The Fiduciary Standard in Rx: What Every Plan Sponsor Needs to Know

Adam V. Russo, Esq.
2 days ago
6 min read

Adam V. Russo, Esq., Co-Founder & CEO, The Phia Group

Healthcare costs are skyrocketing – and so is scrutiny. Lawmakers, employees, competitors, ambitious litigators – everyone is watching carefully to see how we spend every dollar. Are you “carefully watching?” Today, courts are holding plan sponsors to higher standards – expecting active oversight, cost-conscious decisions, and documented proof that you're doing what’s best for your members.

With good reason!

Benefits are now most companies’ second-largest expense after salaries, yet most employers still treat it like a one-hour/once-a-year check-the-box-and-move-on agenda item. They’ll have an employee jump through hoops to get a $5,000 raise and will conduct month-long executive meetings to reduce spending by $100,000… but will sign-off on a rate increase of $500,000 without even looking at the document or approve a $250,000 surgery without even questioning it.

That passive approach isn’t just outdated – it’s becoming a legal liability. If you haven’t revisited how you make these decisions and spend plan assets, now’s the time.

It just may be that you have a fiduciary duty to do so.

The New Reality: "Reasonable" Standards Are Shifting

What was considered “standard practice” a few years ago is now landing plan administrators in court. Recent lawsuits are targeting fiduciaries for (among other things):

Not shopping around for better rates;
Taking fees to fix their own mistakes;
Failing to explore cost-effective alternatives; and,
Lacking independent oversight in claims decisions.

The goalposts are moving. Certain behaviors that would have not long ago been considered normal are now being questioned as wasteful – or worse – self-serving and fraudulent. Furthermore, it’s not just employers that are in the crosshairs. Plan sponsors depend upon their advisors and third-party administrators – and when the employer is accused of wrongdoing – they won’t hesitate to pass the buck.

Why Independent Reviews Matter More Than Ever

The old model of having the same team that denied a claim also handle the subsequent appeal is under fire. Courts are questioning whether having an isolated team review their own work meets reasonable standards or avoids bias.

To meet evolving fiduciary expectations and emphasize objectivity, employers need to turn to independent third-party experts. This added layer of oversight is especially critical for high-dollar claims, prescription alternatives, and final appeals—areas where scrutiny (and financial impact) is highest.

As in medicine, so too here – second opinions are valuable – above and beyond protecting the plan’s finances. Having an independent third party that reviews, “Is this drug effective? What does it cost? Are there better options?” is huge.

We not only want to avoid undue expenses, but we also want to make sure we ultimately do pay for care that we initially, wrongfully denied. We want to make sure that we make the right decisions now – so that proper precedent is set for the future, and we avoid costly conflicts down the road. We want to prudently manage the plan assets in accordance with the plan terms and applicable law, for the wellbeing of our members and their families.

The Phia Group provides services like these to its clients, but we also benefit from working with other entities – such as Scripta. When people ask me why they should learn more about Scripta, I tell them it's because my family's on it. At The Phia Group, we’ve seen objective third party analysis bear fruit – including (and especially) as it relates to Rx claims, thanks to our work with Scripta.

As someone who has spent 25 years working in healthcare cost containment, I've seen plenty of services that promise the world but don't deliver. I’m the CEO of my own company. I’m not a celebrity spokesman whose purpose in life is to push every service or product that lands in my hands. When I’m introduced to innovators, I always first want to test their program with our own plan. I want to see if they really can help plan members, like our employees and their families. Only then will I let others know how it went. I don’t want to sell; I want to share experiences.

At The Phia Group, we have one of the most comprehensive health benefit plans in the country, where we offer generous, expansive coverage, little to no out of pockets, and offer free healthcare – meaning absolutely no premiums or contributions from eligible employees. To afford this, we need to be careful about how we use plan funds and avoid waste at all costs.

With that in mind, we’ve been collaborating with Scripta for our prescription drug review since 2019… Way before “fiduciary” was the buzz word of the day! We opted to work with Scripta then for the same reason that we still work with them now; because together we find significant cost-saving opportunities (despite all of our careful management and member education). If Scripta can help us save money, imagine what they can do for a typical employer plan.

Employee Education: Your Secret Weapon

There is a lot of misinformation out there. Misinformation, and resentment. As mentioned previously, securing objective third-party assistance with complicated claims processing and plan administration isn’t just about savings. It’s about ensuring that the plan is being administered properly, free of conflict or bias. Having an objective third-party in the fold gives us a paper trail to show that we actually did our homework, if and when the lawyers come knocking.

Watch the news. Look at social media. Public perception and trust in our industry has seriously eroded. We cannot continue to operate in such an insulated fashion. That’s why organizations like The Phia Group and Scripta – with what they are doing with their Rx Navigator™ and Fiduciary Protection Program – is necessary. A fresh set of eyes makes all the difference when it comes to regaining trust, ensuring accuracy, and satisfying fiduciary obligations.

There’s another common fear out there, but this one is among employers. They seem to be worried about telling employees that they’re self-funded. Maybe they want employees to think that some third-party scapegoat is taking their money and denying their claims? Maybe they think their employees will be impressed by a famous logo? Regardless of the rationale for hiding a plan’s self-funded status, it creates a major problem: members think they’re spending an insurance company’s money, so they don’t care about saving costs.

Getting plan members to understand how their consumption of health care impacts their out-of-pocket costs – now or later – is important. It’s all about educating members so they understand why it’s in their best interest to care. Only when they care will they choose to act. When employees understand that they are spending their own money – and that wasteful spending leads to higher premiums, increased deductibles, and reduced benefits next year – they become more engaged in cost-conscious healthcare decisions.

That’s when efforts to contain costs stop looking like ways to “add profits to some rich company’s bottom line” and start looking like ways to “help employees improve coverage without raising costs.”

Protecting Yourself: Four Essential Steps

Align Your Documents: Ensure that the plan documents support your cost-containment programs.
Review All Contracts: Examine agreements with administrators, PBMs, and networks for conflicting terms or prohibitions on proposed processes.
Use Your Data: Regularly analyze claims to identify high-cost drugs, chronic conditions, and generic utilization patterns.
Educate Your Members: Provide clear, accessible information and tools so they’re fully aware of their prescription options and costs.
Add Independent Oversight: Implement third-party reviews for expensive claims, drug alternatives, and appeals.

The Bottom Line

Healthcare costs are rising, million-dollar claims are now daily occurrences, and "set it and forget it" benefit management is legally risky. Plan sponsors who proactively implement independent oversight, educate their members, and use data-driven strategies will be better positioned when fiduciary challenges arise.

“Fiduciary duty” ultimately means “doing the right thing” for your employees and your organization. In today's environment, that requires active engagement, not passive management.

Adam V. Russo, Esq., former SIIA Chair, is Co-Founder and CEO of The Phia Group, LLC, an experienced provider of healthcare cost containment techniques offering comprehensive claims recovery, plan document, and consulting services designed to control healthcare costs and protect plan assets. The Phia Group’s overall mission is to reduce the cost of healthcare through its recovery strategies, innovative technologies, and legal expertise.