New Kansas pharmacy law well-intentioned, but pill tax in practice | Opinion

Kansas employers, employees and families should prepare for the impact of Kansas Senate Bill 20’s new prescription drug mandates.

Most Kansans will never see a line item labeled “pill tax” on a bill or receipt. Yet as of July 1, a new state mandate took effect that increases reimbursement requirements within Kansas’ prescription drug marketplace.

While the impact will vary by health plan, employers and workers are likely to feel the resulting cost pressures in the months and years ahead.

SB 20, passed by the Kansas Legislature earlier this year, imposes new government-mandated reimbursement requirements on prescription drugs.

Supporters argued the legislation would provide financial support to pharmacies. What received far less attention during the debate, however, is who ultimately pays for those mandates: Kansas employers, employees and families.

Economics has a way of ignoring political talking points.

When government requires higher payments within the health care system, those costs must be absorbed somewhere within the health care supply chain.

SB 20 requires pharmacy benefit managers to reimburse pharmacies through a state-mandated dispensing fee set at the National Average Drug Acquisition Cost, plus $10.50, rather than allowing market participants to negotiate rates that work best for employers and employees.

Regardless of one’s opinion about PBMs, the result is the same: when the government mandates higher payments through a price floor, health care costs rise.

Kansas employers understand this reality all too well as they struggle with health care inflation that consistently outpaces general inflation. In survey after survey, health care costs rank among the top concerns for employers trying to grow their businesses.

Every additional dollar spent on health care is a dollar that cannot be invested elsewhere. It is a dollar that cannot be used for higher wages, employee bonuses, retirement contributions, new equipment or hiring additional workers.

While supporters of the legislation framed the debate as a battle between pharmacies and PBMs, that was never the central question for employers.

The real question was whether government should intervene in private health care arrangements in ways that increase costs for those purchasing coverage. Unfortunately, the Legislature answered that question with a “yes.”

When state policy increases required payments within the health care system, those costs are ultimately borne somewhere within that system.

However, Kansans should be aware that the exact impact of SB 20 will vary among health plans and consumers. Some patients may not see immediate changes at their pharmacy. Other patients will be forced to pay the NADAC plus $10.50 dispensing fee at the pharmacy counter when they fill their script (up to the out-of-pocket maximum contemplated by their health plan). Kansans using low-cost generics or high-deductible health plans will likely face the highest out-of-pocket costs.

In guidance issued ahead of the law’s July 1 implementation, the Kansas Department of Insurance stated that any impact on a patient’s out-of-pocket costs will depend on factors such as plan design, cost-sharing arrangements, existing dispensing fees and whether available rebates are applied at the point of sale. That may affect how costs are distributed among stakeholders, but it does not change the underlying reality that SB 20 increases required payments within the prescription drug marketplace.

Many legislators who supported SB 20 did so with good intentions. Rural pharmacy closures are a legitimate concern. Communities benefit when residents have local access to prescription medications, and policymakers should continue looking for solutions to preserve that access.

Unfortunately, good intentions do not eliminate economic consequences.

As with any tax or price-fixing policy, mandated costs roll downhill. The burden will fall on the employers and workers who finance the vast majority of private health care coverage in Kansas.

Whether these additional costs emerge through higher prices at the pharmacy counter, premium adjustments, benefit redesigns, employee contribution increases or other downstream effects, Kansans deserve to understand why.

Health care affordability remains one of the most significant economic challenges facing our state. Solving that challenge requires addressing the root causes of rising costs, increasing competition and encouraging innovation. New mandates that function as hidden taxes within the health care system are counterproductive.

While SB 20 took effect on July 1, the debate over health care affordability is far from over.

We hope lawmakers will closely monitor the impact of this legislation as costs imposed on employers and employees begin hitting family budgets and the bottom lines of small businesses in Kansas.

Kansas cannot solve health care affordability challenges by mandating price floors for certain providers.

Real reform lowers costs throughout the system. Hidden pill taxes do not.

— Andrew Wiens serves as executive director of Kansas Employers for Affordable Healthcare, a registered lobbyist and director of government relations at Dugan Consulting Group.