Appeals Court Rules Health Benefits Cos. are not Fiduciaries When Setting Prices

The Second Circuit on Monday dismissed an appeal by the plaintiffs in a consolidated class action suit against Anthem Inc. and Express Scripts Inc. that alleged the defendants violated their fiduciary responsibilities under the Employee Retirement Income Security Act (ERISA), instead ruling that health companies are not acting as ERISA fiduciaries when setting prescription prices.

The plaintiffs originally alleged that an agreement between the two defendants resulted in higher drug prices, the costs of which they say were passed on to beneficiaries of the company’s ERISA benefits plan.

According to the opinion, Anthem, a health benefits company, and Express Scripts, a pharmacy benefits manager (PBM), entered into a 10-year agreement on Dec. 1, 2009, that said Express Scripts will manage the prescription medication programs offered in Anthem’s plans, process claims of Anthem benefit holders, and provide administrative services.

Concurrent to the signing of the PBM agreement, the plaintiffs alleged, was a negotiation between Anthem and Express Scripts for the Express Script’s purchase of other Anthem-owned PBMs, all NextRx companies. According to the opinion, a condition of the NextRx sale was the PBM agreement, and the price of the NextRx sale was connected to Anthem’s contribution for prescription drugs during the 10-year deal period. 

“During negotiations, Express Scripts offered to pay $500 million for the NextRx Companies in exchange for providing prescription medication at a lower price. Alternatively, Express offered to pay $4.675 billion for the NextRx Companies, but would then charge higher prices for prescription medications during the PBM Agreement. Anthem chose the latter option,” the court explained. The plaintiffs alleged that Anthem’s choice meant Express Scripts could “charge far more for prescription drugs than the industry standard … and those inflated costs are passed on to the plan subscribers.”

These allegations were dismissed by the Southern District of New York, so the plaintiffs then appealed to the Second Circuit, arguing that the defendants were indeed in violation of ERISA sections that outline the obligations of a fiduciary. The plaintiffs purported that Anthem acted as a fiduciary during its negotiation with Express Scripts to sell NextRx “for a higher price knowing it would result in Express Scripts charging a higher price for prescription drugs,” the court said.

The court explained, however, that “the decision to sell a corporate asset is not a fiduciary decision — even if the sale affects an ERISA plan,” which affirmed the district court’s decision that Anthem did not act as a fiduciary. Similarly, the court ruled that “when a PBM sets prices for prescription drugs pursuant to the terms of a contract, it is not exercising discretionary authority,” affirming that Express Scripts also was not acting as a fiduciary.

The plaintiffs were represented by Keller Rohrback LLP and Whatley Kallas LLP. Anthem was represented by White & Case LLP. Express Scripts was represented by Quinn Emanuel Urquhart & Sullivan LLP and Steptoe & Johnson LLP.