ERISA Lawsuit Alleges Mismanagement of Prescription Drug Benefits

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A recently filed lawsuit against Johnson and Johnson (J&J) alleges that the company breached its fiduciary duties under ERISA by mismanaging its prescription drug benefits plan and failing to act prudently in several areas. Prudence focuses on the process of making fiduciary decisions and is one of the primary responsibilities of a fiduciary. In the case against J&J, allegations of failed prudence include:

  • Failure to act prudently in contract negotiations (i.e. drug pricing)
  • Failure to prudently select and monitor plan service providers (i.e. PBMs)
  • Failure to act prudently when creating the pharmacy plan design (i.e. methods of obtaining higher-cost specialty drugs)

Recent laws increasing transparency in health care have given employers more financial information than historically available. Although the outcome of this lawsuit is still unclear, there may be similar lawsuits in the future as new transparency laws continue to provide more information regarding healthcare costs to both employers and employees.

ERISA Fiduciary Duties

A fiduciary is a person or entity with the discretionary authority to control and manage the operation and administration of a benefit plan covered by ERISA. Responsibilities of a fiduciary include:

  • Acting solely in the interest of plan participants and their beneficiaries with the exclusive purpose of providing benefits to them
  • Carrying out their duties prudently
  • Following the plan documents (unless inconsistent with ERISA)
  • Diversifying plan investments
  • Paying only reasonable plan expenses

Ultimately, ERISA requires fiduciaries to prudently select and monitor plan service providers, considering various factors which include the service provider’s fees and expenses.

How Does Scott Insurance Assist?

Although the Johnson and Johnson lawsuit has recently heightened the industry’s focus on ERISA and fiduciary duties, Scott Insurance has long focused on the importance of our clients’ fiduciary responsibilities and believe this focus is key to our service model which includes:

  • Meetings with clients concerning compliance and plan performance (claims analysis, benchmarking, extensive data reporting, etc.) throughout the year
  • Regular marketing to trusted and vetted vendors through our process involving strong pricing negotiations and plan terms to match the interest of clients and their plan participants
  • Transparency with our clients including our compensation and vendor relationships
  • Consistent education of Scott Benefit Services teams
  • Regular expansion of our data and analytics capabilities to improve access to data, support client decision making and enhance the overall experience

Scott Insurance’s Involvement in Protecting and Improving ERISA

In consideration of ERISA’s upcoming 50th anniversary, the House Education and Workforce Committee sent a Request for Information (RFI) to members of the employee health benefits community in search of ways to improve ERISA. Scott Insurance Vice President, Greg Stancil, who has a long-standing relationship with the National Association of Benefits and Insurance Professionals (NABIP) as well as with Congress through his involvement in Washington, D.C., provided an instrumental contribution to NABIP’s response to this request.  ERISA’s preemption of state law for self-funded health plans and redefining of the responsibilities of vendors (i.e. PBMs and TPAs) were among the focal points of NABIP’s response which can be downloaded and read here.

Scott Insurance is committed to our involvement in legislative and regulatory affairs to advocate for our clients and their employees.

Upcoming Events and Additional Resources (Dates TBD)

  • Scott Insurance Health and Welfare Fiduciary Toolkit which assists our clients in creating streamlined processes to help them remain compliant
  • Webinar series on DOL audits, mergers and acquisitions, and compliance basics with a reputable ERISA attorney
  • Webinar on ERISA compliance and fiduciary responsibilities with Medcom Benefit’s General Counsel, Michelle Barki

Our Benefits teams will provide additional information regarding these resources and events and are always happy to answer any questions you may have.