Johnson and Johnson is being sued for their role in fiduciary responsibility related to self-funded employers and the management of their pharmacy benefits program.

Proposed Class Action Lawsuit Against Johnson & Johnson Signals Growing Importance of Pharmacy Benefit Oversight for Self-Funded Employer Groups

May 14, 2024

Overseeing both the medical and pharmacy benefits for large self-funded groups remains one of the most complex, difficult, and costly line items for today’s HR leaders to manage. Earlier this year, this task became even more important, and potentially risky. In this article, we will:

  1. Provide an overview of the proposed class action lawsuit
  2. Discuss the implications of the case for the broader self-funded employer market
  3. Highlight why having a robust pharmacy benefit payment integrity program is more important than ever when managing your PBM

1. Overview of Proposed Class Action Suit:

On February 5, 2024, a class action complaint was filed against one of the nation’s largest self-funded employers, Johnson & Johnson (J&J). In the case, Lewandoski v. Johnson & Johnson, the proposed class is claiming that J&J failed to uphold their fiduciary duty of prudence under ERISA. Specifically, the proposed class argues that the employer’s mismanagement of the prescription drug benefits program has cost the 130,000 beneficiaries millions of dollars in lower wages through higher premiums, deductibles, coinsurance, and copays.

Central to the suit is J&J’s ongoing relationship with their pharmacy benefit manager (PBM).

To comply with their fiduciary duties, plan administrators are charged with prudently selecting and then continuously monitoring any selected service providers, including PBMs, to ensure plan assets are utilized appropriately. The complaint in question cites several examples where the class believes the defendant (J&J) has not acted as a prudent fiduciary including:

  1. Paying non-competitive pricing to their PBM for widely available specialty generics
  2. Incentivizing beneficiaries to utilize PBM-owned specialty pharmacies despite the higher total cost to the plan when compared to pricing at competitive pharmacies
  3. Failing to conduct routine PBM RFPs that included bids from non-traditional “pass-through” PBMs or specialty drug carve-out options

While this is likely the start of a drawn-out legal process, it rightly raises many concerns for the broader self-funded employer market regarding their pharmacy benefit oversight programs. Specifically, the importance of vender selection and ongoing monitoring of third-party service providers, such as PBMs.

2. Why The Ongoing J&J Lawsuit Is Significant for Self-Funded Employers?

While PBMs have often found themselves in the legislative hot seat for their role in the prescription drug market, this is new territory for an organization like J&J. However, it will likely not be the last time either.

Many industry experts believe that regardless of outcome, the J&J lawsuit represents a “canary in the coal mine” situation, and that we are likely to see many similar lawsuits filed against large employers in the future.

The J&J lawsuit should serve as a signal to the broader self-funded employer benefits market that relying on third-party service providers, including PBMs, without comprehensively documented selection and oversight processes in place will put them at greater risks for litigation. Specifically, the J&J complaint highlights that “fiduciaries cannot discharge their fiduciary duties simply by relying on the advice of third-party service providers, consultants, or experts.”

While the prescription benefit market remains an extremely complex marketplace, PBMs still play an outsized role in the delivery of benefits to a vast majority of the market. Therefore, it is more important than ever for self-funded employers to ensure they have robust third-party oversight and selection processes in place to ensure their benefit dollars are well protected.

3. How Continuous Monitoring Can Help Self-Funded Employers Safeguard Their Pharmacy Benefit Programs

Today, many self-funded employers rely on a mixture of outdated pharmacy benefit oversight tools like traditional PBM audits, retrospective market checks, and multi-year RFPs. When used in isolation these policies, while helpful, often leave self-funded employers with a lack of actionable information, require significant time investments to conduct, and do not adequately hold PBMs accountable to their contracts.

Given today’s litigious environment it is more important than ever for self-funded employers to broaden their payment integrity toolbox to include technology driven solutions like continuous pharmacy benefit monitoring.

Continuous monitoring programs, like HDS’s Claim Scan, provide 100% claim level visibility at every invoice cycle allowing self-funded plans to act on potential PBM issues before they snowball into more significant problems. Claim Scan offers self-funded plans the ability to leverage up to 600 proprietary claim scanning algorithms that continuously:

  • Identify claim-level contract adjudication errors to pursue financial resolutions with the PBM
  • Monitor trends for strategic contract improvement opportunities around plan design and pricing
  • Validate that their PBM is administering the pharmacy benefit in line with the contract

Claim Scan offers self-funded employers a second set of eyes to monitor every aspect of their pharmacy benefit data, providing proactive oversight for your most important third-party service providers.

To learn more about how Claim Scan continuous pharmacy benefit monitoring can help protect your self-funded plan, set up a discovery call with one of our business development reps today.   

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