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			Earlier this year, current and former participants of two ERISA-governed health plans filed complaints alleging the same novel legal theory: that plan fiduciaries violated ERISA by mismanaging the plan&rsquo;s prescription drug benefits.&nbsp; In both complaints, plaintiffs alleged that the mismanagement was caused in part by the plans paying excessive and unreasonable fees to their respective pharmacy benefit managers (PBMs), resulting in participants paying unreasonably high prices for prescription drugs.
Although both cases are still in the early stages of litigation, the issue of constitutional standing is expected to play a key role in whether plaintiffs&rsquo; claims bypass the pleading stage.&nbsp; The U.S. Constitution requires plaintiffs to establish standing to bring a claim in federal court.&nbsp; This means a plaintiff must show they suffered an &ldquo;injury in fact,&rdquo; i.e., an injury that is (i) concrete and particularized and (ii) actual or imminent, rather than conjectural or hypothetical.&nbsp; Moreover, the injury must be fairly traceable to the challenged action of the defendant and likely to be redressed by a favorable decision by the court.
Because the health plans at issue in these excessive fee cases are self-funded and the employer &ndash; not the participant &ndash; pays the cost of benefits after the participant&rsquo;s deductible is met, we expect defendants to argue that the plaintiffs have not suffered injury in fact because the participant&rsquo;s costs are not impacted.&nbsp; In other words, to the extent excessive fees are paid to PBMs, those fees are paid by the employer, not the participants &ndash; the participants have no &ldquo;skin in the game.&rdquo;
Similar arguments have been made as to claims in the retirement plan and MEWA contexts, and those cases may offer useful insight into the viability of a constitutional standing argument in the excessive health plan fee cases.&nbsp; &nbsp;For example:
<ul class="wp-block-list">
<li>Thole v. U.S. Bank, N.A, 590 U.S. 538 (2020) &ndash; In 2020, the Supreme Court addressed whether participants in a defined benefit pension plan had standing to bring claims alleging the plan fiduciaries&rsquo; failure to prudently manage the plan&rsquo;s aggressive investment portfolio caused nearly $750 million in plan losses.&nbsp; The Court concluded the plaintiffs did not have standing and affirmed the Eighth Circuit&rsquo;s dismissal of the claims.&nbsp; The Court reasoned that, because the plan provided for a benefit amount regardless of the plan asset performance, participants would receive the full value of their benefits even if the assets had been mismanaged; therefore, plaintiffs had not suffered an injury in fact required to bring the claims.&nbsp; The Court stated that its reasoning would not apply in the context of a defined contribution plan, where participants&rsquo; benefits are tied to the value in their accounts.&nbsp;</li>
<li>Winsor v. Sequoia Benefits &amp; Ins. Servs., LLC 62 F.4th 517 (9th Cir. 2023) &ndash; In Winsor, the Ninth Circuit, relying on Thole, affirmed dismissal of the claims of MEWA participants that the MEWA fiduciaries approved payment of excessive insurer fees from the MEWA funds.&nbsp; As in Thole, the Winsor complaint contained no allegations that plaintiffs did not receive their health benefits under the MEWA. The Ninth Circuit reasoned that a health plan is analogous to a defined benefit retirement plan because participants receive a set level of benefits regardless of the MEWA&rsquo;s management, and that there was no allegation that the plaintiffs did not receive those benefits.&nbsp; The Ninth Circuit also noted that participants failed to allege facts sufficient to tie the alleged fiduciary breaches to the allegedly higher premiums paid by the plan.</li>
<li>Knudsen v. Met Life Group, Inc., 2023 U.S. Dist. LEXIS 123293 (D.N.J. 2023) &ndash; Similar to Winsor, the District Court for the District of New Jersey dismissed for lack of standing claims challenging a health plan&rsquo;s failure to use drug rebate profits to lower participant costs under the plan.&nbsp; The court analogized the health plan at issue in the case to the defined benefit retirement plan at issue in Thole, noting that the plan&rsquo;s benefits and annual premiums do not depend on or fluctuate with the plan&rsquo;s profits or losses. Because the plaintiffs did not allege they did not receive the benefits promised under the plan, the plaintiffs lack standing.&nbsp; The Knudsen plaintiffs appealed the ruling to the Third Circuit.&nbsp;</li>
</ul>
In the context of claims alleging excessive PBM fees, because the costs of any allegedly excessive fees are born primarily by the employer, and because participants&rsquo; benefits under the plan do not depend on PBM fees paid, these holdings suggest that it may be difficult for plan participants to establish sufficient injury to give them constitutional injury to bring claims.
Until the law is more developed, health plan sponsors should continue to assess their risk of similar excessive fee-type claims.&nbsp; Sponsors can take certain steps to mitigate those risks including:
<ul class="wp-block-list">
<li>Establish a welfare plan fiduciary committee (or similar structure) that meets regularly;</li>
<li>Conduct regular RFPs for service providers (including TPAs, PBMs, brokers and consultants);</li>
<li>Understand the fee structure for each plan provider and taking prudent steps to conclude that fees and expenses charged by plan providers are &ldquo;reasonable&rdquo;;</li>
<li>Establish structured procedures for monitoring service providers and other delegates (including TPA, PBMs, brokers and consultants);</li>
<li>Document meetings and decisions sufficient to demonstrate consideration of all important details;</li>
<li>Maintain plan claims procedures; administering claims in accordance with procedures (oversee and monitor claims administrator);</li>
<li>Oversee compliance with federal laws applicable to health and welfare plans (e.g., COBRA and HIPAA);</li>
<li>Monitor significant/high-profile regulatory developments and related enforcement;</li>
<li>Safeguard participant data through implementation of cybersecurity best practices; and</li>
<li>Consider obtaining fiduciary liability insurance.</li>
</ul>
If you have questions, please contact the authors or your regular Thompson Hine attorney.

core/freeform

ERISA Litigation & Compliance

Senior Managing Associate

Nate Ingraham

Partner

Katherine B. Kohn

Meredith F. Reeves

Employee Benefits & Executive Compensation

ERISA Litigation

Business Litigation

Potential Constitutional Standing Hurdles to Health Plan “Excessive Fee” Claims