Two New Suits Filed Challenging Copay Assistance Programs

Two recently filed putative class actions assert ERISA and Racketeer Influenced Corrupt Organizations Act (RICO) claims against pharmacy benefit managers (PBMs) and affiliated parties, challenging the propriety of copay assistance programs. Gluesing v. Prudentrx LLC & Caremark RX LLC, No. 1:24-cv-00549 (D.R.I. Dec. 26, 2024), and Gurwitch v. Save on SP LLC, et al., No. 1:25-cv-00006 (W.D.N.Y. Jan. 3, 2025). Copay assistance programs generally do not count financial assistance provided by a drug manufacturer toward a participant's deductible and out of pocket maximum calculations. These cases allege that these copay programs are fraudulent and "deprive[] patients of the benefits of patient copay assistance funding and increase[] patients' healthcare costs" because they are not factored into a participant's cost-sharing threshold, allegedly evading cost-sharing limitations imposed by the Affordable Care Act (ACA) as incorporated by ERISA. Significantly, the complaints assert that the PBMs are ERISA fiduciaries and seek to hold them accountable for breaching the ERISA fiduciary duties of loyalty and to administer plan in accordance with their terms. The putative classes seek relief under ERISA and treble damages under RICO.

The Gluesing case alleges that the PBM and its affiliates are ERISA fiduciaries and breached their fiduciary duties by: "(a) failing to count prescription drug copays toward the plan participant or beneficiary's annual cost-sharing limitation balance...; (b) issuing wrongful pharmacy claim denials without proper notice to the patient, depriving plan participants and beneficiaries of their appeal rights...; (c) instructing plan participants and beneficiaries on how to obtain patient assistance from drug manufacturers by, in part, misrepresenting or omitting material facts and causing patients to make misrepresentations to drug manufacturers, in violation of their duty of loyalty...; and (d) failing to perform their duties in the best interests of plan participants and beneficiaries and instead operating the [program] to benefit themselves...." The Gurwitch complaint asserts similar allegations. 

The plaintiffs' theory stands in contrast to another case pending in the District of New Jersey asserting ERISA breach of fiduciary claims against Johnson and Johnson (J&J) and its pension and benefits committee based on allegations arising from contracts with PBMs to provide prescription drug benefits to J&J health plans. See Lewandowski v. Johnson & Johnson, et al., No. 3:24-cv-00671-ZNQ-RLS (D.N.J.). In Lewandowski, the plaintiffs chose not to sue the PBM, but asserted ERISA fiduciary claims against J&J, the plan sponsor, and its benefits committee responsible for administering the plans.

Relatedly, we previously covered HIV and Hepatitis Policy Institute v. HHS, No. 1:22-cv-02604 (D.D.C. Sept. 29, 2023), an appeal by the federal government of a district court order vacating certain provisions of the 2021 Notice of Benefit and payment Parameters (NBPP) Final Rule, promulgated by the Centers for Medicare and Medicaid Services (CMS), which permitted health insurance issuers and group health plans to decline to credit certain financial assistance provided by drug manufacturers when calculating cost-sharing obligations under the ACA. The government ended up dismissing the appeal and issued a non-enforcement policy while Congress works to address the issue of whether drug manufacturer copay assistance counts toward patient cosharing and annual limits at the federal level.  

Multi-million-dollar Settlement Announced in Tobacco Surcharge Litigation

A class of plaintiffs and Bass Pro Group, LLC, announced a $4,950,000 settlement, subject to court approval, of ERISA claims alleging that the latter improperly charged employees a tobacco surcharge without meeting wellness program safe harbor regulatory requirements. Ruiz v. Bass Pro Group LLC, No. 6;24-cv-03122 (W.D. Mo. Jan. 6. 2025). According to a recently filed memorandum summarizing the settlement, "[t]he claims presented numerous novel issues, including the impact of Loper Bright on federal regulations, the scope of remedies available under ERISA to recoup the tobacco surcharge Plaintiff alleged was unlawful, and the interplay of arbitration and class action waiver agreements in the context of ERISA." This settlement is one of the first in the recent wave of tobacco surcharge cases alleging violations of ERISA's group health plan non-discrimination provisions set forth at 29 U.S.C. § 1182 and in implementing regulations.

The regulations set forth criteria that must be satisfied for a program of health promotion or disease prevention offered by a group health plan or issuer to qualify for an exception to the non-discrimination rules. These criteria include having a reasonable alternative standard (e.g., completing a tobacco cessation program) for those who do not meet the original standard (e.g., being tobacco-free) and disclosing the availability of the reasonable alternative standard to avoid the surcharge. The plaintiff alleged the defendants failed to offer a reasonable alternative standard to avoid the surcharge. The defendants challenged, among other things, the validity of the regulations under Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), and argued that the tobacco surcharge at issue complied with the plain text of ERISA. The defendants also sought to compel arbitration and enforce a class waiver. The proposed settlement agreement was reached in mediation following discovery.

Second Circuit Reaffirms Denial of Arbitration Based on Effective Vindication

On January 3, 2025, the Court of Appeals for the Second Circuit granted an unopposed motion for summary affirmance in Lloyd v. Argent Trust Co., No. 22-3116 (2d Cir. Jan. 6, 2025), confirming that the plaintiffs' ERISA fiduciary breach claims will stay in court and not be adjudicated in arbitration in accordance with the underlying ERISA plan's arbitration provision. Argent Trust Company (Argent), the trustee of the employee stock ownership plan (ESOP) at issue in the case, had appealed the lower court's denial of its motion to compel arbitration in 2022. The Second Circuit had held the appeal in abeyance while it decided Cedeno v. Sasson, 100 F.4th 386 (2d Cir. 2024). In Cedeno, a case also brought against Argent, the Second Circuit held that an ERISA plan arbitration provision that limited relief sought under ERISA § 502(a)(2) (29 U.S.C. §§ 1132(a)(2)) to the restoration of losses within the participant's individual account was invalid because it prevented the "effective vindication" of plan participants' statutory rights. The plaintiffs in Lloyd, participants in a plan with a "materially indistinguishable arbitration clause," argued in their motion for summary affirmance that the court should affirm the lower court's ruling in light of Cedeno. In a one-sentence opinion, the Second Circuit agreed.

The plaintiffs in Lloyd are two participants in the W BBQ Holdings, Inc., ESOP who allege that Argent, as ESOP trustee, and the company's controlling managers and shareholders engaged in prohibited transactions and breached their fiduciary duties in violation of ERISA § 409 (29 U.S.C. § 1109) by selling the company to the ESOP at an inflated price. As in Cedeno, the plaintiffs seek plan-wide monetary and equitable relief under ERISA § 502(a)(2) and (a)(3). Argent sought to enforce the ESOP arbitration provision, which provides that claims "must be brought solely in the Claimant's individual capacity and not in a representative capacity or on a class, collective, or group basis," and "[c]laimant may not seek or receive any remedy which has the purpose or effect of providing additional benefits or monetary or other relief to any Employee, Participant or Beneficiary other than the Claimant." 

In their motion for summary affirmance, the plaintiffs assert that they seek the same remedies as the plaintiffs in Cedeno, as participants in a plan with a materially identical arbitration provision. Therefore, the plaintiffs argue, the "one possible outcome" in the appeal was to affirm the lower court, because granting arbitration in this case would prevent the effective vindication of their right to seek plan-wide monetary and equitable relief under ERISA § 502(a)(2).

By granting summary affirmance in Lloyd, the Second Circuit reaffirms its approval of the effective vindication doctrine, which has provided the basis for invalidation of ERISA plan arbitration provisions in the Third, Sixth, Seventh, and Tenth Circuits, as well as in Cedeno. The court's decision may have been bolstered by the Supreme Court's denial of Argent's petition for certiorari in November. See Argent Trust Co. v. Cedeno, No. 24-392 (U.S. Nov. 4, 2024). The Supreme Court will have another opportunity to take up the effective vindication doctrine in a related case out of the Sixth Circuit, Parker v. Tenneco, Inc., albeit regarding a narrower arbitration provision than the one at issue in this case. In the meantime, Lloyd, Cedeno, and Parker will continue to be litigated in the district courts.

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