An employee of Johnson & Johnson has filed a proposed class-action lawsuit challenging the company’s spending on healthcare for its workers, which may portend a change in the way all employers spend their money.
“Johnson & Johnson was hit with a proposed class action on Monday accusing the company’s employee health plans of failing to negotiate lower prices for prescription drugs, which cost workers millions of dollars in overpayments for generic drugs,” Daniel Wiessner writes over at Reuters. “The lawsuit, filed in New Jersey federal court by Ann Lewandowski, a healthcare policy and advocacy director, accuses Johnson & Johnson of breaching its duty under the federal Employee Retirement Income Security Act of 1974 (ERISA) to prudently manage employee benefit plans.”
This case principally discusses “mismanagement of prescription drug benefits,” but is generally understood to target many kins of employer healthcare spending. People who analyze the healthcare system have been anticipating this kind of court action since the Consolidated Appropriations Act made it clear that employers’ healthcare spending responsibilities under ERISA were open to court challenge, as are employers’ retirement spending responsibilities.
Under ERISA, employers have to act as a fiduciary, that is, making decisions that protect the interests of their retirees (in retirement plans) and their insured employees (in health plans).
High drug prices
In this case, the self-insured Johnson & Johnson health plans are paying pharmacy benefit managers for generic drugs, which then raises out-of-pocket costs for workers.
“For example, someone with a 90-pill prescription for the generic drug teriflunomide (the generic form of Aubagio, used to treat multiple sclerosis) could fill that prescription, without even using their insurance, at Wegmans for $40.55, ShopRite for $41.05, Walmart for $76.41, Rite Aid for $77.41, or from Cost Plus Drugs online pharmacy for $28.40,” the suit says.
“Defendants, however, agreed to make their ERISA plans and their beneficiaries pay $10,239.69 — not a typo — for each 90-pill teriflunomide prescription. The burden for that massive overpayment falls on Johnson and Johnson’s ERISA plans, which pay most of the agreed amount from plan assets, and on beneficiaries of the plans, who generally pay out-of-pocket for a portion of that inflated price.
“No prudent fiduciary would agree to make its plan and beneficiaries pay a price that is two-hundred-and-fifty times higher than the price available to any individual who just walks into a pharmacy and pays out-of-pocket.”
Employers’ responsibilities
For many years, employers have chosen their health plans from an array of complicated arrangements (often defaulting to what they did last year) and then relying on the existing payment paths and structures, inside our opaque system and in the face of information-blocking from insurers. When employers were pressed on whether their decisions were good, they could say “the insurers don’t tell us the important details.” This essentially delegates the nitty-gritty of payment levels, administrative fees and so on to insurers, pharmacy benefit managers, brokers and/or third-party administrators, who may or may not be on the up and up.
But with the mandate that insurers must publicly disclose payment rates, and broker compensation must be made public, employers are theoretically empowered to look at payments and other details, and to make decisions accordingly — perhaps by telling insurers to stop paying exorbitant rates and charge lower premiums, or by paying lower brokerage fees, or being more critical of pharmacy benefit manager decisions.
The point of the challenges to employers’ decisions is to keep money in the hands of employees covered under a health plan, rather than having that money go into the healthcare system. If a court decides that Johnson & Johnson has behaved irresponsibly, it could signal that other employers will need to be careful in their health spending, on drugs as well as other aspects of insurance plans.
