In recent years, there has been growing public awareness and attention to the ways Pharmacy Benefit Managers (“PBMs”) profit at the expense of employers and plan sponsors. As revealed by the FTC’s Interim Reports on PBMs, OIG congressional and investigations, and as alleged in recent ERISA lawsuits filed against Johnson & Johnson, Wells Fargo, and JPMorgan Chase, PBMs are known to drive up costs by retaining drug manufacturer rebates through affiliated “rebate aggregators,” profiting from “spread pricing” on contracts, and charging plans excessive costs for “specialty generic” drugs, among other tactics.
One participant in the pharmacy benefit landscape that has received far less attention, is the insurance broker who acts as the middle-man between the PBMs and the plans. A recently filed whistleblower complaint against a national insurance broker reveals many of the same non-transparency issues as PBMs when it comes to their compensation and further highlights the need for plans to audit insurance brokers who administer plans’ pharmacy benefits, not just the PBMs.
Allegations in the Whistleblower Complaint
The whistleblower, Alan Wiederhold, was the former Head of Sales at Evolution Healthcare (“EVHC”), a subsidiary of AssuredPartners, which is among the top ten insurance brokers in the United States. In a complaint filed in the District of Maryland, Wiederhold alleged that he was terminated after he internally sounded the alarm that the company was secretly retaining 100% of the pharmaceutical rebates that EVHC negotiated with PBMs on behalf of their plan sponsor clients.
EVHC allegedly falsely represented to the plans that EVHC received no rebates; concealed the amount of rebates received; and even trained their sales staff to “never discuss pharmaceutical rebates with Plan Sponsors.” Wiederhold found that EVHC had retained more than $27 million in rebates for 129 different plan sponsors as of 2023, reflecting 61% of EVHC’s total revenue.
EVHC and AssuredPartners prohibited employees from informing the plan sponsors that EVHC collected rebates from PBMs, and threatened to terminate anyone who disclosed the rebates to the plans. Notwithstanding the company’s threats, Wiederhold provided the rebate revenue data to clients that requested the information, leading to some of those clients declining to renew their contracts with EVHC. Following through on their threats, EVHC then terminated Wiederhold.
It should be noted that the claims in the complaint are allegations. But, regardless, the complaint demonstrates why employers and plan sponsors should exercise caution when outsourcing pharmacy benefits to third parties like insurance brokers.
When a substantial part of the company’s profits is tied to pharmaceutical rebates, there are inevitable financial pressures for insurance brokers, like PBMs, to obfuscate the flow of rebates and retain rebates that should be passed on to the plans.
CAA Disclosure Requirements for Brokers and Consultants
The main takeaway from the whistleblower complaint is that employers should remain vigilant and audit their insurance brokers, in addition to plan sponsor audits of PBMs. Thankfully, the law is clear on plan sponsors’ right to conduct such audits. Section 408(b)(2)(B) of the Employee Retire Income Security Act of 1974 (“ERISA”) was amended by the Consolidated Appropriations Act of 2021 (“CAA”) to require disclosure of all direct and indirect compensation received by “brokers” and “consultants” that provide services to employee benefit plans, including health benefit plans. ERISA also requires that any such compensation to covered service providers be “reasonable.”
Additionally, in conjunction with Section 408, the CAA also created section 724 of ERISA (29 U.S.C. § 1185m) which prohibits contracts with third-party administrators or other service providers that directly or indirectly restricts the plan’s ability to electronically access de-identified data for each plan participant or beneficiary, on a per-claim basis. Among the information plans must be able to electronically access on a per-claim basis is “financial information, such as the allowed amount, or any other claim-related financial obligations included in the provider contract.” These provisions work together to create a robust right of plans to access disclosures of the amount of compensation paid to service providers, that cannot be abrogated by “confidentiality” agreements. Employers can take advantage of these statutory provisions to demand access to fully transparent compensation disclosures from the broker.
How Frier Levitt Can Help
The complaint against EVHC and AssuredPartners highlights the importance of conducting audits of all parties and middle-men that administer and impact the plans’ pharmacy benefits, including pharmaceutical rebates. Frier Levitt’s Plan Sponsor Group represents self-funded employers and Plan Sponsors and conduct comprehensive audits of PBMs, insurance brokers, and third-party administrators. We assess contract compliance, financial accuracy, and performance metrics to ensure that your pharmacy benefit arrangements align with fiduciary standards and your company’s financial interests. To learn more about our Plan Sponsor Group, please contact us today.
Co-Managing Partner
Senior Associate
