What Increased Health Plan-Related Scrutiny Means for Plan Sponsors

As the Federal Trade Commission is poised to file a complaint against the three largest pharmacy benefit managers, and with fiduciary litigation risk on the rise for employer-provided health plans, it is critical that plan sponsors ensure they are prudently managing their health plans. 

Jamie Greenleaf, co-founder of Fiduciary in a Box, says the FTC lawsuit and any efforts made to expose the opaque business practices of health care providers are a step in a positive direction.  

“It’s shining a light on the health care space and how things need to become more transparent,” says Greenleaf. “People say it all the time, that sunlight is the best disinfectant, and I think that is the same when it comes to this lawsuit as well.” 

A hearing with PBM executives was held on Tuesday, and the FTC issued an interim report earlier this month, arguing that the big PBM companies are “powerful middlemen” that are squeezing Main Street pharmacies. 

Barbara Delaney, principal and founder of SS/RBA, a HUB International company, notes that over the past 10 years, the cost of mutual funds used in 401(k) plans has been cut in half as a result of increased transparency. She says if the same standards of fiduciary oversight that are applied to retirement plans were also applied to health care plans, improvements in the cost and management of health care would be very possible. 

RFP Process 

Greenleaf explains that, under the Consolidated Appropriations Act of 2021, employers are required to audit their vendors and their partners, including their PBMs, and make sure their prices are reasonable and that plan participants are paying a fair market price.  

“When you see a lawsuit like this, a plan sponsor should immediately think about, ‘Who did my RFP for the PBM?’ and, ‘Do I know what I’m paying, who I’m paying and how I’m paying for the services?’” Greenleaf says. 

When conducting a request for proposals for a PBM or any covered service providers, Greenleaf says the most important thing a plan sponsor can do is ensure that the person running the RFP is “unbiased and conflict-free.” 

“How the RFP is then designed [needs] to be in the best interest of the plan and [plan] participants, as opposed to the best interest of the person that is putting together the RFP,” Greenleaf says. 

Delaney said the best way to ensure an unbiased process is to require the individual doing the RFP to attest that they are not biased and are not being paid by any of the vendors, directly or indirectly, to place business with them.  

Litigation Risk 

In a Tuesday webinar hosted by Aon, “Fiduciary Litigation Risk is on the Rise for Employer Health Plans,” speakers warned attendees about a potential wave of claims against health plans for breaches of fiduciary duty, especially after the lawsuit Lewandowski v. Johnson and Johnson, filed in February. 

In that case, an employee claimed her employer, Johnson and Johnson, breached its fiduciary duties by mismanaging health plan costs. Specifically, the complaint alleges that Johnson and Johnson paid higher prescription drug prices than necessary, causing participants to pay more and waste plan assets.  

Another complaint was filed against the Mayo Clinic and its plan administrator, Medica, in April, alleging breach of fiduciary duty for using deceptive pricing methods in its employee health plan. 

Irene Gallagher, a vice president in the health solutions legal consulting group at Aon, said even though Johnson and Johnson had a health benefits committee, the plaintiffs alleged that this committee did not fully consider what prescription drugs would cost and that it should have chosen a different pricing structure from their PBM. 

“[Health plans] are now under more scrutiny as a result of this lawsuit,” Gallagher said. “How successful this litigation might be is not really what the concern is for us today. Right now, it comes back to procedural issues: How do you check the boxes [and] make sure that the employer is protecting itself by putting in place the proper fiduciary discretion … and understanding the scope of [its] duties in order to [achieve] the best result for plan participants?” 

Fiduciary Due Diligence 

In order to establish a better fiduciary process, Aon suggested plan sponsors should: 

1. Establish a health and welfare plan fiduciary committee and defining its duties and powers in a charter
2. Document committee responsibilities and decisions in the charter and in meeting minutes; 
3. Develop committee processes for selecting medical third-party administrators and PBMs and monitor those on an ongoing basis; and 
4. Report the compensation of consultants and brokers. 

Speakers at the webinar also emphasized the importance of reviewing vendor contracts, explaining that contracts should have explicit and enumerated requirements for vendors, to keep the plan in accordance with applicable laws.  

Ed Doherty, also a vice president in the health solutions legal consulting group at Aon, recommended that fiduciaries seek legal counsel’s review of all contracts before they are executed and seek review of contract terms such as indemnification provisions, performance guarantees and the right to audit a TPA or PBM. 

“[Plan sponsors] need to take a step back, consider what [they] have in place right now, [and decide] if it is appropriate for the organization [and its] level of sophistication,” Doherty said. 

Delaney adds that the abilities for people to be financially secure in retirement and be able to afford health care costs are very much intertwined. 

“If people aren’t retiring or are hesitant to retire … it all ties back to the [fact that the] cost of health care has spiraled out of control, and the individual consumers don’t know what to do,” she says. “The ultimate solution is clear transparency, better ways to buy insurance and understanding the cost of it. But it’s all going to start with these lawsuits. There’s been all this funny business with the way people are collecting compensation. If we can change that, we can change the outcome.”