howard gleckman is a senior fellow at the Urban Institute, where he is affiliated with the Tax Policy Center. This article is adapted from TaxVox, the Center’s blog.
Published July 12, 2019
States battered by the opioid addiction epidemic may have found a silver lining: lawsuits against drug makers and others involved in the marketing and distribution of the painkillers could prove to be a major source of revenue. Indeed, close observers of state and local finance see the litigation as a near-copy of the suits against tobacco companies in the 1990s that eventually led to a $200 billion-plus settlement.
So what could go wrong? If the tobacco settlement is any indicator of what would happen to the money, plenty.
Lawsuits, Lawsuits Everywhere
In June, California, Hawaii, Maine and the District of Columbia filed suits against Purdue Pharma, the maker of Oxycontin, thereby joining forty-plus other states. Three months earlier, Purdue settled an Oklahoma suit for $270 million. And in May, another opioid maker, Teva Pharmaceuticals, settled with Oklahoma for $85 million.
It hardly stops there. Some 1,600 cities, counties and Native American tribes have filed their own suits against drug companies and other parties in the opioid supply chain, even including some retail pharmacies. And last year those suits were consolidated into a single case that is being heard in federal court in Cleveland. A trial, in what is shaping up as one of the largest, most complex cases ever filed, is due to begin in October. Indeed, this litigation has observers predicting the eventual outcome will be a global settlement that mimics the resolution of the massive tobacco dispute in the late 1990s.
But that raises another question: what will happen to all that money? State attorneys general say that funds recovered in litigation could be used to cover the costs of treating victims of opioid addiction as well as paying for initiatives to prevent addiction in the first place. But the tobacco settlement experience suggests that the temptation to dip into the pot to pay for services otherwise covered from the states’ general revenues — or simply to bridge budget deficits — will be very hard to resist.
What Did They Do with the Money?
A 2005 study published in the journal, Health Affairs examined six states and found that all shifted settlement money to unrelated programs. Michigan allocated much of its settlement cash to a merit scholarship program and, after 2000, used no settlement funds at all for anti-smoking initiatives. North Carolina initially diverted more than half of its windfall to tobacco growers and communities that were financially hurt by the settlement. Eventually, some of the North Carolina money was used to fund health-related programs — and some of that likely helped individuals with smoking-related diseases. But other settlement revenues were used to reduce the state’s budget deficit.
The big picture is no better. A 2007 Government Accountability Office report calculated that states used only 3.5 percent of settlement funds for tobacco control. Thirty percent was used for general health programs and 22 percent to close budget gaps. Wait, it gets worse: a 2014 National Institutes of Health study concluded that settlement funds did not stop overall declines in spending for smoking control efforts.
Of course, it is too soon to know what states will do with funds they are almost certain to receive from their opioid lawsuits. But if they follow the past pattern and use the money for other purposes, what could they do to mitigate the overuse of the painkillers?
Back To Square One?
Some would tax opioids. New York State adopted such a levy this year, and a dozen other states are considering the idea. Their goal: punish producers and sellers, and make them pay for the societal cost of opioid abuse.
But such levies raise multiple questions. First, it is far from clear that the tax would be borne by the sellers. Indeed, in light of the inelastic demand for painkillers, one would expect the incidence to fall on buyers. Some of the tax might be passed on to insurance companies that would raise premiums in response. And some users would no doubt turn to easily available untaxed — but potentially more deadly — illegal drugs. That includes heroin, of course. But illicitly obtained fentanyl is widely seen as the greatest risk.
Third, how would a tax distinguish between buyers who are abusing the drugs and those who legitimately need heavy-duty painkillers after surgery or to manage intractable pain from chronic diseases such as cancer? A tax-driven price increase might reduce opioid abuse by pricing some users out of the market, but it would impose unwarranted costs on those who legitimately need the drugs. And then there’s the not-small matter of designing the tax. Would it be tied to dosage? If so, it would drive users away from less potent opioids toward the super-strong synthetics that are riskier to use even in legitimate settings.
Best Laid Plans
A big pot of money no doubt awaits the states as legal compensation for the societal spillovers from illicit opioid sales. And if states are serious about reducing the improper use of opioids, the funds could go a fair distance in reducing the damage if they are invested in physician and patient education, enforcement of distribution regulations and, of course, treatment. But don’t count on it.
And even if the money is conscientiously targeted, the settlement should not be allowed to distract from the larger issue that policymakers have long been ducking: addiction is pathology, and treating it is a legitimate goal of health care. It should thus be covered by both private and government-sponsored health insurance.