Episode 2 – Protecting Your Plan: Lessons from Lewandowski v. Johnson & Johnson

Mike Stull (0:09)

Hi everyone, and welcome to Health Care Headlines. I’m here with my co-anchor, Madison, and the day after Thanksgiving, we received news that the Johnson & Johnson case was dismissed for a second time. And as we read through it, we decided this would be a good topic for a nice short Healthcare Headlines episode on ERISA fiduciary litigation.

So Madison, how about we start with a refresher of what this case is all about?

Madison Connor (0:43)

Absolutely. So we’re talking about the case Lewandowski v. Johnson & Johnson.

It was initially filed in February of 2024, and this is a class action complaint filed by an employee against her employer, Johnson & Johnson. And what the complaint alleges is that the Johnson & Johnson company mismanaged its prescription drug plan, and the complaint cites several pages of specific examples where the plan paid a not-so-competitive price for a specialty generic medication. So in many cases, much more than a cash-paying customer would pay for that particular drug.

In other instances, maybe just a $1 to $2 difference.

Mike Stull (1:26)

But a lot of cherry picking.

Madison Connor (1:28)

A lot of cherry picking. Very small subset of drugs. And you bring up an excellent point.

So the Johnson & Johnson company comes back saying that the vast majority of those drugs were very competitively priced. And whenever we’re negotiating prescription drug contracts, we’re looking at the aggregate expenses under the plan. And we’ve really not looked at prescription drugs on a drug-specific basis.

So this case does have important consequences for plan sponsors because it examines to what extent do plan fiduciaries have that responsibility to negotiate individual covered item and service prices.

Mike Stull (2:10)

Yeah. I always think about the application of if that indeed becomes the case, the application of that reasoning across the broader health care benefits spectrum, like, OK, does this mean that we have to negotiate every price for a cold pack in a hospital or a bandage in a hospital? Like all of the little things that plans get charged for on the medical side, do you have to negotiate every one of those to make sure that they’re reasonable?

Madison Connor (2:47)

I told my grandma not to pay for her crutches from the hospital.

Mike Stull (2:50)

Right.

Madison Connor (2:51)

Get them somewhere else.

Mike Stull (2:52)

Much cheaper that way. So this is the second dismissal in this case. Any comments about how they differ?

Madison Connor (3:02)

I would say that the substantive reasoning is very much the same, but whenever the plaintiff employees went back and did this second version of the complaint, they added a different plaintiff. So they added someone from the retiree population who had paid higher premiums. They also talked about how the initial plaintiff had only met her deductible and max out-of-pocket for the year because she used a copay coupon.

So saying that, you know, absent that responsibility or the copay manufacturer assistance applying towards her deductible, maybe would have paid less out-of-pocket costs had those drugs been more competitively priced. But overall, the judge found that the tie between the prices paid for those particular drugs in the complaint and the levels at which the participant premiums were set and out-of-pocket costs were, there was a speculative connection there. They said there was no legal standing to sue and that they hadn’t been able to sufficiently connect those two items.

The court also went on to explain how in defined benefit plans, employers are responsible for funding the aggregate costs of the plan. So there’s a redressability issue here. They couldn’t say that if any overpayment were to be refunded, it would go to the plan.

You know, the plaintiffs had received all benefits due to them under this plan. They also talked about how plan sponsors have the sole discretion to set participant contribution out-of-pocket. It’s all a function of plan design.

So you couldn’t solely attribute increased out-of-pocket costs or premiums back to these particular payments for prescription drugs. Many factors influence.

Mike Stull (4:50)

Well, we know that Johnson & Johnson isn’t the only one dealing with these types of lawsuits. How does this decision fit within the other cases that are out there?

Madison Connor (5:04)

So they’re all learning from each other. These are all relatively new. Again, we’ve had three major substantially similar cases filed since February of 2024.

They’re learning from each other, using each other as persuasive authority. So a recent dismissal in the Wells Fargo action relies very heavily on reasoning, borrows from reasoning in the Lewandowski v. Johnson & Johnson case.

There’s a third case against JPMorgan Chase, and it’s in its early days. But that case is slightly different in that the defendant, JPMorgan Chase, the employer, it argues that setting participant premiums and cost sharing is a plan design function, therefore it’s not subject to the fiduciary standards. So there’s a difference between your plan design, your settler functions, and then your fiduciary functions as well.

So slightly nuanced, but I think that that will be a very important and interesting argument to see what the court makes of that as we move forward. But these are all first-of-their-kind cases. It’s an entirely different way of looking at fiduciary conduct.

So certainly, we’ll continue to see additional cases filed based on what we find out from these three cases.

Mike Stull (6:21)

Yeah, you mentioned fiduciary conduct. When we talk about ongoing obligations of employers, I mean, I get so many marketing emails right now around, you know, fiduciary responsibility, and I just wonder, is there anything that we’ve seen so far that impacts an employer’s fiduciary obligations as we move forward?

Madison Connor (6:45)

There’s a lot of marketing about just because a certain behavior or type of conduct was cited in one of these cases that it’s being used to potentially call it into question. I think it’s good to be hypervigilant in these cases, but there’s not yet been a substantive ruling on the merits. These are just rulings that discuss the threshold question of, can this employee sue its company in this way?

Can this lawsuit proceed? We’re not getting to the point where we’re actually examining, did the employer breach its fiduciary duty? Was this decision reasonable?

What can we learn from this for other employers? So you make an excellent point. I don’t think it impacts employers in a really tangible way.

It’s good to stay the course, continue sharpening your pencil, and strengthening your fiduciary governance procedures. Important also to remember that this Johnson & Johnson case started from a simple failure to provide the requested documentation upon request. So, make sure you have your plan documents readily available.

Make sure that they’re adequately detailed and that what is in your plan document is actually how your plan functions. Beyond that, it’s the same types of things that we always tell our plan sponsors. Work with an unbiased advisor.

Continue to keep strong record making. Keep track of the decisions that you make and why you came to those decisions. Throw it in the file.

ERISA never required that you make the lowest cost decision or go with the lowest cost provider. What ERISA requires is that you, as a plan fiduciary, make a reasonable decision.

Mike Stull (8:26)

Excellent. Well, that’s it for our update today. Thank you for joining us, and we’ll see you again soon on another episode of Health Care Headlines.

Madison Connor (8:37)

Thank you.