Impact of the recent J & J lawsuit – Does your business need to CYA!

March 7, 2024

In early February 2024, pharmaceutical giant Johnson & Johnson (J&J) and its benefit plan committee were sued in a putative class action alleging the company breached its fiduciary duty in its selection of its pharmacy benefit manager (PBM), its reliance on a biased consultant in the selection process, as well as failure to negotiate more participant-friendly contract terms in implementing the services. To understand the basis of the lawsuit and more importantly how it potentially could impact your business, it’s important to recount some relevant developments over the last few years:

Decades of Retirement Plan Litigation

Beginning back in 2006, and then continuing to the present time, 401(k) and 403(b) plans have been the subject of assumed class action lawsuits alleging excessive fees. These lawsuits have focused on the employer/plan sponsor’s fiduciary responsibilities with respect to vendor selection, fees and investment performance. Several of these cases have even made it all the way to the US Supreme Court.

Consolidated Appropriations Act,  2021 (CAA) – the New Health & Welfare Plan Transparency Law

During the later part of 2020, Congress passed the CAA, which introduced a series of reporting and disclosure measures intended to bring greater increased transparency to the medical and prescription drug industry. The CAA specifically required health plans to:

• a. post machine-readable files reporting the rates paid to network and non-network providers for a series of services
• b. create price estimator tools that allow participants to determine in advance how much a healthcare supply or service will cost
• c. document the processes used to create limits on access to mental health/substance use disorder services, and
• d. solicit fee disclosures from healthcare brokers and consultants involved in the plan design upon entering into a contract as well as when renewing a contract.

The CAA also prohibited health plans from entering into contracts with network administrators that would restrict access to price or quality of care information. This is just an initial summary, as according to the Senate Historical Office, The CAA, 2021 (H.R. 133), at 5,593 pages, is one of the longest bills ever passed by Congress.

Why should you care and what does it have to do with your business? We will get to that but if you want to, skip ahead to page 1,576 of the bill where there are provisions in the CAA relating to healthcare, specifically in DIVISION BB-PRIVATE HEALTH INSURANCE AND PUBLIC HEALTH PROVISIONS that affect employers. Here it outlines the established protections for consumers related to surprise billing and transparency in health care and points now to the more visible & ever present obligations addressing employer’s fiduciary duties toward their employer-sponsored health plans.

But like a lot of employers, you may have, for the mere sake of sanity, chose to ignore the news over the last several years regarding this ruling and its subsequent updates. However, it may be time to heed the old adage, “pay now or pay later”, as it is starting to apply to compliance when your business is offering a group health plan.

Shifting Focus to Welfare Plan Fee Litigation

Recently, a number of welfare plans brought suits against their sponsoring employer, insurer, and/or third party administrators (TPAs). These suits alleged that the employer and/or TPAs refused to provide requested information relating to pricing, inflated costs and held conflicts of interest. At the same time, several well known ERISA plaintiffs’ attorneys have indicated they intend to potentially shift focus to health & welfare plan fee litigation. In addition, recently in the later part of 2023, a number of companies also began receiving ERISA document requests seeking six years’ worth of plan documents as well as a link to the plan’s healthcare price estimator tool.

As noted previously, J&J, its fiduciary committee, and individual committee members were sued for an alleged breach of fiduciary duty with respect to their ERISA-governed prescription drug benefit program. This lawsuit, along with other pending litigation, does provide insight into potential existing theories as to how other plans may be targeted in this new wave of fiduciary litigation involving health & welfare plans. Therefore, companies & their C-Suite executives should be checking at least a few boxes now to ensure that they are making a good faith effort as the fiduciary of their health plan to remain compliant.

Conclusion – Some Clarity

First, it is important to note that the J&J lawsuit contains a number of unsubstantiated allegations. Regardless, the mere introduction of these large scale allegations, combined with the CAA’s increased focus on the employer’s fiduciary duties towards their health plan & the continued delivery of unsustainable health premium increases year over year, are all now serving as important catalysts for many C-Suite executives.

These motivated C-Suite executives, who ruthlessly manage every other cost in their company, have become frustrated with not being able to reign in these healthcare costs now representing their number two or number three line item on their P&L. It is these same savvy C-Suite executives who have started to engage in a conversation where they are able to take back control of their healthcare budgets to reclaim trapped profits while actually creating healthier, happier employees that are more fulfilled and more productive.

For more understanding

We have the privilege of helping employers understand their employee benefits, and primarily their health plan, as a supply chain issue that can dramatically improve both the health of employees and the bottom line. This approach may not be new, but a reminder is needed that a viable, measurable and fiscally manageable health plan involves diligence in its healthcare supply chain management. This model allows companies to apply the same effective cost-control practices they leverage in other parts of their organization to their healthcare costs. The process eliminates wasted expenses, redirects dollars to produce measurable ROI, and optimizes the employee healthcare experience resulting in a more loyal, productive, and profitable workforce.

For a copy of an overview of important cost containment solutions you can start to positively leverage in this process, click here:

The CEO Survival Guide – How to Make Healthcare A Controllable Cost

If you have any questions on taking back control of your healthcare spend or other benefits-related challenges, please contact us at 714.716.4060 or mike@my-EBP.com, or provide info here .