Health Plan Fiduciary Pitfalls: What Employers Can Learn from the JPMorgan Lawsuit

6-minute read

You’ve heard us say this before: Some pharmacy benefit managers (PBMs) operate with hidden incentives. Brokers tied to Wall Street and private equity don’t always have your best interests at heart. Failure to properly oversee your health plan could land you in legal trouble. In other words, as a health plan sponsor, you have a fiduciary duty to manage your health plan responsibly.

Some have listened. Others have shrugged.

We have no idea in which camp JPMorgan Chase & Co. might fall but the banking giant now finds itself the subject of a class action lawsuit, Seth Stern et al. v. JPMorgan Chase & Co., alleging the company mismanaged its prescription drug benefits, leading to astronomical overcharges for employees.

This case is a big deal — not just because of the price tags involved but because it underscores the growing legal and regulatory pressure on employers who fail to manage their health plans in compliance with ERISA and the Consolidated Appropriations Act of 2021.

Let’s break down the allegations against JPMorgan and see how they stack up against the legal obligations a health plan fiduciary must follow.

Grossly Inflated Prescription Drug Prices

The Claim: JPMorgan’s health plan allegedly paid wildly inflated prices for prescription drugs, including a 56,000% markup on some generics. For example, the lawsuit states that the bank’s plan paid $6,229 for a 30-unit supply of teriflunomide (generic Aubagio) — a drug available at retail for as little as $11.05.

Legal Standard: The CAA requires employers to ensure transparency in drug pricing and plan costs. If JPMorgan rubber-stamped its PBM’s pricing without scrutiny and failed to ensure clear cost disclosures, as the suit alleges, it may have violated the CAA’s transparency requirements.

Failure to Monitor Its PBM (CVS Caremark)

The Claim: The complaint alleges that JPMorgan failed to properly oversee CVS Caremark, allowing excessive charges to go unchecked.

Legal Standard: Under ERISA and the CAA, employers have a fiduciary duty to monitor service providers like PBMs. If JPMorgan failed to review CVS Caremark’s pricing practices and contract terms, it could have violated its duty of prudence and duty to monitor.

Prioritizing Business Relationships Over Employees

The Claim: The lawsuit suggests that JPMorgan’s business relationship with CVS (a major investment banking client) influenced its decision-making, leading to overcharges that benefited CVS at the expense of employees.

Legal Standard: ERISA requires employers to act “solely in the interest of plan participants.” If JPMorgan allowed a corporate relationship to take precedence over cost savings for employees, it could be seen as a breach of fiduciary duty under ERISA.

Engagement in Prohibited Transactions

The Claim: The lawsuit suggests that JPMorgan allowed excessive compensation to CVS Caremark without ensuring it was reasonable, which may constitute a prohibited transaction under ERISA.

Legal Standard: ERISA prohibits transactions that unreasonably benefit service providers at the expense of employees. If JPMorgan failed to negotiate competitive pricing or document the reasonableness of fees, it could be in violation of ERISA’s fiduciary obligations.

What This Means for Employers

JPMorgan isn’t alone. This case is part of a broader, growing wave of litigation targeting employers who neglect their fiduciary duties in health plan management. Here’s what you should be doing right now to avoid legal problems:

1. Audit Your PBM Contracts
   • Ensure no hidden fees, spread pricing, or undisclosed rebates are inflating costs.
   • If your PBM refuses full transparency, find another PBM.
2. Compare Your Plan’s Drug Costs to Market Rates
   • Tools like Cost Plus Drugs, GoodRx, and local pharmacy pricing can help reveal if you’re overpaying.
   • If your plan is paying 15-25% more than market rates, renegotiate or switch providers.
3. Require Full Disclosure of PBM Compensation
   • Demand PBMs and brokers disclose all sources of revenue, including rebates and consulting fees.
   • Use only fiduciary-aligned PBMs that guarantee 100% pass-through pricing.
4. Monitor and Document Plan Oversight
   • ERISA and the CAA require proactive monitoring of health plan spending. Document all vendor negotiations, audits, and cost analyses to protect yourself from liability.
   • The CAA mandates transparency in PBM pricing, so ensure that all pricing and rebate disclosures meet reporting requirements.

The Stern v. JPMorgan lawsuit should be a wake-up call for every employer that offers a health plan. Fiduciary duty isn’t a box you check — it’s an ongoing responsibility. The CAA of 2021 created new transparency requirements, but ERISA has long imposed fiduciary obligations that employers must uphold.

The Mahoney Group, based in Mesa, Ariz., is one of the largest independent insurance and employee benefits brokerages in the U.S. For more information, visit our website or call 877-440-3304.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.