Ed Mulder, a participant in his employer’s group health plan (the “Scott Plan”), was prescribed the prescription drug Mevacor, to lower his cholesterol. After taking Mevacor for a year, Mulder received a notice from the Scott Plan’s pharmacy benefits manager, PCS Health Systems, Inc. (“PCS”), explaining that instead of Mevacor, he would be receiving Prevachol, also a cholesterol-lowering drug. Believing that PCS had changed his medication to increase its own profits through the “rebates and kickbacks” it received from drug manufacturers, Mulder filed suit against PCS alleging that it breached its fiduciary duties under ERISA.
The Scott Plan delegated the authority and control of all of its health and prescription benefit coverage to Oxford Health Plans, Inc. (“Oxford”), a health maintenance organization. Oxford, in turn, retained PCS to manage its prescription drug benefits program. Pursuant to several contracts, PCS performed the following services for Oxford: (1) claims processing; (2) formulary/preferred drug list services – assisting with the determination of the drugs to be covered by the Scott plan; (3) rebate services – negotiating contracts with drug manufacturers; and (4) drug utilization review/therapeutic services – monitoring drug prescription practices.
This decision highlights how the Third Circuit determines whether a person is an ERISA fiduciary. First, as the court reiterated, the linchpin of fiduciary status under ERISA is discretion. An entity is an ERISA fiduciary if it exercises discretionary authority or control over the management or disposition of an employee benefit plan’s assets. Second, ERISA imposes fiduciary status on entities only when they perform fiduciary (i.e., discretionary) actions with respect to a plan’s assets. In other words, fiduciary status is not an all or nothing concept -- an entity may be an ERISA fiduciary when it performs some activities but not others.
In light of the above, the court concluded that PCS was not an ERISA fiduciary when it performed the above-listed activities pursuant to its contracts with Oxford. First, PCS was not an ERISA fiduciary when it processed claims because it did not have discretion when it did this – it processed claims according to Oxford’s plan specifications. Second, while PCS made suggestions for the Scott Plan preferred drug list, Oxford retained the authority to accept or reject PCS’s recommendations. Third, while PCS did negotiate for rebates with drug manufacturers, it did not acquire fiduciary status or have discretionary authority over plan assets simply by contracting to receive its compensation for services through drug manufacturer rebates. Fourth, according to the terms of their contracts, Oxford retained the right to expand or terminate PCS’s drug utilization review services. Merely designing and implementing the drug utilization review program was not enough to establish that PCS had discretionary authority over physicians and pharmacists with respect to drug utilization.
Having concluded that PCS was not an ERISA fiduciary since it did not retain discretionary authority with respect to the Scott Plan assets when it performed claims processing, preferred drug list services, rebate services, and drug utilization reviews for Oxford, the court granted PCS′s motion for summary judgment.
Mulder v. PCS Health Systems, Inc., Civ. No. 98-1003, (D.N.J. April 11, 2006) (Not for Publication)