Navigating ERISA Compliance: Employer Liabilities Considering the Johnson & Johnson Lawsuit

Mar 18, 2024

The landscape of employer-sponsored health plans is complex, particularly under the regulatory gaze of the Employee Retirement Income Security Act of 1974 (ERISA). 

The recent class action lawsuit against Johnson & Johnson (J&J) by its employees serves as a critical case study that points back to the importance of fully understanding ERISA, its impact on employers and the liabilities they hold. 

As an employer and health plan fiduciary, you play a crucial role in managing company plans and prioritizing the participants’ best interests in all decisions related to assets, investments and administration. 

For those overseeing a company’s health plan, it is imperative to manage the plan in strict accordance with its terms, ensuring all actions benefit the employees. Understanding and adhering to fiduciary responsibilities and compliance requirements is essential, as any deviation could lead to serious consequences.

Below, we’ll examine this recent Johnson & Johnson lawsuit’s details and unpack essential considerations for all HR and benefits professionals, as well as the liabilities that should be considered.

Comprehensive Overview of the J&J Prescription Drug Costs Lawsuit

The Case Unpacked

A recent employee-led class action lawsuit challenges J&J over alleged failures in negotiating lower prescription drug prices within their health plan, spotlighting the broader implications for fiduciary duty under ERISA. 

The alleged disregard for negotiating lower prescription prices ultimately led to millions of dollars in overpayments for generic drugs. Specifically, the lawsuit alleges that J&J’s self-funded health plans paid inflated prices to pharmacy benefit managers for many generic drugs, raising out-of-pocket costs for workers. 

For example, the lawsuit cites that the health plans paid $1,629 for a 90-pill prescription of an HIV antiviral drug that costs pharmacies about $180, and $10,239 for a multiple sclerosis medication, compared to the typical out-of-pocket cost of no more than $77​​​​.

Ultimately, this case brought to light broader implications for employer plans and their fiduciaries, leading us to highlight key points that all HR and Benefits Managers should consider when managing employee health plans.

Key Implications for Employers from the J&J Lawsuit

Fiduciary Responsibility in Health Plan Management

Employers are mandated to act in the best interest of their plan participants. This responsibility encompasses the selection of service providers and the negotiation of drug prices, underlining the need for a strategic approach to healthcare cost management that aligns with ERISA guidelines and is in the best interest of employees.

With the ever-evolving legal landscape around health plans, employers must remain informed about ERISA requirements and the potential legal ramifications of their plan management decisions. As a health plan sponsor, it’s your responsibility to:

  • Prioritize the interests of plan participants and beneficiaries above all else
  • Ensure all expenses for plan administration are kept reasonable and justifiable
  • Adhere to the plan’s governing documents, provided they align with ERISA regulations. Manage the plan according to its official stipulations, declining requests for exceptions

Proactive Plan Management Strategies

Avoiding litigation similar to the J&J lawsuit requires vigilant plan management. This includes the regular evaluation of service providers and cost structures. Taking a proactive stance ensures alignment with best practices for plan administration and fiduciary compliance.

Enhancing Transparency and Communication

Transparency and effective communication with plan participants are paramount. To best simplify the complexities of plan management for employees, focus on regular updates and training sessions to cover their health plans and all costs associated. This will, ultimately, help to foster an environment of trust and understanding within your organization. 

Potential Liabilities For Employers

This legal battle sheds light on significant concerns for employer-sponsored plans and their fiduciaries, including:

Heightened Scrutiny

Expectations are that the lawsuit will increase the examination of self-funded health plans, focusing on their dealings with pharmacy benefit managers and the strategies for negotiating drug prices. This situation could lead other companies to rethink how they manage their health plans to evade similar legal predicaments.

Financial Risks

Should J&J be found in breach of its ERISA fiduciary duties, the financial repercussions could be substantial. This verdict might serve as a wake-up call for other employers about the financial dangers of failing to comply with ERISA’s mandates, highlighting the importance of careful health plan oversight.

Reputational Concerns

Beyond the financial implications, J&J is also at risk of reputational damage. Such a scenario can have a domino effect on other employers, who may proactively ensure ERISA compliance to sidestep adverse publicity and its potential impact on employee confidence and morale.

Impacts on Health Plan Design and Management

This lawsuit should motivate employers to take a closer look at their health plans and consider revisions. Employers might lean towards implementing more open and competitive procedures for drug pricing negotiations to align with ERISA requirements and prevent claims of overpayment.

ERISA Compliance for Employers: Moving Forward

This case acts as a stark reminder of the fiduciary responsibilities that lie on the shoulders of employers under ERISA, emphasizing the importance of managing employee benefits plans both wisely and economically.

The J&J lawsuit highlights the critical importance of fiduciary duty, transparency and compliance in managing employer-sponsored health plans. Employers must adopt best practices that prioritize the interests of their employees while safeguarding against potential legal and financial risks.

As an employer or fiduciary of your company’s health plan, it’s vital to steer clear of all risks that could impact your employees and your organization. The best way to do this is to be familiar with ERISA, understand your role and responsibilities, and always stay up-to-date on emerging changes in the legal and regulatory landscape. 

If you’re in search of more information and would like to connect with a Totem team member about ways to ensure you’re navigating ERISA compliance well, click here.

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