponsor) and the plan’s fiduciaries (in their individual capacities) breached their respective fiduciary duties by failing to prevent the plan from overpaying for covered benefits.
In this case, the employee-participant contends that, over a period of years, J&J’s health plan paid the plan’s Pharmacy Benefit Manager (“PBM”) service provider for covered prescription drugs in excess of 200 percent – and in some cases 500 percent – times the cash-price for the covered drugs, which no prudent fiduciary would do. The complaint also asserts that prudent fiduciaries (in this case J&J) must continually monitor their PBM’s actions to ensure that the PBM is minimizing costs and maximizing outcomes for plan participants.
Related to this duty to monitor, the complaint contends that J&J and the plan’s fiduciaries failed to actively manage and oversee key aspects of the prescription drug program by allowing the PBM to steer participants to the PBM’s own mail-order pharmacy, forcing participants to pay higher prices for drugs than other reasonable and accessible alternatives that charge lower prices for the same drugs.
More specifically, the complaint asserts that plan fiduciaries must act prudently when hiring brokers and consultants to, for example, assist the plan in selecting and negotiating contract terms with a PBM. The complaint further explains that a plan fiduciary’s failure to obtain the required disclosures from a broker/consultant makes the contract with the broker/consultant a prohibited transaction under ERISA, with the implication that if the required compensation disclosures are not furnished to the plan’s fiduciaries (and/or if the plan’s fiduciaries do not give due consideration to the compensation disclosures prior to entering or renewing a contract with a broker/consultant), a fiduciary breach may have occurred.
The breadth of these complaints against a health plan sponsor and the plan’s fiduciaries in their individual capacities is sending shockwaves through the employer-sponsored health plan and service provider communities. Consensus is growing that this lawsuit is just the beginning of a series of lawsuits that could be filed by employee-participants against the plan sponsor and the plan’s fiduciaries for fiduciary breaches.
ERISA’s Fiduciary Duties
ERISA imposes specific fiduciary duties on sponsors of an ERISA-covered health plan, as well as individuals and entities that have discretionary authority to manage the plan and the plan’s assets (collectively referred to as “ERISA fiduciaries”).
More specifically, ERISA fiduciaries must act for the exclusive purpose of providing benefits to plan participants, which means, among other things, the fiduciaries must protect plan assets from being misused either intentionally or mistakenly. ERISA fiduciaries must also undertake actions to defray the reasonable expense of administering the plan, which includes, among other things, ensuring that the plan does not pay excessive fees to service providers. ERISA fiduciaries must also act prudently when making decisions relating to the management and operation of the plan, and within each of these fiduciary duties is the duty to monitor the plan’s service providers to ensure that they are properly performing their administrative responsibilities and not wasting plan assets.
Access to Pricing and Claims Information
As I have explained to you in previous blog posts Will the DOL Step in to Provide Relief for Complying with the Gag Clause Prohibition?, plan sponsors have been clamoring for access to negotiated prices and the plan’s health claims data, to no avail. The Federal government has responded by promulgating regulations requiring the public disclosure of pricing information, and Congress tried to help by passing legislation intended to allow plan sponsors to access the plan’s claims data. However, plan sponsors may still be unable to get accurate pricing data and owners of the provider networks may continue to refuse to share the plan’s claims data.
Access to pricing and claims information is needed if plan sponsors and plan fiduciaries are expected to adequately monitor the plan’s service provider to confirm, for example, that excessive fees are not being paid and/or overpayments are not being made. Put more plainly, if a plan sponsor and plan fiduciaries do not have access to meaningful and accurate pricing and claims data, the plan sponsor and plan fiduciaries may be exposed to potential fiduciary liability and claims of fiduciary breach due to the inability to adequately monitor the prices charged by, and any overpayments made to, the plan’s service providers.
Will this J&J lawsuit convince Congress and the Administration to improve and strengthen the existing requirements to publicly disclose pricing information? Will Congress and the Administration finally require owners of the provider networks to share a complete and accurate set of claims data with plan sponsors or face monetary penalties? Only time will tell.
The information provided does not, and is not intended to, constitute legal advice; instead, all information and content herein is provided for general informational purposes only and may not constitute the most up-to-date legal or other information. Benefitfocus does not act in a fiduciary capacity in providing products or services; any such fiduciary capacity is explicitly disclaimed. This summary is provided by a consultant to Benefitfocus.com, Inc., and any opinions expressed within do not necessarily reflect those of Benefitfocus.com, Inc. or its affiliates and are not intended to provide specific advice or recommendations for any plan or individual.
