Wells Fargo PBM Lawsuit: Key Lessons For Employer Fiduciary Responsibility

Independent pharmacy benefit consulting is key to maintaining fiduciary responsibility.

In July of 2024, four former Wells Fargo employees filed a class action lawsuit against the company and plan administrators for failing to perform their fiduciary duties in managing the prescription drug benefit program. This suit is the second case filed against a Fortune 500 employer in 2024, following the Johnson & Johnson lawsuit that sent shockwaves through the pharmacy industry. Both class action suits focus on extreme variances in specialty generic drug pricing compared to publicly available metrics. The lawsuits contain many similarities, including the same law firm representing the plaintiffs, the same PBM contracted to administer the plan, and the same employee benefits consultant who advised the employers. However, there are some key differences in the Wells Fargo lawsuit. The case goes into much greater detail on excessive administrative fees charged to the plan, conflicts of interest in the pharmacy benefits ecosystem, and the company’s alleged failure to conduct proper oversight and a comprehensive procurement. This blog will discuss these differences and provide best practices for employers to ensure their prescription drug benefit programs have prudent and unbiased oversight.

Lessons From The Wells Fargo Lawsuit

A key component of the Wells Fargo lawsuit is the claim that in 2022 the plan paid over $25 million to the PBM in administrative fees, an increase from $9 million in 2019. The plaintiffs determined these numbers through the publicly available Form 5500, in which employers must sign off on all fees paid to their vendors and must be submitted to the federal government. The Wells Fargo employees who signed Form 5500 from 2019-2022 are named as defendants in the case. The lawsuit also compares 2022 administrative fees for other large clients with the same PBM to demonstrate Wells Fargo administrative fees exceeded market rates. The suit states Wells Fargo used a traditional PBM contract, including spread pricing, allowing drug and claim level variability. A standard feature of a traditional contract is lower administrative fees because the PBM collects revenue through the spread pricing arrangement. High administrative fees are more commonly associated with pass-through arrangements. The lawsuit suggests these fees may have been going from the PBM directly to the consultant, stating firms can collect $1-5 per prescription or share in rebates. Due to the confidential nature of the PBM contract, the origin of these administrative fees may remain unknown.

The plaintiffs do not name the employee benefits consultant as a defendant in the filing. The lawsuit states, “fiduciaries cannot discharge their fiduciary duties simply by relying on the advice of third-party service providers, consultants, or experts.” It also states, “Prudent fiduciaries would not hire an employee benefits consultant who was receiving kickbacks or other forms of compensation from the PBM it was assisting in selecting or negotiating with, or who would refuse to solicit bids or accept offers from PBMs who were not paying kickbacks or providing other forms of compensation.” The lawsuit continues to criticize the publicly traded consultant firm by stating, “in its SEC filings, the consultant acknowledges its receipt of indirect compensation from the companies to which it steers its clients.” It is now more important than ever for employers to evaluate if their partners provide unbiased consulting. Is the consulting firm receiving indirect revenue? Is the consultant incentivized to increase utilization with per-claim fees or prefer one PBM over another?

The lawsuit alludes to Wells Fargo simply renewing its contract with the PBM and not conducting a comprehensive RFP process. Moreover, the plaintiffs quote an article from 2013 where a Wells Fargo employee states, “Substantial savings were possible when employers act prudently in assessing PBM options, pricing strategies, and contracts.” The lawsuit states a prudent fiduciary should ensure that there are no conflicts of interest in who they hire to help select a PBM and must ensure the process is open and objective.

PSG: A Uniquely Independent Approach to Benefits Consulting

Much criticism has been levied against pharmacy benefit consultants as awareness of challenges within the drug supply chain grows. The Wells Fargo lawsuit went as far as to state, “[Consultants] may share in the rebates that the PBMs pluck from pharmaceutical manufacturers — money that otherwise could be used by employers to lower premiums for their workers.” While we cannot speak to how other pharmacy benefit consulting firms earn revenue, we can unequivocally state that PSG does not take indirect compensation, take a portion of rebates, or earn spread from our clients. 

We take pride in our independence and relentless client advocacy. We do not accept any indirect revenue from PBMs. We evaluate RFP bids from all PBMs- from the vertically consolidated largest PBMs to newer market competitors to seasoned middle market players. Last year alone we evaluated over 35 vendors during our PBM procurements – PSG does not have preferred PBMs. While infrequent, when clients request the PBM to pay us directly for our consulting services, we ensure it is done on a flat fee basis or membership-based. An independent RFP based on your unique needs, without any conflicts of interest, is critical to fulfilling a company’s fiduciary duty and reducing the risk of similar class action lawsuits.

What else can you do? The following are additional best practices that PSG provides to our employer clients to help ensure they are effectively meeting their fiduciary obligations in administering prescription benefits:

Audits: Employers must regularly audit their PBM to ensure contractual obligations are met. A successful audit program includes network contracts, rebates, invoices, claims data, and clinical criteria. While some employers have been hesitant due to a potential lack of recoverables, there is now added value in conducting audits to prove fiduciary duty is met. The Wells Fargo Lawsuit notes that the federal government has required PBMs to provide full audit rights to bid for their services.

PBM Procurements: Employers must conduct a comprehensive RFP and include multiple vendors to ensure that ingredient costs, administrative fees, ancillary fees, and rebates are market-competitive. Evaluate contract definitions from each PBM so that financial modeling is normalized. Make sure bids account for the latest market changes like AMP cap removal and biosimilar utilization shifts. Additionally, both startup and established PBMs offer new pricing models that may solve some of the challenges of outlier drug pricing noted in the lawsuit. PSG has the market and financial modeling expertise to evaluate the financial implications of these new models more accurately. Should an employer elect to renew with the current vendor, a robust process that ensures pricing competitiveness and revision of contract terms based on market events should be undertaken.

Annual Market Checks: Employers should evaluate the market annually to maintain contract competitiveness, especially given the recent impact of IRA and AMP cap removal laws. Market checks can be an opportunity to address market or PBM changes, such as the removal of a highly utilized drug from the specialty list, and ensure that the agreement continues to be in the best interest of the plan, not the PBM.

Clinical Management: Unbiased and extensive clinical insights give employers the confidence to make informed decisions around cost containment and access. With rising GLP-1 trends, emerging cell and gene therapies, and new Alzheimer’s treatments – employers need unbiased clinical guidance on drug efficacy and optimal utilization management strategies. PSG pharmacists provide this information to our clients to support their fiduciary duties of offering an affordable plan while ensuring members who need medications maintain access.

Data and Vendor Oversight: Employers should have access to claims-level data and carefully analyze any formulary decisions that will cause members to be subject to higher out-of-pocket costs. Our proprietary tool, Artemetrx, provides immediate access to relevant claims data and can quickly identify variances and drivers of spend and trend.

In today’s complex pharmacy benefits landscape, fulfilling your fiduciary obligations has never been more crucial. Selecting a partner without conflicts of interest can help provide the support needed to protect your organization better and yield optimal outcomes for your employees. Please reach out if you would like to learn more!