A lawsuit filed by Johnson & Johnson employees against the drug manufacturer’s employee benefits operation on February 6 spotlights the potential, substantial liability for self-insured employers not adequately managing their pharmacy benefits. At issue is the money overpaid by J&J’s self-funded health plans for medications used by its members.
Ann Lewandowski, a healthcare policy and advocacy director for the company was the lead plaintiff filing suit in New Jersey federal court. The lawsuit alleges that J&J breached its fiduciary duty to its members under the federal Employee Retirement Income Security Act of 1974 (ERISA) to manage its employee benefit plans.
The lawsuit describes numerous examples of J&J’s health plans paying highly inflated prices for drugs that should be available as generics. One instance cited the antiviral drug combination abacavir and lamivudine, for which the company pays its PBM (Express Scripts) $1,629 for a 90-pill supply. That same pharmaceutical can be picked up at any pharmacy (without insurance) for $180. The multiple sclerosis drug teriflunamide costs as little as $40 out-of-pocket at a drug store, but the company’s health plans pay its PBM $10,200 for the same generic drug, according to the lawsuit.
Ms. Lewandowski’s attorneys wrote in the filing, “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.”
She was first employed by J&J in 2021. The legal filing discloses that Ms. Lewandowsi is not currently active at J&J owing to a “dispute regarding a reasonable accommodation for a medical condition.” So, she may have an axe to grind with the company, but she seems to have found a fertile place to swing it.
The fact that J&J is a major manufacturer of drugs and especially branded products and biologics is not lost here. The lawsuit did not delve into the potential irony based on what it may pay for its own product, Remicade®, or for the several biosimilar infliximabs that are available. Too bad! Overall, the lawsuit focused on the widespread PBM practice of spread pricing, which contributes greatly to its bottom line (this is an issue for most PBMs, and especially the big 3). The language of the suit does not necessarily address rebating practices, especially for biologics.
However, this lawsuit should send shivers down the spines of self-insured employers throughout the country. In the past few months, we have been urging employers as plan sponsors to force their PBMs to seek the lowest net cost on biologic categories with biosimilar competition. This means accepting greater upfront discounts and low (or no) rebates. Why is this best for their workers? The answer is simple. If you pick up a specialty drug like adalimumab from the pharmacy and the upfront price is high, you will pay more out of pocket with a percent coinsurance than you would if the full discount was applied before paying for the drug. The rebate that might be applied would never reach the patient.
Ensuring their members have the lowest out-of-pocket costs for the best medications is key to fulfilling the fiduciary responsibilities of an ERISA plan. Therefore, similar suits will likely be filed; whether we expect the suits to be successfully adjudicated or settled will matter little. It will add much greater burden (1) on the self-funded employers to make better decisions on behalf of their members immediately and (2) on PBMs, which are experiencing extreme pressures today on their business practices and value.
