As cost-sharing increasingly shifts toward employees, employers are facing growing scrutiny over their pharmacy benefit strategies. Employees, frustrated by rising out-of-pocket costs, are pushing back against expensive prescription drugs and demanding greater transparency in how their benefits are managed. Lawsuits, such as the class action against Johnson & Johnson over pharmacy expenses and the more recent lawsuit against JPMorgan Chase for alleged mismanagement of generic drug costs, underscore the growing legal risks of poor pharmacy benefit oversight. Furthermore, the Consolidated Appropriations Act (CAA) has set new compliance standards, requiring employers to take a proactive role in ensuring fair and cost-effective pharmacy benefits for their workforce.1
The lawsuit against JPMorgan Chase alleges that the company overcharged its employees for generic medications by failing to properly manage its pharmacy benefits program. This follows a similar lawsuit against Johnson & Johnson, which accused the company of allowing excessive costs to be passed on to employees rather than negotiating better rates. These legal actions signal a broader shift in employer accountability—workers are no longer passive recipients of benefits; they are actively holding their employers responsible for fiduciary mismanagement.
One specific example cited in the JPMorgan lawsuit highlights the dramatic cost disparities in prescription drug pricing. The plaintiffs claim that the plan overpaid its Pharmacy Benefit Manager (PBM) for many generic drugs—costs that were ultimately passed down to employees. One example is the pricing of teriflunomide, the generic version of Aubagio, used to treat multiple sclerosis. Plan participants reportedly paid $6,229 for a 30-unit supply, while the same medication was available at retail and online pharmacies for as little as $11.05 to $32.96 without insurance. The lawsuit argues that no responsible fiduciary would allow participants to pay more than 200 times the market price for a medication, and the filing suggests that similar pricing issues exist across all 366 generic drugs covered by the plan’s formulary.
Employers who fail to manage their pharmacy benefits prudently risk legal exposure, financial inefficiencies, and employee dissatisfaction. However, those who implement strong fiduciary oversight can avoid costly litigation, retain a competitive workforce, and provide sustainable healthcare benefits.
The following five key strategies can help employers uphold their fiduciary duty while optimizing pharmacy costs and compliance:
1. Conduct Annual Pharmacy Market Checks
PBM contracts should be reviewed annually to ensure they remain competitive. The pharmacy benefit landscape is constantly in flux, with drug pricing fluctuations and new cost-containment opportunities. Regular market checks prevent outdated contracts from eroding savings and ensure employers secure the best possible terms for their people.
2. Negotiate the Best PBM Contract Terms
Navigating PBM contracts requires expertise and diligence. Employers should partner with independent consultants to ensure their PBM agreements maximize savings and efficiency. Key considerations include whether the PBM allows third-party cost-containment programs for specialty drugs and if their in-house solutions genuinely drive cost reductions. Transparent, pass-through contracts that eliminate spread pricing and hidden fees help employers uphold their fiduciary duty.
3. Implement Rigorous Rebate Auditing
Many employers unknowingly leave money on the table when it comes to PBM rebates. Conducting regular audits of rebate agreements ensures that all earned rebates are properly accounted for This level of financial oversight is crucial for cost management and aligns with an employer’s fiduciary obligations under the CAA.
4. Optimize Formulary Management for Cost Savings
The choice of formulary design directly impacts both plan costs and member access to affordable medications. Employers should critically assess whether their PBM prioritizes cost-effective biosimilars over expensive brand-name drugs like Humira. Ensuring formularies favor clinically equivalent but lower-cost alternatives can generate significant savings without compromising quality of care.
5. Secure Specialty Generic Discount Guarantees
Specialty generics should be negotiated separately from specialty brand-name drugs. Historically, PBMs have bundled these together, diluting potential savings. Employers should demand distinct discount guarantees for generics to ensure that cost savings are fully realized and passed down to the plan and its members.
Employers who take a proactive, fiduciary-minded approach to pharmacy benefits management can avoid costly litigation, optimize healthcare spending, and improve employee satisfaction. The lawsuits against Johnson & Johnson and JPMorgan Chase highlight the growing accountability employers face in pharmacy benefits. Implementing these strategies ensures compliance with the CAA while fostering a fair and sustainable benefits program. By prioritizing transparency, accountability, and cost containment, employers can protect both their financial interests and the well-being of their workforce—ultimately setting a new standard for responsible pharmacy benefits management.
