JPMorgan Sued Over Management of Prescription Drug Benefits
On March 13, 2025, several current and former participants in the JPMorgan Chase Health Care and Insurance Program for Active Employees, as well as its component Medical Plan (collectively referred to as the “Plan”) filed a lawsuit against JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., the JPMorgan Chase U.S. Benefits Executive, the JPMorgan Chase Compensation & Management Development Committee (the “Committee”), and several individual members of the Committee (collectively, the “Defendants”). The plaintiffs allege that the Defendants, as fiduciaries of the Plan, breached their fiduciary duties and engaged in prohibited transactions in violation of the Employee Retirement Income Security Act of 1974 (“ERISA”).
The Allegations
The case, Seth Stern v. JPMorgan Chase & Co. et al., specifically alleges the following:
1. Mismanagement of Prescription Drug Benefits
The complaint alleges that the Defendants breached their fiduciary duties by agreeing to excessively inflated prescription drug prices, which resulted in significant financial harm to the Plan and its participants/beneficiaries. This harm manifested through higher payments for prescription drugs, increased premiums, higher out-of-pocket costs, elevated deductibles, higher coinsurance, higher copays, and suppressed wages.
The complaint specifically highlights the prices the Plan agreed to pay to one of its vendors, its Pharmacy Benefits Manager (“PBM”), for numerous generic drugs that are widely available at drastically lower prices in the marketplace. One example cited in the complaint is the price disparity for teriflunomide (generic Aubagio, used to treat multiple sclerosis). While individuals could purchase a 30-unit prescription for as little as $11.05 at various pharmacies, the Defendants allowed the Plan and its participants/beneficiaries to pay $6,229 for the same prescription. The complaint asserts that no prudent fiduciary would allow a plan and its participants/beneficiaries to pay over 500 times more than the out-of-pocket cost at a pharmacy for the same prescription.
Additionally, the complaint highlights that the per-prescription price difference (in this case, over $6,000) between a reasonable price for teriflunomide and what the Plan and its participants/beneficiaries pay primarily benefits the Plan's PBM vendor, CVS Caremark (“Caremark”). According to the complaint, this mismanagement extends across the entire Plan, as the Defendants agreed and/or allowed the Plan and its participants/beneficiaries to pay, on average, a markup of over 211% above the acquisition cost pharmacies pay for these same drugs.
2. Failure to Satisfy Fiduciary Duties in Administering Prescription Drug Benefits
The complaint alleges that Defendants failed to meet their fiduciary obligations at multiple stages in the administration of prescription drug benefits under the Plan. Specifically, the Defendants failed to exercise prudence and act in the best interests of Plan participants and beneficiaries when selecting a PBM.
Furthermore, the complaint alleges that the process by which the Defendants selected Caremark as its PBM vendor was not an open RFP process. According to the complaint, the Defendants failed to consider the full range of available PBM options and allowed the selection process to be managed by a broker with a conflict of interest—i.e., a financial interest in steering Defendants toward specific PBMs or including certain provisions in the PBM contract, which were not aligned with the best interests of the Plan and its participants/beneficiaries.
The complaint emphasizes the fact that JP Morgan – a Fortune 500 company – has significant bargaining power to obtain the most favorable terms from third-party vendors.
3. Violation of ERISA’s Prohibited Transaction Rules
Generally, many traditional PBMs generate revenue through their ownership of pharmacies. The complaint highlights that Caremark, for example, is “vertically integrated” with CVS Specialty, its mail-order pharmacy. The complaint emphasizes that such vertical integration can create conflicts of interest, potentially leading to actions that do not align with the best interests of the plan and its participants.
Key Takeaways
Although the lawsuit is in its early stages and it is uncertain whether the courts will ultimately rule in favor of the plaintiffs, the claims mentioned throughout the complaint offer important insights for employers to consider.
1. Evaluate Conflicts of Interest with Third-Party Service Providers, Consultants, and Experts
Employers should be diligent in identifying and addressing potential conflicts of interests when working with third-party service providers, consultants, and experts. Employers should require these providers to disclose any potential conflicts before entering into or renewing any contracts with such providers.
2. Conduct a Thorough PBM Selection Process
Employers should maintain a comprehensive, transparent, and well-documented selection process for choosing a PBM provider. Additionally, regularly reassessing PBM contracts can help employers make more informed decisions.
3. Evaluate PBM Recommendations Regularly
Employers should regularly evaluate PBM recommendations. Regularly reviewing, and if necessary, revising the terms of certain PBM contracts can help employers detect and prevent any conflicts of interest or other related issues.
About Maynard Nexsen
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