Klapp: Proposals targeting pharmacy benefits are harmful to employers

As a public servant in Scottsdale with over a decade of experience in local government and four decades as an entrepreneur and employer, I’ve witnessed firsthand the escalating drug pricing crisis in Arizona and the country. In 2023 alone, the cost of over 1,400 drugs surged, burdening hardworking state residents and forcing them to make difficult choices about paying for their prescriptions or other life essentials.

To safeguard the interests of patients and employers, we must champion a healthy free-market system that fosters competition among various stakeholders, including pharmacy benefit companies.

Not surprisingly, the blame for soaring drug prices has unfairly fallen on those who negotiate pharmacy benefits, leading to misguided federal legislation that threatens to disrupt the delicate balance in the prescription drug supply chain. Such meddling would dramatically restrict pharmacy benefit companies’ ability to secure savings and help health plan sponsors provide critical pharmacy benefits to their enrollees.

One particularly concerning policy would “delink” these companies from compensation based on the discounts and rebates they secure, which help patients enrolled in health plans save money on prescription drugs.

The larger rebate a pharmacy benefit company is able to secure, the more they are rewarded, incentivizing these companies to negotiate even better rebates so families and patients can reap the benefits of even more savings. “Delinking” proposals fail to tackle the underlying cause of the drug pricing crisis. Instead of advancing genuine solutions, this government policy will impede pharmacy benefit companies from exerting the essential downward market pressure needed in the pharmaceutical industry.

As a business owner, I know the rebates secured from pharmacy benefit companies are used to improve the lives of employees. Implementing proposals that impede free negotiations to secure larger rebates will only hurt health plan sponsors, our state’s employers, and the people who rely on them for coverage.

Further, as a businesswoman who scrutinized costs and return on investment, I question the government stepping into the negotiating process, eliminating incentives to work harder and hamstringing pharmacy benefit companies to actually perform as they should. Business people understand these companies are rightfully paid for performance.

In a recent study, renowned economist Casey B. Mulligan highlighted the potential consequences of misguided government policies, stating, “This policy would significantly change drug pricing and utilization and shift billions of dollars annually from patients and taxpayers to drug manufacturers and retail pharmacy companies. Annual federal spending on Medicare Part D premiums would increase $3 billion to $10 billion-plus any concomitant increase in Medicare subsidies for out-of-pocket expenses.”

Another analysis from health care economist Alex Brill estimated the premium increases for participants in the commercial health insurance market would rise a whopping $26.6 billion every year. The winners in this scenario? The drug companies who would see a $32 billion increase in their drug profits.

Dispelling misconceptions surrounding pharmacy benefit companies is crucial to understanding their value. These entities negotiate with pharmaceutical managers to lower drug prices, passing the savings to employers and individuals, delivering an average savings of $1,040 per person each year. Healthy competition stimulates innovation and expands consumer options. Conversely, neglecting to foster a competitive environment keeps prices high, risking the fiscal and physical well-being of hardworking taxpayers already grappling with the challenges of caring for themselves and their families.

Our Arizona legislative representatives should protect our pharmacy benefits. Senator Kyrsten Sinema’s decision to vote against S.127, the Pharmacy Benefit Manager Transparency Act, was a commendable example to the rest of the Arizona congressional delegation. If more legislators emulate her approach and resist ill-conceived measures that undermine pharmacy benefits, we can preserve and expand healthy competition in the pharmaceutical supply chain that enhances affordability for patients.

Singling out pharmacy benefit companies is not a solution to the drug pricing crisis — it is a distraction from the root causes of the crisis. We need thoughtful Arizona legislators to pursue laws supporting a robustly competitive free market while resisting the drift towards a full government takeover of our health care system.

Suzannne Klapp is a business owner and former Scottsdale Councilwoman.