ERISA Class Action on Prescription Drug Benefits Gets Green Light — A Warning for Plan Sponsors

A recent federal court decision allowing employees of a international financial corporation to proceed with key portions of their ERISA class action lawsuit should capture the attention of employers that sponsor health plans across the country. The ruling reinforces a trend that has been building over the past several years: prescription drug benefits are rapidly becoming a focal point of ERISA fiduciary litigation.

As I discussed in my earlier analysis of this ERISA class action and similar cases emerging nationwide, the theory being advanced by plaintiffs’ attorneys is straightforward but powerful. Employers that sponsor health plans have fiduciary obligations under the Employee Retirement Income Security Act (ERISA). Those fiduciary duties include the obligation to prudently select and monitor vendors that administer plan benefits. In the context of prescription drugs, that means pharmacy benefit managers.

This case now represents one of the most visible examples of how this legal theory is gaining traction. The lawsuit was filed by employees participating in the corporation’s employer-sponsored health plan. The plaintiffs allege that the corporation breached its ERISA fiduciary duties by allowing excessive prescription drug prices within its health plan. Specifically, the complaint focuses on the company’s relationship with its pharmacy benefit manager, CVS Caremark.

According to the Complaint, the PBM charged inflated prices for certain medications, including widely available generic drugs that could be purchased at significantly lower prices outside the health plan. The plaintiffs claim that the company failed to properly oversee the PBM’s pricing practices and therefore allowed the health plan to pay unreasonable costs for prescription drugs.

One example cited in the Complaint has drawn particular attention. The lawsuit alleges that the corporation's health plan paid more than $6,000 for a 30-tablet supply of the generic multiple sclerosis drug teriflunomide. According to the plaintiffs, the same medication could be obtained at retail pharmacies for a fraction of that price resulting in markup of 38,000%. 

The plaintiffs argue that this type of pricing disparity was not an isolated occurrence. Instead, they allege that the PBM imposed significant markups across hundreds of generic medications dispensed through the plan. According to the Complaint, these inflated drug prices ultimately translated into higher premiums, higher deductibles, and higher out-of-pocket costs for employees participating in the plan.

The central legal claim is that the company failed to exercise prudent oversight of its PBM and therefore violated ERISA’s fiduciary standards. The corporation moved to dismiss the case, arguing that the plaintiffs had not plausibly alleged a fiduciary breach and that the claims were speculative. The corporation also argued that employers must be afforded discretion in designing and administering their health plans.

However, the federal court rejected much of that argument. While some claims were dismissed, the judge allowed the core ERISA fiduciary breach allegations to proceed. As a result, the case will now move into discovery, where plaintiffs will seek internal communications and documents relating to the company’s PBM contract, prescription drug pricing structures, and oversight processes.

Prescription drug spending is one of the largest and fastest-growing components of employer healthcare costs. In recent years, prescription drug costs have become one of the most significant financial pressures on employer-sponsored health plans. Specialty medications, biologics, and complex drug therapies continue to drive healthcare spending upward. At the same time, the structure of the pharmaceutical supply chain has become increasingly complex.

Pharmacy Benefit Managers (PBMs) sit at the center of this system. PBMs negotiate drug prices with pharmaceutical manufacturers, establish formularies that determine which medications are covered by health plans, set reimbursement rates for pharmacies, and administer prescription drug claims. Their decisions directly affect what employers pay for medications and what employees ultimately pay at the pharmacy counter. Despite this influence, PBM pricing practices are often opaque. Many employers rely heavily on PBMs, brokers, or pharmacy consultants to manage prescription drug benefits. In many cases, employers have limited visibility into how drugs are priced, how rebates are negotiated, or how PBMs generate revenue through mechanisms such as spread pricing or rebate retention.

As I noted in my previous commentary on this ERISA litigation, this lack of transparency is becoming increasingly difficult to defend in the current regulatory and litigation environment. Regulators, policymakers, and congressional investigators have spent the past several years examining the PBM industry. State legislatures have passed numerous PBM reform laws. Federal agencies have issued reports examining PBM pricing practices and the impact those practices may have on drug costs for patients and health plans.

At the same time, plaintiffs’ attorneys have begun to frame these issues through the lens of ERISA fiduciary law. The legal argument being advanced is simple but effective. Employers that sponsor health plans are fiduciaries when selecting and monitoring vendors that administer plan benefits. If a PBM engages in pricing practices that significantly increase costs for the health plan, plaintiffs may argue that the employer failed to adequately oversee that vendor relationship.

For plan sponsors, the implications are significant. Many employers historically treated PBM contracts as technical vendor arrangements that were negotiated periodically and then left largely unchanged for several years. In many organizations, PBM oversight was delegated to benefits consultants or human resources teams without significant involvement from senior leadership or legal counsel. In today’s environment, that approach may no longer be sufficient.

Courts may increasingly expect employers to demonstrate that they have a prudent and well-documented process for selecting PBMs, negotiating drug pricing terms, and monitoring PBM performance over time. That process may include competitive procurement procedures, benchmarking analyses, and ongoing monitoring of prescription drug pricing trends. Employers should also understand how their PBM is compensated. PBM revenue models may involve spread pricing, manufacturer rebates, administrative fees, or other contractual arrangements that can affect the overall cost of prescription drugs within the plan.

Transparency is becoming a critical issue. Plan sponsors should evaluate whether their PBM contracts provide sufficient transparency into drug pricing methodologies and rebate arrangements. Employers should also ensure that their contracts contain meaningful audit rights that allow them to verify pricing practices and confirm that the PBM is complying with contractual obligations.

Another factor that is accelerating this trend is healthcare price transparency. Publicly available drug pricing tools and healthcare transparency data now allow plan participants and plaintiffs’ attorneys to compare the prices paid by employer health plans with prices available in the retail pharmacy market. When those comparisons reveal dramatic price discrepancies, plaintiffs may use that data to argue that the plan sponsor failed to act prudently. This case demonstrates how those pricing comparisons can become the foundation of an ERISA fiduciary claim.

For employers that sponsor health plans, the case should serve as an early warning sign. Prescription drug benefits are quickly becoming one of the most scrutinized components of employer healthcare spending. PBM relationships, once treated as routine vendor arrangements, are now drawing attention from regulators, policymakers, and the plaintiffs’ bar. Employers that fail to understand how their prescription drug benefits operate may find themselves facing difficult questions if those arrangements are challenged in court.

Plan sponsors that take proactive steps to evaluate their PBM contracts, demand greater transparency into drug pricing, and implement structured oversight of pharmacy benefit programs will be in a far stronger position if their health plans are ever challenged.

For plan sponsors, the message is clear. Prescription drug benefits are no longer just a benefits administration issue. They are increasingly becoming a fiduciary governance issue under ERISA. And employers that sponsor health plans would be wise to start paying closer attention now.

Originally published March 10 2026

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