A federal judge last week dismissed the primary claims in a lawsuit alleging that Johnson & Johnson had mismanaged prescription drug benefits for employees. Judge Zahid N. Quraishi of the U.S. District Court for the District of New Jersey ruled that plaintiffs Ann Lewandowski and Robert Gregory failed to show they had standing to allege that the company had breached its fiduciary duty under the Employee Retirement Income Security Act.
Count three of the complaint, alleging that Johnson & Johnson failed to provide certain plan documents on request, was not included in the motion to dismiss. The plaintiffs were given 30 days to file a third amended complaint.
The lawsuit, filed in February 2024, alleged that Johnson & Johnson and its Pension & Benefits Committee breached their fiduciary duties and cost health plan participants millions of dollars through higher drug payments, premiums, deductibles and out-of-pocket costs. The complaint cited specific examples of generic drugs for which it said the plan paid significantly more than retail pharmacy prices available to uninsured people. For example, the lawsuit said the health plan agreed to pay more than $10,000 for a multiple sclerosis drug that is available for as little as $40 at retail pharmacies.
Last March, the plaintiffs filed an amended complaint that included new allegations linking the alleged prescription drug overspending to increased employee premiums and out-of-pocket costs.
Judge Quraishi ruled that the connection between premiums paid by plan participants and out-of-pocket costs and the administrative fees the plans paid to their pharmacy benefit manager was “speculative.” Johnson & Johnson has sole discretion to set participant contribution rates, he added, and premium amounts may be affected by several factors unrelated to drug benefits, including market trends, administrative expenses and non-drug medical costs. Furthermore, Johnson & Johnson still could increase participants’ contribution amounts without violating ERISA even if the plaintiffs won and received all requested relief, he said.
As this lawsuit illustrates, U.S. employers face rising legal risk over how they manage roughly $1 trillion in annual spending on company-sponsored health plans. Although some large companies and unions have sued their health plan providers alleging that they have breached fiduciary obligations, the lawsuit against Johnson and Johnson may have been the first case filed by employees making these claims against a prominent company.
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