On February 5, 2024, plaintiffs filed a class action complaint accusing Johnson & Johnson (“J&J”) of breaching their ERISA fiduciary duties by allowing plan participants to overpay for pharmacy benefits.
Lewandowski v. Johnson and Johnson represents a shift in ERISA litigation trends, indicating that plaintiffs’ attorneys will begin turning their sights on group health plans after several years of targeting retirement plan sponsors for litigation.
Register for our "Johnson & Johnson Fiduciary Lawsuit" webinar to learn more.
Summary of the Case and Allegations
The named plaintiff in the case – “Ann Lewandowski” is a J&J employee who received treatment under the plan for two chronic conditions. The complaint alleges that on multiple occasions, Ms. Lewandowski was required to pay higher amounts for prescriptions under the plan than she would’ve had to pay had she gone out of network or even paid cash.
Defendants in the case are J&J, as the employer plan sponsor, the Pension & Benefits Committee, and individual members of the committee. The J&J plan covers active employees and retirees and is funded through a VEBA trust that receives millions of dollars in employee contributions towards the plan.
The complaint alleges that J&J defendants breached their fiduciary duties under ERISA by:
- Mismanaging the plans’ specialty drugs program by vastly overpaying for generic specialty drugs to the tune of millions of dollars;
- Allowing a plan design that steers participants to a Pharmacy Benefits Manager (PBM)-owned pharmacy that imposes higher costs and doesn’t recommend or incentivize the use of less expensive generic drugs; and
- Failing to engage in a prudent process before agreeing to a PBM contract that requires the plan to pay exorbitant prices.
What Employers Need to Know
Much of the complaint focuses on the details surrounding the role PBMs play in increasing the cost of prescription drugs under the plan. While the case is ongoing and none of the alleged facts have been proven, it is common knowledge that Americans pay very high prices for prescription drugs.
Given the national and state focus on PBMs and the desire to regulate them to bring down drug costs, this conversation will continue to play out in the halls of Congress and in the courts.
Additionally, the transparency requirements imposed by the Consolidated Appropriations Act, 2021 set the stage for employers to take a more active role in reviewing benefits costs and fees paid to service providers.
The expectation is that additional access to claims data and fee disclosures will allow employers to negotiate with service providers in ways that may bring plan costs down.
Finally, the J&J case makes it clear that health plan sponsors should engage in fiduciary best practices for their health plan, similarly to how many plan sponsors have done for their retirement plan.
ERISA requires that plan fiduciaries act in the best interest of their plan participants and beneficiaries and that they engage in prudent processes when making decisions on behalf of the plan. Reviewing service provider contracts for conflicts of interest, creating health benefit plan committees, sending requests for proposals in attempts to benchmark plan offerings, and ensuring plan compliance with federal requirements are just some of the things health plan sponsors should consider doing to meet their fiduciary obligations.
While service providers can bring great value to health plans, the J&J case ultimately reminds plan sponsors that they are fiduciaries of their own health plan and have the duty to act prudently and monitor any service providers they select. Plan sponsors who engage in fiduciary best practices take steps to make themselves less likely to suffer harm from litigation such as the J&J case.
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