For employers, efficient management of pharmacy benefits is crucial because mismanagement can lead to substantial financial losses and legal consequences. Ensuring that pharmacy benefits are handled with care, transparency, and adherence to fiduciary responsibilities is more important than ever.
Fiduciary responsibility is the legal and ethical duty to act in the best interest of another party. In terms of pharmacy benefits, this means that your pharmacy benefits manager (PBM) should prioritize you and your members over their own financial gains. However, most PBMs aren’t held accountable for an employer’s fiduciary responsibilities.
Sequoia’s 2024 Pharmacy Compliance Benchmarking report found that 68% of companies, primarily in the technology industry, are concerned about their fiduciary responsibility, particularly regarding their pharmacy benefits.
This indicates that employers are taking the PBM regulatory attention, growing public scrutiny, and governance concerns seriously. As a result, employers are seeking guidance on their fiduciary duties and due diligence actions.
This article will provide an overview of current litigation around this topic, outline its significance to you, and suggest actions you can take to ensure thorough due diligence.
A Turning Point: Two Litigations Underway
There continues to be a spotlight on the challenges and complexities of the pharmacy distribution and reimbursement system in the US. There have been several key news articles and reports released shaping the next steps in managing pharmacy benefits.
In 2024, we saw the first of many anticipated class action lawsuits against two large companies, Johnson & Johnson (J&J) and Wells Fargo, for allegations of fiduciary breach and mismanagement of their prescription drug programs. The lawsuits against J&J and Wells Fargo are part of ongoing investigations into whether companies are acting in the best interest of their plan participants, as well as using care and prudence to select service and administrator providers that ensure reasonable costs.
Most recently, the J&J lawsuit resulted in favor of employers by dismissing the majority of the allegations due to insufficient evidence by the district court. The Wells Fargo lawsuit is still pending. Regardless of the outcomes, these lawsuits raise awareness for companies, particularly self-funded plans, to review their fiduciary obligations and maintain robust fiduciary procedures.
Growing PBM Regulatory Scrutiny
Recent pharmacy news headlines focused on the opaqueness around PBM business practices. In 2023, nearly 150 of over 800 proposed bills targeting PBM practice reform, reducing patient costs, increasing access and lower drug prices were enacted across the US, Washington D.C., and Puerto Rico. With a new year beginning, there is still a prominent interest in PBM legislation with, on average, almost a third of overall prescription drug legislation relating to PBMs.
In the span of about six months, the Federal Trade Commission (FTC), a bipartisan agency that enforces federal consumer protection laws against fraud, deception, and unfair business practices, released two interim reports (report one and report two) on the results of their two-year investigation on the impact that dominant PBMs have on accessibility and affordability of prescription drugs.
Based on these results, the FTC sued the top PBMs with the largest market share – Optum Rx, CVS Caremark, and Express Scripts – for their business practices related to utilization of their collective market power to inflate the cost of prescription drugs for their own profit, specifically insulin, a lifesaving diabetes drug. These PBMs countersued claiming that the FTC has no right to interfere with private contracts and transactions. Both lawsuits are still underway.
The FTC lawsuit is anticipated to be just the beginning as the demand continues to grow for deeper understanding and investigation on PBMs and their business practices for managing prescription drug costs.
Pulse Check on How Companies Are Managing Their Fiduciary Responsibility
Companies are taking the lawsuits and allegations seriously and are seeking guidance on their fiduciary duties and actions to perform their due diligence. According to Sequoia’s 2024 Pharmacy Compliance Benchmarking report (see related chart below), the top actions companies have already taken or are thinking about taking, include:
- Establishing a benefits committee or more rigor to current benefits committee
- Partnering with subject matter experts in the pharmacy benefits space
- Performing a pharmacy PBM RFP in 2025 or upon renewal
- Moving to a more transparent PBM contract and arrangement
Companies are working with experts in pharmacy benefits who can provide deeper knowledge around clinical and cost utilization, marketplace trends, and innovative strategic solutions.
There is a growing focus on transparency in pharmacy benefits that we anticipate will continue as companies seek clarity and openness around their PBM business practices on affordability and accessibility of prescription drugs.
Sequoia Data: Top Company Actions to Manage Fiduciary Responsibility
Source: Sequoia 2024 Pharmacy Compliance Benchmarking reportActions Companies Can Take
Companies can adopt various strategies to manage pharmacy fiduciary responsibility. Consider these management practices commonly implemented by Sequoia clients to support their due diligence:
- Work with your advisor to collaborate with pharmacy benefit experts to stay informed about the pharmacy market landscape, trends, and clinical insights
- Ask your carrier or PBM about their approach to supporting your company with its transparency needs
- If your company is fully insured, work with your advisor to understand the benefits and considerations of self-funding, including a self-funding opportunity analysis
- If your company is self-funded, work with your advisor to request and review claims data and contractual terms for opportunities to maximize cost management strategies and optimize key contractual terms
Need Guidance on Your Pharmacy Benefits?
To support companies and their members, Sequoia’s pharmacy advisory team implements a comprehensive pharmacy benefit management strategy, including:
- Being PBM vendor agnostic so we can work with any PBM vendor or pharmacy point solution in the market with no consultant conflict of interest
- Offering best in class PBM pricing arrangements and contractual language
- Simplifying PBM or pharmacy point solution vendor oversight by managing the relationship to ensure your needs are being met, while also providing consultative guidance for market trends, clinical insights, best practices, and market leading pharmacy management strategies
- Delivering a customizable and flexible pharmacy benefit management approach that aligns with your goals and balances plan cost savings with minimal member disruption
Connect with a Sequoia advisor to learn how Sequoia’s pharmacy advisory team is integrated in our benefits services and tailored solutions.
The information and materials on this blog are provided for informational purposes only and are not intended to constitute legal or tax advice. Information provided in this blog may not reflect the most current pharmacy developments and may vary by jurisdiction. The content on this blog is for general informational purposes only and does not apply to any particular facts or circumstances. The use of this blog does not in any way establish an attorney-client relationship, nor should any such relationship be implied, and the contents do not constitute legal or tax advice. If you require legal or tax advice, please consult with a licensed attorney or tax professional in your jurisdiction. The contributing authors expressly disclaim all liability to any persons or entities with respect to any action or inaction based on the contents of this blog. © 2025 Sequoia Consulting Group. All Rights Reserved.
