Hole in the Bottle… Employer Considerations After Another Lawsuit Against an Employer Health Plan

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by Alex Smith

Last week, former Wells Fargo employees filed a class action lawsuit against Wells Fargo and its health plan fiduciaries alleging that Wells Fargo’s self-funded health plan violated ERISA by paying its pharmacy benefits manager (PBM) excessive administrative fees and excessive fees for prescription drugs. This lawsuit appears to be similar to a lawsuit filed against Johnson & Johnson and its health plan fiduciaries earlier this year. Both lawsuits allege that the health plan paid its PBM exponentially more for certain prescription drugs than the price charged by certain retail pharmacies for the same drugs. Coincidentally, both lawsuits indicate the health plans are funded through a voluntary employees’ beneficiary association (VEBA) trust. See our prior blog post for more information on the heightened health plan fiduciary standards that may be driving these lawsuits.

While these lawsuits are still in the early stages and it is unknown how the courts will rule, employers should consider the following to better understand their exposure to similar litigation and better position their plan if it needs to navigate a similar lawsuit:

  • Consider whether it makes sense to establish a health and welfare fiduciary committee to oversee health and welfare plans.
  • Review and negotiate services agreements with health plan third-party administrators and PBMs. It is important to understand the fees being paid for administrative services, the services being provided, and the service provider’s responsibilities.
  • Engage independent consultants who specialize in prescription drug plans to understand and monitor the plan’s fee and rebate arrangement along with how the plan’s prescription drug formulary is structured. This review should be ongoing to ensure the arrangement remains appropriate.
  • Periodically conduct requests for proposal for medical plan third-party administrators and PBMs to ensure the plan’s fees and services provided remain appropriate.
  • If plan benefits are funded through a VEBA, conduct heightened monitoring of expenses and benefits paid for by the VEBA, as ERISA protections and fiduciary duties apply to the plan’s assets in the VEBA in ways that do not apply to the employer’s general assets.