Despite being one of the largest drugmakers in the United States, a recent lawsuit against Johnson & Johnson alleges that the company failed to manage employee benefits plans properly.
The suit claims that J&J failed to use its buying power to negotiate fair medication pricing, forcing workers to pay millions in overpayments for generic drugs.
Let’s explore this case and its potential implications for employers that offer benefits plans.
Understanding the Issue
On February 5, 2024, Ann Lewandowski, a healthcare policy and advocacy director for Johnson & Johnson, filed a proposed class action lawsuit in the U.S. District Court for the District of New Jersey.
The suit accuses J&J of breaching its duty to prudently manage employee benefit plans according to the rules under the 1974 federal Employee Retirement Income Security Act (ERISA).
Allegations Against Johnson & Johnson
The Johnson & Johnson employee alleges that the company’s health plan caused employees to pay inflated medication prices due to their lack of effort to negotiate good deals on prescription drugs.
According to the suit, J&J paid its pharmacy benefit manager (PBM), Express Scripts Inc., inflated prices for generic specialty drugs that can be purchased at most pharmacies for a significantly lower cost.
Impact on Employees
Inflated drug costs resulted in increased out-of-pocket costs for many J&J workers. For example, the complaint reported that J&J’s health plans paid $10,200 for teriflunomide, a prescription used to treat multiple sclerosis, which should generally cost no more than $77 out-of-pocket.
Another example is the HIV antiviral drug abacavir-lamivudine. The company’s health plans paid $1,629 for a 90-count pill prescription, typically costing pharmacies $180.
Implications for Employee Benefit Plans
With new laws and regulations going into effect that will reveal previously hidden information on negotiated healthcare service pricing, many employers are likely to encounter legal challenges from employees who may be paying more for their medications than necessary.
Some businesses have chosen to sue their health plan administrators in recent years for breaching fiduciary duties. However, employers can help mitigate liability exposure to these lawsuits by carefully selecting and monitoring their service providers.
Importance of Prudent Management Under ERISA
It’s more important than ever for employers to take an active role in managing employee benefit plans. Businesses can no longer rely solely on their plan administrators and brokers to get them the best deals on prescription drugs. Instead, employers must engage in prudent management under ERISA to avoid becoming targets for employee suits.
Implementing and Evaluating the Customized Packages
Greater transparency on prescription drug costs, coupled with today’s competitive job market, has many employers invested in creating customized employee benefits plans.
Affordable drug prices are an essential component of any tailored plan, meaning employers should dedicate time to address cost increases and ensure that employees have access to the medications they need without extravagant out-of-pocket costs.
Lessons Learned from Lewandowski vs. Johnson & Johnson
The proposed class action lawsuit recently filed against J&J is an important reminder to plan fiduciaries and employers that PBM arrangements dictate an increasing percentage of a business’s annual health care spend and serve as the basis for potential allegations of fiduciary breach and other employer wrongdoings.
For these reasons, plan fiduciaries and employers should continually monitor their PBM arrangements with a watchful eye.
Lawsuit Analysis and Other Implications
While the lawsuit against Johnson & Johnson is directed solely toward the company, it highlights the potential implications when employers knowingly or unknowingly violate their fiduciary duty under ERISA.
Mismanaging health benefit plan funds can increase healthcare premiums, higher out-of-pocket costs, and constrain employee wage growth.
With approximately 7% of U.S. adults, representing about 18 million people, unable to pay for at least one of their prescribed medications, properly managing plan funds has become a high priority.
Takeaways for Employers with Employee Benefits
With the threat of potential suits on the horizon, many employers are reevaluating their current employee benefits packages. Complying with statutory obligations to properly monitor the cost-effectiveness of health benefit plans could help reduce health care costs for employees.
Employers should also pay close attention during PBM contract negotiations to look for provisions that could cause conflicts of interest or unreasonably benefit the PBM, such as rebate retention or spread pricing.
How New City Insurance Can Help with Employee Benefits Consulting
Since 2008, New City Insurance has been providing high-quality insurance solutions to businesses in various industries. Our experienced advisors can provide expert consulting on various benefits, such as retirement plans, group health insurance, wellness plans, and executive benefits.
To learn how we can assist you with building and maintaining your employee benefits plan, call New City today at 888.210.2765.