Health Plan Fiduciary Reminders: Procedural Prudence Matters

The Prescription Drug Data Collection (“RxDC”) reporting for 2023 and the recently filed J&J class action lawsuit remind benefits practitioners that procedural prudence never ends. In other words, RxDC reporting due June 1, 2024, should be completed with the Lewandowski v. Johnson & Johnson, et. al., D.N.J., No. 1:24-cv-00671 (Feb. 5, 2024) case in mind; used as a reminder to demonstrate fiduciary compliance.

J&J Case

The case, filed a little over a month ago, alleges that Johnson & Johnson (“J&J”) paid excessive fees to its pharmacy benefit manager (“PBM”), including overpayment for specialty generic drugs and markups on prescription drugs that went beyond reasonable levels, causing financial harm to the plaintiffs. The mismanagement of the health plan’s prescription drug benefit program cost the employees millions of dollars in the form of higher payments for prescription drugs, higher premiums, higher deductibles, higher coinsurance, higher copays, and lower wages or limited wage growth.

The complaint argues that if J&J had engaged in a prudent and reasoned decision-making process, it could have drastically lowered the cost of prescription drugs in general and generic specialty drugs in particular, fulfilling its fiduciary role. Completing a fiduciarily prudent process would have saved the plan and employees millions of dollars.

Two examples of overpayment cited in the lawsuit:

Overpayment to the PBM beyond reasonable mark up: Paying the PBM $900 for a 90-day Rx for the generic form of Prilosec which can be filled at several pharmacies for under $20.

Overpayment to the PBM beyond reasonable mark up: Paying the PBM $10,200 for a 90-day Rx for the generic form of a drug that treats MS which can be filled at several pharmacies for under $80.

RxDC Reporting

The third RxDC report is due June 1, 2024; instructions may cause plan sponsors to reconsider whether they need to make “plan level” submissions instead of relying on their vendors to make “aggregate” submissions on their behalf. For the first time, the Centers for Medicare and Medicaid Services (“CMS”) plans to enforce the “aggregation restriction,” a provision in the 2021 regulations that CMS suspended for the first two reporting cycles. The reinstated aggregation restriction may cause headaches for some plan sponsors who are finding they can no longer rely on their PBM’s aggregate submission of pharmacy data, but must instead submit plan-level data. Other plan sponsors may welcome the opportunity to make a plan-level submission to obtain otherwise unavailable prescription drug data. Gaining access to this data may help fiduciaries meet their obligations and avoid a J&J-type lawsuit.

The aggregation restriction

The aggregation restriction prohibits plans from having vendors submit medical premium and life years data reported on file D1 and the pharmacy benefit data reported on files D3 through D8 “at a less granular level” than the medical benefit data reported on file D2. If the D2 file is submitted at the plan level, then files D1 and D3-D8 also must be submitted at the plan level. The aggregation restriction works in one direction only. Even if a plan sponsor submits pharmacy data at the plan level on the D3-D8 files, the plan can still rely on an aggregate  third-party administrator (“TPA”) or insurer submission for the medical benefit D1 and D2 files. And if a plan’s TPA or insurer submits an aggregate D2 file, the plan can choose to how to submit its remaining D files. The plan sponsor can rely on aggregate vendor files, or it can submit one or more files at the plan level.

“Most granular” D2 controls

The instructions state that the “most granular” D2 submitted on behalf of a plan will determine how the aggregation restriction applies to its D1 and D3-D8 files. As a result, if any one of a plan’s vendors has data for the D2 but won’t submit it as part of an aggregated file, the plan sponsor should submit all of the plan’s D2 data and also submit all the plan’s remaining D files at the appropriate level (most likely, at the plan level). 

Opportunity 

Employers have a unique opportunity to obtain this RxDC pharmacy data specific to their plan by submitting pharmacy benefit files at the plan level. PBMs apparently are not providing this data to employers when they submit aggregate files on a plan’s behalf. Significantly, it isn’t necessary to make the entire submission at the plan level; employers can continue to rely on their vendors’ aggregate medical benefit submissions but submit pharmacy files at the plan level to gain access to critical financial prescription drug data.

Granular employer reporting will open up pharmacy files that include data not typically provided to plan sponsors, including:

• PBM profit margin (spread)
• Drug level rebates for the top 25 drugs
• Manufacturer cost-sharing assistance

Considering the spotlight recently shed on fiduciary duties and the risks associated with not complying with those duties, the additional insight plan-level filings provide can help fiduciaries stay on course in fulfilling their responsibilities.