Lawsuits for fiduciary duty & health plan costs
Lawsuits accusing employers and health insurance companies of neglecting their responsibility to manage costs are increasing due to greater price transparency and public backlash against high medical expenses. Earlier this year, a Johnson & Johnson employee in New Jersey filed a lawsuit claiming the company breached its duty under federal benefits law by overpaying its pharmacy benefit manager for generic specialty drugs that could be purchased more cheaply elsewhere. Other companies, such as Kraft Heinz Co., Mayo Clinic, and Aetna Life Insurance Co., are also involved in similar lawsuits regarding medical-cost fiduciary duties.
These lawsuits, which argue that employers failed to meet fiduciary obligations under the Employee Retirement Income Security Act (ERISA), involve a wide range of claims. They often place employees against employer plan sponsors, and both employers and employees against insurance companies. Joanne Roskey, from Miller & Chevalier’s ERISA and employee benefits litigation team, noted that employer plan sponsors can find themselves both as plaintiffs and defendants in these cases.
Recent legislative and regulatory changes have increased scrutiny on employers and health plans as more data on healthcare pricing becomes available. The Consolidated Appropriations Act of 2021 introduced measures to enhance the role of fiduciaries in health plans, including a requirement for group health plans to disclose more drug cost data. According to Jenny Kiesewetter of Fisher & Phillips LLP, these developments are driving the wave of lawsuits, which will help clarify what “reasonable” compensation for service providers entails under the law.
Roskey mentioned that the application of the 2021 law remains somewhat unclear but pointed to the “transparency in coverage” rule issued by federal agencies in 2020, which requires health plans to disclose negotiated rates with providers as a significant development. Employers and enrollees are beginning to use this data to challenge their medical claims in court.
Some legal experts, like Jerry Schlichter of Schlichter Bogard LLP, are exploring potential health plan lawsuits similar to those he pioneered in challenging excessive fees in retirement plans. However, there are differences between health plan and retirement plan lawsuits, with retirement plaintiffs typically having an easier time proving harm due to the direct impact of high administrative fees on account balances. In contrast, the cost impact of health plans is less apparent.
In a July 2023 case, the US District Court for the District of New Jersey dismissed a lawsuit from former MetLife Inc. employees, ruling that they lacked standing to sue since they were entitled only to the plan’s benefits, not its financial assets. The court determined that excessive fees merely raise the cost of benefits, without affecting the entitlement to them.
However, others argue that health plan participants do have standing to sue, as even minor contributions to health plan costs should provide grounds for legal action.
Concerns about legal liability over medical costs are leading employers to file their own fiduciary lawsuits against third parties that manage their claims, in an effort to address misconduct or obtain pricing data. Jonathan Levitt, co-founding partner of Frier Levitt, emphasized that employers seeking cost data from insurance companies and other service providers are setting a new standard.
Several employers, represented by McKool Smith in Texas, are suing Aetna for allegedly withholding cost data and improperly managing medical claims. The lawsuits accuse Aetna of underpaying physicians, using “dummy” codes to cover subcontractor fees, and failing to perform due diligence for fraudulent claims.
Employer contracts often lack provisions to hold insurance companies and other service providers accountable, making it difficult to obtain necessary data or pursue legal action. Some legal experts suggest that including transparency and audit language in contracts, along with explicitly defining fiduciary roles, can help employers access data and avoid lawsuits. Proper documentation processes, whether for retirement or health plans, can also protect employers from legal challenges.
Our Editorial Note: Above is our brief summary of an article from Bloomberg Law. You may need a subscription to view the article in its entirety. Here is a link to the article that was published July 12, 2024:
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