Since the Consolidated Appropriation Act of 2021 was passed, increased scrutiny of medical and pharmacy carrier practices has led to lawsuits by health plans suing carriers and TPAs for suppression of data, improper out-of-network charges and hidden fees. More recently, health plan members and retirees have initiated legal actions against their health plan sponsors. These lawsuits are primarily focused on the issue of high-cost drugs, especially in cases where alternative medications are available.
A recent lawsuit against JPMorgan Chase & Co. has the potential to introduce a major shift in fiduciary breach claims related to self-insured health plans. The suit, filed by current and former employees, alleges that JPMorgan’s prescription drug plan, managed by CVS Health Corp., paid exorbitantly high prices for medications—costs that were ultimately passed on to employees.
The case claims that JPMorgan violated its fiduciary duty under the Employee Retirement Income Security Act (ERISA) by allowing "grossly inflated" drug prices. Examples cited in the complaint include paying over $6,000 for a multiple sclerosis drug that costs as little as $30 at retail pharmacies. The lawsuit is part of a growing trend of legal challenges against health plans, with similar cases filed against Johnson & Johnson and Wells Fargo over prescription drug costs.
However, this lawsuit introduces a significant new dimension to fiduciary breach claims. JPMorgan’s membership in organizations like the Purchaser Business Group on Health (PBGH) and the Health Transformation Alliance (HTA) is being used as evidence that the company knew about better cost-saving strategies but failed to act on them.
Knowledge as a Fiduciary Breach?
The complaint against JPMorgan cites recommendations made by PBGH, an organization of major employers that advocates for lower healthcare costs. Specifically, it alleges that JPMorgan ignored best practices explicitly advised by PBGH, such as avoiding traditional pharmacy benefit managers (PBMs) and not using the Average Wholesale Price (AWP) benchmark for drug pricing.
A Pivotal Shift in Fiduciary Litigation?
Historically, fiduciary breach lawsuits in the benefits space have focused on excessive fees and vendor mismanagement. This case, however, raises a new legal question:
Does the knowledge of better cost-saving strategies—and failure to act—constitute a fiduciary breach?
If courts embrace this line of reasoning, it could significantly raise the stakes for health plan sponsors. It suggests that health plans that actively participate in organizations dedicated to improving healthcare purchasing strategies may be held liable if they ignore cost-saving recommendations.
Industry-Wide Implications
This lawsuit has the potential to send shockwaves throughout the industry. It places increased scrutiny on how plan sponsors manage health benefits, negotiate with vendors, and adhere to best practices identified by organizations they belong to.
For Trustees, HR teams, benefits managers, and coalition leaders, this case could serve as a wake-up call. Health plans may need to re-evaluate their prescription drug strategies, vendor contracts, and fiduciary compliance policies to avoid similar legal challenges.
Will Courts Accept This Argument?
While this case presents a novel argument, it remains uncertain whether courts will ultimately agree that failing to act on known best practices constitutes a fiduciary breach. However, the lawsuit is likely to force changes across the industry regardless of the outcome.
Regardless of how the case is decided, the stakes are now higher for health plans. Even if courts reject the argument, it is clear that fiduciary responsibility in healthcare plans is evolving—and no plan sponsor can afford to ignore it.
Reach out to your Bolton advisor for best practices to prevent health plan fiduciary liability.
Related News:
“The Consolidated Appropriations Act Imposes Health Plan Fiduciary Responsibilities on Employers” (Bolton, February, 2023), (https://www.boltonusa.com/the-consolidated-appropriations-acts-objective-is-to-make-you-a-health-plan-fiduciary/)
