August 6, 2024

Last week, four (4) Wells Fargo employees sued Wells Fargo and five (5) of its human resources leadership team for mismanagement of the prescription benefit (click here for the full text of the complaint). While I am not an attorney expert in ERISA law, I will claim to have a modicum of expertise in pharmacy benefit management. In reading the 101-page complaint it becomes apparent as to why any employer who is administering a self insured prescription benefit plan under ERISA and and has delegated it’s fiduciary responsibility to its PBM may want to take corrective action. In this article I have attempted to bullet point relevant aspects (listed in order that they appear in the complaint) of the complaint.

  • The Wells Fargo suit is the second of its kind (the Johnson and Johnson suit being the first). This means that plaintiff attorneys are starting to think that there is a “honey pot” in employee health benefit programs.
  • ERISA (the law that establishes the rules of the road for retirement and health plans) subjects anyone with discretionary authority over an employee benefits plan to fiduciary duties – “duty of prudence” requires fiduciaries to act “with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.” While some folks might reads this as delegating your prescription benefit management to a PBM is community standard prudence, ERISA specifies that – prudence requires plan fiduciaries to make a diligent effort to compare alternative service providers in the marketplace, negotiate prudently on behalf of the plan, and (here is the kicker) continuously monitor plan expenses to ensure that they remain reasonable and appropriate under the circumstances.
  • Many PBM’s actually make it pretty easy for a plaintiff’s attorney to make its case. The Wells Fargo case’s opening example of prescription benefit mismanagement cited the adjudication of generic drugs. “Defendants’ mismanagement is evident from, among other things, the prices it agreed to pay one of its vendors—its Pharmacy Benefits Manager (“PBM”)—for many generic drugs that are widely available at drastically lower prices”. They use the case of fingolimod (generic Gilenya a multiple sclerosis drug) finding the cash price for a 90 day supply at various pharmacies to be in the $600 – 800 range, while Wells Fargo and its plan fiduciaries allowed the employee benefit plan to be billed $9,994.37 for a similar supply. You got to admit it doesn’t take a really sophisticated analyst to find those types of examples (especially if you filter for prescriptions filled by the PBMs owned mail order and specialty pharmacies).
  • Wells Fargo made it so easy to find these examples because they bought into the PBM’s “prefered” (and believe me there is not a set of quote marks big enough to express my sarcasm) generic program. Three hundred (300) generic drugs designated as preferred where the plan allowed the PBM to bill 114% above cost when the prescription was fulfilled through the PBM owned specialty pharmacy.
  • Wells Fargo and its fiduciaries also bought into designating a host of generic drugs as specialty drugs. In essence this served to drive prescription fulfillment through the PBM owned specialty pharmacy which charged the plan a whopping 383% mark up.
  • The plaintiff’s attorneys call out the practice of spread pricing, a practice in which the PBM reimburses the pharmacy a lower cost than they charge the plan and keep the difference (the spread). The plaintiffs contend that plan sponsor and administrators were obligated to create contracts with their PBM that eliminate the potential for spread pricing which neither benefits the plan or its participants.
  • The complaint indicates that drug rebates were mismanaged. Rebates are utilization based reimbursements that a drug manufacturer pays to a PBM for formulary placement or formulary driven market share. The complaint contends that plan sponsors and administrators are responsible to ensure that PBM contracts are written in such a way as to assure that all rebates flow back to the plan.
  • Of the five Wells Fargo human resources senior managers (and plan fiduciaries) named in the suit, 3 of them are no longer with Wells Fargo or plan fiduciaries. Indicating that the plaintiff attorneys believe that liability for fiduciary responsibility extends beyond the term of employment.
  • The liability of plan sponsorship extends personally to the plan administrators (the attorneys site 29 U.S.C. § 1109(a)).
  • ERISA prevents plan sponsors and fiduciaries from delegating its fiduciary responsibility to a third party entity like a PBM because of the inherent conflict of interest. If this complaint is found to have any merit, claiming that “my PBM takes care of that..” will no longer be sufficient strategy for fulfilling a plan sponsors fiduciary obligations.
  • Many employers rely on their brokers or consultants to help them navigate PBM negotiation, contracting and oversight. The complaint notes that many employee benefit brokers / consultants are paid by the PBM and also have an inherent conflict of interest. In this regard, plan sponsors and administrators relying on brokers and consultants are obligated to assure that they have no conflict of interest.
  • In this same vein the complaint contends that the Wells Fargo plan sponsors and administrators did not fulfill their fiduciary obligations in negotiating administrative fees. The complaint contends that the plan allowed the PBM to increase administrative fees by over $16 million over a three year period (an increase of almost 200% from ~$9 million to $25 million). Additionally, the $25 million administrative fees paid in 2022 (~$136 per participant was twice what comparable employers were paying). One might expect that, a conflict free broker / consultant who was acting in the plan’s best interest would have raised a red flag and understood the environment well enough to help Wells Fargo navigate these fees.

Employers who are hoping to insulate themselves from these types of lawsuits will want to consider how they might more granularly manage and monitor their prescription benefit plan and engage unconflicted third parties to assist them.

So far these lawsuits have been limited to self-insured employers, but looking down the road, it would not be improbable to think that there are sharp attorneys that have been considering how these legal theories can be directed at Commercial, Medicare and Medicaid plans that have delegated their fiduciary obligations to their PBMs and conflicted broker / consultants.

James Notaro, RPh, PhD

Jim Notaro, a PharmD, is a seasoned managed care professional with extensive experience in pharmacy.  He has worked across multiple plans overseeing Pharmacy and in 2000 founded CSS Health, a provider of medication therapy management and quality metric improvement software and services, eventually selling it to Clarest Health.