The legal world, including employee benefit plan sponsors and stakeholders involved in plan design, is closely tracking the Johnson & Johnson (J&J) ERISA employee class action filed in February 2024. Frier Levitt is actively covering developments in this case, and our previous coverage of the case can be read here.
In short, a J&J employee alleged that the company failed to act prudently in its selection and monitoring of Express Scripts, Inc. (ESI) as the Plan’s Pharmacy Benefits Manager (PBM). The Class alleges that this breach of fiduciary duty led to the Plan bearing excessive and avoidable costs. See Lewandowski v. Johnson & Johnson, et al., 3:24-cv-671 (D.N.J.). The complaint alleges specific examples of generic drugs with bloated costs, such as teriflunomide, for which the J&J Plan paid $10,239.69 for a 90-pill prescription, whereas the same prescription could be purchased for just $28.40 without using insurance, through pharmacies such as the Mark Cuban Cost Plus Drug online pharmacy. The complaint also contained a list of 42 generic drugs for which the Plan’s negotiated price was nearly 500% higher than the pharmacy’s acquisition cost for the same drugs.
On April 19, 2024, J&J filed a motion to dismiss the suit, raising two main arguments: first, that the plaintiff lacked standing to bring the suit, as she had not been personally harmed by the alleged misconduct; and second, that the complaint failed to plausibly allege imprudent decision-making or negotiations by J&J because it did not demonstrate that the Plan had paid more for a set of services than what similarly situated plans paid for the same set of services.
The first argument—whether the plaintiff has standing—may not pose a significant obstacle to the putative class action. Although J&J argues that the complaint failed to demonstrate any concrete harm personally suffered by the named Plaintiff, Ms. Lewandowski, she did allege at least one concrete example of harm arising from J&J’s alleged misconduct. She alleged that she had to pay $1,685.42 in out-of-pocket costs for cancer treatment (specifically, prescription drug infusions), whereas the same treatment was available at an out-of-network treatment center for less than half the cost charged to the Plan and an out-of-pocket cost of just $300. The difference in out-of-pocket cost of approximately $1,300 per treatment would appear concrete enough to satisfy the injury-in-fact requirement for Article III standing. Nevertheless, it remains to be seen how the court will rule on this issue.
J&J’s second argument goes to what the plaintiff must allege and ultimately prove to prevail on a legal claim under ERISA. J&J argues, in essence, that to adequately plead an ERISA imprudence claim as to the plan’s selection and monitoring of a PBM, the plaintiff must demonstrate that J&J would have paid less “for the entirety of a comparable prescription drug program” but for their alleged lack of prudence. In other words, it is insufficient to point to price disparities for a handful of specific drugs, because the Plan may still be obtaining an overall cost saving at the plan-wide level through its selection of ESI as its PBM.
The potential shortcoming of this argument is that the average plan participant does not have access to plan-wide claims and rebate data that could meet this high bar. The only source of such data is the PBM; but it is well-known that PBMs refuse to share claims and rebate data, not even to the Plan (despite legal requirements to do so). Often, only the PBM has access to data that would show excessive drug costs to the plan, and PBMs seldom share such data. One could argue that J&J’s proposed pleading standard would make it virtually impossible for any plan participant to allege an ERISA breach-of-prudence claim in the prescription drug plan context. One avenue to obtain partial plan data is found in federal filings. ERISA requires Plans to file a summary plan description and periodic reports (such as the Form 5500) with Department of Labor, see 29 U.S.C. §§ 1021, 1024(a), and provide the plan documents and reports with plan participants, see 29 U.S.C. § 1024(b). Such documents, however, do not contain claims-level data that would show the drug costs paid by the Plan to the PBM.
J&J’s argument that Lewandowski failed to provide individual claims data is relatively novel and untested in the prescription drug plan litigation space. Several cases cited by J&J in support of its pleading and proof standard involved employer-sponsored retirement plans, not health or pharmacy benefit plans. However, if the court adopts this as the pleading standard governing ERISA imprudence claims in the prescription drug plan context, it may unintentionally establish an impossible and unworkable standard of proof.
How Frier Levitt Can Help
Frier Levitt understands PBM practices and can conduct comprehensive audits of PBMs for self-funded employer plans. Frier Levitt routinely provides audits to identify PBM spread pricing through which PBMs may be skimming a portion of the drug rebates and cost savings that should go to the plan. We assess contract compliance, financial accuracy, and performance metrics to ensure that your PBM arrangements align with fiduciary standards and your company’s financial interests. Don’t wait for a lawsuit to uncover deficiencies in your PBM management. Contact Frier Levitt today.
