Fiduciaries Beware: Employer Health Plan Under Fire for Alleged Prescription Drug Mismanagement

An employer health plan is the latest target of class action litigation seeking redress for the alleged conduct of the plan's pharmacy benefit manager ("PBM").

On February 5, 2024, a Johnson & Johnson employee filed a proposed class action in federal court in the District of New Jersey for breach of fiduciary duty against the company, its benefits committee, and individual committee members. The plaintiff alleged that the defendants failed to properly manage the company's prescription drug benefit program by failing to: (i) ensure that the plan paid only reasonable amounts for prescription drugs; (ii) supervise and monitor conflicted third parties who were overseeing the plan; and (iii) monitor the list of drugs covered under the plan's formulary. All of these, according to the complaint, resulted in millions of dollars in damages in the form of higher payments for drugs and higher out-of-pocket costs and expenses. The case is Lewandowski v. Johnson & Johnson, D.N.J., 1:24-cv-00671. 

One of the allegations cited in the complaint is the defendant health plan's alleged payment of more than $10,000 for a 90-pill prescription for a generic drug that could be purchased from retail pharmacies for an amount between $28 and $80 without using the plan's coverage. The complaint also makes allegations concerning potential prohibited transaction issues involving employee benefit consultants who may serve both as brokers for plans while receiving indirect compensation from the PBMs for those plans. In addition, the complaint suggests that employer benefits committees should exercise increased vigilance over their benefits consultants. 

PBM-related litigation and efforts by Congress and state legislators to address PBM practices and increase pricing transparency have been on trend for years. This case suggests that there is growing frustration with the pace of those efforts and an increased willingness to put pressure on employers and plan fiduciaries in order to effect change. As such, it seems that this case may be the start of a new raft of lawsuits against employers and their health plans.  

Employers and health plan fiduciaries should consider revisiting their PBM service agreements, reviewing drug formularies and specialty drug program arrangements with their PBMs, and exploring alternatives in the market.

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