American financial services giant Wells Fargo & Co. has been hit with a class action lawsuit accusing the bank of mismanaging its employee health insurance plan, which allegedly forced tens of thousands of US employees to overpay for prescription drugs.
Filed on Tuesday in Minnesota federal court, the lawsuit claims the bank violated the Employee Retirement Income Security Act (ERISA), which mandates that companies manage employee health and retirement plans prudently.
This legal action was brought forward by four former employees and follows a pattern of increasing scrutiny on Wells Fargo.
Just a day before, a US judge ordered the bank to face another lawsuit alleging it defrauded shareholders by pretending to commit to hiring diversity, conducting fake job interviews with non-white and female applicants with no intention of hiring them.
US District Judge Trina Thompson in San Francisco found direct and indirect evidence suggesting the bank intended to defraud shareholders about its hiring practices, overturning a previous dismissal of the lawsuit last August.
Allegations of inflated drug prices
The core of the Minnesota lawsuit revolves around claims that Wells Fargo’s health plan pays inflated prices to pharmacy benefit managers (PBMs).
PBMs negotiate with drugmakers, health insurance plans, and pharmacies to set prescription drug prices and determine which drugs are included on their formularies.
The plaintiffs argue that the health plan has been paying exorbitant prices for medications, far above market rates.
One striking example cited in the lawsuit involves the cancer medication bexarotene.
Wells Fargo’s health plan allegedly paid over $69,000 for a tube of bexarotene, which could be purchased for as little as $3,750 at other pharmacies.
Additionally, the lawsuit claims that the health plan marked up the prices of generic “specialty drugs” used to treat certain conditions by nearly 400%.
The lawsuit proposes a nationwide class of health plan participants and beneficiaries, potentially including tens of thousands of people.
The plaintiffs are seeking unspecified damages and statutory penalties, aiming to hold Wells Fargo accountable for the alleged mismanagement and overpricing.
Nationwide scrutiny of PBMs
This lawsuit against Wells Fargo is part of a broader trend of increased scrutiny on PBMs and their role in the rising costs of prescription drugs in the United States.
PBMs are facing growing criticism from government bodies and advocacy groups who argue that their practices contribute significantly to escalating medication prices.
Earlier this month, the Federal Trade Commission (FTC) voted 4-1 to release an interim staff report containing findings from its two-year investigation of the country’s six largest PBMs.
The agency claimed that vertical integration and market consolidation have allowed a few PBMs to exert significant power over drug prices and consumer costs, as well as unaffiliated pharmacies.
Wells Fargo’s lawsuit is the latest in a series of legal actions against employer-sponsored health plans accused of failing to secure lower drug prices for their participants.
Johnson & Johnson is facing a similar proposed class action lawsuit filed in New Jersey federal court in February.
The plaintiffs in that case allege that the company’s mismanagement of its health plan resulted in millions of dollars in overpayments for drugs.
Johnson & Johnson has moved to dismiss the case, arguing that their plan has actually saved participants money and that the named plaintiff lacks legal standing to sue.
As of now, Wells Fargo has not responded to requests for comment on the lawsuit.
The outcome of this case could have significant implications for how employer-sponsored health plans negotiate drug prices and manage PBM relationships in the future.
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