Some believed that recent amendments to the Employee Retirement Investment and Security Act of 1974 (“ERISA”) would bring about litigation involving self-funded employer plans (the “Plans”) to ensure that the relevant entities were properly managing health and pharmacy benefits and meeting their fiduciary responsibilities.
Under ERISA, the Plans are required to act in the best interests of the Plans’ members. Specifically, the Plans have a duty of prudence and a duty of loyalty to the members. In a nutshell, this means that the Plans must make sure that they are making decisions that are in the best interest of the members. However, the Plans do not handle medical and pharmacy claims themselves. They contract with third-party insurance companies and Pharmacy Benefit Managers (“PBMs”) to manage the health benefits and pharmacy benefits for its members. Subsequently, there has been a series of lawsuits by the Plans against insurance companies and PBMs.
On June 30, 2023, Kraft Heinz Company sued Aetna for ERISA breach of fiduciary duties alleging that Aetna improperly managed Kraft’s self-funded healthcare Plan.[1] In addition to claims that Aetna retained millions of dollars in undisclosed fees and failed to recoup overpayments, the Kraft Heinz Plan alleged that Aetna failed to provide the Plan with its own claims data.
On February 5, 2024, a Johnson and Johnson employee filed a class action lawsuit against Johnson and Johnson (“J&J”) alleging ERISA breach of fiduciary duties for mismanaging its prescription drug benefits plan by failing to monitor its PBM, Express Scripts, Inc. (“ESI”), costing employees millions in higher drug costs, premiums, cost share requirements, and lost wages.[2] For instance, the Plan alleged that it paid, on average, nearly five hundred percent (500%) more to obtain prescription drugs than it cost pharmacies to purchase the drug and the Plan paid six times as much as ESI paid in reimbursement for the same prescription drug.
On April 2, 2024, an employee of the Mayo Clinic filed a class action lawsuit against the Mayo Clinic and Medica Health Plan Solutions (“Medica”) alleging ERISA breach of fiduciary duties.[3] S.M.O., the employee Plaintiff, alleges that Mayo Clinic and Medica worked together to make benefit reductions and underpayments for the purposes of saving money at the expense of the Plan’s members. In particular, the employee alleges that the Medica member portal search would yield no results for in-network providers, forcing some employees to go out-of-network such that the employee would have enormous balance bills with no transparency as to how the reimbursement was calculated.
These three lawsuits show that ERISA fiduciary duties are critical for employers and the parties they contract with to manage the benefits, such as PBMs. The Kraft Heinz case is an example of a Plan versus contracted insurance carrier; the J&J case is an example of an employee versus employer Plan; and the case brought by S.M.O. is an example of an employee versus both employer and contracted PBM. As evident from these cases, the Plan must affirmatively conduct diligence to ensure that its contracted benefits manager is providing the appropriate reimbursement and the terms for using subcontractors are reasonable and relevant. The Plan might sue the PBM or insurance company for breach, or risk that its members/employees might sue the employer/Plan for breach; or the employee might sue both the employer and the benefits manager for allowing the breach to occur or for being complicit in the breach. In other words, self-funded benefit plans must act to avoid allegations of ERISA breach of fiduciary duty.
So how do Plans fulfill their fiduciary duties when another entity handles the claims management? The most obvious way is to obtain the data and conduct audits of the PBM. But this is not easy or straightforward. Kraft Heinz Company alleged that Aetna would not provide their own claims data so that it can conduct an audit. In fact, claims for data are quite common. At that point, Plans must consider filing a lawsuit for the data or risk being sued by members for allowing the benefits manager to breach its duties.
The consequences of failing to audit PBMs extend beyond financial losses. Legal ramifications, including class action lawsuits and breach of fiduciary claims, can damage a company’s reputation, erode employee trust, and result in significant legal costs. The changing legal landscape and heightened focus on the practices of PBMs require a forward-thinking strategy for managing benefits plans. Conducting audits of the PBMs goes beyond mere compliance; it’s about safeguarding the interests of employees and the Plan’s financial health.
How Frier Levitt Can Help
Frier Levitt represents self-funded employers in their dealings with PBMs. Our deep understanding of the legal landscape and PBM practices uniquely positions us to conduct comprehensive audits. 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 to learn how our PBM audit services can fortify your defense against fiduciary breach claims and secure the financial health of your employee benefits plan.
[1] Kraft Heinz Company v. Aetna Life Insurance, 2:23-cv-00317-JRG (E.D. Tex. Jun. 30, 2023).
[2] Lewandowski, et al. v. Johnson & Johnson, et al., No. 1:24-cv-00671 (D.N.J. Feb. 5, 2024).
[3] S.M.O. v. Mayo Clinic, et al., 24-cv-1124 (D. Minn. Apr. 2, 2024).
