PBM Litigation Advances Beyond Motion to Dismiss

ERISA Litigation Targeting PBM Oversight Continues to Evolve

Legal challenges under ERISA against employers sponsoring health plans are becoming more frequent, particularly in cases involving oversight of pharmacy benefit managers (PBMs). Plan participants have increasingly argued that employers failed in their fiduciary responsibilities by not adequately monitoring PBM arrangements.

Although many of these lawsuits have not moved forward, a recent federal court decision allowing a prohibited transaction claim to proceed marks a notable shift. While the long-term implications are still uncertain, this development is worth close attention.

Case Overview

On March 13, 2025, a group of current and former employees filed a class action lawsuit against JPMorgan. The plaintiffs alleged violations of ERISA fiduciary duties—specifically prudence and loyalty—as well as engagement in prohibited transactions related to how the company managed prescription drug benefits under its self-funded health plan.

The complaint focused on JPMorgan’s relationship with its PBM, CVS Caremark. According to the plaintiffs, the arrangement led to:

  • Drug prices that were significantly higher than acquisition costs

  • Additional expenses resulting from spread pricing practices

  • Increased costs tied to retained manufacturer rebates

  • Higher charges through specialty drug classifications

  • Transactions that allegedly violated ERISA rules

The plaintiffs claimed these practices resulted in financial harm, including elevated out-of-pocket expenses and higher premium contributions.

JPMorgan responded by filing a motion to dismiss on June 3, 2025.

Court Ruling on Motion to Dismiss

In its March 9, 2026 decision, the District Court issued a mixed ruling:

  • Fiduciary breach claims were dismissed on the grounds that the actions in question were not fiduciary in nature.

  • Claims based on increased premiums were rejected due to lack of standing, as the alleged harm was deemed too speculative.

  • Prohibited transaction claims were allowed to proceed, based on allegations of direct financial harm from excessive out-of-pocket drug costs.

Why the Fiduciary Claims Failed

The plaintiffs argued that JPMorgan acted imprudently in designing and managing its prescription drug program. However, the court determined that decisions about PBM contracts—such as pricing structures, formularies, and drug classifications—fall under “settlor functions.”

These types of decisions relate to plan design rather than plan administration, meaning they are not governed by ERISA’s fiduciary standards.

Why the Prohibited Transaction Claims Survived

The court permitted the prohibited transaction claims to continue, finding that the plaintiffs sufficiently alleged that plan assets were used to pay a service provider (the PBM) unreasonable compensation.

The ruling relied on prior Supreme Court guidance, which established that plaintiffs only need to plausibly allege the elements of a prohibited transaction to survive early dismissal. These elements include:

  • A transaction involving the plan

  • Awareness (or constructive knowledge) by a fiduciary that the transaction involved services

  • Involvement of a “party in interest,” such as the PBM

The court concluded that these criteria were adequately met in the complaint.

However, it also emphasized that JPMorgan may still present valid defenses as the case progresses.

Key Takeaways

The final outcome of this case remains uncertain, and appeals from either side are possible. Still, the decision stands out as the first among similar lawsuits to survive a motion to dismiss in full with respect to prohibited transaction claims.

It highlights an important distinction: while employers have wide latitude in designing health plans, the financial arrangements with service providers—particularly PBMs—can still trigger ERISA scrutiny.

Employer Action

Although no immediate action is required, employers may want to take a proactive approach by:

  • Reviewing fiduciary processes and documentation

  • Evaluating PBM agreements for fee transparency and reasonableness

  • Ensuring oversight mechanisms are in place for service provider relationships

With litigation trends pointing toward increased focus on PBM compensation, careful review of these arrangements may help mitigate future risk.

Mark C