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A Prescription for Litigation

In recent years, the number of class action lawsuits filed against retirement plan fiduciaries have dramatically increased.  Generally, many of these lawsuits allege that the plan fiduciaries breached their fiduciary duties because the fees associated with the retirement plan’s investments were costly and therefore, the fiduciaries failed to act with care and prudence when selecting the investments and further failed to monitor the investments to ensure that they remained prudent investment choices.

This month, a new lawsuit was filed against Johnson & Johnson by one of its employees, naming the company/plan sponsor of the health plan and several individual plan fiduciaries as defendants.  The lawsuit alleges that Johnson & Johnson and the health plan fiduciaries “mismanaged” the company’s prescription drug benefits program, which resulted in higher costs for prescription drugs for the plan’s participants and beneficiaries.  The lawsuit cites the drastic differences in costs related to certain generic drugs, such as one drug costing the plan over $10,000 while it retailed for less than $80, as evidence of the plan fiduciaries’ alleged failure to act in the best interest of the plan participants and beneficiaries, to defray reasonable plan expenses, and to perform their duties with care, skill, prudence, and diligence.  

Many have speculated that, with the recent rise in litigation against retirement plan fiduciaries, health plans and their fiduciaries would also fall victim to similar lawsuits and allegations.  Indeed, with the increased focus on transparency within the health industry, including medical costs and provider fees, some participants and plan fiduciaries may discover that these costs and fees are not so reasonable nor reflective of market rates for such services.  ERISA fiduciaries must remember that they cannot simply “set it and forget it” when it comes to service providers and compensation.  Accordingly, health plan fiduciaries must remain diligent and continue to carefully monitor the plan’s service providers to ensure that the costs and fees incurred by the plan and/or the plan’s participants and beneficiaries are reasonable and warranted.

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