Closely Watched ERISA Claims Against J&J Dismissed on Standing Grounds, But Court Allows Plaintiff to Replead Claims

The U.S. District Court for the District of New Jersey dismissed without prejudice ERISA breach of fiduciary duty claims in Lewandowski v. Johnson and Johnson, No. 24-671 (D.N.J. Jan. 24, 2025), for lack of Article III standing. 

As previously discussed, this case is a putative class action on behalf of plan participants and beneficiaries against Johnson & Johnson (J&J) and its Pension and Benefits Committee. The named plaintiff alleged that the defendants breached ERISA's fiduciary duty of prudence in selecting the pharmacy benefit manager (PBM) for J&J's health plans by "agreeing to make [the] ERISA plans and beneficiaries pay unreasonable prices for prescription drugs," by "agreeing to contract terms with [the] PBM that needlessly allows the PBM to enrich itself at the expense of the company's ERISA plans and their beneficiaries," by failing to "actively manage and oversee key aspects of the company's prescription drug program," and by failing to take steps "to rein in [the] PBM's profiteering and protect plan assets and beneficiaries' interests." The complaint includes examples of inflated generic and specialty drug prices allegedly charged under the plans as compared to what retail pharmacies charge without insurance. 

In dismissing these claims on standing grounds, the court relied on Knudsen v. MetLife Grp., Inc., 117 F.4th 570 (3d Cir 2024), and Thole v. U.S. Bank N.A., 590 U.S. 538 (2020), to reject the plaintiff's argument that she sustained an injury-in-fact in the form of paying more in premiums due to the defendants' alleged breach of fiduciary duty connected to PBM contract negotiation as "speculative and hypothetical" and because her entitlement to benefits under her plan was unchanged. The court also found that the plaintiff had not established standing based on the allegation that she paid more out-of-pocket for drugs than she should have under the plan, reasoning that, although this alleged injury-in-fact was fairly traceable to the defendants' conduct, the injury was not redressable by the court because the plaintiff had reached her prescription drug cap for each year at issue in the complaint. The court reasoned that:

A favorable decision would not be able to compensate Plaintiff for the money she already paid. Even if Defendants were to reimburse Plaintiff for her out-of-pocket costs on a given drug—that is, the higher amount of money she spent as a result of Defendants’ breaches—that money would be owed to her insurance carrier to reimburse it for its expenditures on other drugs that same year. In short, there is nothing the Court can do to redress Plaintiff’s alleged injury.

Because the court determined that dismissal was appropriate on standing grounds, it did not address the sufficiency of the pleadings as to the merits of the ERISA claims. The court allowed the plaintiff to proceed on her ERISA section 502(c)(1) claim focused on the defendants' alleged failure to provide requested documents to plaintiff. 

Significantly, the court's dismissal of the ERISA fiduciary breach claims is without prejudice, giving the plaintiff another opportunity to replead her claims. Moreover, the court did not reach a conclusion that the plaintiff's claimed injury-in-fact in the form of increased out-of-pocket expenses from the defendants' alleged conduct was too speculative to qualify as a cognizable injury for standing purposes. These results, together with the Third Circuit's remand in Knudsen, indicate that the issues of standing and the overall viability of these types of health plan fee litigation cases remain unsettled. This case is illustrative of a growing number of ERISA lawsuits challenging the costs and fees paid by health plans and one of the first to directly target plan fiduciaries in connection with PBM contracting.  

Updated Guidance Issued on No Surprises Act QPA and Gag Clause Provisions

On January 14, 2025, the Departments of Labor (DOL), Health and Human Services (HHS), and the Treasury (collectively, the Departments) issued Frequently Asked Questions (FAQs) Part 69 regarding compliance with the No Surprises Act (NSA) qualifying payment amount (QPA) and gag clause provisions passed in the Consolidated Appropriations Act, 2021 (CAA). These new FAQs address outstanding questions on calculating QPAs under the NSA, complying with the disclosure and Independent Dispute Resolution (IDR) provisions of the NSA regulations, and determining the scope of the gag clause prohibition.

The FAQs follow protracted litigation over regulations and guidance issued by the Departments to implement the NSA. Most recently, in October 2024, the Fifth Circuit reversed a lower court's vacatur of regulations setting out the methodology for calculating QPAs. After the reversal, plans and issuers were left with three potential QPA methodologies: the methodology prescribed in the 2021 regulations, before the lower court's vacatur; a methodology that complies with the 2023 lower court vacatur; and a methodology that complies with the 2024 Fifth Circuit decision. The FAQs clarify that:

• Plans and issuers are expected "to calculate QPAs using a good faith, reasonable interpretation of the applicable statutes and regulations that remain in effect following the decisions of both the Fifth Circuit and the district court" as soon as the Fifth Circuit's mandate is issued. However, acknowledging the burdens associated with shifting methodologies, the Departments extended the enforcement relief provided in previous FAQs for plans and issuers that use either the 2021 or 2023 methodologies to calculate QPAs for services provided before August 1, 2025. 
• Plans and issuers must continue to provide QPA disclosures to providers with the certification that the QPA was calculated in compliance with NSA regulations. The FAQs state that the Departments "will exercise enforcement discretion" with respect to such certifications when the plan or issuer has used the 2021 or 2023 methodology, provided that the plan or issuer discloses the methodology it used upon request by the provider.

The FAQs also address certain process requirements of the NSA regulations related to paper disclosures and IDR determinations:

• The Departments specified the timing in which plans and issuers must send required disclosures to providers in the case that the required disclosures are sent in paper form while the initial payment or notice of denial of payment is sent electronically, given the impact of mail times on the 30-day window to open the IDR process. The FAQs state that plans and issuers must send the disclosures "on or near the date that it sends the initial payment or notice of denial of payment, and must ensure that both the initial payment or notice of denial of payment and the required disclosures are sent not later than 30 calendar days after the plan or issuer receives the information necessary to decide a claim for payment for the services billed by the provider or facility."
• In the case of a provider that receives required disclosures after receiving initial payment or notice of denial of payment, because the disclosures were sent in paper form, the Departments clarified that the provider's 30-day window to open negotiations would begin upon receipt of the disclosures. If the provider never receives the disclosures, they may initiate open negotiation or request an extension to initiate the IDR process, as necessary.
• The FAQs also address the impact of an IDR payment determination on NSA cost-sharing restrictions. According to the Departments, a plan or issuer may not recalculate a participant's cost-sharing amount after a certified IDR entity has made a payment determination with respect to a qualified IDR item or service, if such a recalculation or increase would result in a cost-sharing amount that exceeds the permitted cost-sharing amount calculated using the "recognized amount" as defined by the NSA regulations.

The FAQs include multiple scenarios illustrating the scope of the NSA's gag clause prohibition, which prohibits plans and issuers from entering into agreements with service providers that restrict the plan or issuer from accessing certain claim information and sharing the same with participants. According to the Departments:

• A plan or issuer violates the gag clause prohibition by contracting with a service provider that has downstream agreements with additional service providers that restrict access to the kind of information covered by the prohibition.
• A plan or issuer that enters into an agreement that restricts access to claims information except on the discretion of the service provider violates the prohibition.
• "A limitation on the scope, scale, or frequency of electronic access to de-identified claims and encounter information" is a violation of the prohibition "to the extent the provision places unreasonable limits on the ability of plans and issuers to access such information or data upon request." Such "unreasonable" limits include provisions that restrict access to data to specific circumstances or to a limited sample size.
• Plans and issuers subject to an agreement in violation of the prohibition are still expected to complete a Gag Clause Prohibition Compliance Attestation (GCPCA) and identify in the GCPCA the violative provision and the steps that the plan or issuer has taken to remove the provision. The Departments specify that they "will take into account good-faith efforts to self-report a prohibited gag clause in any enforcement action brought by the Departments."

Executive Order Directs Halt in Federal Funding and Support for Gender Transition Healthcare to Persons Under 19

On February 28, 2025, President Trump issued an executive order stating that "it is the policy of the United States that it will not fund, sponsor, promote, assist, or support the so-called 'transition' of a child from one sex to another." The order directs the Director of the Office of Management and Budget (OMB) to "immediately take appropriate steps to ensure that institutions receiving Federal research or education grants end the chemical and surgical mutilation of children." It also directs the Secretary of HHS to "take all appropriate actions to end the chemical and surgical mutilation of children, including regulatory and sub-regulatory actions" that may involve specified laws, programs, issues or documents, including Medicare or Medicaid conditions of participation or coverage, section 1557 of the Affordable Care Act (ACA), essential health benefit requirements, and the Diagnostic and Statistical Manual of Mental Health, Fifth Edition (DSM-5). In addition, pursuant to the order, the Federal Employee Health Benefits (FEHB) and Postal Services Health Benefits (PSHB) programs, as well as the Department of Defense's TRICARE, must exclude coverage for the targeted health care services. The order also contained multiple enforcement-related provisions. 

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