Every Employer Will Be Sued...Personally

As predicted right here on this newsletter, the ERISA Fiduciary Firestorm has begun

The Birth of the Modern Frontier Psychiatrists newsletter featured an article about how a legal change would lead to a firestorm of litigation. I’m not a lawyer, but I do enough expert witness work—and have enough defamation to put up with—that I am familiar with the law. Thus, American employers have inched closer to fiscal Armageddon this week.

I don't mean their companies. I mean, employers—the humans—will be held personally liable for a very expensive issue. Yes, personal liability. With, and this is true, no meaningful protection from directors and officers insurance. This is true for almost every private employer in America.

This firestorm? Employee Health Benefits. This, by the way, isn’t an accident. It’s a plan by evangelicals in the self-funded employer space. It will destroy Big Health as we know it.

Enough beating around the bush, Dr. Muir! This week, a lawsuit was filed against Wells Fargo and the members of its pension committee. This follows similar lawsuits against The Mayo Clinic and Johnson & Johnson for similar breaches of fiduciary duty.

The basis of these claims is simple—employers are supposed to act in the interest of their plan members in administering their health plans. Thus, signing contracts to spend thousands of more dollars of employee money so that the contracted Big Health Companies can pocket more profits is….not what you should be doing.

An example from the Wells Fargo Class Action:

Employees, they say in the suit, were forced to pay nearly $10,000 for a a prescription of fingolimod, used to treat multiple sclerosis, when the generic version could be purchased without insurance for less than a $1,000 at pharmacies like Cost Plus Drugs and Rite Aid.

$10,000 is more than $1000. Does spending 10x as much as other people’s money make sense when you, by law, agreed not to do that? No.

The magic of vertical integration makes this even more unpleasant because employers are signing contracts that only allow for using their health plan’s wholly owned pharmacy benefit manager’s wholly owned mail order pharmacy and its inflated prices:

Across approximately 300 generic drugs, Wells Fargo and Express Scripts made employees pay a markup on average of 114.97% what it costs pharmacies to obtain the drugs, the lawsuit alleges.

For specialty drugs, employees said they paid a markup of 383% on average, for example, in the Wells Fargo Case:

Other prescriptions were far more expensive for employees at Express Scripts’ pharmacy Accredo. Bexarotene gel, available at Rite Aid for $3,750, costs employees nearly $70,000 from Accredo.

Cigna, which owns Express Scripts and, of course, also owns Accredo, is not named in this lawsuit. The employer, which holds seminars warning other employers not to choose such absurd and extractive PBMs, is the named party, along with the personally named humans who are part of its pension committee. What embarrassing details, you ask? Claim 179 of the lawsuit features this gem:

179. Wells Fargo has also operated a leading employee benefits consulting practice and brokerage, advising clients on topics including pharmacy benefits and conducting RFP processes on behalf of companies seeking new PBM contracts.  In a 2017 “Employee Benefits Outlook” report, Wells Fargo advisors warned of rising prescription drugs costs and specialty drug spending, and noted: “In today’s environment, employers must work a little harder to improve the health of their population while minimizing increasing costs for their employees.”  Another 2017 article by a Wells Fargo advisor listed PBM consolidation as a primary driver of rising prescription drug costs and encouraged employers to “[r]eview your current pharmacy benefit manager contract to ensure that the most aggressive unit cost and appropriate-use strategies are in place.” In 2013, a Wells Fargo advisor explained that “substantial savings” were possible when employers act prudently in assessing PBM options, pricing strategies, and contracts.

Wells Fargo used the same insurance broker—Aon—a non-named party in this suit, and Lewandowski et al. v. J+J. Aon, stand-up company that it is, advised the use of a PBM for J+J that got them similar deals to their colleagues at Wells Fargo:

For example, someone with a 90-pill prescription for the generic drug teriflunomide (the generic form of Aubagio, used to treat multiple sclerosis) could fill that prescription, without even using their insurance, at Wegmans for $40.55, ShopRite for $41.05, Walmart for $76.41, Rite Aid for $77.41, or from Cost Plus Drugs online pharmacy for - 2 - - 3 - $28.40. Defendants, however, agreed to make their ERISA plans, and their beneficiaries pay $10,239.69—not a typo—for each 90-pill teriflunomide prescription.

I love it when legal filings include a little flair, like “not a typo.” Honestly, I feel very seen. Wells Fargo’s ability to argue they didn’t know this would be problematic is limited by statements like the following that their consulting practice was happy to advertise:

180. Wells Fargo analysts have noted that Express Scripts’ growth in earnings has been driven the very practices alleged here, including markups on specialty drug prescriptions, steering of plan members its own pharmacy, and clients’ repeated failure to identify and switch to alternative PBMs with better prices and terms.

So, Wells Fargo and J+J are maybe screwed. However, this same pattern will recur for almost every private employer in America. There are three major PBMs—Express Scripts, OptumRx, and Caremark- part of CVS Health. There is also CarelonRx, which is part of Elevance and part of blah blah blah. However, most employers get their benefits through major Big Health companies, and they feed premium dollars to their wholly-owned pharmacies at absurd markups negotiated by their wholly-owned PBMs. So, almost every employer is doing this. Even if they are using a cost-plus PBM, like CapitalRx or Cost Plus Drugs, and have some protection against more egregious pharmacy markup claims under ERISA, their hospital contracts probably have insane markups, or their mental health benefits are insufficient—or something. It’s almost impossible to get health insurance from one of the Big Boys and not have to agree to terms that place you and your company in the position of violating your fiduciary duty to your employees. Especially for smaller employers who can't craft bespoke health plans, thanks to other laws that require a minimal employer size to “go self-funded,” the whole situation is a nightmare. You're required by law to get health benefits, but the health benefits you can get break the law.

Every employee who gets annoyed with their employer, which will be many, can use this rationale to sue. Remember software piracy? Angry employees were able to weaponize the frequent piracy of software to cause endless pain to their employers, and health benefits are similar, multiplied by billions of dollars.

I'm not saying it's nice, but I am saying most employers in this country will get sued. And they're likely going to lose, and that's going to suck.

The one saying you won't be able to say? That you weren't warned by a tiny newsletter in the backwaters of the Internet.