Lessons from the Latest ERISA Fiduciary Suit vs. JPMorgan
Imagine going to the pharmacy, filling your prescription, and trusting that your employer-sponsored health plan has negotiated a fair price for you. What if, instead, that same prescription was costing you hundreds—or even thousands—of times more than it should?
That’s exactly what JPMorgan Chase & Co. is being accused of in a new class action lawsuit, Stern, Binder & Schmitt vs. JPMorgan Chase & Co. The lawsuit alleges “systematic mismanagement of JPMorgan’s prescription-drug benefits program”—sticking employees and their families with inflated costs.
But here’s the bigger problem: JPMorgan isn’t alone. This is happening every day in employer-sponsored health plans because most large employers allow Wall Street-driven and private equity-backed brokers and the Big-3 PBMs to dictate health plan decisions—usually in ways that maximize the broker’s and PBM’s profits at the expense of plan members.
It doesn’t have to be this way.
Employers can take control of their benefits, but it requires choosing fiduciary-aligned PBMs and independent consultants—not conflicted middlemen with their own financial incentives to slavishly worship at the altar of quarterly profits and in homage to the Holy Grail of EBIDTA (earnings before interest, taxes, depreciation, and amortization.)
JPMorgan’s Alleged Fiduciary Faux pas
Under the Employee Retirement Income Security Act of 1974 (“ERISA”), employers, specifically high-ranking human resource and finance personnel, must manage health plans in the best interests of employees and plan participants (not the employer). This means:
- Acting solely in the interest of plan participants (Duty of Loyalty)
- Making decisions with care, skill, and diligence (Duty of Prudence)
- Ensuring plan costs are reasonable (Duty to Defray Expenses)
- Closely monitoring service providers like PBMs (Duty to Monitor)
If the allegations in the lawsuit are accurate, and I’ll bet dollars to donuts they are, JPMorgan went zero for four in its quest to protect employees and plan members.
The irony is almost too rich to stomach. JPMorgan Chase—the financial giant that wants to manage your money, your retirement, your future—stood by as its own consultants, PBM, and HR department let employees pay up to 56,000% more for life-saving medications.
Talk about a financial institution living up to its slogan: “CHASE—Make More of What’s Yours.”
Oh, they’re making more, alright. More off your paychecks. More off your health benefits. More off your trust. And they’re not alone—their benefit consultants and PBM are cashing in, too.
They allowed CVS Caremark to dictate drug pricing without any sort of reasonable oversight, failed to negotiate competitive drug costs, and appear to have prioritized their business relationship with CVS (a major investment banking client) over employees’ best interests.
These aren’t just bad business decisions—they’re direct violations of federal law.
The Shocking Price Markups in JPMorgan’s Rx Plan
The actual numbers make this case impossible to ignore.
The following table shows real examples from the lawsuit, comparing the actual fair-market cost of common prescription drugs to what JPMorgan’s plan allegedly paid.
These examples begin on page 41 of the complaint.
For those not in this industry, it is genuinely a challenge to even wrap your head around numbers like this. This level of massive price mismanagement is not likely solely sloppiness or accidental – although accidental sloppiness would be enough to violate ERISA’s duty of prudence, duty to ensure costs are reasonable, and duty closely monitor service providers.
When we see such divergent pricing, we have to ask, what is really going on?
Industrywide Incentivization Toward Higher Drug Prices
Most major PBMs—including the three that control about eighty percent of the market, CVS Caremark, OptumRx, and Express Scripts—don’t make most of their money from administration fees. Instead, they profit through:
- Rebates from drug manufacturers – PBMs get rebate payments from drug companies to steer employees toward more expensive medications. The more expensive the drug, the greater the rebate.
- Spread pricing – PBMs charge employers more than the drug actually costs, keeping the difference.
- PBM-owned pharmacies – PBMs own their own mail-order pharmacies, meaning they profit twice—once from setting the price and again from filling the prescription.
- Formulary manipulation – PBMs exclude lower-cost drugs from formularies in favor of high-cost alternatives that maximize their profits.
It’s a deeply manipulated system. And unless employers are watching closely, they’re pilfered—just like JPMorgan’s employees appear to have been.
How Employers Can Stop This From Happening
The JPMorgan case is not an isolated incident—this happens across the country every day in employer-sponsored health plans. In recent months, Johnson & Johnson and Wells Fargo have also been sued on similar grounds. I’ve recently been contracted and agreed to serve as an expert witness in yet another suit based on similar theories. That one has not yet been made public.
The good news? Employers CAN take control—if they choose to.
1. Use Fiduciary-Aligned, Independent PBMs.
Whether a PBM can actually become an ERISA Fiduciary on a plan is, a topic of debate. But at some level, it does not really matter so long as their contractual guarantees are set up to accomplish similar goals.
Most large PBMs operate with hidden profit motives. Instead, employers should switch to independent, fiduciary-aligned PBMs that offer:
- 100% pass-through pricing
- No spread pricing or hidden rebates
- Transparent, competitive drug costs
- And fiduciary (or fiduciary-like) guarantees that they have disclosed all fees they will receive from you under penalty of perjury.
Employers who ditch the Big-3 PBMs in favor of fiduciary-aligned PBMs can see drug costs drop by 30-50% overnight.
2. Work With Independent, Non-Wall Street Owned or Private Equity Backed Brokers
Many big-name benefits brokers and consultants are tied to private equity and Wall Street firms. Their job isn’t to lower costs—it’s to maximize revenue. Their “exclusive” PBM contract generally is installed because that agreement specifically ensures that they are paid additional kickbacks, ahem, I mean consulting fees, from the PBM. Instead, select independent benefits advisors that:
- Don’t take PBM kickbacks
- Advocate solely for employers and employees
- Help negotiate transparent contracts
- Aren’t beholden to the incessant drum beat of next quarter’s profit numbers
3. Demand Transparency in PBM Contracts
Employers must require full disclosure of rebates, spread pricing, and formulary exclusions. We regularly compare PBM contracts on these topics. Here is a brief section of the conclusion from one of our recent comparisons:
- PBM 1 – Best overall fiduciary commitment, full rebate pass-through, bans spread pricing, requires independent audits.
- PBM 2 – Strong alternative with full rebate pass-through, no PBM-owned pharmacies, strong transparency.
- PBM 3 – Moderate transparency, but lacks full rebate pass-through and fiduciary enforcement.
- PBM 4 – Provides transparency but does not accept fiduciary responsibility; lacks strong enforcement mechanisms.
- PBM 5 – Lacks transparency, allows spread pricing, limited audit rights, and no fiduciary commitments.
- PBM 6 – Weakest transparency, allows spread pricing, retains rebates, and has restrictive audit rights.
4. Audit Your Drug Prices Against Market Rates
Compare your PBM prices to independent sources like Cost Plus Drugs, GoodRx, and local pharmacies. If your plan is overpaying by more than 15-25%, it’s time to renegotiate.
Employers Must Take Action
JPMorgan’s lawsuit is just the tip of the iceberg. Employers must stop letting PBMs and big consultants drive up healthcare costs unchecked.
It’s time to:
- Find an alternative to one of the Big 3 PBMs;
- Ensure you are using an independent consultant that will disclose every penny of compensation from a health plan – not just vague percentages.
- Audit your drug pricing and your PBM contract terms.
If you don’t, your employees will keep paying the price, and one of these suits could end up on your desk.
SOURCE: Gottwal’s Substack
