Self-insured employers assume a measurable amount of risk when sponsoring their own health plans, yet this risk often pays off in the form of lower healthcare costs and consistent bottom-line savings. However, what many employers overlook is the new risks associated with fiduciary standards in pharmacy benefits management. Even though employers do not play a direct role in managing pharmacy benefits for their enrollees, they’re still on the line for a failure to uphold fiduciary responsibilities by partnering with the wrong pharmacy benefits manager (PBM).
The Critical Importance of Fiduciary Duties
Fiduciary requirements demand ethical and cost-effective pharmacy benefits management that prioritizes enrollees’ health and quality of life. This entails making clinically informed decisions, guaranteeing transparency around price and necessity, and diligently overseeing PBM activities to optimize both financial and health outcomes. Failure to uphold these duties puts self-insured employers at risk of:
- Financial Losses. Overlooking fiduciary responsibilities opens the door to a host of financial risks that can strain employee budgets and employer bottom lines. The Employee Retirement Income Security Act of 1974 (ERISA) serves to protect plan sponsors and enrollees from wasteful spending, most notably in pharmacy benefits.1 Without proper oversight, PBMs engage in profit-driving practices that drive up prescription drug costs, resulting in excessive spending that undermines financial sustainability.
- Legal Repercussions. Failure to fulfill fiduciary duties exposes plan sponsors to legal liabilities, as evidenced by the J&J class action lawsuit. By neglecting to negotiate drug costs with pharmacies in its enrollees’ best interests, J&J cost its employees millions of dollars in unnecessary pharmacy spend.2 For one multiple sclerosis drug that should cost an estimated $77 out of pocket, J&J’s plan paid an estimated $10,200 — a glaring example of heavily inflated pharmacy costs that enrollees should be protected from.2
- Diminished Care Quality. Prioritizing profit over patient care in PBM arrangements directly opposes fiduciary responsibilities to work only in the best interests of the enrollee. When these duties are disregarded, PBMs inevitably redirect their focus to building hidden profits into contract terms — rather than finding new ways to optimize care. As a result, restrictive formularies and exorbitant prescription drug costs can lower the quality of care, leading to suboptimal health outcomes.
- Loss of Trust From Plan Members. Neglecting fiduciary duties quickly erodes trust between employers and plan members. When employees perceive that their interests are not being prioritized — or protected, at the very least — they lose trust in their employers and begin to question their benefit integrity. This can substantially harm employee satisfaction, company morale, and retention, resulting in lower productivity and organizational performance.
- Increased Regulatory Scrutiny. Regulatory bodies are on the lookout for self-insured employers who violate fiduciary standards — even when done unknowingly — and regularly conduct audits, impose penalties, and enforce stringent measures to root out and address non-compliance. These interventions not only disrupt operations and obstruct cash flow but also broadcast the plan sponsor’s lack of commitment to ethical benefits management.
- Erosion of Employee Benefits. As healthcare costs continue to balloon, fiduciary standards play a larger role in safeguarding benefit integrity. Without these guardrails in place, plan sponsors may resort to cost-cutting measures that compromise the quality and accessibility of employee benefits, leading to poorer employee health and higher turnover rates.
How to Uphold Fiduciary Duties in Pharmacy Benefits Management
To mitigate each of these risks, self-insured employers must prioritize fiduciary oversight throughout PBM arrangements. This entails thoroughly vetting PBMs, insisting on price transparency and rebate arrangements, and conducting independent audits to assess performance and adherence to fiduciary standards. By working with a certified fiduciary pharmacy benefits manager like US-Rx Care, plan sponsors can bypass these risks and have complete peace of mind that their PBM is working in the best interests of the plan and every enrollee with aligned interests for the highest quality of care at the lowest possible cost.
Sources
- Fiduciary Responsibilities. (n.d.). U.S. Department of Labor. Accessed April 3, 2024, from https://www.dol.gov/general/topic/retirement/fiduciaryresp
- Wiessner, D. (2024, February 6). Reuters. https://www.reuters.com/legal/litigation/jj-faces-class-action-over-employees-prescription-drug-costs-2024-02-05/