Evolving Litigation Tactics Emerge in JPMorgan Drug Cost Case

Employees filing pioneering suits against companies like JPMorgan Chase & Co. and Johnson & Johnson over prescription drug spending in their health plans are adapting litigation tactics in a renewed effort to show they suffered harm.

Plaintiffs, who also recently sued Wells Fargo & Co., are seeking to prove that employers are overpaying their pharmacy benefit managers and passing those costs along to workers through inflated drug costs and insurance premiums.

The would-be class actions are the latest to import the argument—which has been successfully leveled against retirement plans—that overpaying third-party administrators amounts to mismanagement under the Employee Retirement Income Security Act. The evolving nature of the complaints shows that employers are now facing a more sophisticated court challenge over costs.

It’s still unclear how receptive the courts will be to the employees’ arguments, but the cases signal that more lawsuits are likely coming, said Dae Lee, who represents pharmacies and plan sponsors in PBM matters as a Buchanan Ingersoll and Rooney PC shareholder.

“It’s a clear indication that PBMs are becoming a legal risk for employers and plan sponsors,” he said.

JPMorgan employees argue in the US District Court for the Southern District of New York that the company not only overpaid for drugs, but also backed away from a venture to reform employer insurance after backlash from industry clients like CVS Caremark—which also acts as the bank’s pharmacy benefit manager.

“The JPMorgan case is unique in that it brings a lot more to the table in terms of flavors of conflicts of interest,” said Chris Deacon, owner of VerSan Consulting LLC. “And why might JPMorgan not have been a prudent fiduciary, why they might have put their own financial interests ahead of the plan members.’”

JPMorgan banded with Berkshire Hathaway Inc. and Amazon.com Inc. in 2018 to form Haven, a company tasked with finding ways to provide employees “simplified, high-quality, and transparent health care at a reasonable cost.” The venture disbanded in 2021.

The March 13 complaint cites reporting from The Wall Street Journal that JPMorgan CEO Jamie Dimon had to personally allay fears from health-care clients that the bank wouldn’t become their competitor.

JPMorgan did not respond to a request for comment.

Amended Complaint

The lawsuit follows former Johnson & Johnson executive Ann Lewandowski amending her complaint against the company over its drug costs. A judge in the US District Court for the District of New Jersey had ruled she lacked standing to sue, partly because the plan paid for her drugs after she exceeded her out-of-pocket cap, making it more difficult to show she was financially harmed.

The case now includes another Johnson & Johnson retiree who hasn’t exceeded the cap.

Lewandowski also now receives coverage through COBRA, which allows unemployed workers to continue their previous employer’s insurance at the full cost of the premium. That means she’s much more exposed to the higher costs, she alleges in the case.

“They have given themselves a much stronger argument and they have solved for a lot of the issues that the judge originally raised,” Deacon said.

But Lewandowski’s complaint still doesn’t account for the broad nature of PBM contracts, said Randie Thompson, who is of counsel at Conner & Winters LLP. Nothing in ERISA requires plans to negotiate the lowest possible drug price, she said.

PBMs negotiate drug prices with manufacturers and develop the list of covered drugs under an insurance plan, in addition to determining patient copays and access standards. The companies offer a range of payment options and programs that employers can opt into based on their size and the needs of their workforce.

“We can’t really look at any discrete incidents to understand the economic totality of these arrangements,” Thompson said. “What an employee pays retail for a prescription drug—that’s only one piece of how this operates.”

The JPMorgan suit attempts to further solidify the plaintiffs’ standing by accusing the company of succumbing to conflicts of interest when it disbanded Haven. The plaintiffs are trying to establish the company breached its fiduciary duties to employees by making “an active decision to go with this model and go with one of the big players because it suited their financial interest in other areas of their business,” Deacon said.

If the case survives a motion to dismiss, any potential documents discussing those client concerns will likely come to light in discovery. That could be “pretty damning,” Deacon said.

But Thompson said the attack on Haven lacks the punch that the plaintiffs’ firms of Cohen Milstein Sellers & Toll PLLC and Fairmark Partners LLP were aiming for.

“I read that more as an indictment against the health-care industry as a whole,” she said.

Lingering Challenges

The plaintiffs still have a tough path around the US Supreme Court’s 2020 decision in Thole v. US Bank NA, which determined that benefits plan participants can’t sue over management decisions if they’re entitled to the same benefits either way.

Judge Zahid N. Quraishi cited Thole in dismissing the majority of Lewandowski’s original complaint against Johnson & Johnson, noting that she would pay the same amount in premiums regardless of whether she won or lost the case.

The plaintiffs will also still have to show the employers failed to do their due diligence in overseeing the PBMs if they make it past the initial phase of the lawsuits.

“Who ultimately sat in the driver’s seat and then drafted the contract?” Lee said. “Who was monitoring the PBMs?”

The complex and opaque nature of insurance plan design and the variations between plans will also prevent plaintiffs’ attorneys from easily replicating any success, Thompson said.

“There’s not going to be a sort of cut-and-paste phenomenon for pursuing more of this type of litigation going forward,” she said. “It’s going to require a pretty intensive evaluation and understanding of each plan’s operations. And the information that plaintiffs really need to make their cases—it’s difficult to obtain, if not impossible.”