You may never find yourself in court over your company’s health plan. But that doesn’t mean you shouldn’t try to learn what you can from those who have landed there.
Over the past months we’ve reviewed ERISA health plan lawsuits—from large Fortune 500 companies to nonprofit health systems. While the details vary, the themes are strikingly consistent.
📰 We Read the Court Filings So You Don’t Have To
From JPMorgan to Johnson & Johnson to Mayo Clinic, we analyzed the lawsuits and surfaced the patterns.
👉 Lesson: Getting sued isn’t bad luck—it’s often the result of lax compliance and poor procurement.
Below is a curated list of fiduciary pitfalls—straight from court filings. It’s not just a risk list. It’s a roadmap to stronger compliance, better benefits, and smarter vendor oversight.
Where the Trouble Starts
Here’s what we found after reviewing many lawsuits—and why each one deserves your attention:
1. CONTRACT AND COST MANAGEMENT
Spread Pricing
What Is it? When a PBM charges the plan more for a drug than it reimburses the pharmacy, pocketing the difference.
So What? Creates hidden, unjustified costs for the plan—and plan participants pay more without knowing it.
Rebate Retention
What Is it? PBMs keep manufacturer rebates instead of passing savings through to the plan or employees.
So What? Rebates are meant to lower drug costs. Retention inflates plan expenses while employees still pay full price.
Excessive Administrative Fees
What Is It? Paying brokers, TPAs, or PBMs more than fair market value for services without appropriate oversight or benchmarking.
So What? Unchecked fees quietly drain plan assets—and create easy targets for fiduciary breach claims.
Lack of Transparency
What Is It? Hidden pricing structures, undisclosed commissions, or gag clauses that prevent full understanding of costs and vendor incentives.
So What? If you can’t see what you’re paying for, you can’t prove fiduciary prudence—or control costs effectively.
Suppressed Wages
What Is It? Health plan mismanagement drives up out-of-pocket costs, indirectly reducing employee take-home pay.
So What? Rising healthcare costs without wage increases fuel employee dissatisfaction, turnover, and reputational risk.
👉 Action Tip: Benchmark all vendor contracts. Demand full compensation disclosures and confirm you’re getting value—not legacy pricing.
Contract and Cost Management
2. VENDOR OVERSIGHT AND ACCOUNTABILITY
Pharmacy Benefit Manager (PBM)
What Is It? A third-party vendor that manages prescription drug benefits on behalf of health plans.
So What? Poor PBM oversight is at the center of most health plan lawsuits—because PBM incentives often conflict with participant interests.
Failure to Conduct Competitive Bidding
What Is It? Renewing vendor contracts without a formal RFP or market check.
So What? Skipping competitive bidding locks in outdated pricing, conflicts of interest, and inflated costs—while exposing fiduciaries to legal scrutiny.
Vertical Integration
What Is It? When a PBM, insurer, and pharmacy are owned by the same company—controlling multiple steps in the supply chain.
So What? Vertical integration limits competition and drives costs higher—while creating hidden conflicts fiduciaries are obligated to manage.
👉 Action Tip: Run regular RFPs. Keep contracts 3 years or less. Ask vendors to prove their value—not just assert it.
3. GOVERNANCE PROCESSES
Conflict of Interest
What Is It? When fiduciaries or vendors put business relationships, commissions, or company interests ahead of participant welfare.
So What? ERISA mandates loyalty to plan participants. Conflicts that aren’t disclosed and managed are clear grounds for fiduciary breach claims.
Formulary Management
What Is It? How a plan or PBM decides which prescription drugs are covered—and at what participant cost.
So What? Poor formulary management steers employees to higher-cost drugs unnecessarily, inflating both plan costs and employee out-of-pocket expenses.
Sometimes the biggest fiduciary issue isn’t on the vendor side—it’s organizational inertia. Long-term relationships and misplaced trust often blind leaders to risks hiding in plain sight. Here’s how several organizations stumbled—and how strong fiduciaries lead differently:
🚩 Problem: Loyalty replaced oversight.
“We’ve worked with them for 25 years—why change now?”
Why It’s Risky?: Contracts go stale. Costs creep up. Terms favor vendors—not participants. Courts don’t accept loyalty as a defense.
What Leaders Do: Review vendor relationships through fiduciary duty, not sentimentality. Long standing partners should be evaluated—just like any other vendor.
🚩 Problem: Personal relationships clouded judgment.
“But they’re friends—we trust them.”
Why It’s Risky: ERISA doesn’t waive fiduciary obligations for friendships. Trust is good—but verification is required.
What Leaders Do: Request full compensation disclosures. Document the oversight process. Good partners will welcome the opportunity to prove their alignment with participant interests.
👉 Action Tip: Familiarity is not a defense. Only documented prudence, diligence, and loyalty to participants will stand up in court.
ERISA doesn’t care about loyalty.
Key Questions For Board Oversight
Boards that ask the right questions today are the ones that avoid costly lawsuits, drive real savings, and deliver better outcomes for employees.
To effectively mitigate risk and avoid the mistakes others have made, executives and boards must move beyond passive oversight and actively engage in these crucial questions:
Boardroom Talking Points
What to Do Next
Here are some likely places to start:
Use the List of Board Questions:It’s more than red flags—it’s a diagnostic tool. Start where your plan is most vulnerable or opaque.
Focus on Pharmacy First: It’s where the biggest lawsuits begin—and where compliance and savings intersect. A PBM contract review will likely pay for itself (and a lot more).
Modernize Your Oversight: If you don’t have a fiduciary committee with a formal charter and ongoing documentation—you’re behind.
Apply Lessons to Lead Change: You don’t need a lawsuit to act like a leader. This is an opportunity to turn risk into ROI.
Ready To Turn Fiduciary Risk Into Strategic Advantage?
📣 TAKE ACTION: Request an executive briefing and a customized vendor risk scan tailored to your plan. You don’t have to start from scratch. You just have to start.
Let’s build a future where transparency and fiduciary duty go hand in hand.
💸 SPECIAL OFFER: Subscribers to this newsletter receive 10% off any Validation Institute service. Use code FIDUCIARY10 at checkout.
validationinstitute.com
📬 PAY IT FORWARD: Feel free to forward this offer to your broker, PBM, or other vendors. Don’t hesitate to tell them you will favor validated vendors as part of your modernized procurement processes. Strong compliance and better benefits begin with validation.
Don’t be a bystander. Change the status quo and reap the benefits of The Health Plan Compliance Advantage.
