Navigating fiduciary responsibility: Why an aligned PBM matters.

Recent lawsuits have sent a stark message to employers: partnering with traditional pharmacy benefit managers (PBMs) can pose substantial legal and financial risks. Employees from major corporations, including J&J and Wells Fargo, have filed lawsuits against their employers, accusing them of allowing PBMs to artificially inflate drug prices. These claims suggest that these employer-PBM partnerships have not only driven up prescription costs but also increased health insurance premiums and higher out-of-pocket expenses for employees.

According to a third-party survey, over 80% of employers acknowledge that PBMs prioritize their own profits. However, many continue to rely on traditional PBM models to mange pharmacy benefits for their team. With the risk of scrutiny increasing and legal repercussions looming, employers must seek a better way to manage pharmacy benefits that aligns with their fiduciary duties to serve the best interests of their employees.

The importance of fiduciary responsibility.

Employers managing benefit plans have a fiduciary duty under the Employee Retirement Income Security Act (ERISA) to act in their employees' best interests, ensuring that benefit decisions prioritize financial well-being. The Consolidated Appropriations Act (CAA) further mandates transparency, requiring employers to fully understand the costs within their benefit plans. Selecting a PBM aligned with these principles is essential for meeting these obligations.

Recent lawsuits highlight the risks of failing to do so. In a case involving J&J, the company was accused of allowing its PBM to inflate drug prices, increasing employee costs. Similarly, Wells Fargo faced legal action for not adequately overseeing its PBM, resulting in employees paying far above market rates for medications. Both cases underscore the need for employers to choose a PBM that prioritizes transparency and fairness.

An aligned PBM ensures compliance with ERISA and CAA requirements by offering clear pricing, pass-through PBM models, and full rebate returns. This approach protects employers from legal risks and provides employees with more affordable healthcare, making it a smart choice for sustainable plan management.

Traditional PBMs fail to support employers' fiduciary duties.

Traditional PBMs are structured to profit at your expense, prioritizing their bottom line over your organization’s well-being. Hidden fees, lack of PBM cost transparency, and profit-driven practices are built into their models. While they claim to reduce costs, they’re frequently the ones driving them up—and your organization is paying the price. When a PBM is not aligned with your goals, they use tactics including:

• Spread pricing: Spread pricing involves charging employers more for a drug than they pay pharmacies, pocketing the difference as profit. For instance, a PBM might pay a pharmacy $100 for a medication but bill the employer $150, retaining a $50 margin. This practice inflates costs and is rarely disclosed, making it difficult for employers to fully understand where their money is going. 

• Rebate retention: PBM rebates are often marketed as a way to reduce costs, but traditional PBMs may keep a substantial portion rather than pass them on to employers. PBMs are incentivized to promote higher-priced drugs that offer larger rebates over more affordable alternatives, resulting in a higher overall drug spend.

• Mismanagement of specialty drugs: Specialty drugs, though they represent a small fraction of prescriptions, account for over 50% of total drug spending. Traditional PBMs may broaden the definition of “specialty drugs” to increase their margins and often direct patients to their own specialty pharmacies, limiting competition and driving up prices. 

• Vertical integration: Many PBMs have ownership stakes in the pharmacies they recommend, creating inherent conflicts of interest. This setup encourages PBMs to direct members toward their own mail-order or specialty pharmacies, even when lower-cost alternatives exist. 

How can you uphold your fiduciary duty?

The consequences of these lawsuits extend beyond financial costs—they can significantly damage a company's reputation. Employers must adopt a more vigilant approach. Key fiduciary best practices include:

• Regularly review PBM contracts and benchmark prices against market standards to ensure they remain competitive.

• Avoid relying solely on consultants who may have indirect ties to PBMs.

• Familiarize yourself with ERISA and the Consolidated Appropriations Act (CAA) to ensure compliance and proper oversight of benefit plans.

• Review market conditions each year to ensure PBM agreements remain aligned with industry trends and pricing.

By partnering with a PBM that aligns with fiduciary principles, employers can protect themselves from legal risks, reduce costs, and ensure that their employees receive the most cost-effective and transparent pharmacy benefits available. 

Rightway is the most trusted, aligned partner who meets fiduciary obligations to mitigate financial risk. Rightway eliminates hidden fees, operates with full transparency, and focuses on both financial savings and improved health outcomes for your team. It’s time to move away from the traditional PBM model and choose a partner that truly works in your best interest—not against it.