ERIC Urges Congress to Deem PBMs Fiduciaries Under ERISA

As pharmacy benefit managers play a significant role in negotiating prescription drug costs for plan sponsors managing health plans, the ERISA Industry Committee has now called on Congress to deem PBMs as fiduciaries under the Employee Retirement Income Security Act.

In a new issue brief, ERIC asked to clarify that ERISA’s fiduciary standard for employer health benefit plans applies in full to PBMs performing services on behalf of the plan.

“PBMs engage in many practices that have the potential to raise costs for employees and their family members enrolled in an employer-sponsored self-insured health plan,” said Melissa Bartlett, senior vice president of health policy at ERIC, . “Unfortunately, these practices continue largely unabated because the laws governing employee benefits and health insurance currently do not hold PBMs sufficiently accountable.”

ERIC is a national advocacy organization that exclusively represents large employers that provide health, retirement, paid leave and other benefits to their workforces nationwide.

If subject to the same ERISA fiduciary standards as plan sponsors, ERIC argued that PBMs would effectively be required to act in the best interest of plan participants and help keep plan costs low. In addition, they would not be able to engage in self-dealing or other profiteering tactics, as ERIC believes they do today.

ERIC’s call to Congress came after the Federal Trade Commission issued an interim report exposing some of the “opaque” business practices of PBMs, as well as their “enormous power” over patients’ access to drugs and the prices they pay. The FTC found that the three largest PBMs—Optum Rx, Caremark and Express Scripts—now manage nearly 80% of all prescriptions filled in the U.S.

Express Scripts earlier this week filed a lawsuit against the FTC, claiming its report was “defamatory” and that PBMs actually help to lower prescription drug costs for plan sponsors when negotiating with pharmaceutical manufacturers and retail pharmacies.

ERIC described an ERISA fiduciary as a person or entity that has discretionary authority and control over the management and operation of a health plan and how the plan’s assets are spent.

Third-party administrators not otherwise hired as the plan administrator—but hired to provide specified services to the plan—are not considered fiduciaries. ERIC explained that PBMs are similar to TPAs in that they are service providers to health plans. The PBM is hired to establish and maintain a prescription drug provider network for the plan, as well as develop and maintain the plan’s prescription drug formulary.

However, in the event that a TPA or PBM performs a task, like making decisions on how the plan’s assets are spent, the TPA or PBM crosses over and is considered a fiduciary, according to ERIC.

ERIC argued that if PBMs were considered fiduciaries, many actions, such as those criticized in recent lawsuits against Johnson & Johnson and Wells Fargo, would be mitigated or eliminated entirely.

For example, in the lawsuit against Wells Fargo, a participant in the company’s health plan asserted that the plan’s PBM charged the plan and its participants upwards of 15 times the cash price for a covered prescription drug and steered plan participants to a mail-order pharmacy owned by the PBM, which further drove up the price.

“If the PBM is an ERISA fiduciary, the PBM would be subject to liability for charging unreasonably high prices for prescription drugs and demanding excessive fees, especially at a PBM-owned pharmacy,” ERIC stated in the issue brief.

It would also be imprudent for a fiduciary to enter into a contract with a health plan that requires the plan and its participants to pay higher prices for prescription drugs than those the PBMs know, or should know, are currently available in the market at lower prices.

ERIC argued that Congress has the flexibility to be prescriptive in defining the types of actions that a PBM may undertake that would result in ERISA fiduciary status. Alternatively, Congress could require a PBM to become an ERISA fiduciary upon entering into an agreement to provide services to an ERISA-covered plan, ERIC suggested.

“Some may argue that requiring PBMs to adhere to ERISA’s fiduciary duties is a significant change,” the brief stated. “However, significant change is exactly what is needed. Congress should not endeavor to legislate to each cost-inflating behavior [by PBMs].”