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J&J Lawsuit Over Rx Mismanagement a Bitter Pill for Employers

Updated: Mar 18

There’s plenty of talk in our industry about climate change, but it doesn’t involve strategies to reduce carbon footprints. Rather, the discussion centers around a changing regulatory environment wherein a grievous lack of healthcare pricing transparency is now fueling a new type of lawsuit that could spark a troubling trend.


One such action filed on February 5 against Johnson & Johnson and the pharmaceutical company’s health plan fiduciaries serves as a stark reminder about the supreme importance of fulfilling fiduciary responsibilities under the federal Employee Retirement Income Security Act of 1974 known as ERISA.


Perverse billing practices involving medical procedures, and in this case prescription drugs, are in the crosshairs of the Consolidated Appropriations Act. Laying the groundwork for greater transparency of health and welfare benefits, the CAA calls for better due diligence that introduces opportunities for improved clinical outcomes at a lower cost. Other significant legislative and regulatory efforts designed to curtail medical billing malfeasance and uncover hidden information on negotiated prices for health care services include the No Suprises Act and Transparency-in-Coverage rule.


Eyeing an ERISA first


Self-insured employers like J&J, as well as union trusts, third-party administrators, brokers, and consultants face strong headwinds in this climate of heightened awareness about the need to step up compliance. In some cases, including the one involving J&J, they’re targets for violating fiduciary duties under ERISA


What’s particularly noteworthy about the J&J lawsuit is that it was the first alleged ERISA fiduciary duty breach over mismanagement of health plan funds brought by an employee against a major company. The plaintiff, J&J’s healthcare policy and advocacy director for Wisconsin and Minnesota, sued over mismanagement of Rx benefits from the company’s pharmacy benefit manager. That PBM, Express Scripts Inc., is one of the nation’s three largest PBMs. It is not, however, named as a defendant in the lawsuit. The J&J employee is now on leave in a dispute over reasonable accommodation for a medical condition.


Inflated cost of generic specialty drugs


A sticking point involved inflated prices for generic specialty drugs that were widely available at much lower cost, which spiked out-of-pocket expenses and limited wage growth. In one startling example of the alleged mismanagement, a 90-day prescription of generic drug teriflunomide, which treats multiple sclerosis, cost more than $10,000 when it’s available for as little as $28 from online pharmacy Cost Plus Drugs. An employer-sponsored trust known as a voluntary employees’ beneficiary association or VEBA was used to pay medical benefits.


Employers have long struggled to obtain from PBMs negotiated pricing and claims data in a usable format. Each of the Big Three players engage in practices like “spread pricing,” which allow them to pocket the difference between what payors are charged and pharmacies are paid.


Harbinger of further lawsuits


The J&J case could be a harbinger of more litigation against employers, especially those that rely on pharmaceutical industry middlemen like PBMs to negotiate pricing and rebates. It recently captured the attention of the National Alliance of Healthcare Purchaser Coalitions, which devoted a webinar just to this lawsuit and its fiduciary duty implications for the industry. These legal actions on the health and welfare side of our industry mirror scores of others involving excessive fees or mismanaging investments in 401(k) defined contribution retirement plans, which date back decades.


Better due diligence and prudent practices are clearly needed to avoid these trips to the courthouse. Employers no longer can solely rely on their brokers and plan administrators to guide them to safety. WellRithms exists because of that.

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