January 01, 2018

Making the Victim Whole Again? State and Local Governments Seek to Hold Drug Companies Accountable for Holes Left in their Communities and Budgets

Michael Kilpatrick Morton, Nevada Legislative Counsel Bureau Carson City, NV

It is nearly impossible to avoid stories and statistics on the opioid epidemic that has affected large segments of the United States population in recent years. In October 2016, a special edition of this publication dedicated to the opioid epidemic detailed various legislative actions taken by states to stem the tide of opioid-related deaths.1 Since then, the Centers for Disease Control and Prevention (CDC) has updated its statistics on opioid-involved overdose deaths. According to the CDC, death rates involving heroin and certain synthetic opioids have generally increased; from 2014 to 2015, the death rate for opioid-involved overdoses increased by 15.6 percent.2 Additionally, on October 26, 2017, President Donald Trump issued a Presidential Memorandum directing the Secretary of Health and Human Services to consider declaring the opioid epidemic a Public Health Emergency, and to use the authority that is granted to the Secretary during such an emergency to reduce the number of opioid-related deaths occurring in the United States.3

Although several states have started to address this epidemic on the policy front and it appears that the current administration in the White House will also take on the epidemic as a policy issue, certain states, as well as local governments, are not waiting to try to hold accountable who they think has had a major role in contributing to this opioid crisis. State and local governments across the country have filed lawsuits against pharmaceutical companies, alleging a multitude of legal claims and claiming that these companies have ravaged their communities and should be held financially responsible. This article will detail the legal claims made in these lawsuits, and explain the difference between lawsuits filed by local governments and individual states and the investigation launched by a group of state attorneys general into the practices of certain pharmaceutical companies relating to opioids.

State Attorneys General Take on “Big Pharma” in Different Ways

            A. Multistate Investigation

In September 2017, a bipartisan coalition of 41 state attorneys general served investigative subpoenas on five pharmaceutical manufacturers that produce opioids, as well as three pharmaceutical distributors.4 The purpose of the subpoenas is to determine whether any of the pharmaceutical companies committed unlawful practices when either marketing or distributing opioids. The group of attorneys general served Endo International (Endo), Janssen Pharmaceuticals, Teva Pharmaceutical Industries, Allergan, and Purdue Pharma, as well as AmerisourceBergen, Cardinal Health, and McKesson.5 A number of the subpoenaed companies publicly stated that they would cooperate fully with the investigation; they were also quick to downplay their role in the opioid crisis. While very little is known about the specifics of the investigation, a letter dated November 28, 2017 from Purdue Pharma to Ohio Attorney General Mike DeWine revealed that the pharmaceutical manufacturer is currently negotiating with the coalition of attorneys general relating to its alleged role in the epidemic, without detailing the allegations or specific details of any negotiation.6

            B. Individual State Lawsuit

While the investigation discussed above appears to present a united front, at least one other attorney general has decided to file lawsuits separate from the coalition’s subpoenas on behalf of their states’ residents. Attorney General Andy Beshear from Kentucky filed a lawsuit against Endo in November 2017 specifically related to its sale and marketing of Opana ER, an opioid known as oxymorphone, used to treat chronic pain. The Commonwealth’s initial complaint makes 11 distinct factual allegations and delineates eight causes of action solely based on Kentucky law for which it seeks relief.7 Among the allegations, Attorney General Beshear alleges that Endo downplayed the risk of addiction to opioids, noting that “Endo’s misrepresentations and omissions of the risk of addiction are contrary to longstanding scientific evidence.”8 Additionally, the complaint alleges in detail that Endo misled general practitioners and family doctors into believing that addiction screening tools, patient contracts, toxicology screens, and pill counts could allow such doctors to prescribe opioids to those persons “predisposed to addition.”9 One of the more interesting allegations in Kentucky’s complaint is that Endo and its physician surrogates, which Endo labeled as “key opinion leaders,” marketed the term “pseudoaddiction,” which was used to describe opioid users who showed signs of addiction as patients who were actually experiencing undertreated pain.10 The complaint contends that there is no scientific proof for pseudoaddiction, and that the idea was based on observation of only one hospital patient. To bolster its claim that Endo had used pseudoaddiction to downplay the adverse effects of opioid use, the complaint references a settlement between Endo and the State of New York in March 2016 where Endo agreed to stop using the term in all of its marketing inside New York.11

The causes of action that the Commonwealth brings against Endo are quite diverse: violations of the Kentucky Consumer Protection Act (KCPA), Medicaid fraud, violations of Kentucky’s Assistance Program Fraud statute,12 fraudulent insurance acts, continuing public nuisance, general fraud, and unjust enrichment.13 In focusing on the Kentucky Consumer Protection Act,14 the law states that “unfair, false, misleading, or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful[, and] for the purposes of this section, unfair shall be construed to mean unconscionable.”15 Kentucky’s complaint categorized numerous actions taken by Endo as violating the KCPA because Endo knew or should have known that such actions were unfair and misleading, including downplaying the risk of opioid abuse, claiming that addiction could be avoided by using addition screening tools and other measures such as pill counting, characterizing “pseudoaddiction” as a reason to prescribe more opioids, and claiming that an increased use of opioids would improve a patient’s quality of life.16 Kentucky also contends that Endo violated the KCPA because the company targeted general practice physicians, who “lacked the time and expertise to evaluate their deceptive claims.”17 For each violation of the KCPA, the complaint states that Kentucky is entitled to $2,000, or $10,000 for each violation of the KCPA involving someone over 60 years of age.18

The other major cause of action to note here is Kentucky’s contention that Endo violated the state’s Medicaid fraud statutes. Kentucky statute states that it is unlawful for any person:

in any matter within the jurisdiction of the Cabinet for Health and Family Services under this chapter, [to] knowingly falsify, conceal, or cover up by any trick, scheme, or device a material fact, or make any false, fictitious, or fraudulent statement or representation, or make or use any false writing or document knowing the same to contain any false, fictitious, or fraudulent statement or entry.19

Kentucky alleges that, through state Medicaid regulations, the Commonwealth’s Medicaid program only covers costs of care filed through lawful claims, not obtained through fraud, material misrepresentation or omission, or those claims that do not constitute “provider abuse.”20 Based on Kentucky statute and regulation, the complaint alleges that Endo’s practices relating to its marketing of opioids resulted in fraudulent claims made to the state Medicaid program. Furthermore, the complaint contends that Endo’s marketing practices resulted in provider abuse, which includes “practices that are inconsistent with sound fiscal, business, or medical practices, and that result in unnecessary cost to the Medical Assistance Program[.]”21 According to the Commonwealth, doctors and other providers of healthcare were falsely influenced and misled by Endo’s marketing and sales practices when certifying that Endo’s opioids were medically necessary. Kentucky claims that since 2011 it has spent more than $33 million to pay for more than 1.2 million prescriptions for opioids marketed by Endo. The complaint seeks repayment of those funds paid out to fill such prescriptions.22 It is unclear whether Kentucky would be able to prove that every prescription out of that 1.2 million total was written based on the pharmaceutical company’s alleged deceptive trade practices.

In addition to the causes of actions and damages discussed above, Kentucky is seeking damages for public nuisance, civil fraud penalties, punitive damages, and restitution and disgorgement of any money that Endo received by way of unjust enrichment. Other states have followed suit -- the attorneys general in Ohio, Illinois, and Mississippi have filed similar lawsuits against pharmaceutical companies, alleging various types of fraud and deceptive trade practices.

While it appears that Kentucky has utilized the expertise and resources available in its Attorney General’s office, not all governmental entities suing various pharmaceutical companies have the same resources available, and have sought the help of the private sector to pursue similar claims, as discussed below.

Personal Injury Firms Seek Big Payday on Behalf of Local Governments

Making many of the same legal arguments used by states, city and county governments across the United States are seeking to hold pharmaceutical companies responsible for their part in creating the opioid epidemic through deceptive trade practices and other illegal activities. For example, Harrison County, Texas recently joined Upshur, Rusk, Smith, and Marion Counties, also in Texas, in a public nuisance lawsuit against various pharmaceutical companies. The major difference in this lawsuit compared to the state lawsuits discussed above is that the five Texas counties have retained a private law firm to handle the case on the governments’ behalf. In this specific case, the agreement between the counties and the firm stipulates that if the pharmaceutical companies are held liable for public nuisance, the counties would recover 35 percent of the awarded damages. If the lawsuit is unsuccessful, the five counties will not owe the law firm anything.23

While one law firm is representing these five Texas counties in state court, not all firms have chosen to go it alone in representing local governments in state courts. There is one local government lawsuit brought against opioid manufacturers that deserves analysis due to its sheer size. In re: National Prescription Opiate Litigation is a case brought by a multistate coalition of six private law firms on behalf of 46 city and county governments spanning six states. The lawsuit began as individual cases brought in federal district courts across the country. In late September 2017, the United States Judicial Panel On Multidistrict Litigation accepted the Plaintiffs’ Motion for Transfer of Actions Pursuant to 28 U.S.C. § 1407 for Consolidated Pretrial Proceedings. Similar to the cases discussed above, the lawsuit alleges unfair and deceptive marketing practices against opioid manufacturers. Additionally, this consolidated suit also alleges violations of the federal Controlled Substances Act against opioid manufacturers and distributors. Specifically, among other allegations, the plaintiffs allege that distributors and manufacturers all have a duty to identify, investigate and report suspicious orders of controlled substances and halt shipment of those orders,24 but the defendants neglected such duties and are responsible for the volume of prescription opioids unlawfully sold and distributed across the nation.25 The hearing on the consolidation motion took place on November 30, 2017, with the plaintiffs seeking consolidation in the Southern District of Ohio. At the time of publication of this article, a ruling on the motion had not been made.

What Is an Addiction Epidemic Worth?

As these diverse lawsuits make their way through what is nearly guaranteed to be protracted litigation and settlement negotiations, it will be interesting to see what each side thinks about assigning dollar signs to addiction. For state and local governments, a potential monetary settlement or award means filling budget holes left by increased Medicaid claims, law enforcement costs, and judicial and corrections overruns. For pharmaceutical companies, paying out substantial damages for an alleged nationwide wrong could mean a massive decrease in profits for shareholders or scrapped research and development projects for actual lifesaving drugs. For plaintiffs’ firms, these cases could mean huge financial gains and nonstop press. However, for those whose lives have been ruined by addiction and their families, it’s unclear what benefit these cases could provide for them.

  1.  See “The New War on Drugs: Fighting the Opioid Epidemic from the Statehouse Steps,” ABA Health eSource, Opioid Epidemic Special Edition (October 2016).
  2.  Rudd, Rose A., et al., Increases in Drug and Opioid Overdose Deaths -- United States, 2010-2015, Centers for Disease Control and Prevention, December 30, 2016, available at https://www.cdc.gov/mmwr/volumes/65/wr/mm655051e1.htm. (This is the most recent data available from the CDC).
  3.  Office of the Press Secretary, Presidential Memorandum for the Heads of Executive Departments and Agencies: Combatting the National Drug Demand and Opioid Crisis. October 26, 2017, available at https://www.whitehouse.gov/the-press-office/2017/10/26/presidential-memorandum-heads-executive-departments-and-agencies.
  4.  See generally, New York State Office of the Attorney General, “A.G. Schneiderman, Bipartisan Coalition of AGs Expand Multistate Investigation Into Opioid Crisis, available at https://ag.ny.gov/press-release/ag-schneiderman-bipartisan-coalition-ags-expand-multistate-investigation-opioid-crisis; Commonwealth of Pennsylvania Office of Attorney General Josh Shapiro, “National Investigation into Opioid Manufacturers and Distributors Expands, available at https://www.attorneygeneral.gov/Media_and_Resources/Press_Releases/Press_Release/?pid=3980; Kansas Attorney General, “AG Derek Schmidt: Kansas Investigating Opioid Manufacturers, Distributors, available at https://ag.ks.gov/media-center/news-releases/2017/09/19/ag-derek-schmidt-kansas-investigating-opioid-manufacturers-distributors.
  5.  See id.
  6.  Feeley, J. and Hopkins, J. “Purdue Pharma Discloses Negotiations with AGs on Opioids,” Bloomberg News, November 30, 2017, https://www.bloomberg.com/news/articles/2017-11-30/opioid-lawyers-warned-by-judge-cases-face-serious-hurdles.
  7.  See Commonwealth of Kentucky ex rel., Andy Beshear, Attorney General v. Endo Health Solutions Inc., Complaint (Nov. 6, 2017)., available at https://ag.ky.gov/pdf_news/20171106_Complaint.pdf.
  8.  Id. at paragraph 60, page 21.
  9.  Id. at paragraph 63-65, page 22.
  10.  Id. at paragraph 67, page 23.
  11.  Attorney General of the State of New York, In re: Endo Health Solutions Inc. and Endo Pharmaceuticals Inc., Assurance no.: 15-228, Assurance of Discontinuance under Executive Law Section 63. Subdivision 15 at 7.
  12.  This statutory framework authorizes the Attorney General to criminally prosecute anyone who uses false information or fails to disclose information that allows the person to receive benefits under any assistance program administered by the state, such as Medicaid or food stamps.
  13.  See supra, note 7.
  14.  KRS § 367.110 et seq.
  15.  KRS § 367.170.
  16.  See supra, note 7, at paragraph 158, page 50.
  17.  Id. at paragraph 162, page 51.
  18.  See § KRS 367.990(2).
  19.  KRS § 205.8463(4).
  20.  See supra, note 7, at paragraph 182, page 57, citing 907 KAR 1:671(40).
  21.  Id. at paragraph 184, page 58.
  22.  Id. at paragraphs 194-96, page 60.
  23.  See generally Richardson, R. “Harrison County Joins Opioid Lawsuit.” Longview News-Journal. November 10, 2016, available at https://www.news-journal.com/news/2017/nov/10/harrison-county-joins-opioid-lawsuit/.
  24.  See 21 U.S.C. § 823(a)-(b).
  25.  In re: National Prescription Opiate Litigation, MDL No. 2804, Plaintiffs’ Reply In Support of Motion For Transfer of Actions Pursuant to 28 U.S.C. § 1407 For Consolidated Pretrial Proceedings, at page 5.

Michael Kilpatrick Morton

Nevada Legislative Counsel Bureau

Michael Kilpatrick Morton serves as Senior Deputy Legislative Counsel for the Nevada Legislature. He specializes in drafting legislation related to healthcare policy, child welfare, and professional licensing issues. He can be reached at michael.morton@lcb.state.nv.us.