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How Will Governments Spend Their Opioid Settlements From Drug Companies?

As they start to roll in, some say the tobacco settlement offers a cautionary tale.

Protesters rally near the Arthur M. Sackler Museum at Harvard University. The Sackler family owns Purdue Pharma.
(AP/Josh Reynolds)
In recent weeks, drug companies have reached their first settlements in lawsuits related to their role in the opioid crisis. They will pay Oklahoma and West Virginia a total of nearly $300 million.

With hundreds of similar cases still pending, many wonder, what will governments do with the money?

The hope, says Mark Chalos, a Nashville-based attorney who is representing municipalities in a national opioid case, is that any proceeds from opioid-related lawsuits will go toward overdose prevention and other public health programs most affected by the crisis that took more than 70,000 lives last year.

“Up to this point, the vast majority of the costs of the opioid catastrophe have been shouldered by the taxpayers,” says Chalos.

In 2015 alone, the White House Council of Economic Advisers estimated the non-fatal costs of the epidemic totaled more than $430 billion.

“It is our hope and it is the intention of [the] lawsuit,” Chalos continued, “to hold the industry accountable and to make the opioid industry shoulder its share of the burden.”

In Oklahoma, nearly $200 million of its $270 million payout from Purdue Pharma and the Sackler family, which owns Purdue, will go toward establishing the National Center for Addiction Studies and Treatment at Oklahoma State University in Tulsa. Local governments will get $12.5 million. About $60 million went toward legal fees.

West Virginia, which settled last week for $37 million with the drug distributor McKesson, hasn't said where the proceeds will go. But two years ago, the state opted to place $24 million from settlements with drug wholesalers Cardinal Health and AmerisourceBergen into a newly-created Ryan Brown Addiction Prevention Recovery Fund.

The Oklahoma and West Virginia settlements are the first in what many believe will be a steady flow of similar activity in the coming years. Thousands of state and local governments have filed similar litigation against opioid manufacturers and distributors. The biggest case is a consolidation of lawsuits brought by more than 1,500 counties, municipalities, hospitals and other entities. It's being tried in a federal court in Ohio. Meanwhile, state attorneys general have launched their own cases. At least 330 opioid-related cases against drug companies are pending in lower courts in at least 45 states.

The scale and public health implications of this legal battle has made for frequent comparisons to governments' fight against big tobacco and the landmark settlement that followed in 1998. That agreement gave states $246 billion during the first 25 years of the settlement, with payments continuing thereafter.

In some ways, the tobacco settlement provides a cautionary tale.

Most of those proceeds have disappeared into state general funds, leaving just a portion left over to help defray the public health costs of smoking. According to a 2007 report from the Government Accounting Office, states on average had allocated just 30 percent of their settlement money to health care. Nearly as much -- 23 percent -- went to cover budget deficits. States have also used the funds for education and infrastructure projects by issuing so-called tobacco bonds, which are paid back through states’ annual tobacco settlement payments.

State officials who were involved at the time said they believed any restrictions on how states could spend the proceeds would have likely been viewed as an unconstitutional infringement on legislators’ power of the purse. But since then, U.S. Sen. Richard Blumenthal, who was Connecticut’s attorney general in the 1990s, told Politico he wishes that theory had been tested in court, and he hopes more guardrails are put in place on any opioid settlement.

In many cases, local officials filed their own lawsuits to avoid potential state rules on how settlements could be spent. 

Hennepin County, Minn., Deputy Administrator Jennifer DeCubellis says localities know how best to direct any proceeds for the unique needs of their community. In Hennepin County, for example, child welfare services have seen some of the largest cost increases from the opioid crisis.

“We need to solve for where the pain points are,” DeCubellis says. “If all of your money goes in one bucket, it makes a difference in that bucket -- but not across a community, which is what we need to see in a situation like this.”

Despite the comparisons to the tobacco lawsuits, and inflation, some believe the opioid cases will yield smaller payouts. Last fall, S&P Global Ratings predicted any mass settlement would be “considerably lower” than the tobacco settlement of the 1990s. More recently, Holly Froum, Bloomberg Intelligence litigation analyst, predicted that drug makers may have to spend only $50 billion to resolve all the opioid suits.

After settling with Purdue, Oklahoma’s case against three other drug manufacturers -- Allergan, Cephalon and Janssen Pharmaceuticals -- is slated to go to trial this month. It has the potential to yield the first jury award and could foreshadow the outcome in other cases.

The national opioid litigation in the U.S. Northern District of Ohio is scheduled for trial in October. But the judge in the case, Dan Polster, has been pushing for a swift settlement that would include money to help treat the 2 million people addicted to opioids, and would place restrictions on pharmaceutical companies.


In Other Public Finance News:


A Tax-Season Present for States

Earlier this month, Governing reported that state income tax revenues were falling short of expectations, thanks in part to unusual taxpayer behavior following passage of the 2017 federal tax law. As many as 19 states were coming up short heading into tax-filing season.

But now, it looks as if many states will be able to catch up.

Early tax returns in some bellwether places are looking positive. In April, California collected 35 percent more in income taxes than in April 2018; New Jersey collected 57 percent more; and Massachusetts 37 percent more.


More Upheaval for Houston Firefighters

This week brought another twist in Houston's battle with firefighters. A judge struck down the city's controversial Proposition B, which voters passed last year to make firefighters' pay equal to that of police officers. 

Mayor Sylvester Turner challenged the measure in court, arguing that it violated the Texas local government code and the state constitution. He won.

Last week, after mediation attempts between the city and the firefighters union stalled, Turner implemented Prop B raises -- but he also laid off more than 200 firefighters and demoted almost 500. He said the layoffs and demotions were necessary to afford the raises.

The union has vowed to appeal the ruling.

Turner, meanwhile, says the city will take back those raises and the layoffs. But, he added, he would support raising firefighters' pay at least 9.5 percent. The raise firefighters received under Prop B averaged 29 percent.

This appears in "The Week in Public Finance" newsletter. Subscribe for free.

Liz Farmer, a former Governing staff writer covering fiscal policy, helps lead the Pew Charitable Trusts’ state fiscal health project’s Fiscal 50 online resource.
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