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Was the Johnson & Johnson Win a Win for Other Health and Welfare Plan Fiduciaries? Maybe Not.

Publications - Client Alert | February 3, 2025

Click here to download a PDF of this client alert.

In our February 2024 Client Alert, we broke down the class action lawsuit against Johnson & Johnson (“JNJ”) and their plan fiduciaries alleging that JNJ’s fiduciaries breached their fiduciary duty by entering into unreasonable contract arrangements with their pharmacy benefit manager (“PBM”) that allowed the PBM to charge the plan extraordinary costs for drugs that could be obtained by plan participants elsewhere at a fraction of the cost.

Motion to Dismiss Granted

On January 24, 2025 the JNJ Court granted JNJ’s motion to dismiss Ms. Lewandowski’s complaint for breach of fiduciary duty. The Court held that Ms. Lewandowski’s argument that she would have paid lower premiums if the plan did not pay such extraordinary costs to the PBM was speculative and hypothetical.

Interestingly, the Court found that Ms. Lewandowski did (potentially) suffer an injury-in-fact by paying higher prices for drugs under the plan due to JNJ’s alleged fiduciary breach. Nonetheless, because Ms. Lewandowski met her prescription drug cap each year, even if she won on her claim she would not be awarded any damages because that money would be owed to the plan to reimburse expenditures on other prescription drugs. Because the Court cannot redress Ms. Lewandowski’s injury, the Court ruled she lacked standing to bring the claim in the first place.

This finding by the Court is important because it found an injury-in-fact where “a Plaintiff spent more money on drugs at the pharmacy, which was allegedly the result of Defendants’ breach of fiduciary duties.” With another plaintiff who may not have met their prescription drug cap, it seems this Court would have let this breach of fiduciary duty claim survive a motion to dismiss.

Wells Fargo Case Pending

In fact, in a nearly identical case brought against Wells Fargo and their plan fiduciaries alleging a fiduciary breach for overpaying for prescription drugs, as detailed in our August 2024 Client Alert, the plaintiffs submitted supplemental briefs on January 28, 2025 distinguishing themselves by saying that none of the Wells Fargo plaintiffs had exceeded their cost-sharing limits. All eyes are now on the Wells Fargo Court to see how they will decide these similar claims. If the Wells Fargo Court follows the reasoning of the JNJ Court, the Wells Fargo plaintiffs may survive a motion to dismiss, moving the litigation into the costly and burdensome discovery phase.

Important Action Items

Despite the JNJ dismissal, these action items remain urgent and important. Health plan fiduciaries should strongly consider these steps to reduce their litigation exposure:

  • Establish a fiduciary committee for health and welfare benefits, adopt a committee charter, and delegate fiduciary responsibility to the committee.
  • Engage qualified prescription drug plan consultants to assist in comparing PBMs and prescription drug arrangements. Fiduciaries should ensure consultants do not have conflicts of interest.
  • Request and review PBM agreements, fee and rebate arrangements, and formularies, and negotiate reasonable terms. Avoid simply signing the PBM’s standard form agreement.
  • Collect and review benchmark information from other plans and pharmacies and compare to current and prospective vendor agreements or proposals.
  • Consider whether any direct or indirect compensation arrangements are reasonable or whether there are any conflicts of interest.
  • Periodically subject PBMs and other vendors to requests for proposals.
  • Document the policies and procedures used to obtain, review, and monitor vendors, agreements, and benchmarking information. It is critical that health plan fiduciaries document their procedural prudence.

If you have questions about fiduciary matters or these action items, please contact a member of Kutak Rock’s Employee Benefits Practice Group, including the ERISA Fiduciary and Benefits Litigation team.