Johnson & Johnson Sued for Fiduciary Breach
On February 5th, 2024, attorneys filed a first-of-its-kind class-action lawsuit alleging an employer had breached its fiduciary duties surrounding its health benefits plan. Lewandowski v. Johnson & Johnson lays out a detailed case, focusing on the cost of prescription drugs available through the plan. The filing repeatedly compares the prices of prescription drugs purchased without insurance to the cost of those same drugs obtained through the J&J plan. In short, the suit claims that dozens of drugs were significantly more expensive through the plan than if the participant had gone to the pharmacy and not leveraged their insurance at all.
The plaintiff calls out several egregious examples with huge markups over readily available cash prices, including drugs used to treat the following conditions:
- Multiple sclerosis
- HIV
- Leukemia
- Cancer
The filing includes a table of 42 drugs with markups of up to 13,200% above the National Average Drug Acquisition Cost database. All jargon aside, they claim “it would be more prudent for [Johnson & Johnson] to tell employees not to use their insurance and instead to give them a company credit card that the Plans were responsible for paying.”
Perhaps the most shocking allegation is that the plaintiff, in a proactive effort to reduce the cost of her infusion therapy, searched for and successfully identified a lower cost provider than the in-network facility she had been directed to. The facility she found was out-of-network, but going there would save the plan approximately $40,000. When she brought the "good news" to the plan, she was told, "saving money is not a reason to go out of network." The attorneys go on to state, "“when fiduciaries agree to overpay for prescription drugs, employees – and especially the sickest employees – bear much of the burden.”
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Beyond the unreasonable cost of prescription drugs, the filing highlights multiple conflicts of interest within the health benefits landscape, spotlighting Pharmacy Benefit Managers (PBMs), Employee Benefit Consultants (EBCs), and Third-Party Administrators (TPAs). These claims underscore how important it is for plan sponsors to obtain clear and complete compensation disclosures from all service providers to understand any potential conflicts of interest.
In a noteworthy move, the lawsuit seeks to hold specific individuals within Johnson & Johnson personally liable as fiduciaries. The list includes Peter Fasolo (EVP and CHRO), Warren Luther (VP of HR), Lisa Blair Davis (VP of HR), and 20 additional members of the Pension & Benefits Committee.
So what did J&J do wrong?
The suit alleges that J&J, its Pension & Benefits Committee, and the individual members of the Pension & Benefits Committee, all violated their fiduciary duties by:
How big could a settlement or judgement be?
The suit notes that in the most recent filing year, participant contributions into the plan Trust totaled approximately $148.28 million… So, any judgement or settlement could stretch into the tens of millions.
What can employers do to avoid similar lawsuits?
Unfortunately, this case is likely just the beginning of a new trend in ERISA litigation. The Consolidated Appropriations Act of 2021 opened the door to class action lawsuits designed to hold employers responsible for the state of the US health benefits industry. We are actively tracking 20+ additional pending cases with similar claims.
To avoid fines from the Department of Labor (DOL) and class action lawsuits, employers across the country should immediately adopt a robust fiduciary process for the management of their health benefit plans. First steps should include:
Fiduciary In A Box stands ready to support employers and forward thinking brokers, advisors, TPAs, PBMs, CPAs, auditors and others in meeting their fiduciary duties, and documenting efforts to do so.
?? Certified Healthcare Fiduciary Coach and Health Value Advisor ?? I work with Business Leaders of mid-sized companies that understand the competitive edge of a Health Plan that Costs Less and Offers More.
9 个月In your estimation, is this the perverbial Shot Heard Round the World Jed Cohen?
Helping people work towards their financial futures
9 个月Heinous!
Health Rosetta advisor disrupting healthcare status-quo to lower cost & improved member health with independent data.
9 个月America’s newest fad will involve 1000s of class-action lawsuits against employers. Bet today this will receive serious C Suite attention. The entire healthcare industry gorges on employer plan dollars. Looking at independent aggregated data identifies staggering claim abuse. PBM is the garage, health claims represent the house.
VP, Employer Sales @ Wondr Health
9 个月This is fascinating. Thank you for the write-up.
Director @Hirits Consultants Private Limited | Business Development Specialist | Contact For Internship | New Business Acquisition | Vendor Partner | Client Empanelment
9 个月Fascinating summary, Jed—this case could be a game-changer for how companies manage their employee retirement plans, and I'd love to learn more about the preventative measures you've outlined. ??