A federal district judge in Manhattan on Monday cleared the way for employees to pursue a lawsuit alleging that JPMorgan Chase mismanaged its benefits program, resulting in them overpaying for prescription drugs and premiums. The employees can attempt to prove that the company allowed repeated, unauthorized excessive payments to CVS Caremark, U.S. District Judge Jennifer Rochon ruled.
JPMorgan violated ERISA by using a "fundamentally flawed" process to hire CVS Caremark, whose parent company CVS Health is an investment banking client, the proposed class action lawsuit claims. It further alleges that the company was aware of areas in which it potentially could reduce costs, citing CEO Jamie Dimon's involvement with Warren Buffett of Berkshire Hathaway and Jeff Bezos of Amazon in attempting to improve employee health care. Their joint venture, Haven, was closed in 2012.
JPMorgan allowed CVS Caremark to mark up prices for 366 generic drugs by an average of 211%, causing some employees to pay more than uninsured patients, the complaint alleges. The cost of a 30-unit prescription of teriflunomide, a multiple sclerosis medication, allegedly was marked up more than 38,000%, from $16.20 to $6,229.23.
"Decisions about joint ventures, corporate strategy or relationships with third parties do not become fiduciary acts merely because defendants also sponsor an ERISA plan," Rochon said in dismissing claims that JPMorgan breached fiduciary duties of loyalty and prudence. The bank may have several defenses against the surviving claims following a U.S. Supreme Court decision last April that said ERISA plaintiffs must only plausibly allege that defendants engaged in "prohibited transactions," she added. Defendants may raise possible exemptions as an affirmative defense.
The O'Neill Institute's Health Care Litigation Tracker commented on the significance of this legal action.
"Plaintiffs allege that the defendants' conduct violates their fiduciary duty under ERISA to ensure that prescription drug prices under their health benefit plans are reasonable," it said. "The mismanagement of health benefit plan funds can contribute to increased health care premiums and out-of-pocket drug costs, while also constraining employee wage growth.
"Ensuring employers comply with statutory obligations to monitor the cost-effectiveness of various aspects of their health benefit plans could help lower health care costs for employees."
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