Claims MetLife mishandled $65 million in drug rebates flounder at Third Circuit

PHILADELPHIA (CN) — An attorney for former MetLife employees faced a skeptical Third Circuit panel Tuesday as he argued to revive his clients’ case, saying discovery would prove insurance giant harmed the plaintiffs by pocketing $65 million in drug rebates rather than cutting the cost of plans.

“All the plaintiffs allege is that MetLife removed this money for its own corporate use and purposes. Whatever MetLife wanted to spend it on — perhaps a speedboat for MetLife’s CEO — the plaintiff’s don’t know,” attorney Charles Gokey with the Minnesota-based firm Engstrom Lee argued for the employees Tuesday. “But what plaintiffs allege, and what the plan confirms, is that this money was earmarked to pay health benefits.”

MetLife’s attorney Jaime Santos from Goodwin Procter pushed back on this argument.

“There’s no factual allegation that anything was taken out of the plan and used for anything else,” said Santos.

The class of former MetLife employees led by plaintiffs Marla Knudsen and William Dutra originally filed this suit in New Jersey federal court in January 2023, seeking for monetary and equitable relief for the alleged violations of the Employee Retirement Income Security Act.

Seven months later, U.S. District Judge William Martini dismissed this case, saying that regardless of the company’s handling of the rebate, the employees got the benefits they were promised from their plans and therefore lacked standing.

“In sum, plaintiffs do not have a concrete stake in the outcome of this lawsuit and have not pled facts to demonstrate an individualized injury,” Martini wrote in his July 2023 dismissal order.

The George W. Bush appointee clarified that MetLife had made a sufficient argument that the employees received their promised benefits, and failed to support claims they paid excessive out-of-pocket costs, which he clarified “in the context of this kind of defined benefit-type plan, is not an individual injury.”

Kundsen and Dutra are former MetLife health plan participants who received medical coverage and prescription drug coverage for themselves and their family members. Between 2016 and 2021, Express Scripts, acting as MetLife’s plan’s pharmacy benefit manager, negotiated around $65 million in discounts and rebates with drug manufacturers, which the employees claim MetLife wrongfully kept.

Had the drug rebates been properly allocated, MetLife could have reduced copays and coinsurance for pharmaceutical benefits and could have distributed rebates to participants in proportion to their contributions to the plan, Gokey argued Tuesday, saying plan participants paid on average about 30% of the plan’s costs while MetLife paid roughly 70%.

“It’s not speculation because it’s an allegation of the facts,” Gokey said, adding that future discovery of MetLife records will support the plaintiffs’ claims.

But the Third Circuit panel panel seemed fairly skeptical of the class’ right to the money. U.S. Circuit Judge Arianna Freeman expressed her concerns to Gokey directly.

“You’ve told us that on average, over a few years, your clients have ended up paying about 30% of the plan cost, right? But I don’t see anything in the language of the plan — any contractual language — that says that they will be paying 30%,” the Joe Biden appointee said. “It seems that the employer has the discretion to determine the payment amount, and so sometimes the employer gets more money, sometimes the employer gets less money, but your clients are kind of subject to the vagaries of that plan.”

U.S. Circuit Judge Felipe Restrepo, a Barack Obama appointee, also pushed back on Gokey’s arguments.

“The language you used was ‘it may’. ‘it might’,” Restrepo said of the lawyer’s arguments, seeming to imply that the attorney had failed to prove solid injury.

What’s more, Freeman indicated the plan didn’t guarantee the plan beneficiaries would have any say in where the rebate money went.

“Where in the plan is the individual right to these monies?” she asked.

Santos said, “For the plaintiff to be able to say we were harmed by our premiums being increased, they’d have to plausibly allege some facts suggesting that there was some tie between the level of premiums and something that they’re pointing to that caused a depletion of plan assets."

U.S. Circuit Judge William McKee, a Bill Clinton appointee, rounded out the panel, which did not indicate when or how it will rule.

MetLife’s global insurance, annuities and employee benefit programs provide for more than 90 million customers in 60 countries.