Prescription for Clarity: decoding why PBMs are targeted by ERISA lawsuits
Why we invested in RxSaveCard and what’s next
The History
Back in 1974, with concerns mounting over the mismanagement of private pension funds, President Gerald Ford signed the Employee Retirement Income Security Act (ERISA) into law. Decades later, ERISA remains a cornerstone of employee benefits regulation in the U.S., governing not just retirement plans but also health and wellness benefits. A key feature of the law? It sets strict fiduciary responsibilities for those managing and controlling benefit plan assets — responsibilities that are under increasing scrutiny in today’s legal landscape.
PBMs and the Growing Wave of ERISA Litigation
Fast forward to 2024, and the spotlight has shifted to Pharmacy Benefit Managers (PBMs) and their role in managing prescription drug costs. A high-profile lawsuit involving Johnson & Johnson rocked the industry, accusing the company of breaching its fiduciary duties under ERISA by overpaying for prescription drugs. The crux of the complaint is that J&J allegedly failed to negotiate better pricing with its PBM, driving up drug costs — and, by extension, employee expenses like insurance premiums and reduced wages.
This case is part of a broader trend: employers being held accountable for the rising costs of health plans. Courts are now asking tough questions about how diligently companies compare PBMs, negotiate costs, and monitor plan expenses to ensure they’re reasonable. Other heavyweights like Wells Fargo have faced similar allegations, signaling a potential wave of litigation targeting excessive health fees and opaque PBM practices.
The RxSaveCard Opportunity
To help employers find an alternative path to PBM transparency, we were the first check into RxSaveCard, a Chicago-based company that aims to revamp the PBM landscape. RxSaveCard’s solution can operate alongside existing PBM arrangements, expanding the range of pharmacies and formularies available to employees through their employer-sponsored plans. This flexibility not only enhances employee choice but also reduces costs significantly for both employers and employees.
This approach is also designed to help employers fulfill their ERISA responsibilities while providing more flexible and cost-effective prescription drug benefits to employees. By offering a more transparent and adaptable approach to pharmacy benefits, RxSaveCard addresses some of the key issues raised in recent ERISA lawsuits, such as the need for more diligent cost management and broader access to affordable medications. As the legal and regulatory landscape continues to evolve, solutions like RxSaveCard may become increasingly valuable for employers seeking to fulfill their fiduciary responsibilities under ERISA while providing competitive and cost-effective health benefits to their employees.
Our Viewpoint on ERISA
Looking ahead, we believe health benefits are poised to become the next frontier in ERISA litigation and reform. As scrutiny around fiduciary duties intensifies, employers will face mounting pressure to address the rising costs and opaque practices embedded in health benefit structures — much like what’s already unfolding with PBMs. From inflated hospital charges to lack of price transparency in health insurance networks, the same principles driving change in prescription drug benefits are likely to reshape broader health plan management. Employers that fail to proactively optimize costs, compare vendors, and ensure fair pricing may soon find themselves in the legal crosshairs. This shifting landscape presents an immense opportunity for innovative solutions that prioritize cost transparency and compliance, while delivering better outcomes for employers and employees alike.
