Board Directors Are Now Named Defendants
Recent lawsuits against major corporations highlight a growing risk: PBM mismanagement is leading to overspending, employee dissatisfaction, and breach of fiduciary duties.
In the last 12 months, we’ve seen several ERISA class action lawsuits alleging breach of fiduciary duties over pharmacy benefits. The Johnson & Johnson class-action lawsuit, the first to be filed, was amended this week to address the standing of Ann Lewandowski the original litigant and added another former employee to the class. Contrary to some media coverage, this lawsuit has not yet been judged on its merits and isn’t going away.
A similar lawsuit against Wells Fargo is proceeding, and no one should forget it included dozens of named employee fiduciaries as defendants.
This week, another shoe dropped. A class action lawsuit was filed against JP Morgan with allegations of PBM mismanagement, overpaying for drugs, and failing to act despite participation in business groups highlighting the issue.
For the first time, an ERISA PBM suit named board directors as defendants. And not just anyone but Virginia “Ginni” Rometty (former IBM CEO) and Todd Combs (GEICO CEO & Berkshire Hathaway investment officer).
Health plan fiduciary risk is among the most overlooked—but not for long, as directors and execs wake up to personal liability.
Three Things You Can Do Right Now:
1. Education – Inform and train on fiduciary duties and risks
2. Assessment – Review claims & contracts
3. Planning – Develop compliance + cost savings roadmap
Case Study: What Went Wrong for JP Morgan?
From the Complaint:
- Many of the Purchasers Group on Health (PBGH) recommendations to its members, including JP Morgan, are the exact things detailed above that JP Morgan did not do.
- PBGH warns against using traditional PBMs as they have adopted opaque and deceptive business practices enabling them to capture revenue from multiple sources, often increasing the benefit cost.
- Despite this recommendation, JP Morgan continued to use Caremark, one of the traditional PBMs PBGH expressly cautioned against.
- PBGH warns against the use of AWP as a benchmark for drug prices. “Purchasers should be wary of the arbitrary and exploitable nature of the AWP benchmark.” Despite this recommendation, JP Morgan continued to pay based on AWP.
- According to Health Transformation Alliance (HTA) recommendations, a specialty drug carveout would save the JP Morgan plan and participants 39.8% on prescription drugs, totaling over $60 million per year.
Fiduciary Failure = Business Success?
The business group recommendations aren’t secrets. Based on all the media coverage of the PBM lawsuits, congressional hearings, and FTC actions, these issues and recommendations should be common knowledge for any self-funded employer health plan fiduciary. So what was it that kept JP Morgan from acting?
One very likely culprit was prioritizing business relationships with companies in the healthcare industry over cost-saving measures for its own employees.
Many people have pointed out the irony of JP Morgan hosting the largest investment conference in healthcare. But more than irony, it’s turned into a very large conflict of interest given all their deal-making. JP Morgan does too much business with healthcare companies to hold their feet to the fire.
Unfortunately for their employees and their families, the conflicts and any associated lawsuits are likely being treated as a cost of doing business.
The Risks Are Real, The Benefits Are Significant
For everyone else not hand-tied by conflicts of interest, this is a unique opportunity to take risk off the table and generate substantial savings without cutting benefits.
You might not get sued—but why gamble with personal liability and reputational damage? Particularly with the potential for substantial savings.
Lax compliance has led to unnecessary spending—some employers are overpaying for drugs by more than $300,000 per 1,000 employees.
Addressing PBM issues not only reduces costs but also ensures employees can access the medications they need at a price they can afford, leading to improved satisfaction and health outcomes. Employees will love it.
Next Steps and Key Takeaways
- Engage Fiduciary Experts: Ensure your decisions align with fiduciary duties.
- Educate Management: Make sure they understand risks and responsibilities
- Evaluate PBM Contracts: Identify hidden costs and anti-competitive clauses.
- Conduct a Benchmarking Analysis: Compare your costs to industry standards.
- Implement Best Practices: Follow guidance from organizations like PBGH and HTA.
Final Thoughts
Inflated drug costs aren’t inevitable—employers can take control now. Diligent procurement, transparent vendors, and best practices like avoiding AWP pricing will cut costs and keep medications affordable for employees.
Need help analyzing your health plan’s fiduciary compliance and pharmacy benefits? Let’s talk.
Bonus: Use the following one-page Guidance For Directors and Executives to help catalyze action from boards and management.
Guidance For Directors & Executives
Rising Risk of Health Plan Mismanagement
Health plans are a hidden risk—and now a major personal liability for board directors and executives. Just like retirement plans, health plan mismanagement is triggering ERISA lawsuits, personal liability, and reputational damage.
Why This Matters
- Material Litigation Risk: Class-action lawsuits are gaining traction, and courts are certifying claims. Fiduciary liability is no longer theoretical.
- Material Financial Risk: Poor oversight is driving millions in unnecessary spending—some employers are overpaying by $2M+ per 1,000 employees.
- Regulatory Crackdown: The Department of Labor and state AGs are ramping up audits and enforcement. Fines and legal fees can be crushing.
- Employee Fallout: High drug costs and restricted access to essential medications lead to preventable harm, dissatisfaction, and lost productivity.
Recent Cases Make Personal Liability Clear
- JP Morgan: Board members—including Ginni Rometty (former IBM CEO) and Todd Combs (GEICO CEO & Berkshire Hathaway investment officer)—were named as defendants.
- Wells Fargo: Dozens of individual employee fiduciaries are also on the hook.
- Johnson & Johnson, Mayo Clinic, and others face similar litigation.
The Strategic Opportunity
A proactive approach isn’t just about risk mitigation—it’s a competitive advantage:
- Cost Savings: Optimize procurement and eliminate hidden fees.
- Improved Benefits: Offer better benefits without increasing costs.
- Talent Attraction: Well-managed health plans are a differentiator.
What The Board Should Do Now
- Engage Fiduciary Experts: Ensure your decisions align with fiduciary duties.
- Educate Management: Make sure fiduciaries understand risks and responsibilities.
- Evaluate PBM Contracts: Identify hidden costs and anti-competitive clauses.
- Conduct Benchmarking: Compare your costs to industry standards.
Don’t be a bystander. Change the status quo and reap the benefits of The Health Plan Compliance Advantage.
Act now by scheduling a consultation to protect your organization and unlock the full value of your health plan.
