Clinical laboratories need to review how they compensate sales personnel following the passage of the Eliminating Kickbacks in Recovery Act of 2018 (“EKRA”) (Section 8122 of the SUPPORT Act) which is effective as of October 24, 2018.  The SUPPORT Act is a combination of more than 70 bills aimed at fighting the opioid epidemic, with EKRA intended to address patient brokering in exchange for kickbacks of individuals with substance abuse disorders.  However, as written, EKRA is far more expansive.

EKRA adds an all payor (public and private) anti-kickback rule to the health care fraud laws concerning improper remuneration for patient referrals to, or in exchange for an individual using the services of, a recovery home, clinical treatment facility or clinical laboratory.  This broad language enables the federal government to monitor provider arrangements intended to generate business for any laboratory services, not only those related to individuals in treatment for substance abuse disorders, payable by a federal health care program (“FHCP”) or commercial health insurer.

The prior version of the bill entitled “Opioid Crisis Response Act” (passed in the Senate on 9/17/18) did not include EKRA provisions, and it appears that laboratories were thrown into EKRA at the last minute, as multiple House bills proposing the addition of EKRA to the SUPPORT Act did not include laboratories.  Congressman Pallone expressed his concerns with EKRA in that “[i]t did not go through regular order and was not properly vetted . . . it was added at the very last minute . . .”  He further states that: “multiple stakeholders have raised concerns that the language does not do what we think it does. It may have unintended consequences.”  This is evident in our review and analysis of the EKRA provisions.

With regard to payment arrangements with sales personnel, one statutory exemption provides that compensation paid to both W-2 employees and 1099 contractors would not violate EKRA if the payment is not determined by or does not vary by:

  • the number of individuals referred;
  • the number of tests or procedures performed; or
  • the amount billed or received

By inclusion of the statutory exemption in EKRA, Congress indicates that payments to any employee or contractor related to the business they generate is prohibited unless the laboratory can meet the specific criteria under the three-prong exception.

As a comparison, the federal Anti-Kickback Statute (“AKS”)[1] prohibits improper remuneration “in return for referring an individual” or “purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item” directly or indirectly reimbursable by a federal health care program.  We know that the Office of the Inspector General (“OIG”) for the Department of Health and Human Services imposes a broad interpretation of the AKS (especially the phrase “arranging for or recommending”) and has taken the position that a pure marketing relationship to generate FHCP business could be a violation of the AKS.  However, compliance with the regulatory criteria under the Bona Fide Employee safe harbor[2] has been heavily relied upon in the health care industry to permit commission-based payments to sales personnel based on FHCP business they generate.[3]

On its face, EKRA would seem to make such commission-based payments to W-2 sales personnel, otherwise permissible under the AKS safe harbors, a criminal act that can carry up to $200,000 in fines and imprisonment up to (10) years for each occurrence.  However, Congress includes an exemption provision that states: “[t]his section shall not apply to conduct that is prohibited under section 1128B of the Social Security Act (42 U.S.C. 1320a–7b) [Anti-Kickback Statute].”  We are uncertain why Congress used the term “prohibited” instead of “not prohibited” or “permitted” in this provision.  This may have been a mere drafting error, but CMS will need to clarify whether it believes payments to sales personnel permitted under a AKS safe harbor are now prohibited by EKRA.  If that is the case, then the exemption should apply to the business generated by W-2 sales personnel for all payors (public and private) under EKRA.

Prior enforcement actions illustrate that the federal government takes the position that sales personnel can be deemed to induce patient referrals in violation of the federal AKS; however, to our knowledge this position has not been fully litigated and we do not believe this is a strong position.  Generally, sales personnel are in a position to solicit referrals and promote laboratory services but are not in a position to make a patient referral; exert undue influence on medical decision-making; or control an individual’s election of a laboratory service.  This distinction should be relevant to a criminal or civil prosecution; especially in the context of laboratory services where coverage requires an order by a physician or other authorized person.

Notwithstanding the above, EKRA would appear to permit a payment arrangement with sales personnel similar to the type that meets the criteria of the Personal Services and Management Contract safe harbor under the AKS.[4]  That safe harbor permits payments to sales personnel if the compensation is fixed in advance and not determined by the volume or value of the FHCP business they generate, which means commission-based payments do not qualify since there would be a nexus between the compensation and volume or value of business they generate.[5]

Finally, Congress does not address whether intent requires actual knowledge of the statute or specific intent to commit a violation, which is the standard in most criminal laws.  Multiple House bills proposing the addition of EKRA to the SUPPORT Act included intent language that did not ultimately make it into EKRA (“Neither actual knowledge of this section nor specific intent to commit a violation of this section shall be an element of an offense under this section.”)[6].  CMS will need to provide clarity.

______

[1]  42 U.S.C. § 1320a-7b(b)(1)

[2] 42 C.F.R. §§ 1001952(i)

[3] 54 Fed.Reg. 3088, 3093 (1989)

[4] 42 C.F.R. §§ 1001952(d)

[5] See 64 Fed.Reg. 36360; OIG Advisory Opinion No. 98-10.

[6] See H.R. 6878 (Sept. 25, 2018).

On October 24, 2018, President Trump signed sweeping bipartisan legislation to combat the opioid epidemic. The Substance Use–Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act, or the SUPPORT for Patients and Communities Act (“H.R. 6” or “the Law”), aims to “reduce access to the supply of opioids by expanding access to prevention, treatment, and recovery services.”[1] Congress has already appropriated $8.5 billion to implement this “landmark legislation” in 2018 and 2019.

In a series of Client Alerts, Epstein Becker Green will provide an overview of key components of H.R. 6, focusing on substantive requirements impacting an array of providers, manufacturers, health care professionals, community services organizations, and other health care entities. Forthcoming topics include the impact on treatment measures for opioid use disorders, addiction prevention measures, clarifications to U.S. Food and Drug Administration and U.S. Drug Enforcement Administration regulation and enforcement authority over opioid products, Medicare and Medicaid funding provisions, enhanced health care fraud protection, new data & reporting provisions, and telehealth requirements.

H.R. 6’s breadth requires impacted entities to take careful note of the Law’s requirements and varying effective dates.

____

[1] Press Release, The White House, President Donald J. Trump Signed H.R. 6 into Law (Oct. 24, 2018), available at https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-signed-h-r-6-law/.

[2] Press Release, U.S. Senate Committee on Health, Education, Labor & Pensions, President Trump Signs Alexander Bill to Fight Opioid Crisis (Oct. 24), available at https://www.help.senate.gov/chair/newsroom/press/president-trump-signs-alexander-bill-to-fight-opioid-crisis.

The Medicare Payment Advisory Commission (“MedPAC”) met in Washington, D.C., on October 4-5, 2018. The purpose of this and other public meetings of MedPAC is for the commissioners to analyze existing challenges and issues within the Medicare program and to provide future policy recommendations to Congress. MedPAC issues these recommendations in two annual reports, one in March and another in June. These meetings offer a comprehensive perspective on the current state of Medicare as well as future outlooks for the program.

As thought leaders in health care law, Epstein Becker Green monitors MedPAC developments to determine how regulations and policies will impact the health care marketplace. Here are our five biggest takeaways from the October meeting:

Managing Prescription Opioid Use in Medicare Part D

MedPAC provided an informational overview of opioid use and polypharmacy as an update to its work in prior years. MedPAC first discussed the use of opioids by Medicare beneficiaries. Since the 1990s, aggressive marketing of extended-release opioid formulations and liberal prescribing of these drugs for acute and chronic pain due to ambiguous clinical guidelines for safe prescribing contributed to the “opioid crisis.”  The Centers for Disease Control and Prevention (“CDC”) reported over 17,000 prescription opioid overdose deaths in 2016. Due to their age and accompanying pain and “illness burdens,” Medicare beneficiaries are especially prone to the toxicity and harm associated with even low-dosage opioid prescriptions. In its 2016 guideline, CDC generally addressed safe opioid prescribing for acute and chronic pain, including its preference for non-pharmacologic therapy and non-opioid pharmacologic therapy and recommendation that “additional caution” be used “when initiating opioids for patients age 65 and older.”

MedPAC then presented updated data on patterns of opioid use in Medicare Part D. From 2012 to 2016, opioid analgesic (i.e., pain-relief drugs) prescriptions per 1,000 Medicare Part D enrollees have declined about 18 percent. While it recognized this positive trend, MedPAC expressed continued concern that (1) “opioid use in Part D continues to be widespread, with nearly one-third of enrollees filling at least one opioid prescription in a given year”; (2) most opioid use did not relate to hospice care or cancer treatment; and (3) gross spending on opioids is among the highest in Part D, totaling $4.1 billion in 2016. MedPAC also discussed varying “opioid-related adverse drug events” (“ADEs”), defined narrowly by MedPAC  as “diagnosis codes specifying poisoning by opioid in inpatient and outpatient claims, including emergency department visits that resulted in inpatient stays.” MedPAC found that “high-intensity users”—17% of Part D beneficiaries defined as those with higher average dosage and treatment lasting longer than three months—had nearly seven times the ADE rate of “low-intensity opioid users,” defined by MedPAC as beneficiaries with “50 [morphine milligram equivalents (“MME”)] per day or less and treatment lasting three months or less.” MedPAC also stressed that polypharmacy, or beneficiaries using multiple drugs, is another key contributor to ADEs.

Lastly, MedPAC described steps that the Centers for Medicare & Medicaid Services (“CMS”) and Part D plan sponsors have been taking to monitor opioid use and manage opioid misuse. In 2013, CMS required plan sponsors to identify enrollees who were at “high risk of opioid abuse or misuse,” monitor high cumulative enrollee dosages, and notify pharmacists to coordinate with the enrollee’s prescriber. CMS uses its Overutilization Monitoring System (“OMS”) to supervise these plan sponsors’ compliance. In 2019, Part D plan sponsors will now have the authority to limit at-risk beneficiaries’ access to frequently abused drugs using a tailored approach. For example, plans must limit opioid quantity to a seven-day prescription for post-surgery patients. Plans may also limit access through a drug management program. Examples of restrictions include placing restrictions on beneficiaries’ fills, locking beneficiaries into seeking prescriptions from certain prescribers, and prescriber “safety checks” once cumulative daily dosage reaches 90 MME. Through Medicare Drug Integrity Contractors (“MEDIC”), CMS also monitors providers or opioids to ensure they are not prescribing inappropriately. In 2019, offending prescribers may ultimately be placed on CMS’s “preclusion list,” where Part D plan sponsors must reject their pharmacy claims.

Opioids and Alternatives in Hospital Settings

Under the new SUPPORT for Patients and Communities Act, MedPAC is required to report on the following opioid issues in inpatient and outpatient hospital settings by March 2019: (1) how Medicare pays for opioid and non-opioid alternatives, (2) incentives under prospective payment systems for prescribing opioids versus opioid alternatives, and (3) how Medicare claims data tracks opioid use. MedPAC addressed each issue in succession.

Reporting on the first issue, MedPAC stated that Medicare uses bundled payments for inpatient and outpatient hospital settings via the inpatient prospective payment system (“IPPS”) and outpatient prospective payment system (“OPPS”), respectively. The IPPS bundles all goods and services together, including drugs supplied during the hospital stay, whereas the OPPS pays for integral goods and services that are bundled into categories based on clinical and cost similarity. Medicare Part B pays for analgesics, including opioids, that are integral to the procedure or treatment for the beneficiary. For example, post-surgical opioid prescriptions are considered integral by CMS. Non-integral opioids may or may not be paid by Medicare Part D.

Although MedPAC acknowledged that patient-specific and clinical factors play a role in a provider’s prescribing choices, MedPAC focused on the financial incentives that guide prescribers’ opioid administration. Both IPPS and OPPS incentivize hospital prescribers to select the lowest-cost goods and services while adhering to Medicare’s quality measurement and reporting programs and clinical professionalism. MedPAC then stated it has “begun an analysis of the differences in prices between opioid and non-opioid drugs commonly used . . . [a]nd . . . options about non-drug alternatives.”

MedPAC lastly described how Medicare tracks opioid use. As described in the earlier section, CMS monitors Part D opioid use through OMS; ensuring plan sponsors implement opioid overutilization policies effectively. CMS also uses quality measures to track trends in opioid overuse and publicizes providers’ prescribing data through its online Part D Opioid Prescribing Mapping Tool. MedPAC then stated that CMS does not yet track opioid use in inpatient and outpatient hospital settings (Medicare Parts A and B). MedPAC listed multiple reasons for CMS initiating opioid monitoring in hospital settings, including the severity of the opioid epidemic and the need to understand the extent to which beneficiaries are exposed to opioids while in the hospital. It also acknowledged some challenges to implementation, including questions about how to interpret the “appropriateness of opioid prescriptions identified by a tracking program” and how Parts A and B do not have plan sponsors on which to rely for reporting data.

Medicare Payment Policies for APRNs and PAs

In response to Commissioner interest on rebalancing the physician fee schedule, MedPAC discussed Medicare payment polices for advanced practice registered nurses (“APRNs”) and physician assistants (“PAs”). APRNs include four types of licensed practitioners: nurse practitioners (“NPs”), certified nurse anesthetists (“CNAs”), clinical nurse specialists (“CNSs”), and certified nurse midwives (“CNMs”). While individual states determine the services and responsibilities that APRNs and PAs have, their authority and independence have substantially increased nationwide over time. Based on its review of existing literature, MedPAC concluded that “NPs and PAs provide roughly equivalent care in terms of quality and patient experience” at a lower cost for their provider-employers (although evidence of lower payer costs is mixed).

MedPAC then addressed Medicare payment for APRNs and PAs, whose services are generally covered if medically necessary. Medicare pays APRNs and PAs directly through their national provider identifier (“NPI”) at 85% of the physician fee schedule. Under this direct billing, MedPAC noted substantially increasing trends in total Medicare FFS allowed charges for APRNs and PAs—NPs total allowed charges billed have increased 158% from 2010–2016. MedPAC also pointed to rapidly growing (149% from 2010–2016) APRN/PA primary care patient visits, especially compared to the decline in traditional primary care physicians (-13% change from 2010–2016). Medicare also pays NPs and PAs under “incident to” billing at 100% of the physician fee schedule: the physician NPI is used instead of the NP or PA NPI. Certain circumstances (e.g., hospital settings, new patients, new problems for existing patients) require that NPs bill directly to Medicare; however, the rapid expansion of NPs and PAs suggests that incident to billing will also expand, especially in “evaluation and management” services (“E&M”) according to MedPAC. Based on its analysis, MedPAC concluded that for E&M office visits performed for established patients, NPs likely utilized incident to billing practices roughly 40% of the time, and PAs billed this way roughly 30% of the time. MedPAC then concluded with two policy options: (1) to eliminate incident to billing for APRNs and PAs—potentially reducing Medicare and beneficiary expenditures and (2) improving Medicare’s specialty designations for APRNs and PAs to indicate primary care as a field of practice.

Medicare’s Role in the Supply of Primary Care Physicians

MedPAC discussed Medicare’s role in the supply of primary care physicians (PCPs), focusing on beneficiaries’ current access to PCPs, factors influencing physicians’ choice of specialty, and methods for recruiting more medical students or graduates into primary care.  Recent statistics have shown that though most Medicare beneficiaries report that they are able to obtain care when needed, there was a small share who reported trouble finding a doctor.  This was a concern to the MedPAC committee given that the absolute number of primary care physicians treating beneficiaries between 2011 and 2016 had increased.

It was reported that physicians focusing on primary care were generally trained in family medicine, geriatric medicine, internal medicine and pediatrics.  Whereas family medicine residents usually ended up practicing primary care, internal medicine residents have increasingly decided to enter subspecialties (e.g., cardiology, gastroenterology), instead of practicing primary care.  The percentage of internal medicine residents going into primary care dropped 6% between 2001 and 2010.

One of the key factors influencing physician choice of specialty was educational debt load.  Medical students with high debts levels were found to be less likely to choose primary care.  The committee found this very concerning because education debt has been rising over time.  For instance, median debt among medical school graduates rose roughly $15,000 between 2010 and 2016.

MedPAC is currently seeking input on ideas to increase the supply of PCPs.  One of the proposed routes was creating a scholarship or loan repayment program for medical students and/or graduates who commit to providing primary care to Medicare beneficiaries.  Design issues to consider include size of programs in terms of dollars and the number of physicians, financing a Medicare program, determining type of medical student eligibility, physician requirement for treating Medicare beneficiaries, and the length of the service commitment.

Episode Based Payments and Outcome Measures Under a Unified Payment System for Post-Acute Care

MedPAC provided an overview regarding 2019 plans for the unified post-acute care prospective payment system (PAC PPS) and the quality measures being developed for PAC providers.  MedPAC has been developing a unified PAC PPS that would extend across four settings – home health agencies, skilled nursing facilities long-term care hospitals, and inpatient rehabilitation facilities – and provide base payments solely on patient characteristics.  The committee sees the system as having an impact in terms of redistributing payments, thus making payments more equitable “across different patient conditions compared with current policy.”  With payments increasing for medically complex patients and decreasing for patients receiving rehabilitative care unrelated to their clinical conditions, the belief is that providers would have less financial incentives to prefer various patients over others.

The committee discussed their initial work regarding patient stays, emphasizing that a stay-based payment system would encourage stays while discouraging providers from “offering a continuum of care.”  The committee proposes an episode-based PPS, where a single payment would cover both stays in the episode of PAC care (this would pertain only to post-acute care and others services like hospital or physician services).  MedPAC believes that such a model provides several advantages such as encouraging institutional PAC providers to offer a continuum of care as well as lower program spending and beneficiary cost sharing.

Finally, the Commission discussed their development of uniform measures to be utilized for measuring quality of care across providers.  In conjunction with the PAC PPS, the Commission recommended implementing a unified value-based payment (VBP) program, which would hopefully discourage shifting of care to other providers as well as overuse of care.  Some of the uniform measures discussed for a PAC VBP include Medicare spending per beneficiary, combined admissions and readmissions, hospital readmissions, and discharge to the community.  The Commission hopes to develop a combined measure of admissions and readmissions that will include admissions to hospitals for both community and inpatient admitted beneficiaries.

In yet another development on the fight to address the opioid epidemic, U.S. Attorney General Jeff Sessions announced on Tuesday, April 17th that the U.S. Drug Enforcement Administration (“DEA”) will issue a Notice of Proposed Rulemaking (“NPRM”) amending the controlled substance quota requirements in 21 C.F.R. Part 1303. The Proposed Rule was published in the Federal Register yesterday and seeks to limit manufacturers’ annual production of opioids in certain circumstances to “strengthen controls over diversion of controlled substances” and to “make other improvements in the quota management regulatory system for the production, manufacturing, and procurement of controlled substances.”[1]

Under the proposed rule, the DEA will consider the extent to which a drug is diverted for abuse when setting annual controlled substance production limits. If the DEA determines that a particular controlled substance or a particular company’s drugs are continuously diverted for misuse, the DEA would have the authority to reduce the allowable production amount for a given year. The objective is that the imposition of such limitations will “encourage vigilance on the part of opioid manufacturers” and incentivize them to take responsibility for how their drugs are used.

The proposed changes to 21 C.F.R. Part 1303 are fairly broad, but could lead to big changes in opioid manufacture if implemented. We have summarized the relevant changes below.

Section 1303.11: Aggregate Production Quotas

Section 1303.11 currently allows the DEA Administrator to use discretion in determining the quota of schedule I and II controlled substances for a given calendar year by weighing five factors, including total net disposal and net disposal trends, inventories and inventory trends, demand, and other factors that the DEA Administrator deems relevant. Now, the proposed rule seeks to add two additional factors to this list, including consideration of the extent to which a controlled substance is diverted, and consideration of U.S. Food and Drug Administration, Centers for Disease Control and Prevention, Centers for Medicare and Medicaid Services, and state data on legitimate and illegitimate controlled substance use. Notably, the proposed rule allows states to object to proposed, potentially excessive aggregate production quota and allows for a hearing when necessary to resolve an issue of material fact raised by a state’s objection.

Section 1303.12 and 1303.22: Procurement Quotas and Procedure for Applying for Individual Manufacturing Quotas

Sections 1303.12 and 13030.22 currently require controlled substance manufactures and individual manufacturing quota applicants to provide the DEA with its intended opioid purpose, the quantity desired, and the actual quantities used during the current and preceding two calendar years. The DEA Administrator uses this information to issue procurement quotas through 21 C.F.R. § 1303.12 and individual manufacturing quotas through 21 C.F.R. § 1303.22. The proposed rule’s amendments would explicitly state that the DEA Administrator may require additional information from both manufacturers and individual manufacturing quota applicants to help detect or prevent diversion. Such information may include customer identities and the amounts of the controlled substances sold to each customer. As noted, the DEA Administrator already can and does request additional information of this nature from current quota applicants. The proposed rule would only provide the DEA Administrator with express regulatory authority to require such information if needed.

Section 1303.13: Adjustments of Aggregate Production Quotas

Section 1303.13 allows the DEA administrator to increase or reduce the aggregate production quotas for basic classes of controlled substances at any time. The proposed rule would allow the DEA Administrator to weigh a controlled substance’s diversion potential, require transmission of adjustment notices and final adjustment orders to a state’s attorney general, and provide a hearing if necessary to resolve material factual issues raise by a state’s objection to a proposed, potentially excessive adjusted quota.

Section 1303.23: Procedures for Fixing Individual Manufacturing Quotas

The proposed rule seeks to amend Section 1303.23 to deem the extent and risk of diversion of controlled substances as relevant factors in the DEA Administrator’s decision to fix individual manufacturing quotas. According to the proposed rule, the DEA has always considered “all available information” in fixing and adjusting the aggregate production quota, or fixing an individual manufacturing quota for a controlled substance. As such, while the proposed rule’s amendment may require manufacturers to provide the DEA with additional information for consideration, it is not expected to have any adverse economic impact or consequences.

Section 1303.32: Purpose of Hearing 

Section 1303.32 currently grants the DEA Administrator to hold a hearing for the purpose of receiving factual evidence regarding issues related to a manufacturer’s aggregate production quota. The proposed rule would amend this section to conform to the amendments to sections 1303.11 and 1303.13 discussed herein, allowing the DEA Administrator to explicitly hold a hearing if he/she deems a hearing to be necessary under sections 1303.11(c) or 1303.13(c) based on a state’s objection to a proposed aggregate production quota.

Industry stakeholders will have an opportunity to submit comments for consideration by the DEA by May 4, 2018.

[1] DEA, NPRM 21 C.F.R. Part 1303 (Apr. 17, 2018).

The Health Care Compliance Association (HCCA) kicked off its 22nd Annual Compliance Institute on Monday, April 16, 2018. During the opening remarks, Inspector General Daniel Levinson, of the Department of Health and Human Services (HHS) Office of Inspector General Office (OIG), announced the rollout of a new public resource to assist companies in ensuring compliance with Federal health care laws. The Compliance Resource Portal on the OIG’s website features:

  • Toolkits
  • Advisory opinions
  • Provider Compliance Resource and Training
  • Voluntary Compliance and Exclusions Resources
  • Resources for Health Care Boards and Physicians
  • Accountable Care Organizations
  • Special Fraud Alerts, Other Guidance, and Safe Harbors

The main benefit of the portal is that it streamlines public access to helpful compliance guidance resources, and allows for OIG to highlight new materials and updates.  For example, the portal already indicates that a Toolkit to Identify Patients at Risk of Opioid Misuse is “coming soon.”

In addition to announcing the portal, the Inspector General also touched on the dynamic shift in compliance considerations due to changes in the health care industry. Shifts such as the move towards value based care and the increase in role of technology create new risks and issues for providers, which makes user-friendly public access to compliance resources increasingly more important.

The Inspector General also emphasized the OIG’s focus on the “power of data” when it comes to compliance.  Mr. Levinson’s remarks indicated that data-driven decision making is crucial to navigating risk-mitigation waters, and that consequently the OIG places high value on the diligent collection and review of data in the compliance context.

At this point, it’s not really ground-breaking news that America has a problem with opioid drugs. By way of anecdote, when I became a federal prosecutor in 2011, the last heroin case that had been prosecuted in the Nashville U.S. Attorney’s office was in the early-1990s; although, to be fair, there were then lots of what we called “pill” cases involving opioids. When I left the office in 2017, at least half of the office’s major investigations were directly related to opioids–some pills, but mostly outright heroin or fentanyl/carfentanyl . In Nashville, Tennessee, OxyContin (which is an opioid-based painkiller) can be worth up to $1.25/milligram (mg). That means that just one 80mg OxyContin has a street value of $100. Price, is of course, a reflection of demand and demand, in this case, is driven by addiction.

That addiction is costing Americans a lot of money. The White House estimates that in 2015, over 33,000 Americans died from opioid related overdoses and that the economic cost of the opioid crisis was $504.0 billion, or 2.8% of GDP. To put that in some perspective, 2015 U.S. healthcare spending accounted for 17.7% of GDP, which means that Americans spent ~1/6 as much on opioids as they did on healthcare. State governments, often stuck footing the bill for indigent addicts because of increased law-enforcement activity and drug/medical treatment, are looking at the opioid manufacturers and distributors to help pay some of this cost.

In September, 41 state attorneys general announced serving subpoenas on 6 opioid manufacturers as part of a multi-state investigation into whether the companies engaged in any unlawful practices in the marketing and distribution of prescription opioids. The attorneys general are also looking into the distribution practices of 3 pharmaceutical distributors that account for the distribution of roughly 90% of the U.S. opioid supply. According the N.Y. State AG, opioid distributors alone make nearly $500 billion a year in revenue, but those numbers (perhaps as a result of the market response to the negative publicity generated by all of this) might not be as robust as they once were. Stock prices (many of these companies are privately held) for two of the manufacturers subject to the AG subpoenas have seen stocks nose dive by ~90% and ~75% respectively after both achieving all-time highs in 2015. Of course, the reason for those drops is likely non-singular, but the timing does perhaps signal the market’s appetite for risk.

So, obviously, if you are an AG looking to combat a public health disaster, going after the manufacturers of opioids (who, at least in 2015, had lots of money), much like the manufacturers of tobacco is pretty appealing. That said, there are some considerations that are likely to be major impediments in the effort to make this into a big tobacco settlement:

  1. Prescription pills are prescribed by a medical doctor. Unlike the pack of cigarettes bought at the gas station from a clerk whose only responsibility is to verify age, opioids are, ostensibly, ordered by someone with years of advanced medical training. Pinning all the responsibility (or even just “most of it”) on manufacturers and distributors alone will be a challenge.
  2. The success of the tobacco litigation was driven in no small part by the efforts of Richard “Dickie” Scruggs, the exceptionally well-connected Mississippi lawyer who spearheaded the class-action effort and coalesced all the states into letting him be the point-man for all negotiations. Much of what made Scruggs successful in that effort–1) the self-proclaimed advantage of home cookin‘; 2) the ability to wheel and deal in the Capital thanks to his access to then Senate Majority Leader, and brother-in-law, Trent Lott; 3) the close relationship with then Mississippi Attorney General Mike Moore (who, coincidentally, is advocating for the opioid suit, this time as a plaintiff’s attorney)–is unlikely to fly in today’s world given the guttural uneasiness associated with any of the tactics utilized by Scruggs, now a convicted felon for attempting to bribe a judge in a post-Katrina litigation, and overall discomfort with anything that smacks of nepotism.
  3. The stated goal of many of the proponents of the tobacco litigation was to put cigarette manufacturers out of business–this, of course, is a sentiment still voiced by some. But, no one is realistically seeking to litigate these pharmaceutical companies into the ground. While these companies manufacture opioids, they also research and manufacture drugs that help treat pediatric Crohn’s disease, multiple sclerosis and Parkinson’s disease, among others. Simply, even if there is a settlement in all of this, the reality is that the settlement is likely to contemplate the ability of these companies to continue to research and manufacture the next wave of pharmaceutical improvements.