Why fiduciaries must confront the conflict no one talks about
Executive Brief
It’s Not About Percentages. It’s About Priorities.
Here’s the truth almost no boardroom discusses:
Rebates come from your sickest employees.
Every rebate dollar exists because someone with a serious condition filled an expensive prescription. Yet the financial “benefit” of those dollars is usually spread across everyone while the high-need claimant keeps paying coinsurance on an inflated list price.
Before we argue about fiduciary obligations and who pays a higher percentage of the drug cost let’s put this issue in perspective.
The Flood Rescue Analogy
A house is flooding.
Nine people are standing safely on the porch. One person is trapped in the basement as the water rises toward the ceiling.
Saving the person in the basement doesn’t endanger the nine.
But saving the nine first makes your “rescue numbers” look better.
Even though the one below suffers the most.
That’s the rebate dilemma: the system can reward the wrong rescue.
Who Do You Rescue?
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What Is the Sole Interest of Participants?
Health plan fiduciaries have a Duty of Loyalty. It’s a legal and moral requirement to act solely in the interest of participants and beneficiaries. Rebates create a perfect Fiduciary Quandary because they seemingly pull that duty in two directions:
1. The Collective View
Lower premiums. Predictable budgets.
Good for the group.
2. The Individual View
Lower coinsurance. Less financial harm.
Critical for the sickest.
Both perspectives are real.
But only one reflects participant-first principles.
Protect the participant who will be harmed most.
That’s the North Star.
Letting your most vulnerable pay inflated list prices isn’t prudence.
Pretending there is no dilemma isn’t loyalty.
When discussing PBM agreements, ERISA attorney Julie Selesnick stresses the importance of prudence and loyalty:
“The fiduciary obligations of prudence and loyalty include requiring PBMs to disclose pricing structures, rebates, and spread pricing. It has never been more important for health plan fiduciaries to scrutinize the agreements they enter into with PBMs… to ensure that prescription drug benefits are managed transparently, in accordance with the health plan documents and ERISA, and in the best interest of plan participants.”
– Julie Selesnick, principal attorney at Health Plan Legal Counsel
This isn’t about percentages. Or who paid what.
It’s about priorities.
And the courage to put the most vulnerable first.
Fiduciaries don’t protect averages. They protect people.
Case Study: MetLife’s $65 Million Example
MetLife kept $65 million in rebates instead of using them for participants or applying them toward reduced cost-sharing. They even wrote it into their contract.
Participants sued. The judge dismissed the case.
Not because the practice was appropriate, but because participants couldn’t prove standing (very common in class actions). The court never reached the question that should keep fiduciaries up at night: Was this right?
Two boardroom lessons:
Standing isn’t safety
Don’t be lulled. Surviving litigation on a technicality is not a governance strategy.
We only see the tip of the iceberg
We know about MetLife because someone sued. We have no idea how many employers are treating rebates as corporate revenue and haven’t been challenged yet.
Action Items
There’s no universally “right” answer for how to use rebate dollars.
There is a right process:
Acknowledge the fiduciary conflict.
Analyze the trade-offs especially for the most vulnerable.
Decide and document your rationale.
Align plan documents and contracts accordingly.
Audit rebate flows annually.
The only indefensible position is pretending there is no decision to be made.
Executive Takeaway
Call to Action: Join the Nautilus Proof Movement
The biggest red flag in PBM contracting isn’t a bad clause.
It’s that you don’t know what’s in your contract.
PBM agreements are private.
Rebate flows are opaque.
And silently terms can create significant fiduciary exposure.
The Nautilus Contract X-Ray initiative is changing that by building the first marketwide benchmark of real PBM clauses. It lets fiduciaries:
See what others are signing
Spot dangerous language
Avoid rebate-diversion traps
Make defensible, participant-aligned decisions
Until PBM contracts become transparent, fiduciaries are making multimillion-dollar decisions in the dark.
📄 Send us your PBM contract → We’ll run a Contract X-Ray
📊 Compare it to fiduciary-grade standards
🤝 Join the coalition building a transparent, participant-first pharmacy market
Be part of the proof. Not the problem.
Note of Appreciation
Julie Selesnick
Julie Selesnick is the founder and principal attorney at Health Plan Legal Counsel PLLC. HPLC is focused on providing legal and consulting services to health plans, vendors to group health plans, and other stakeholders in the ERISA and non-Federal governmental employer sponsored and Taft Hartley health plan space.
Visit nautilushealth.org/pbm to find educational resources, procurement tools, model contract terms, the PBM Configurator, and other tools.
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