A federal judge has ruled that employees of JPMorgan Chase may press forward with parts of a lawsuit contending the bank mismanaged its employee health and prescription benefit arrangements and thereby caused participants to overpay for prescription drugs and insurance premiums.
U.S. District Judge Jennifer Rochon in Manhattan said employees can attempt to prove that JPMorgan allowed repeated, unauthorized excessive payments to CVS Caremark - the pharmacy benefits manager - in ways that benefited the PBM and helped the bank avoid "blowback" from its healthcare clients.
The litigation, brought as a proposed class action on behalf of tens of thousands of employees, accuses JPMorgan of breaching the Employee Retirement Income Security Act of 1974 (ERISA) by relying on what plaintiffs describe as a "fundamentally flawed" process to select CVS Caremark. The complaint notes that CVS Caremark's parent company, CVS Health, is an investment banking client of JPMorgan.
Plaintiffs further allege JPMorgan was aware of specific opportunities to reduce costs, pointing to the public involvement of the bank's chief executive with high-profile industry figures who had explored reorganizing employee healthcare. That joint effort, known as Haven, was disbanded in 2021, according to the complaint.
Court filings say JPMorgan allowed CVS Caremark to mark up the prices of 366 generic drugs by an average of 211 percent, a practice that, in some instances, resulted in plan participants paying more than uninsured consumers. The complaint highlights one instance involving the multiple sclerosis drug teriflunomide, which it alleges was inflated from $16.20 to $6,229.23 for a 30-unit prescription - an increase of more than 38,000 percent.
In a 34-page opinion, Judge Rochon rejected certain allegations. She dismissed claims that JPMorgan breached fiduciary duties of loyalty and prudence, observing that "decisions about joint ventures, corporate strategy, or relationships with third parties do not become fiduciary acts merely because defendants also sponsor an ERISA plan."
However, Rochon allowed other claims to survive, noting that plaintiffs need only plausibly allege that defendants engaged in "prohibited transactions," a standard clarified by a recent U.S. Supreme Court decision referenced in the opinion. The judge also observed that defendants may assert possible exemptions as affirmative defenses to those remaining claims.
Attorneys for the employees did not immediately respond to requests for comment. Representatives for JPMorgan and its counsel also did not immediately respond to similar requests.
Context and next steps
The surviving claims will permit discovery and further litigation activity aimed at proving whether the bank's contracting and oversight of its pharmacy benefits manager constituted prohibited transactions under ERISA. The court's ruling narrows the legal theories the plaintiffs may pursue while leaving open the possibility of defenses by the bank based on exemptions and other legal arguments.