Fiduciary Duty Update: PBM Audit is Now Mandatory Protocol

As we discussed here, the recent employee class action lawsuit brought against Johnson and Johnson has cast a spotlight on a critical aspect of plan sponsorship — the employer’s fiduciary duty to manage and monitor Pharmacy Benefit Managers (PBMs) effectively. This new breed of lawsuit underscores the financial and legal consequences when a plan fails to scrutinize PBM contracts and performance, or when a plan unduly relies on the broker’s advice. In this follow-up discussion, we delve deeper into the imperative for self-funded employers to proactively audit their PBMs, and their brokers.

Self-funded employers are entrusted with a significant responsibility: to manage employee benefits plans with diligence, prudence, and in the best interest of the participants. This fiduciary duty extends to all aspects of plan management, including the oversight of PBMs. PBMs play a pivotal role in controlling prescription drug costs, but without thorough audits, employers may unknowingly be subject to inflated charges, suboptimal terms, and practices that could be deemed as breaches of fiduciary duty by the employer.

The revelation that a drug costing over $10,000 in the market could be sourced for $28.40 has sent shockwaves through the industry, illustrating a glaring oversight in PBM management. Auditing your PBM is not merely a best practice; it is a critical safeguard against financial inefficiency and legal liabilities. Audits reveal discrepancies in billing, conflicts of interest, and non-compliance with contract terms — issues that, if unaddressed, could lead to breach of fiduciary claims.

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 Johnson and Johnson case is a poignant reminder that the stakes are high for employers, and ignorance is not a defense.

The evolving legal environment and increasing scrutiny on PBM practices necessitate a proactive approach to benefits plan management. Auditing your PBM is not just about compliance; it’s about protecting your employees’ interests and your company’s bottom line. Frier Levitt is here to assist self-funded employers in navigating these complex waters, ensuring transparency, accountability, and fiduciary compliance in your PBM arrangements.  We’ve been auditing PBMs for nearly a quarter century.

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.