Lawsuits alleging employers and health insurance companies shirked their duty to oversee costs are on the rise amid increased price transparency and public outcry against high medical expenses.
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The range of lawsuits alleging failure to meet fiduciary duties under the Employee Retirement Income Security Act are broad in scope, and pit employees against employer plan sponsors, and both employers and workers against insurance companies.
“The employer plan sponsors are kind of both in the plaintiff’s seat and in the defendant’s seat in some of these cases,” said Joanne Roskey, a member of Miller & Chevalier’s ERISA and employee benefits litigation team.
Recent moves by federal lawmakers and regulators have placed the responsibilities of employers and health plans under scrutiny as more data on health-care pricing comes to light.
The Consolidated Appropriations Act of 2021 included several measures aimed at strengthening the role of fiduciaries in health plans, including ensuring that compensation for service providers is “reasonable.” The law also requires group health plans to disclose more data around drug costs.
That was a major impetus for these types of lawsuits, which will give more context on the definition of “reasonable” under the law, said Jenny Kiesewetter, of counsel in Fisher & Phillips LLP’s employee benefits and tax practice.
“I think the courts are really going to help us define how big that scope is,” she said.
Roskey said the application of the 2021 law is “somewhat murky.” But she cited the “transparency in coverage” rule issued by federal agencies in 2020 that requires health plans to disclose negotiated rates with providers as a key development.
Employers and enrollees have begun to compare this data with their own medical claims to use in bringing litigation.
Standing Questions
Schlichter Bogard LLP founder Jerry Schlichter—who pioneered fiduciary litigation challenging excessive fees in retirement plans—posted LinkedIn ads in 2023 looking for potential plaintiffs in health plans from Target Corp., Nordstrom Inc., State Farm, and PetSmart LLC.
The ads stoked speculation the plaintiffs’ lawyer was looking to replicate his class-action ERISA challenges to administrative and recordkeeping fees in retirement plans for enrollees in health-care plans.
Schlichter, who declined to comment, doesn’t appear to have yet filed any lawsuits challenging health plan costs on behalf of participants.
A key factor differentiating the health plan lawsuits from the retirement cases is that retirement plaintiffs likely have an easier path to demonstrating harm, benefits lawyers said.
The impact that high administrative fees have on pension and 401(k) plans is easy to see in employees’ account balances. The cost impact isn’t as clear in the context of a health plan’s medical services.
“I think there’s factual differences in how these work on both sides that will not allow there to be complete replication of the types of legal theories and decision making that was present on the retirement plan side,” Roskey said.
In July 2023, the US District Court for the District of New Jersey dismissed a case from two former MetLife Inc. employees who alleged the company violated ERISA by keeping $65 million in drug rebates from its PBM, Express Scripts Inc.
The employees lacked standing to sue because they’re only entitled to the plan’s benefits, not its financial assets, Judge William J. Martini concluded. Because they were never denied benefits, they weren’t harmed when MetLife kept the rebates, he said.
“To the extent there are excessive fees, they’re just raising the cost of the benefits,” Roskey said. “Not the entitlement to benefits.”
Others think health plan participants’ standing is clear, however.
The only difference between the two types of cases is that enrollees only bear part of the costs in health plans, said Kai Richter, of counsel with Cohen Milstein Sellers & Toll PLLC. Richter also represents Ann Lewandowski, the employee suing Johnson & Johnson.
“Whether you pay a penny or you pay, you know, $100,000, it makes no difference,” he said. “You have standing to sue.”
‘A New Standard’
Legal liability from employee concern about medical costs might be one reason why employers are increasingly bringing their own fiduciary litigation against third parties that administer their claims, in order to call out misconduct or obtain pricing data.
Failing to pursue the cost data from insurance companies and other service providers can amount to a breach of fiduciary duty for employers, said Jonathan Levitt, co-founding partner of Frier Levitt.
“Those employers that are suing to find out data, they’re not being overly aggressive,” he said. “I think they’re setting a new standard.”
Attorneys with McKool Smith in Texas are representing several employers in lawsuits against Aetna, alleging the insurer is withholding cost data and reprices medical claims illegally. Clients include Aramark Services Inc., Huntsman International LLC, Kraft Heinz Co., and W. W. Grainger Inc.
The suits, filed in the US District Court for the Eastern District of Texas, accuse Aetna of mismanaging the plans, including by underpaying physicians and keeping the difference, using “dummy” codes to cover the cost of subcontractor fees, and not performing proper due diligence for fraudulent claims.
Huntsman said in its complaint it became aware of pricing discrepancies after the recent federal transparency rules forced Aetna to publish contracted rates.
Those rates were lower than the amount the company paid doctors from Huntsman’s plans, according to the company, which is now pushing for more claims data.
Aetna declined to comment on the specifics of the cases, but said it’s “dedicated to partnering with its commercial plan sponsors to facilitate access to quality, affordable and convenient health care for the employees of our plan sponsors.”
Contracts at Play
Employers thus far have encountered hurdles in arbitration and legal disputes with insurance companies that administer self-funded plans, according to Levitt, who represents employers.
Employer contracts typically don’t cover the insurance company’s contract with other service providers like PBMs, which manage prescription drug benefits, or drug rebate aggregators—which negotiate rebates from drug manufacturers for multiple PBMs—he said.
“You don’t have a contract with these other parties, the rebate aggregator and the PBM, and therefore you can’t sue them,” he said. “You can’t get discovery from them.”
A case brought by a pair of union trustees in Connecticut federal court against Elevance Health Inc. failed to show that the insurer was a fiduciary with discretion over the unions’ medical costs, the court determined. The judge instead found that prices were subject to Elevance’s previously negotiated contract with providers.
Building transparency and audit language into contracts can facilitate access to data as well as explicitly deeming the insurer a fiduciary in specific activities, Levitt said.
With plan participant suits against sponsors, courts are likely to scrutinize contract terms in determining whether an employer was negligent in its fiduciary duties, as well as whether the employer investigated possible conflicts of interest with independent consultants.
Employers also can avoid lawsuits through ample documentation processes regardless of whether it’s for retirement plans or health plans, said Craig Martin of Willkie Farr & Gallagher LLP.
“If you have no process and you chose a company to supply prescription drugs because your brother-in-law worked at that company and that’s it,” he said, “then, well, that’s not a very good process.”
