Plan Sponsors Take Heed – Healthcare Plan Fiduciary Suits Have Arrived

Ann Lewandoski, a healthcare policy and advocacy director for Johnson & Johnson, filed the suit (Lewandowski v. Johnson & Johnson, D.N.J., No. 1:24-cv-00671), claiming that “over the past several years, Defendants breached their fiduciary duties and mismanaged Johnson and Johnson’s prescription-drug benefits program, costing their ERISA plans and their employees millions of dollars in the form of higher payments for prescription drugs, higher premiums, higher deductibles, higher coinsurance, higher copays, and lower wages or limited wage growth.”

The suit claims that Johnson & Johnson’s mismanagement is most apparent based on the prices the company agreed to pay its healthcare plan pharmacy benefit manager (“PBM”) for many generic drugs that are widely available at drastically lower prices. Just one example outlined in the suit discusses a prescription generic used to treat multiple sclerosis that is available at retail pharmacies for as low as $40.55 for a 90-day supply. Despite the general availability of the drug at this drastically lower cost, Johnson & Johnson contractually agreed that its ERISA plans and their beneficiaries would pay $10,239.69 for each 90-pill teriflunomide prescription. Johnson & Johnson’s ERISA plans and their beneficiaries are responsible for the enormous overpayments for the drug.

Importantly, the suit argues that no prudent fiduciary would agree to make its plan and beneficiaries pay a price that is 250 times higher than the price available to any individual who walks into a pharmacy and pays out-of-pocket. The lawsuit states that the differential in price “goes largely into the pockets of the PBM, at the expense of the ERISA plans and their beneficiaries.”

It largely appears that Lewandowski v. Johnson & Johnson is based on provisions set forth in the Consolidated Appropriations Act of 2021 (“CAA”). In essence, ERISA Section 408(b)(2) – which significantly expanded fee disclosure responsibilities for retirement plan providers – now applies to health care providers as well. As fiduciaries, plan sponsors have a duty to ensure that the fees and services rendered are reasonable.

While some large companies and unions have sued their healthcare plan providers alleging that they have breached certain fiduciary obligations, the case against Johnson & Johnson may be the first case filed by an employee making breach of fiduciary duty claims against a prominent entity.

Recommended Action for Healthcare Plan Sponsors

Since the enactment of the CAA, these types of suits, as well as government audits, have largely been anticipated. Initially, there appeared to be a “wait and see” mentality among plan sponsors.

This mentality is no longer reasonable – and is certainly not prudent from a fiduciary responsibility standpoint.

The CAA makes it clear that plan sponsors cannot rely on brokers and plan administrators to relieve them of fiduciary duties. Ultimately, it is the plan sponsor’s role to ensure that plan assets and plan beneficiaries are protected.

Plan sponsors can mitigate their potential liability by ensuring they are engaged in a prudent process in selecting and monitoring all healthcare plan service providers. Engaging an experienced ERISA attorney is crucial to ensuring that all aspects of plan sponsor fiduciary roles are covered. This includes contract review, periodic audits, and fiduciary training.

For additional information, contact Emily Langdon at elangdon@fraserstryker.com.