Vigilance on vetting PBMs will stem litigation

Class-action lawsuits alleging breaches in fiduciary responsibilities involving group health plans and pharmacy benefits at several blue-chip companies continue to make headlines as they command the full attention of benefit advisers. 

Filed amid a federal crackdown on price transparency, the common denominator is inflated prescription drug prices. The latest involves JPMorgan, which also was sued over 401(k) forfeited funds and plan assets invested in an in-house stable value fund. It comes on the heels of two dismissed cases against Johnson & Johnson and Wells Fargo. They mirror a trend involving lawsuits over excessive 401(k) plan fees first filed nearly 20 years ago. 

Read more: Don't let guard down on PBM oversight despite J&J suit dismissal

In spite of failed arguments in those two court rulings, employers still should be concerned about litigation around PBM mismanagement, observes Jamie Greenleaf, co-founder of Fiduciary in a Box. Her understanding is that new legal strategies are being formulated to reframe these cases in hopes of finally proving a breach in fiduciary duty. Jay Kirschbaum, benefits compliance director and senior vice president at World Insurance Associates LLC, says the plaintiffs are free to refile their respective lawsuits. 

All it takes is for just one class-action lawsuit against an employer to be settled over inflated drug prices or other matters related to health insurance coverage and she believes the floodgates will open for copycat lawsuits. "It's just a matter of when, not if, it's going to happen," Greenleaf predicts.

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Industry insiders agree that the key takeaway from this litigation for benefit brokers and advisers is to help employers vet their PBMs more carefully. "Our role as advisers is just to remind them that they have a process to follow and need to document what they've done," Kirschbaum says.  

Among the calls to action Greenleaf suggests is for advisers to invest in fiduciary training, be more transparent with clients about pricing their services and support them in establishing a fiduciary process for making plan design and management decisions.

"Most employers do not have any fiduciary process on their health and welfare plans, and that's where I think we're going to really start to see the litigation pick up," she says. 

Speaking to 100 top advisers at a recent conference in Florida, Innovu CEO Hugh O'Toole built his entire presentation around constructing a fiduciary process as the ultimate protection for plan sponsors. 

"Whether it's a retirement or health care plan, the answer is pretty clear: Have you engaged in the plan?" he asks. "Do you have a charter? Do people on the committee know they're fiduciaries?" Other critical steps include exploring data, examining other solution sets and benchmarking that continual fiduciary process.

His firm offers dashboards that help advisers uncover wasteful drugs, as well as those that have no clinical value or an equivalent script that's far less expensive. Other tools include outlining the cost-plus model and spotting when PBMs switch from a generic but treat the script like a specialty drug to circumvent a discount guarantee. "At the end of the day, specificity and accountability make a huge difference," he says.

Read more: 5 ways to improve PBM procurement for clients

Meantime, there are several steps employers can take to help insulate themselves from litigation in the first place. One would be to contract with a transparent PBM, which Kirschbaum says would help them make the case that they've done their due diligence, everything has passed through and a modest fee was charged on the back end. 

Another would be to pursue a self-insured solution. Employers that are fully insured or working with a Big Three PBM are more vulnerable to being the target of a similar class action than self-insured employers. The latter group has more control over their health plan data and PBM contracts, while also standing a better chance of avoiding conflicts of interest. He cautions that large health insurance carriers, which have vertically integrated with PBMs in recent years, are able to easily hide costs, while there's no transparency across a fully insured book of business.

Finally, Kirschbaum laments the presence of legalese and hyper-technical information that makes it difficult for employees to understand their coverage. Communicating information to plan participants more clearly would "go a long way to obviating any need that they feel to go and explain to somebody that they've been wronged" and risking a lawsuit or DOL investigation, he believes.

Noting the importance of boning up on Rx issues, O'Toole is reflective: "If you're an adviser and don't understand a fiduciary process, don't force providers to be transparent and don't collect data, I would not like the prognosis on your practice over the next three years," he warns. "Your clients are ahead of you if you're not tooling up in those areas."