As mentioned in our recent blog post, the recently filed class action lawsuit against Johnson & Johnson (Lewandowski v. Johnson & Johnson et. al., D.N.J., No. 1:24-cv-00671 (Feb. 5, 2024)) over alleged excessive prescription drug costs takes a new approach with respect to familiar claims of breach of fiduciary duty for failure to monitor plan costs. Instead of targeting retirement plan fiduciaries, who have been a common target of excessive fee litigation over the last several years, the Lewandowski plaintiffs take aim at the actions of welfare plan fiduciaries.

Division BB of the Consolidated Appropriations Act, 2021 (CAA) made numerous changes to ERISA with the aim of reducing healthcare costs and increasing protections for participants of health and welfare plans. These new requirements, examples of which include no-surprise billing provisions and increased price transparency, arguably place a greater fiduciary burden on plan sponsors by increasing the amount of readily available data related to plan costs. While these new requirements have been in place for over two years, their impact on plan sponsors and other fiduciaries continues to develop. These new measures can leave employers vulnerable to litigation for potential breaches of fiduciary duty, and the plaintiffs’ bar appears poised to pursue these novel avenues of liability.

Echoes of Retirement Plans

While the same fiduciary standards arguably applied to health and welfare plans prior to the CAA, the new requirements introduced by the CAA increase the information available to fiduciaries (and the public), resulting in a heightened burden on fiduciaries and a greater source of information for plaintiffs’ attorneys. These changes should not be unfamiliar to seasoned plan fiduciaries. The new provisions are reminiscent of those applicable to retirement plans, including the naming of plan sponsors—in both fully insured and self-funded arrangements—as fiduciaries, the removal of gag clauses in contracts pertaining to price and quality information, and the disclosure of broker compensation as required by ERISA § 408(b)(2).

The compensation disclosure rules are of particular interest to plaintiffs’ attorneys, as they may lead to increased scrutiny of the underlying fees and result in litigation related to unreasonable vendor fees and services. Retirement plan sponsors have been subjected to a myriad of excessive fee lawsuits in recent years, and the CAA has opened the door to similar claims on the health and welfare plan side.

Best Practices and Next Steps

The CAA’s new requirements and the increase in active litigation over these issues demand enhanced vigilance surrounding ERISA fiduciary standards for health and welfare plans. As such, it is vital that employers and other health plan fiduciaries follow these standards and adopt a rigorous system of procedural prudence.

Some clear, actionable steps employers can take to prepare for this potential new wave of litigation include the following:

1. Coordinate with plan service providers to ensure compliance with the new CAA requirements.
2. Develop requests for proposals or similar mechanisms to compare fee models from multiple service providers prior to contracting or renewing plan relationships.
3. Review the cost and pricing information from third-party administrators and other service providers that will now be available due to the prohibition on gag clauses and other CAA transparency requirements.
4. Consider engaging a consultant to review price comparison data to ensure the plan is paying reasonable compensation to its service providers.
5. Conduct a plan audit that includes a review of service provider performance and contract terms.
6. Consider the adoption of new price monitoring and review policies by committees charged with administering health and welfare plans.
7. If cost and pricing information is not forthcoming from third-party administrators and other service providers, document compliance with ERISA Section 408(b)(2)(B)(viii), including submitting a request for the information in writing and notifying the Department of Labor of any failure to provide the requested information.

Once again, policies and procedures related to retirement plans will serve as a useful guide for health and welfare plan fiduciaries seeking protection from these novel lawsuits.