A New Jersey federal district court has dismissed the plaintiff's breach of fiduciary claims in Lewandowski v. Johnson & Johnson, et al. No 3:24-cv-00671 (D.N.J. January 24, 2025) without prejudice and with leave to amend the complaint, based on standing. In her lawsuit against Johnson & Johnson and its Pension & Benefits Committee, Ann Lewandowski alleged that the defendants collectively breached their fiduciary duty to health plan participants by entering an agreement with the pharmacy benefit manager (PBM) requiring both the health plans and its participants to overpay for prescription drugs.
Lewandowski's Complaint
Lewandowski claimed that the defendants failed to adequately negotiate the PBM agreement, monitor the PBM, and consider alternative PBM pricing models. In this case, the defendants paid "spread compensation" to the PBM for its services. Under this type of compensation structure, the PBM agreement requires the health plan sponsor to pay a specific amount to the PBM for a drug when dispensed to a plan participant. However, the PBM has a separate contract with the pharmacy as to how much it will pay when a drug is dispensed to a plan participant. The difference between these two payments for the drug, or the PBM's profit, is known as "spread compensation."
Based on the high profits that the PBM received from this compensation structure, Lewandowski claimed that no fiduciary would have agreed to such excessively high prices when properly exercising their fiduciary duties. According to Lewandowski, the result of the inflated prices for drugs led to higher premiums for plan coverage and out-of-pocket costs for plan members than they otherwise would have paid.
The District Court's Decision
To establish Article III standing, Lewandowski had to prove all three of the following elements:
- She sustained a concrete injury.
- The injury was caused by the defendants.
- The injury could be redressed by a court order.
The district court found that based on the allegations in Lewandowski's complaint, she failed to meet the requirements of Article III standing. First, the court found that her claim of increased costs in plan premiums caused by the breaches of fiduciary duty was speculative and hypothetical. The court further found that her allegations of paying higher out-of-pocket expenses established a concrete injury, but a court order could not redress the injury at issue. In Lewandowski's case, even if she had paid less for certain drugs, she still would owe payments for other drugs that she ultimately did not pay when she exceeded the plan's out-of-pocket maximum each year, due to regular infusions.
Sergio Navarro, et al. v. Wells Fargo & Co.
Lewandowski's claims are very similar to the allegations made by the plaintiff in Sergio Navarro, et al. v. Wells Fargo & Co., Case No. 0:24-cv-3043 (D. Minn., July 30, 2024). In that case, the plaintiffs allege that plan fiduciaries breached their duties by failing to ensure the reasonableness of prescription drugs under the plan.
However, the plaintiffs in Wells Fargo also included a claim of a prohibited transaction, which is absent from the Johnson & Johnson case. Generally, ERISA prohibits transactions between health plans and healthcare providers that involve unreasonable costs. The Wells Fargo plaintiffs claim that the administrative fees that Wells Fargo paid to the PBM, Express Scripts, were excessive and unreasonable, thus creating a prohibited transaction.
While the Johnson & Johnson case is positive for plan sponsors, claims based on excessive prices may survive a motion to dismiss if other claims, such as the prohibited transaction claim in Wells Fargo, are included in their suits. Therefore, plan sponsors should consider the adequacy of their procedures for reviewing and monitoring PBM contracts. They also should ensure that they have adequate fiduciary liability insurance in place at all times, which would assist in the event of any successful claims of this nature.
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