In February 2024, Ann Lewandowski filed a class action lawsuit, alleging that Johnson and Johnson, its Pension and Benefits Committee, and individual members of the Pension and Benefits Committee (collectively “J&J”), the employer sponsor of several self-funded employee health benefit plans, breached their fiduciary duty under the Employee Retirement Income Security Act of 1974 (“ERISA”). The lawsuit alleged that J&J mismanaged its prescription drug benefits by contracting with, and failed to effectively monitor, the Plan’s pharmacy benefit manager (PBM) Express Scripts, Inc. (“ESI”).
The complaint detailed various ways in which major PBMs like ESI profited from the Plan, including spread pricing, formulary manipulation, and retention of manufacturer drug rebates. The complaint further provided specific examples of the Plan being charged excessive prices for certain “specialty generic” drugs. For example, the Plan paid $16,398.17 for a 90-day prescription of the leukemia drug Imatinib, when that same prescription was available at retail from Mark Cuban Cost Plus Drugs’ online pharmacy for $94.10. The plaintiff asserted that these profiteering tactics cost employees like herself millions in higher drug costs, premiums, out-of-pocket costs, and lost wages.
The Court’s November 2025 Dismissal Order: A Standing Problem for Employees
On November 26, 2025, the Court dismissed the second amended complaint for lack of standing. The Court found that the plaintiffs (Ms. Lewandowski and another paintiff) were unable to demonstrate “individual harm, causation, and redressability” (the three elements of Article III standing) because the level of benefits and insurance coverage for any given member was not tied to the level of general assets held by the Plan. Thus, the Court found that even if the P was overcharged by the PBM, it had no impact on the amount of benefits available to any employee or beneficiary. While the plaintiffs alleged increased premiums and out-of-pocket costs, the Court believed those rates were determined by a myriad of different factors that have “nothing to do with prescription drug benefits,” such as market trends, administrative expenses, non-drug medical costs, etc. Ultimately, the Court believed it “too speculative that the allegedly excessive fees the Plan paid to its PBM ‘had any effect at all’ on Plaintiffs’ contribution rates and out-of-pocket costs for prescriptions.”
The Court’s Questionable Rationale
In so ruling, the J&J Court brushed off allegations in the second amended complaint that each plaintiff overpaid on specific drug transactions as a result of ESI’s pricing terms and those overpayments resulted in higher out-of-pocket costs. The Court found that the plaintiffs’ assertions of injury in the amount of a couple hundred dollars on a handful drug transactions were insufficient to establish standing because they received in excess of $120,000 in pharmacy benefits each year.
Similarly, the Court also rejected the plaintiffs’ argument that excessive drug costs increase the monthly premiums paid by employees, even though these allegations were supported by numerous studies and articles. The Court’s rationale appears inconsistent with the well-established motion to dismiss pleading standard: the court must accept the factual allegations in the complaint as true and draw all reasonable inferences in the plaintiffs’ favor.
Takeaways from the Dismissal Order
The J&J decision highlights the obstacles that employees face when trying to seek redress against the employer for misconduct by the PBM. The PBM is the true bad actor, overcharging the Plan for prescription drugs and other fees and resulting in higher costs borne by the employees. But, because the employees are one step removed from the overcharge, it is extremely difficult to adequately plead that they were directly harmed across the formulary.
The Court did not appreciate the small harm in increased copayments stemming from a handful of drugs identified in the complaint, due to the size of the entire formulary and the Plan’s discretion to use pooled assets for a number of different reasons. Here, highlighting 57 “specialty generic” drugs with excessive markups failed to persuade the Court that ESI caused the Plan to overpay across the formulary.
Although the decision marks a victory for J&J, the case is not over. The Court’s dismissal order is without prejudice, meaning that the plaintiffs will have another opportunity to amend their complaint. Alternatively, the plaintiffs could appeal the decision, as in the Sixth Circuit case Sierra Yachts, which reversed and remanded a dismissal order of a similar ERISA lawsuit.
Key Takeaway: Plan Sponsors, Not Employees, Are Best Positioned to Challenge PBM Abuse
Employers and plan sponsors should not become complacent in light of the J&J ruling. To the contrary, the decision emphasizes that plans, the entities that are directly overcharged by the PBMs, should be the ones seeking redress on behalf of themselves and their members. In fact, plan sponsors are better situated than employees to seek accountability against PBMs because they suffer direct harm and have statutory and contractual rights to audit PBMs and demand access to plan data relating to claim reimbursement and rebates.
By auditing their PBMs and ensuring that they are meeting their obligations under ERISA, plan sponsors can kill two birds with one stone: they can simultaneously recover losses to the plans from the PBMs’ profiteering, while limiting their exposure to employee-versus-plan ERISA lawsuits.
How Frier Levitt Supports Plan Sponsors
Frier Levitt provides comprehensive legal counsel and PBM audit services to plan sponsors. If you are a plan sponsor concerned about PBM mismanagement, we welcome the opportunity to provide you with the information necessary to protect your plan and its beneficiaries. Our team can help you evaluate your PBM contract, identify overpayments, and recover losses before the next plan year.
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