Mid-Atlantic Health Law TOPICS

In the past decade, employers who sponsor pension plans have been subject to class actions brought by their employees, alleging the employers breached their fiduciary duty to pension plan participants by failing to rein in excessive fees.  

Now, that scrutiny has expanded to include employers who sponsor health plans, and who allegedly have not controlled participant costs, principally for prescription drugs. 

The CAA

The Consolidated Appropriations Act of 2021 (CAA), which became effective in December 2021, has kicked off a new level of scrutiny by the federal government and private litigants of health plan fees and costs.  

The CAA amends the Employee Retirement Income Security Act of 1974 (known as ERISA), and among other things, sets forth new rules requiring health care vendors, such as brokers and consultants, to disclose detailed information on the amount of compensation such vendors expect to receive (if it exceeds $1,000) from services rendered to employer- sponsored health plans. 

A contract with such a vendor that doesn’t require vendors to disclose information on their compensation isn’t considered “reasonable” under ERISA, and is, therefore, a “prohibited transaction.”  Similarly, a vendor contract that contains a “gag clause” barring disclosure of compensation data is also not reasonable, and, therefore, prohibited under the CAA.

Such transactions can lead to sanctions imposed by the U.S. Department of Labor.  If an employer enters into a vendor contract that is not reasonable, the employer faces imposition of civil penalties, including a 100% penalty if the prohibited transaction isn’t corrected within 90 days after notice by the Labor Department Secretary.

Lewandowski v. Johnson & Johnson

Such a failure to enter into a reasonable contract also exposes employers who sponsor health plans to class action lawsuits alleging breach of fiduciary duty and financial harm to plan participants and their beneficiaries.

An example of such a lawsuit is Lewandowski v. Johnson & Johnson, pending in the U.S. District Court for the District of New Jersey.  In that case, an employee seeks class certification and alleges that Johnson & Johnson, as plan administrator, and its inhouse benefit plans oversight committee, breached their fiduciary duty owed to plan participants by failing to eliminate excessive prescription drug costs.
 
The employee alleges, for example, that a 90-pill generic prescription drug to treat multiple sclerosis costs $40.55 at a local grocery store. However, the employer allegedly made their ERISA plans and their beneficiaries pay $10,239.69 (not a typo) for the same 90-day supply, impacting employee contributions and co-pays.

Employers should ensure that inhouse over-sight procedures are in place to prevent their health plan participants from paying excessive prescription drug and other medical costs.
 

Theodore P. Stein
410-576-4229 • tstein@gfrlaw.com