Health Plan Sponsors: On February 5th, everything changed. Put this case at the top of your Watch List, as the Health Plan Fiduciary Hot Seat just got A LOT HOTTER…
On February 5, 2024, a lawsuit (Lewandowski v Johnson & Johnson), was filed by aggrieved employee, Ann Lewandowski (plaintiff) and other similarly situated employees, alleging serious violations by Johnson & Johnson (defendants) of their fiduciary obligations to health plan participants outlined under ERISA.
HPfid has warned that such lawsuits are underway for the past year, as deadlines for compliance with ERISA (and its amendments under the Consolidated Appropriations Act (CAA) have loomed, and in some cases passed. As with all legal cases, some are very strong, and some may lack convincing evidence sufficient to carry the day.
As a reminder, lawsuits brought by plan participants for a breach of fiduciary duties by the plan sponsor, must prove that there was an action (or failure to act) by the plan fiduciary, that was negligent in nature (as described under ERISA), and was the proximate cause of their quantifiable damages.
The Lewandowski lawsuit, at first blush, seems to have all the necessary components to serve as a blueprint for similar future health plan participant lawsuits. First, we have an aggrieved current employee who is currently on leave over a dispute regarding a reasonable accommodation for a medical condition. Next, and most importantly, we have a plan sponsor who allegedly:
- failed to exercise prudence at multiple steps in the process of administering prescription-drug benefits;
- failed to exercise prudence before selecting a Pharmacy Benefit Manager (PBM),
- failed to exercise prudence in agreeing to make its ERISA plans and beneficiaries pay unreasonable prices for prescription drugs,
- failed to exercise prudence in agreeing to contract terms with its PBM, that needlessly allows the PBM to enrich itself at the expense of the company’s ERISA plans and their beneficiaries,
- failed to actively manage and oversee key aspects of the company’s prescription-drug program, and
- failed to take available steps to rein in its PBM’s profiteering and protect plan assets and beneficiaries’ interests.
Under ERISA, fiduciaries must act prudently and for the exclusive benefit of participants in the plan when they select service providers for the plan. Fiduciaries must conduct an independent investigation to initially determine and continue to monitor the prudence of each aspect of the plan. Fiduciaries must also ensure that their agreements with service providers and the amounts they pay to those service providers are reasonable. Fiduciaries must make a diligent effort to compare alternative service providers in the marketplace, seek the lowest level of costs for the services to be provided, and continuously monitor plan expenses to ensure that they remain reasonable under the circumstances.
Finally, fiduciaries cannot discharge their fiduciary duties simply by relying on the advice of third-party service providers, consultants, or experts. As clearly in the CAA as it amends ERISA, “after obtaining advice or consultation, the trustee can properly take the information or suggestions into account but then … must exercise independent, prudent, and impartial fiduciary judgment on the matters involved.”
Health Plan Sponsor Action Plan:
First: Read, understand and follow the progress of this case;
Second: IMMEDIATELY BEGIN A PLAN OF ERISA/CAA EDUCATION THAT WILL RESULT IN THE CREATION OF A FIDUCIARY PROCESS that can be used as an affirmative defense in the event of a plan participant lawsuit.
