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Breaking News: Johnson & Johnson Sued for Fiduciary Breach
Today, attorneys filed a first-of-its-kind class-action lawsuit alleging an employer had breached its fiduciary duties surrounding its health benefits plan. Lewandowski v. Johnson & Johnson lays out a detailed case, focusing on the cost of prescription drugs available through the plan. The filing repeatedly compares the prices of prescription drugs purchased without insurance to the cost of those same drugs obtained through the J&J plan. In short, the suit claims that dozens of drugs were significantly more expensive through the plan than if the participant had gone to the pharmacy and not leveraged their insurance at all.
The plaintiff calls out several egregious examples with huge markups over readily available cash prices, including drugs used to treat the following conditions:
|J&J Plan Price
The filing includes a table of 42 drugs with markups of up to 13,200% above the National Average Drug Acquisition Cost database. All jargon aside, they claim “it would be more prudent for [Johnson & Johnson] to tell employees not to use their insurance and instead to give them a company credit card that the Plans were responsible for paying.”
Perhaps the most shocking allegation is that the plaintiff, in a proactive effort to reduce the cost of her infusion therapy, searched for and successfully identified a lower cost provider than the in-network facility she had been directed to. The facility she found was out-of-network, but going there would save the plan approximately $40,000. When she brought the “good news” to the plan, she was told, “saving money is not a reason to go out of network.” The attorneys go on to state, ““when fiduciaries agree to overpay for prescription drugs, employees – and especially the sickest employees – bear much of the burden.”
Beyond the unreasonable cost of prescription drugs, the filing highlights multiple conflicts of interest within the health benefits landscape, spotlighting Pharmacy Benefit Managers (PBMs), Employee Benefit Consultants (EBCs), and Third-Party Administrators (TPAs). These claims underscore how important it is for plan sponsors to obtain clear and complete compensation disclosures from all service providers to understand any potential conflicts of interest.
In a noteworthy move, the lawsuit seeks to hold specific individuals within Johnson & Johnson personally liable as fiduciaries. The list includes Peter Fasolo (EVP and CHRO), Warren Luther (VP of HR), Lisa Blair Davis (VP of HR), and 20 additional members of the Pension & Benefits Committee.
So what did J&J do wrong?
The suit alleges that J&J, its Pension & Benefits Committee, and the individual members of the Pension & Benefits Committee, all violated their fiduciary duties by:
- Failing to conduct an open Request for Proposal (RFP) process to consider all available options before selecting Express Scripts as their PBM.
- Accepting selection guidance from a conflicted third-party that stood to profit by steering J&J to select Express Scripts.
- Failing to adequately negotiate the plan contract with Express Scripts, resulting in a contractual agreement pay exorbitant prescription drug prices.
- Failing to supervise their third-party service providers.
- And the list goes on.
How big could a settlement or judgement be?
The suit notes that in the most recent filing year, participant contributions into the plan Trust totaled approximately $148.28 million… So, any judgement or settlement could stretch into the tens of millions.
What can employers do to avoid similar lawsuits?
Unfortunately, this case is likely just the beginning of a new trend in ERISA litigation. The Consolidated Appropriations Act of 2021 opened the door to class action lawsuits designed to hold employers responsible for the state of the US health benefits industry. We are actively tracking 20+ additional pending cases with similar claims.
To avoid fines from the Department of Labor (DOL) and class action lawsuits, employers across the country should immediately adopt a robust fiduciary process for the management of their health benefit plans. First steps should include:
- Establish a fiduciary committee for the management of your health benefits plan,
- Generate a clear understanding of the total compensation earned by each service provider associated with your plan,
- Determine if that compensation, in exchange for the services provided, is reasonable.
Fiduciary In A Box stands ready to support employers and forward thinking brokers, advisors, TPAs, PBMs, CPAs, auditors and others in meeting their fiduciary duties, and documenting efforts to do so.