Plaintiffs Face Setback in New Second Circuit PBM-Favorable Decision

Plaintiffs in an ERISA lawsuit against pharmacy benefits managers (PBMs) received another setback recently when the Second Circuit Court of Appeals upheld a district court ruling that defendants Anthem, Inc., and Express Scripts, Inc., did not violate ERISA’s fiduciary obligations because neither defendant acted as an ERISA fiduciary when entering into a contractual agreement that led to higher prescription costs for health plan subscribers.

Background

In Doe v. Express Scripts, Inc., plaintiffs appealed a district court order dismissing a putative class action against Anthem, a health benefits company, and Express Scripts, a PBM. Plaintiffs allege that Anthem and Express Scripts violated their fiduciary duties under ERISA in setting prescription drug prices by entering into a PBM agreement where Express Scripts purchased three Anthem-owned PBMs for $4.76 billion as well as Anthem’s agreement that Express Scripts could charge more for prescription drugs over the 10-year term of the PBM agreement. 

Plaintiffs allege that this agreement was in violation of ERISA as well as the ACA, RICO, and several other state laws. They argued that Anthem was acting as a fiduciary when it entered into the PBM agreement with Express Scripts and received a higher price for its three PBMs by agreeing to allow Express Scripts to charge higher prices for prescription drugs. Plaintiffs also contend that Express Scripts was acting as an ERISA fiduciary since the PMB agreement gave it discretionary authority to set higher drug prices. Plaintiffs renewed their argument that both defendants failed to discharge their duties solely in the interest of plan participants and beneficiaries.

The Decision

In siding with the district court, the Second Circuit said that Anthem was not acting in a fiduciary capacity when entering into the PBM agreement, stating, “This Court previously found that the decision to sell a corporate asset is not a fiduciary decision—even if the sale affects an ERISA plan.” The Second Circuit also held that Express Scripts was not a fiduciary, noting that, “when a PBM sets prices for prescription drugs pursuant to the terms of a contract, it is not exercising discretionary authority and therefore not acting as an ERISA fiduciary.”

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 678-439-6236.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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