Earlier this year, a U.S. District Court dismissed a class-action lawsuit filed against Johnson & Johnson (J&J), which alleged that the company breached its fiduciary duties under the Employee Retirement Income Security Act (ERISA). So, it must have been a “nothingburger” and there’s no sense to talk about it anymore, right?
Wrong!
Why? It was thrown out on a legal technicality. In dismissing the two fiduciary breach claims, the court ruled that the plaintiff (an employee of J&J) lacked standing to bring a lawsuit. The J&J case should serve as a reminder to employers of the importance of adhering to their ERISA fiduciary duties when managing their health plans.
The court found the plaintiff’s first claim, that she paid more in premiums due to the defendants’ purported breach of fiduciary duty during the plans’ negotiation process, did not sufficiently show evidence of an injury and was “at best, speculative and hypothetical.” Further, the outcome of the lawsuit would not affect the plaintiff’s future benefit payments, and the plaintiff failed to show that the defendants’ specific conduct resulted in higher premiums.
Interestingly, regarding the plaintiff’s second claim that she paid higher prices for drugs under the plans and thus paid more out of pocket, the court acknowledged that she suffered an injury that was traceable to the defendants’ alleged ERISA violations. However, the plaintiff lacked standing based on this injury because a favorable decision would not be able to compensate her for the money she already paid, given that she had reached her prescription drug cap for each year asserted in the complaint. The court reasoned that, even if the defendants were to reimburse her out-of-pocket costs on a given drug, that money “would be owed to her insurance carrier to reimburse it for its expenditures on other drugs that same year.”
After the J&J lawsuit was filed, similar fiduciary litigation involving the management of prescription drug benefits followed. These cases are still making their way through the court system as scrutiny of the PBM industry intensifies. The important fact remains that, under ERISA’s strict fiduciary standards, employers must prudently select and monitor their third-party service providers, including pharmacy benefit managers (PBMs). ERISA includes standards of conduct for those who manage an employee benefit plan and its assets, who are called “fiduciaries.” This Compliance Overview includes a set of frequently asked questions (FAQs) to help employers understand the basic fiduciary responsibilities applicable to group health plans under ERISA. Click here to read more.
If you want to know more about what you should be doing to be in compliance, contact one of our Knowledge Brokers – we know!
